<PAGE>   1

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                                 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 SEPTEMBER 30, 2000

                                       OR

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

                       COMMISSION FILE NUMBER: 000-28897

                                EXTENSITY, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                            <C>
                   DELAWARE                                      68-0368868
       (STATE OR OTHER JURISDICTION OF                         (IRS EMPLOYER
        INCORPORATION OR ORGANIZATION)                     IDENTIFICATION NUMBER)
</TABLE>

          2200 POWELL STREET, SUITE 300, EMERYVILLE, CALIFORNIA 94608
             (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)

                                 (510) 594-5700
              (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 of the Registrant's Common Stock outstanding as of
October 31, 2000 was 24,121,617.

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<PAGE>   2

                                     INDEX

<TABLE>
<CAPTION>
                                                                        PAGE
                                                                        ----
<S>       <C>                                                           <C>
                       PART I. FINANCIAL INFORMATION

ITEM 1.   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).....
          Condensed Consolidated Balance Sheets.......................    3
          Condensed Consolidated Statements of Operations.............    4
          Condensed Consolidated Statements of Cash Flows.............    5
          Notes to Consolidated Financial Statements..................    6
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS...................................    9
ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
          RISK........................................................   23

                         PART II. OTHER INFORMATION

ITEM 1.   Legal Proceedings...........................................   24
ITEM 2.   Changes in Securities and Use of Proceeds...................   24
ITEM 3.   Defaults Upon Senior Securities.............................   24
ITEM 4.   Submission of Matters to a Vote of Security Holders.........   24
ITEM 5.   Other Information...........................................   24
ITEM 6.   Exhibits and Reports on Form 8-K............................   24
SIGNATURE.............................................................   25
</TABLE>

                                        2
<PAGE>   3

                         PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                EXTENSITY, INC.

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
                                  (UNAUDITED)

                                     ASSETS

<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,    DECEMBER 31,
                                                                  2000             1999
                                                              -------------    ------------
<S>                                                           <C>              <C>
Current assets:
  Cash and cash equivalents.................................    $ 41,038         $ 10,416
  Short-term investments....................................      44,937           13,869
  Restricted short-term investment..........................       1,019               76
  Accounts receivable, net..................................       7,146            3,176
  Prepaids and other current assets.........................       2,387            1,278
                                                                --------         --------
          Total current assets..............................      96,527           28,815
Property and equipment, net.................................       5,236            2,309
Other assets................................................         444              537
                                                                --------         --------
          Total assets......................................    $102,207         $ 31,661
                                                                ========         ========

 LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
                                          (DEFICIT)
Current liabilities:
  Accounts payable..........................................    $  4,374         $  1,834
  Accrued liabilities.......................................       5,324            1,917
  Deferred revenue..........................................      14,535           10,051
  Notes payable, capital lease obligations, and other.......       1,667            1,786
                                                                --------         --------
          Total current liabilities.........................      25,900           15,588
Notes payable, capital lease obligations, and other.........         867            1,486
                                                                --------         --------
          Total liabilities.................................      26,767           17,074
                                                                --------         --------
Mandatorily redeemable convertible preferred stock..........          --           49,648
                                                                --------         --------
Stockholders' equity (deficit):
  Common stock..............................................          24                4
  Additional paid-in capital................................     146,784           10,898
  Deferred stock compensation...............................      (4,096)          (5,853)
  Notes receivable from stockholders........................        (380)            (130)
                                                                --------         --------
  Accumulated deficit.......................................     (66,892)         (39,980)
                                                                --------         --------
          Total stockholders' equity (deficit)..............      75,440          (35,061)
                                                                --------         --------
          Total liabilities, mandatorily redeemable
            convertible preferred stock and stockholders'
            equity (deficit)................................    $102,207         $ 31,661
                                                                ========         ========
</TABLE>

  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.
                                        3
<PAGE>   4

                                EXTENSITY, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                   THREE MONTHS ENDED      NINE MONTHS ENDED
                                                      SEPTEMBER 30,          SEPTEMBER 30,
                                                   -------------------    --------------------
                                                     2000       1999        2000        1999
                                                   --------    -------    --------    --------
<S>                                                <C>         <C>        <C>         <C>
REVENUES:
Licenses.........................................  $  4,021    $ 1,282    $  9,280    $  1,939
Services and maintenance.........................     3,005        795       6,802       1,674
                                                   --------    -------    --------    --------
          Total revenues.........................     7,026      2,077      16,082       3,613
                                                   --------    -------    --------    --------
COST OF REVENUES:(*)
Licenses.........................................       267         77         482         145
Services and maintenance.........................     3,758      1,229      10,204       3,074
                                                   --------    -------    --------    --------
          Total cost of revenues.................     4,025      1,306      10,686       3,219
                                                   --------    -------    --------    --------
Gross profit.....................................     3,001        771       5,396         394
                                                   --------    -------    --------    --------
OPERATING EXPENSES:(*)
Sales and marketing..............................     7,018      3,079      19,062       6,407
Research and development.........................     3,431      1,851       9,422       4,986
General and administrative.......................     1,392        870       3,714       1,955
Amortization of non-cash stock based
  compensation...................................       961      2,014       3,612       2,907
In-process research and development..............       318         --         318          --
                                                   --------    -------    --------    --------
          Total operating expenses...............    13,120      7,814      36,128      16,255
                                                   --------    -------    --------    --------
Loss from operations.............................   (10,119)    (7,043)    (30,732)    (15,861)
Interest income, net.............................     1,417         94       3,828          18
                                                   --------    -------    --------    --------
Net loss.........................................  $ (8,702)   $(6,949)   $(26,904)   $(15,843)
                                                   ========    =======    ========    ========

Basic and diluted net loss per share.............  $  (0.38)   $ (2.87)   $  (1.31)   $  (7.79)
Shares used in computing basic and diluted net
  loss per share.................................    22,742      2,419      20,607       2,033
</TABLE>

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

<TABLE>
<S>                                                <C>         <C>        <C>         <C>
(*) Amounts are exclusive of non-cash stock based
    compensation as follows:
     Cost of revenues:
       Services and maintenance..................  $    154    $   111    $    578    $    188
     Operating expenses:
       Sales and marketing.......................       326        256       1,227         435
       Research and development..................       202        400         759         680
       General and administrative................       279      1,247       1,048       1,604
                                                   --------    -------    --------    --------
                                                   $    961    $ 2,014    $  3,612    $  2,907
                                                   ========    =======    ========    ========
</TABLE>

  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.
                                        4
<PAGE>   5

                                EXTENSITY, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                               NINE MONTHS ENDED
                                                                 SEPTEMBER 30,
                                                              --------------------
                                                                2000        1999
                                                              --------    --------
<S>                                                           <C>         <C>
Cash flows from operating activities:
  Net loss..................................................  $(26,904)   $(15,843)
  Adjustments to reconcile net loss to cash used in
     operating activities:
     Depreciation and amortization..........................     1,182         633
     Amortization of deferred stock compensation............     3,612       2,907
     In-process research and development....................       318          --
     Amortization of debt discount and lease line issuance
      costs.................................................        74          78
  Changes in operating assets and liabilities:
     Increase in accounts receivable........................    (3,970)     (1,753)
     Increase in prepaids and other assets..................    (1,016)       (451)
     Increase in accounts payable...........................     2,540         728
     Increase in accrued liabilities........................     3,407         622
     Increase in deferred revenue...........................     4,484       3,488
     Increase in other current liabilities..................        93          42
                                                              --------    --------
          Cash used in operating activities.................   (16,180)     (9,549)
                                                              --------    --------
Cash flows from investing activities:
  Increase in short-term investments........................   (31,068)     (6,974)
  Capital expenditures......................................    (4,109)       (885)
  Business acquisition......................................       (90)         --
  (Increase) decrease in restricted cash and short-term
     investments............................................      (943)          6
                                                              --------    --------
          Cash used in investing activities.................   (36,190)     (7,853)
                                                              --------    --------
Cash flows from financing activities:
  Payments on notes payable.................................      (800)       (831)
  Payments on capital lease obligation......................      (299)       (326)
  Proceeds from sale -- lease back..........................        --         240
  Proceeds from exercise of stock options...................       743         365
  Net proceeds from issuance of preferred stock.............        --      22,379
  Net proceeds from issuance of common stock................    83,348          --
                                                              --------    --------
          Cash provided by financing activities.............    82,992      21,827
                                                              --------    --------
Increase in cash and cash equivalents.......................    30,622       4,425
Cash and cash equivalents, beginning of period..............    10,416      10,883
                                                              --------    --------
Cash and cash equivalents, end of period....................  $ 41,038    $ 15,308
                                                              ========    ========
</TABLE>

  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.
                                        5
<PAGE>   6

                                EXTENSITY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

     The accompanying unaudited condensed consolidated financial statements
reflect all adjustments (consisting only of normal recurring adjustments) which,
in the opinion of management, are necessary for a fair presentation of the
financial results for the periods shown. The balance sheet as of December 31,
1999 was derived from audited financial statements, but does not include all
required disclosures required by generally accepted accounting principles.

     These condensed consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's report on Form S-1/A (File No. 333-90979), filed with the
Securities and Exchange Commission (the "SEC") on January 25, 2000.

     The condensed consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, Extensity Europe Limited, which
commenced operations in September 1999. All significant intercompany balances
and transactions have been eliminated in consolidation.

     The results of operations for the current interim period are not
necessarily indicative of the results to be expected for the entire current year
or other future interim periods.

2. INITIAL PUBLIC OFFERING

     On January 27, 2000, the SEC declared effective the Company's Registration
Statement on Form S-1. Pursuant to this Registration Statement, the Company
completed an initial public offering ("IPO") of 4,600,000 shares of its common
stock (including 600,000 shares sold pursuant to the exercise of the
Underwriters' over-allotment option) at an initial offering price of $20.00 per
share (the "Offering"). Proceeds to the Company from the Offering, after
calculation of the Underwriters discounts, commissions, and concessions, totaled
approximately $83.3 million, net of offering costs of approximately $2.2
million.

     For the three months ended September 30, 1999, the Company recorded
deferred stock compensation of $4.3 million for the difference at the grant date
between the exercise price and the deemed fair value of the common stock
underlying the options granted during that period. No deferred stock
compensation was recorded for the three months ended September 30, 2000. For the
nine months ended September 30, 1999 and September 30, 2000, the Company
recorded deferred stock compensation of $7.6 million and $1.9 million,
respectively. Amortization of deferred stock compensation was $2.0 million and
$961,000 for the three months ended September 30, 1999 and 2000, respectively,
and $2.9 million and $3.6 million for the nine months ended September 30, 1999
and September 30, 2000, respectively.

3. NET LOSS PER SHARE

     Basic and diluted net loss per share are computed using the weighted
average number of common shares outstanding. Options, warrants and convertible
preferred stock were not included in the computation of diluted net loss per
share because the effect would be antidilutive.

                                        6
<PAGE>   7
                                EXTENSITY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The following table sets forth the computation of basic and diluted net
loss per share for the periods indicated (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                       THREE MONTHS           NINE MONTHS
                                                          ENDED                  ENDED
                                                      SEPTEMBER 30,          SEPTEMBER 30,
                                                    ------------------    --------------------
                                                     2000       1999        2000        1999
                                                    -------    -------    --------    --------
<S>                                                 <C>        <C>        <C>         <C>
Numerator:
  Net loss........................................  $(8,702)   $(6,949)   $(26,904)   $(15,843)
Denominator:
  Weighted average shares.........................   23,789      3,887      21,753       3,277
  Weighted average unvested common shares.........   (1,047)    (1,468)     (1,146)     (1,244)
                                                    -------    -------    --------    --------
          Total weighted average shares...........   22,742      2,419      20,607       2,033
                                                    -------    -------    --------    --------
Basic and diluted net loss per share..............  $ (0.38)   $ (2.87)   $  (1.31)   $  (7.79)
                                                    =======    =======    ========    ========
</TABLE>

     Diluted net loss per share does not include the effect of the following
potential common shares at September 30 (in thousands):

<TABLE>
<CAPTION>
                                                               SEPTEMBER 30,
                                                              ---------------
                                                              2000      1999
                                                              -----    ------
<S>                                                           <C>      <C>
Shares issuable under stock options.........................  3,948     2,427
Shares of unvested stock subject to repurchase..............    840     1,293
Shares issuable pursuant to warrants to purchase common and
  convertible preferred stock...............................     --       184
Shares of convertible preferred stock on an "as if
  converted" basis..........................................     --    14,095
</TABLE>

     The weighted-average exercise price of stock options outstanding was $8.35
and $0.68 as of September 30, 2000 and 1999, respectively. The weighted average
repurchase price of unvested stock was $1.32 and $0.38 as of September 30, 2000
and 1999, respectively. The weighted average exercise price of warrants was
$3.08 as of September 30, 1999.

4. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In December of 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, or SAB 101. This summarizes certain areas of the
Staff's views in applying generally accepted accounting principals to revenue
recognition in financial statements. SAB 101 becomes effective for the fourth
quarter of the year ending December 31, 2000. The Company believes that adoption
of SAB 101 will not have a material effect on its consolidated financial
statements.

     In March of 2000, the Financial Accounting Standards Board issued an
interpretation of No. 44, "Accounting for Certain Transactions Involving Stock
Compensation" (Interpretation No 44). Interpretation No. 44 was effective July
1, 2000. The implementation of FASB 44 did not have a material impact on the
Company's financial statements.

5. SIGNIFICANT CUSTOMERS

     One customer accounted for 10% of total revenues for the three months ended
September 30, 2000. Four customers accounted for 36%, 22%, 11%, 11% of total
revenues for the three months ended September 30, 1999. One customer accounted
for 14% of total revenues for the nine months ended September 30, 2000. Two
customers accounted for 31% and 21%of total revenues for the nine months ended
September 30, 1999.

                                        7
<PAGE>   8
                                EXTENSITY, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. ACQUISITION

     In September of 2000, Extensity acquired all the outstanding shares of a
company. The total acquisition cost was approximately $343,000 primarily
comprised of $265,000 in cash, shares of the company's stock valued at $53,000
and approximately $25,000 in transaction costs. The transaction was accounted
for as a purchase business combination. Substantially the entire purchase price
was allocated to in-process research and development as technological
feasibility of the acquired product had not been established and no future
alternative use existed at the time of purchase. Furthermore, the acquired
company had no revenues, no other tangible or intangible assets and only one
employee.

                                        8
<PAGE>   9

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

     The following management's discussion and analysis of our financial
condition and results of operations should be read together with our condensed
financial statements and related notes included in this report, and with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and related financial information contained in the Company's
Registration Statement on Form S-1/A (File No. 333-90979).

     THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING THE
COMPANY'S EXPECTATIONS, BELIEFS, INTENTIONS OR FUTURE STRATEGIES THAT ARE
SIGNIFIED BY THE WORDS "EXPECTS", "ANTICIPATES", "INTENDS", "BELIEVES", OR
SIMILAR LANGUAGE. ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT ARE
BASED ON INFORMATION AVAILABLE TO THE COMPANY ON THE DATE HEREOF, AND THE
COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS.
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS. IN EVALUATING THE COMPANY'S BUSINESS, PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH BELOW UNDER THE
CAPTION "RISK FACTORS" IN ADDITION TO THE OTHER INFORMATION SET FORTH HEREIN.
THE COMPANY CAUTIONS INVESTORS THAT ITS BUSINESS AND FINANCIAL PERFORMANCE ARE
SUBJECT TO SUBSTANTIAL RISKS AND UNCERTAINTIES.

OVERVIEW

     Extensity was formed in November 1995 and introduced its first commercial
product for general availability in March 1998. During this period, our
operating activities consisted of the design and development of our product
architecture and our first application, the building of our corporate
infrastructure, and the development of our professional services and customer
support organizations. Our first application, Extensity Expense Reports, was
released for general availability in March 1998. We released Extensity Travel
Plans in December 1998 and Extensity Timesheets and Extensity Purchase Reqs in
July 1999. Extensity Connect, our portalized application front end role-based
reporting tool, and content and commerce gateway was released in March 2000.

     We generate revenue principally from licensing our applications and
providing related services, including product installation, maintenance and
support, consulting and training. We license our applications individually or as
an integrated suite of products. The pricing of our software and services
fluctuates on a per transaction basis depending on various factors, such as the
number of seats covered by a contract and the degree of customization requested
by the particular customer. The dollar amounts of our contracts depend on the
number of users and applications being used, and the professional services
requested.

     Our software products typically require significant customization,
installation and other services. Prior to the release in July 1999 of Version
4.0 of our application suite, it was difficult to generate dependable estimates
of the costs necessary to complete product implementations. Therefore, we
accounted for our software licenses and implementation revenues using the
completed contract method of contract accounting as required under the
provisions of SOP 97-2, "Software Revenue Recognition", and SOP 81-1,
"Accounting for Performance of Construction-Type and Certain Production-Type
Contracts".

     Following the release of Version 4.0 in July 1999, we were able to generate
dependable estimates of the costs necessary to complete product implementations.
Consequently, we are accounting for our software licenses and implementation
revenues using the percentage-of-completion method of contract accounting.

     In cases where a sale of a license does not include implementation services
(i.e., a sale of additional seats or a sale of product to be implemented by a
third party), revenue is recorded upon delivery with an appropriate deferral for
maintenance services, if applicable.

     We defer amounts billed for maintenance and recognize such amounts ratably
over the maintenance period.

     We have entered into two distribution arrangements under which the
distributors would receive unspecified future products over the life of the
arrangements (two or three years) in consideration for agreed-

                                        9
<PAGE>   10

upon, non-refundable fees. We recognize such fees ratably, on a subscription
basis, over the life of these related agreements.

     Payments received in advance of revenue recognition are recorded as
deferred revenues. All of our customers enter into one-year maintenance and
support contracts when they purchase their initial Extensity applications and
have the option to purchase additional contracts after completion of the initial
contract period. Although we do not grant any rights to our customers to return
products, we do provide warranties that our products will function according to
written documentation.

     We promote and sell our software products through our direct sales force
and through indirect channels, including JD Edwards and NIKU. We also have
co-marketing arrangements with a number of companies including Cisco Systems,
IBM, Commerce One, WebEx, Digital Think, EventSource, Visa, and GetThere.com.

     In the second quarter of 1999, we expanded our presence in international
markets by opening a sales office in the United Kingdom and by establishing a
relationship with a provider of enterprise financial applications. We hired our
Vice President and General Manager of European Operations in July 1999. We have
continued to hire staff in our United Kingdom office and expect to continue to
do so in advance of anticipated revenues. Hence, we expect our costs for
establishing international sales to exceed related revenues as we invest in
international operations. For the three months ended September 30, 2000, we
recognized revenues derived from our international sales these represented 9% of
the total revenues for the three months ended September 30, 2000.

     In the third quarter of 2000, we expanded our European Operations through
opening a second office in Frankfurt, Germany. We have not recognized any
revenue to date and expect to incur operating expenses in advance of generating
revenues as we continue to expand our international business.

RESULTS OF OPERATIONS

  Revenues

     Total revenues increased to $7.0 million for the three months ended
September 30, 2000 from $2.1 million for the three months ended September 30,
1999, an increase of 238%. Total revenues increased to $16.1 million for the
nine months ended September 30, 2000 from $3.6 million for the nine months ended
September 30, 1999, an increase of 345%. For the three months ended September
30, 1999, sales to four customers accounted for 36%, 22%, 11% and 11% of total
revenues. For the three months ended September 30, 2000, one customer accounted
for 10% of our total revenues. For the nine months ended September 30, 1999,
sales to two customers accounted for 21% and 13% of total revenues. For the nine
months ended September 30, 2000, one customer accounted for 14% of our total
revenues.

     License Revenues. Our license revenues increased to $4.0 million for the
three months ended September 30, 2000 from $1.3 million for the three months
ended September 30, 1999, an increase of 214%. Our license revenues increased to
$9.3 million for the nine months ended September 30, 2000 from $1.9 million for
the nine months ended September 30, 1999, an increase of 379%. The increase was
attributable to our growing customer base, an increase in the revenue
attributable to our indirect sales channels and to a lesser extent, an increase
in the average size of the sales contracts entered into by our customers and an
increase in amount of license revenue recognized upon shipment.

     Service and Maintenance Revenues. Our service and maintenance revenues
increased to $3.0 million for the three months ended September 30, 2000 from
$795,000 for the three months ended September 30, 1999, an increase of 278%. Our
service and maintenance revenues increased to $6.8 million for the nine months
ended September 30, 2000 from $1.7 million for the nine months ended September
30, 1999, an increase of 306%. These increases were attributable to our growing
customer base, to an increase in professional services revenues recognized on a
time and materials basis, to an increase in revenues recognized from work
performed on partner integration, and to a lesser extent, an increase in the
average size of the sales contracts that customers have signed.

                                       10
<PAGE>   11

  Cost of Revenues

     Total cost of revenues increased to $4.0 million for the three months ended
September 30, 2000 from $1.3 million for the three months ended September 30,
1999, an increase of 208%. Total cost of revenues increased to $10.7 million for
the nine months ended September 30, 2000 from $3.2 million for the nine months
ended September 30, 1999, an increase of 232%.

     Cost of License Revenues. Cost of license revenues consists primarily of
third-party license and support fees and, to a lesser extent, costs of
duplicating media and documentation and shipping. This cost increased to
$267,000 for the three months ended September 30, 2000 from $77,000 for the
three months ended September 30, 1999 due primarily to increased sales activity.
The cost increased to $482,000 for the nine months ended September 30, 2000 from
$145,000 for the nine months ended September 30, 1999 due primarily to increased
sales activity. As a percentage of license revenues, cost of license revenues
increased to 6.6% for the three months ended September 30, 2000 from 6.0% for
the three months ended September 30, 1999. This percentage decreased to 5.2% for
the nine months ended September 30, 2000 from 7.5% for the nine months ended
September 30, 1999. The increase in the three-month period was primarily
attributed to selling more products with third party products. The decrease in
the nine-month period was primarily due to increase license revenue. Cost of
revenues as a percentage of license revenue may increase over the current level
in the future as we incorporate additional third third-party products in our
offerings.

     Cost of Service and Maintenance Revenues. Cost of service and maintenance
revenues consists of compensation and related overhead costs for personnel
engaged in consulting, training, maintenance and support services for our
customers as well as costs for third parties contracted to provide such services
to our customers. This cost increased to $3.8 million for the three months ended
September 30, 2000 from $1.2 million for the three months ended September 30,
1999, an increase of 206%. This cost increased to $10.2 million for the nine
months ended September 30, 2000 from $3.1 million for the nine months ended
September 30, 1999, an increase of 232%. As a percentage of service revenues,
cost of service revenues decreased to 125% for the three months ended September
30, 2000 from 155% for the three months ended September 30, 1999 and decreased
to 150% for the nine months ended September 30, 2000 from 184% for the nine
months ended September 30, 1999. Approximately 30% of the increase for the three
and nine month period in the cost of service revenues was due to our hiring of
additional service and maintenance personnel, and approximately 50% for the
three month period and 50% for the nine month period was to due to an increase
in costs for third party contractors. These additional costs were necessary to
support our expanding customer base. Total costs have exceeded our service and
maintenance revenues as we have built our consulting and customer support groups
in advance of growing contract volume. Although cost of service revenues
declined as a percentage of service revenues over the nine-month period, this
cost has continued to exceed the amount of related service revenues. We are
seeking to reduce our cost of service revenues and are also seeking to engage
third parties to provide a substantial portion of services related to our
applications. We expect, however, that cost of service revenues will continue to
exceed service revenues into 2001. In addition, we have not yet established
significant relationships with third-party service providers, and we may not be
successful in doing so in the future.

  Operating Expenses

     Sales and Marketing. Sales and marketing expenses consist primarily of
compensation and related costs for sales and marketing personnel, including
commissions and marketing program costs. Sales and marketing expenses increased
to $7.0 million for the three months ended September 30, 2000 from $3.1 million
for the three months ended September 30, 1999, an increase of 128%. As a
percentage of total revenues, sales and marketing expenses decreased to 100% for
the three months ended September 30, 2000 from 148% for the three months ended
September 30, 1999. Sales and marketing expenses increased to $19.1 million for
the nine months ended September 30, 2000 from $6.4 million for the nine months
ended September 30, 1999, an increase of 198%. As a percentage of total
revenues, sales and marketing expenses decreased to 119% for the nine months
ended September 30, 2000 from 177% for the nine months ended September 30, 1999.
Approximately 60% of the increase in sales and marketing expenses for both the
three-month and nine-month periods was attributable to increased compensation,
commissions and other related costs associated with hiring
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<PAGE>   12

additional sales representatives, management and marketing personnel.
Approximately 20% of the increase for both the three-month and nine-month
periods was due to increased spending on marketing programs. We expect that the
absolute dollar amount of sales and marketing expenses will continue to increase
as we expand our domestic and international sales force and increase our
marketing efforts to capitalize on the growth of our market.

     Research and Development. Research and development expenses consist
primarily of compensation and related personnel costs and fees associated with
contractors. Research and development expenses increased to $3.4 million for the
three months ended September 30, 2000 from $1.9 million for the three months
ended September 30, 1999, an increase of 85%. As a percentage of total revenues,
research and development expenses decreased to 49% for the three months ended
September 30, 2000 from 89% for the three months ended September 30, 1999.
Research and development expenses increased to $9.4 million for the nine months
ended September 30, 2000 from $5.0 million for the nine months ended September
30, 1999, an increase of 89%. As a percentage of total revenues, research and
development expenses decreased to 59% for the nine months ended September 30,
2000 from 138% for the nine months ended September 30, 1999. Approximately 55%
for the three-month period and 60% for the nine-month period of this increase
was attributable to the addition of personnel and cost related to contractors.
These increases resulted from our continuing efforts to add enhancements to our
existing software applications and to develop software applications that
incorporate new functionality into our integrated suite. We expect that the
absolute dollar amount of research and development expenses will continue to
increase as we make additional investments in our technology and products.

     General and Administrative. General and administrative expenses consist
primarily of compensation and related costs for our executive, finance and
administrative personnel and other related expenses. General and administrative
expenses increased to $1.4 million for the three months ended September 30, 2000
from $870,000 for the three months ended September 30, 1999, an increase of 60%.
As a percentage of total revenues, general and administrative expenses decreased
to 20% for the three months ended September 30, 2000 from 42% for the three
months ended September 30, 1999. General and administrative expenses increased
to $3.7 million for the nine months ended September 30, 2000 from $2.0 million
for the nine months ended September 30, 1999, an increase of 90%. As a
percentage of total revenues, general and administrative expenses decreased to
23% for the nine months ended September 30, 2000 from 54% for the nine months
ended September 30, 1999. Approximately 60% of the increase in both the
three-month and nine-months periods was attributable to hiring additional
executive and financial personnel. We expect that the absolute dollar amount of
general and administrative expenses will continue to increase as we expand our
operations.

  Amortization of Non-Cash Stock Based Compensation

     Prior to our IPO, we granted certain stock options to our officers and
employees at prices deemed to be below the fair value of the underlying stock.
The cumulative difference between the fair value of the underlying stock at the
date the options were granted and the exercise price of the granted options was
$12.1 million as of the IPO date. This amount is being amortized, using the
accelerated method of Fin #28, over the four-year vesting period of the granted
options. Accordingly, our results from operations will include deferred
compensation expense at least through 2003. We recognized $961,000 of this
expense for the three months ended September 30, 2000 and $2.0 million for the
three months ended September 30, 1999. We recognized $3.6 million of this
expense for the nine months ended September 30, 2000 and $2.9 million for the
nine months ended September 30, 1999.

  In-Process Research and Development

     In process research and development expense was $318,000 for the three and
nine months ended September 30, 2000. This expense was incurred in connection
with the acquisition of a company. Substantially the entire purchase price was
allocated to in-process research and development as technological feasibility of
the acquired product had not been established and no future alternative use
existed at the time of purchase. Furthermore, the acquired company had no
revenues, no other

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<PAGE>   13

tangible or intangible assets and only one employee. There were no acquisitions
made in the three or nine-month periods ended September 30, 1999.

  Interest Income, Net

     Interest income, net was $1.4 million for the three months ended September
30, 2000 and $94,000 for the three months ended September 30, 1999. Interest
income (expense), net was $3.8 million for the nine months ended September 30,
2000 and $18,000 for the nine months ended September 30, 1999. Interest income
for the three and nine months ended September 30, 2000 primarily resulted from
interest earned on the proceeds from the Company's IPO.

LIQUIDITY AND CAPITAL RESOURCES

     Since inception, we have financed our operations and funded our capital
expenditures through the private sale of equity securities, supplemented by loan
facilities and equipment leases, as well as through proceeds from our IPO
completed in January 2000. Aggregate net proceeds to date from private equity
financings totaled $42.3 million and proceeds from the Company's IPO were $83.3
million, net of offering costs of approximately $2.2 million. As of September
30, 2000, we had $86.0 million in cash, cash equivalents and short-term
investments and $70.6 million in working capital.

     Net cash used in operating activities was $16.2 million for the nine months
ended September 30, 2000 and $9.5 millions for the nine months ended September
30, 1999. For the nine months ended September 30, 2000, cash used in operating
activities was primarily attributable to a net loss of $26.9 million, adjusted
for the amortization of deferred stock compensation of $3.6 million and offset
by an increase in accounts payable of $2.5 million, an increase in accrued
liabilities of $3.4 million, and an increase in deferred revenue of $4.5
million. For the nine months ended September 30, 1999, cash used in operating
activities was primarily attributable to net loss from operations of $15.8
million, adjusted for the amortization of deferred stock compensation of $2.9
million and offset by an increase in deferred revenue of $3.5 million.

     Net cash used in investing activities was $36.2 million for the nine months
ended September 30, 2000 and $7.9 million for the nine months ended September
30, 1999. Investing activities consisted primarily of an increase in short-term
investments and capital expenditures.

     Net cash provided by financing activities was $83.0 million for the nine
months ended September 30, 2000, primarily due to the net proceeds of $83.3
million from the Company's IPO. Net cash provided by financing activities was
$21.8 million for the nine months ended September 30, 1999, primarily due to
proceeds from the Company's issuance of $22.4 million of preferred stock.

     As we execute our strategy, we expect significant increases in our
operating expenses, especially in sales, marketing and engineering. Presently,
we anticipate that our existing capital resources will meet our operating and
investing needs for at least the next 12 months. After that time, we cannot be
certain that additional funding will be available on acceptable terms or at all.
If we require additional capital resources to grow our business, execute our
operating plans, or acquire complimentary technologies or businesses at any time
in the future, we may seek to sell additional equity or debt securities or
secure additional lines of credit, which may result in additional dilution to
our stockholders.

YEAR 2000 READINESS DISCLOSURE

     We have designed our products to be year 2000 compliant, and as a result we
have not experienced year 2000 problems related to our products. The majority of
the computer software and hardware that we use in our internal operations did
not require replacement or modification as a result of the year 2000 issue. We
believe that our significant vendors and service providers are year 2000
compliant and have not, to date, been made aware that any of our significant
vendors or service providers have experienced year 2000 disruptions in their
systems. Accordingly, we do not anticipate incurring material incremental costs
in future periods as a result of year 2000 problems.

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<PAGE>   14

                                  RISK FACTORS

     The following is a discussion of certain factors that currently impact or
may impact our business, operating results and/or financial condition. Any
investment in our common stock involves a high degree of risk. You should
consider carefully the following information about these risks, together with
the risks and other information contained in the Company's Registration
Statement on Form S-1/A (File No. 333-90979) and its periodic reports filed
pursuant to the Exchange Act in evaluating our business. The market price of our
common stock could decline, and you may lose all or part of the money you paid
to buy our common stock.

                         RISKS RELATED TO OUR BUSINESS

OUR EXTREMELY LIMITED OPERATING HISTORY AND THE FACT THAT WE OPERATE IN A NEW
INDUSTRY MAKES OUR BUSINESS PROSPECTS DIFFICULT TO EVALUATE.

     We were incorporated in November 1995 and commenced licensing of our
software applications in March 1998. Accordingly, we have a limited operating
history. An investor in our common stock must consider the risks, uncertainties,
expenses and difficulties frequently encountered by companies in their early
stages of development, particularly companies in new and rapidly evolving
markets such as the market for Internet-based software applications. Risks and
difficulties include our ability to:

     - expand our base of customers with fully installed and deployed systems
       that can serve as reference accounts for our ongoing sales efforts;

     - expand our pipeline of sales prospects in order to promote greater
       predictability in our period-to-period sales levels;

     - continue to offer new products that complement our existing product line,
       in order to make our suite of applications more attractive to customers;

     - continue to develop and upgrade our technology to add additional features
       and functionality;

     - continue to attract and retain qualified personnel;

     - expand sales channels through geographic expansion and the development of
       indirect channels such as relationships with OEM customers, distributors,
       and application service providers;

     - increase awareness of our brand; and

     - maintain our current, and develop new, third-party relationships,
       including but not limited to third-party implementors.

     The Company may not be able to successfully address these risks or
difficulties and our business strategy may not be successful. If we fail to
address these risks or difficulties adequately, our business will likely suffer.

WE HAVE A HISTORY OF LOSSES AND NEGATIVE CASH FLOW AND EXPECT THIS TO CONTINUE
FOR THE FORESEEABLE FUTURE.

     Our business is new; we have offered products for a relatively short period
of time; and our base of customers and prospective customers is still relatively
small. We have spent significant funds to date to develop our current products
and to develop our sales and market resources. We have incurred significant
operating losses and have not achieved profitability. As of September 30, 2000,
we had an accumulated deficit of $66.9 million. We expect to continue to invest
in research and development to enhance current products and develop future
products. We also plan to continue to grow our sales force and to spend
significant funds in marketing to promote our company and our products. We
expect to continue to hire additional people in all other areas of our company
in order to support our growing business. As a result, we will need to increase
our revenues significantly to achieve profitability. In addition, because we
expect to continue to invest in our business ahead of anticipated future
revenues, we expect that we will continue to incur operating losses for the
foreseeable future.

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<PAGE>   15

OUR BUSINESS IS CHANGING RAPIDLY, WHICH COULD CAUSE OUR QUARTERLY OPERATING
RESULTS TO VARY AND OUR STOCK PRICE TO FLUCTUATE.

     Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors, many of which are beyond our control. We
expect to continue to expend significant sums in all areas of our business,
particularly in our sales and marketing operations, in order to promote future
growth. Because the expenses associated with these activities are relatively
fixed in the short-term, we may be unable to adjust spending quickly enough to
offset any unexpected shortfall in revenue growth or any decrease in revenue
levels. As a result, we expect our quarterly operating results to fluctuate.
Moreover, because we use the percentage-of-completion method of contract
accounting with respect to recognition of license and implementation fees, if
our professional service organization is unable to implement our applications
for use by customers within our anticipated time frames, our recognition of
revenue for those customers could be deferred, which could cause our quarterly
revenue to fluctuate. Our financial results may, as a consequence of quarterly
revenue fluctuations, fall short of the expectations of public market analysts
or investors. If this occurs, the price of our common stock may drop.

     We also seek to develop and maintain a significant pipeline of potential
sales prospects, but it is difficult to predict when individual customer orders
will be closed. Our base of customers and the number of additional customer
licenses we enter into each quarter are still relatively small. Accordingly, the
loss or deferral of a small number of anticipated large customer orders in any
quarter could result in a significant shortfall in revenues for that quarter and
future quarters, which could result in a drop in the price of our stock.

     Other important factors that could cause our quarterly results and stock
price to fluctuate materially include:

     - our ability to grow our customer base and our base of referencing
       customers, in light of our relatively limited number of customers to
       date;

     - our ability to successfully develop alternative sales channels for our
       products, such as sales through OEM customers, distributors, or
       application service providers;

     - our ability to expand our implementation and consulting resources through
       third-party relationships, in light of the fact that we have limited
       third-party implementation and consulting relationships currently in
       place; and

     - technical difficulties or "bugs" affecting the operation of our software.

     Due to our limited operating history, the early stage of our market and the
factors discussed above, you should not rely on quarter-to-quarter comparisons
of our results of operations as indicators of our future performance.

OUR BUSINESS WILL SUFFER IF WE DO NOT SIGNIFICANTLY EXPAND OUR SALES
CAPABILITIES.

     We sell our workforce optimization applications primarily through our
direct sales force. We must significantly expand our direct sales operations to
increase our revenues. We cannot be certain that we will be successful in these
efforts. Our products and services require sophisticated sales efforts and our
ability to increase our direct sales operation will depend on our ability to
recruit, train and retain top sales people with effective sales skills and
advanced technical knowledge. Competition for qualified personnel is intense in
our industry. Moreover, new sales personnel require training and take time to
achieve full productivity. If we are unable to hire or retain qualified sales
personnel, if newly hired personnel fail to develop the necessary skills, or if
they reach productivity more slowly than anticipated, we may be unable to grow
our revenues as rapidly as planned, if at all, and our business could be harmed.

WE FACE INTENSE COMPETITION, WHICH COULD AFFECT OUR ABILITY TO INCREASE REVENUE,
MAINTAIN OUR MARGINS AND INCREASE OUR MARKET SHARE.

     The market for our Internet-based workforce optimization applications is
intensely competitive and we expect competition to increase in the future.
Competitors vary in size and in the scope and breadth of the
                                       15
<PAGE>   16

products and services they offer. Companies offering one or more products
directly competitive with our products include Ariba, Captura Software, Concur
Technologies, IBM and PeopleSoft. We also expect to encounter competition in the
near future from major enterprise software vendors such as Oracle and SAP, to
the extent they enhance their existing product offerings with competitive
workforce optimization applications. As a result of the large market opportunity
for workforce optimization applications, we also expect competition from other
established and emerging companies. For example, as the emergence of the
application service provider (ASP) market enables hosted solutions from our
competitors to become broadly available, our future success may also depend upon
our ability to establish successful relationships with leading ASPs.

     Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, significantly greater name recognition, and a larger installed base
of customers than us. In addition, many of our competitors have well-established
relationships with our current and potential customers and have extensive
knowledge of our industry. Current and potential competitors have established or
may establish cooperative relationships among themselves or with third parties
to increase the ability of their products to address customer needs.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. We also expect that
competition will increase as a result of industry consolidation. Increased
competition may result in price reductions, reduced margins and loss of market
share, any one of which could seriously harm our business.

IF WE DO NOT PROVIDE SOFTWARE APPLICATIONS AND RELATED SERVICES THAT MEET THE
CHANGING DEMANDS OF OUR CUSTOMERS, THE MARKET FOR OUR PRODUCTS WILL NOT GROW OR
MAY DECLINE, AND OUR PRODUCT SALES WILL SUFFER.

     To successfully implement our business strategy, we have to provide
software applications and related services that meet the demands of our
customers and prospective customers as the market and customer requirements
evolve. We expect that competitive factors will create a continuing need for us
to improve and add to our suite of software applications. Not only will we have
to expend significant funds and other resources to continue to improve our
existing suite of applications, but we must also properly anticipate, address
and respond to customer preferences and demands. As organizations' needs change
with respect to their enterprise applications, our existing suite of software
applications may become obsolete or inefficient relative to our competitors'
offerings and may require modifications or improvements. The addition of new
products and services will also require that we continue to improve the
technology underlying our applications. These requirements could be significant,
and we may fail to fulfill them quickly and efficiently. If we fail to expand
the breadth of our applications quickly in response to customer needs, or if
these offerings fail to achieve market acceptance, the market for our products
will not grow or may decline, and our business may suffer significantly.

     Our workforce optimization software products and related services have
accounted for all of our revenues to date. We anticipate that revenues from
these products and related services will continue to constitute substantially
all of our revenues for the foreseeable future. Consequently, our future
financial performance will depend, in significant part, upon the successful
development, introduction and customer acceptance of enhanced versions of our
workforce optimization applications and any new products or services that we may
develop or acquire. We cannot assure you that we will be successful in
enhancing, upgrading or continuing to effectively market our workforce
optimization applications, or that any new products or services that we may
develop or acquire will achieve market acceptance.

OUR REVENUES HAVE BEEN DERIVED FROM A RELATIVELY SMALL NUMBER OF CUSTOMERS, AND
THE LOSS OF A SMALL NUMBER OF MAJOR CUSTOMERS OR POTENTIAL CUSTOMERS COULD
ADVERSELY IMPACT OUR REVENUES OR OPERATING RESULTS.

     We licensed our first workforce optimization application in March 1998 and
have fully implemented our applications for only a limited number of customers
to date due to the time required to implement. Moreover, as of September 30,
2000, we had not completed an implementation of our Extensity Purchase Reqs
application for any customer. We expect that we will continue to derive a
significant portion of our revenues from a relatively small number of customers
in the future. Accordingly, the loss of a small number of major
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<PAGE>   17

customers could materially and adversely affect our business, and the deferral
or loss of anticipated orders from a small number of prospective customers could
materially and adversely impact our revenues and operating results in any
period.

IF WE FAIL TO ACHIEVE POSITIVE MARGINS ON SERVICE REVENUES IN THE FORESEEABLE
FUTURE, OUR RESULTS OF OPERATIONS COULD SUFFER.

     Our margins on service revenues to date have been negative and are expected
to continue to be negative for the foreseeable future. We cannot assure you that
we will achieve positive margins on our service revenues. Failure to achieve
positive margins on service revenues could cause our business to suffer. For
more information related to our costs associated with our service revenues, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".

WE HAVE LIMITED EXPERIENCE WITH LARGE-SCALE IMPLEMENTATIONS, WHICH ARE IMPORTANT
TO OUR FUTURE SUCCESS.

     We have limited experience in implementing our applications on a large
scale. As of September 30, 2000, our largest implementation included
approximately 6,000 employee users. We believe that the ability of large
customers to roll-out our products across large numbers of users is critical to
our future success. If our customers cannot successfully deploy our applications
on a large scale, or if they determine for any reason that our products cannot
accommodate large-scale deployment, our business could be harmed.

IF WE FAIL TO EXPAND OUR RELATIONSHIPS WITH THIRD PARTIES THAT CAN PROVIDE
IMPLEMENTATION AND CONSULTING SERVICES TO OUR CUSTOMERS, WE MAY BE UNABLE TO
GROW OUR REVENUES AND OUR BUSINESS COULD BE HARMED.

     In order for us to focus more effectively on our core business of
developing and licensing software solutions, we need to establish relationships
with third parties that can provide implementation and consulting services to
our customers. Third-party implementation and consulting firms can also be
influential in the choice of workforce optimization applications by new
customers. To date, we have established limited relationships with a few
third-party implementation and consulting firms. In general, however, if we are
unable to establish and maintain effective, long-term relationships with
implementation and consulting providers, or if these providers do not meet the
needs or expectations of our customers, we may be unable to grow our revenues
and our business could be seriously harmed. As a result of the limited resources
and capacities of many third-party implementation providers, we may be unable to
attain sufficient focus and resources from the third-party providers to meet all
of our customers' needs, even if we establish relationships with these third
parties. If sufficient resources are unavailable, we will be required to provide
these services internally, which could limit our ability to expand our base of
customers. A number of our competitors have significantly more established
relationships with these third parties and, as a result, these third parties may
be more likely to recommend competitors' products and services rather than our
own. Even if we are successful in developing relationships with third-party
implementation and consulting providers, we will be subject to significant risk,
as we cannot control the level and quality of service provided by third-party
implementation and consulting partners.

WE HAVE ONLY RECENTLY UNDERTAKEN TO CREATE A CONTENT AND COMMERCE GATEWAY
BETWEEN OUR CUSTOMERS' EMPLOYEES AND THIRD-PARTY PROVIDERS, AND OUR FUTURE
OPERATING RESULTS MAY DEPEND ON OUR ABILITY TO SUCCEED IN THIS STRATEGY.

     One component of our business strategy includes establishing an integrated
point of access, or gateway, between the network of customer employees that
utilize our workforce optimization solution and third-party content, commerce
and service providers who consider this employee base to be potentially valuable
business customers. We cannot assure you that we will be successful in
developing this gateway. Moreover, we cannot assure you that our customers will
consider a content and commerce gateway to be a valuable feature of our
workforce optimization applications, or that third-party providers will choose
to access our network of customer employees to generate e-commerce. If a market
for such a gateway develops and we are unable to establish a compelling product
offering within this market, or if we build a gateway and the market for such an
offering fails to mature, our business could be seriously harmed.
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<PAGE>   18

     We expect to depend increasingly on a number of third parties to expand our
content and commerce gateway and thereby generate revenues. We cannot assure you
that third parties will regard our relationship with them as important to their
own respective businesses and operations. They may choose not to partner with us
or, after having established a partnership with us, they may reassess their
commitment to us at any time in the future and may develop their own competitive
services or products. Also, we cannot assure you that the content, products or
services of those companies that provide access or links to our network will
achieve market acceptance or commercial success. Accordingly, we cannot assure
you that our existing or prospective relationships will result in sustained
business partnerships, successful product or service offerings or the generation
of significant revenues for us.

CUSTOMER SATISFACTION AND DEMAND FOR OUR PRODUCTS WILL DEPEND ON OUR ABILITY TO
EXPAND OUR PROFESSIONAL SERVICES ORGANIZATION.

     We believe that growth in our product sales depends on our ability to
provide our customers with professional services to assist with support,
training, consulting and initial implementation and deployment of our products
and to educate third-party systems integrators in the use of our products. As a
result, we plan to increase the number of professional services personnel to
meet these needs. New professional services personnel will require training and
take time to reach full productivity. We may not be able to attract or retain a
sufficient number of highly qualified professional services personnel.
Competition for qualified professional services personnel is intense due to the
limited number of people who have the requisite knowledge and skills. To meet
our customers' needs for professional services, we may also need to use more
costly third-party consultants to supplement our own professional services
group. In addition, we could experience delays in recognizing revenue if our
professional services group fails to complete implementations in a timely
manner.

OUR EXPECTATIONS OF FUTURE GROWTH DEPEND ON OUR ABILITY TO EXPAND
INTERNATIONALLY, AND FACTORS SPECIFIC TO OUR INTERNATIONAL EXPANSION MAY PREVENT
US FROM ACHIEVING OUR ANTICIPATED GROWTH.

     We intend to expand our international operations to achieve our anticipated
growth, but we may face significant challenges to our international expansion.
The expansion of our existing international operations and entry into additional
international markets will require significant management attention and
financial resources. To achieve broad acceptance in international markets, our
products must be localized to handle a variety of factors specific to each
international market, such as tax laws and local regulations. The incorporation
of these factors into our products is a complex process and often requires
assistance from third parties. We have limited experience in localizing our
products and we may not adequately address all of the factors necessary to
achieve broad acceptance in our target international markets. Further, to
achieve broad usage by employees across international organizations, our
products must be localized to handle native languages and cultures in each
international market. Localizing our products is also a complex process and we
intend to work with third parties to develop localized products. To date, we
have not localized our products for any international market and we cannot
assure you that our localization efforts will be successful.

     We have only a limited history of marketing, selling and supporting our
products and services internationally. In the second quarter of 1999, we opened
a regional office in the United Kingdom and established a relationship with an
international reseller. As of September 30, 2000, we had 13 employees in the
United Kingdom office. To date, we have derived only a small amount of revenues
from our international operations. To expand internationally we must hire and
train experienced international personnel as well as recruit and retain
qualified domestic personnel to staff and manage our international operations.
However, we may experience difficulties in recruiting and training an
international staff. We must also be able to enter into strategic relationships
with companies in international markets. If we are not able to maintain
successful strategic relationships internationally or recruit additional
companies to enter into strategic relationships, our future growth could be
limited. We also face other risks inherent in conducting business
internationally, such as:

     - difficulties in collecting accounts receivable and longer collection
       periods;

     - seasonal business activity in certain parts of the world;

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<PAGE>   19

     - fluctuations in currency exchange rates; and

     - trade barriers.

     Any of these factors could seriously harm our international operations and,
consequently, our business.

WE ARE GROWING RAPIDLY, AND OUR FAILURE TO MANAGE THIS GROWTH COULD HARM OUR
BUSINESS.

     We have experienced and are currently experiencing a period of significant
growth. Our full-time employees increased from 35 at December 31, 1997 to 83 at
December 31, 1998 to 175 at December 31, 1999 to 257 at September 30, 2000. This
growth has placed a significant strain on our resources. We expect that any
future growth would cause similar or increased strains on our resources. As part
of this growth, we will have to continually enhance our operational and
financial systems, procedures and controls; expand, train and manage our
employee base; and maintain close coordination among our technical, accounting,
finance, marketing and sales staffs. If we are unable to manage our growth
effectively, our business, results of operations and financial condition could
be adversely affected.

     Several members of our senior management joined us in 1999, including David
Yarnold, our Vice President of Business Development and Mark Oney, our Vice
President of Engineering. Additionally, in 2000, Jennifer Burt joined us as Vice
President of Human Resources and Don Smith as Vice President of Hosted
Operations. Although all but two of our executive staff have been employed for
more than one year, we cannot assure you that our management team will be able
to continue to work together effectively or to manage our growth successfully.
We believe that the successful integration of our management team is critical to
our ability to manage our operations effectively and support our anticipated
future growth.

WE MAY BE UNABLE TO ATTRACT OR RETAIN HIGHLY SKILLED EMPLOYEES THAT ARE
NECESSARY FOR THE SUCCESS OF OUR GROWTH PLAN.

     In addition to our dependence on our sales and professional services
personnel as previously discussed, our ability to execute our growth plan and be
successful also depends on our continued ability to attract and retain highly
skilled employees. We depend on the services of senior management and other
personnel, particularly Robert A. Spinner, our Chief Executive Officer. As we
continue to grow, we will need to hire additional personnel in all operational
areas. Competition for personnel in our industry is intense. We have in the past
experienced, and we expect to continue to experience in the future, difficulty
in hiring and retaining highly skilled employees with appropriate
qualifications. If we do not succeed in attracting or retaining personnel, our
business could be adversely affected.

OUR SALES CYCLES ARE LONG AND UNPREDICTABLE, WHICH MAKES PERIOD-TO-PERIOD
REVENUES DIFFICULT TO PREDICT.

     Because the market for our workforce optimization software products and
related services is new, we experience long and unpredictable sales cycles. The
sales cycle for our workforce optimization applications typically ranges from
two to nine months. In the early stages of this market, our customers have
frequently viewed the purchase of our products as part of a long-term strategic
decision regarding the management of their workforce-related operations and
expenditures. This decision process has sometimes resulted in customers taking a
long period of time to assess alternative solutions by our competitors or
deferring a purchase decision until the market evolves. Sales cycles continue to
be long and the timing of purchase decisions by individual customers remains at
times uncertain. We must continue to educate potential customers on the use and
benefits of our products and services, as well as the integration of our
products and services with additional software applications utilized by the
individual customers. Because the sales cycle is long and the time of individual
orders is uncertain, our period-to-period revenues are difficult to predict.

                                       19
<PAGE>   20

EVOLVING TECHNOLOGICAL DEVELOPMENTS AND EMERGING INDUSTRY STANDARDS WILL REQUIRE
US TO ENHANCE THE FUNCTIONALITY OF OUR WORKFORCE OPTIMIZATION APPLICATIONS, AND
ANY INABILITY TO ENHANCE FUNCTIONALITY COULD CAUSE OUR SALES TO DECLINE.

     Because the market for our products is emerging and subject to rapid
technological change and evolving industry standards, the life cycles of our
products are difficult to predict. Competitors may introduce new products or
enhancements to existing products employing new technologies, which could render
our existing products and services obsolete and unmarketable. For example, our
currently available software applications are written entirely in the Java
computer language. While we believe that this provides our solution with
significant advantages in terms of functionality and flexibility, the market for
Java-based software is still relatively new and it is not clear whether
Java-based systems will continue to maintain commercial acceptance.

     To be successful, our products and services must keep pace with
technological developments and emerging industry standards, address the
ever-changing and increasingly sophisticated needs of our customers and achieve
market acceptance. Our results of operations would be seriously harmed if we are
unable to develop, release and market new software product enhancements on a
timely and cost-effective basis, or if new products or enhancements do not
achieve market acceptance or fail to respond to evolving industry or technology
standards.

     In developing new products and services, we may also fail to develop and
market products that respond to technological changes or evolving industry
standards in a timely or cost-effective manner, or experience difficulties that
could delay or prevent the successful development, introduction and marketing of
these new products and services.

SOFTWARE DEFECTS COULD LEAD TO LOSS OF REVENUE OR DELAY THE MARKET ACCEPTANCE OF
OUR APPLICATIONS.

     Our enterprise applications software is complex and, accordingly, may
contain undetected errors or failures when first introduced or as new versions
are released. This may result in loss of, or delay in, market acceptance of our
products. We have in the past discovered software errors in our new releases and
new products after their introduction. In the event that we experience
significant software errors in future releases, we could experience delays in
release, customer dissatisfaction and potentially lost revenues during the
period required to correct these errors. We may in the future discover errors,
including Year 2000 errors and additional scalability limitations, in new
releases or new products after the commencement of commercial shipments. Any of
these errors or defects could cause our business to be materially harmed.

WE MAY BECOME INCREASINGLY DEPENDENT ON THIRD-PARTY SOFTWARE INCORPORATED IN OUR
PRODUCTS AND, IF SO, IMPAIRED RELATIONS WITH THESE THIRD PARTIES, ERRORS IN
THIRD-PARTY SOFTWARE OR INABILITY TO ENHANCE THE SOFTWARE OVER TIME COULD HARM
OUR BUSINESS.

     We incorporate third-party software into our products. Currently, the
third-party software we use includes application server software that we license
from BEA Systems, off-line client server software from PUMATECH and
synchronization software from AETHER Systems. We expect to incorporate
additional third-party software into our products as we expand our product line
and broaden the content and services accessible through our gateway. The
operation of our products would be impaired if errors occur in the third-party
software that we license. It may be more difficult for us to correct any errors
in third-party software because the software is not within our control.
Accordingly, our business would be adversely affected in the event of any errors
in this software. Furthermore, it may be difficult for us to replace any
third-party software if a vendor seeks to terminate our license to the software.

OUR SUCCESS DEPENDS IN PART UPON OUR ABILITY TO PROTECT OUR INTELLECTUAL
PROPERTY, BUT WE MAY NOT BE ABLE TO DO SO ADEQUATELY.

     Our success depends in large part upon our proprietary technology. We rely
on a combination of copyright, trademark and trade secret protection,
confidentiality and nondisclosure agreements and licensing arrangements to
establish and protect our intellectual property rights. We license rather than
sell our solutions
                                       20
<PAGE>   21

and require our customers to enter into license agreements, which impose
restrictions on their ability to utilize the software. In addition, we seek to
avoid disclosure of our trade secrets through a number of means, including
requiring those persons with access to our proprietary information to execute
nondisclosure agreements with us and restricting access to our source code. We
seek to protect our software, documentation and other written materials under
trade secret and copyright laws, which afford only limited protection.

     Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult, and while we are unable to determine the extent to which piracy of
our software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect our
proprietary rights to as great an extent as do the laws of the United States.
Our means of protecting our proprietary rights may not be adequate and our
competitors may independently develop similar technology, duplicate our
products, or design around our proprietary intellectual property.

WE MAY FACE COSTLY DAMAGES OR LITIGATION COSTS IF A THIRD PARTY CLAIMS THAT WE
INFRINGE ITS INTELLECTUAL PROPERTY.

     There has been a substantial amount of litigation in the software industry
and the Internet industry regarding intellectual property rights. It is possible
that in the future, third parties may claim that we or our current or potential
future products infringe upon their intellectual property. We expect that
software product developers and providers of Internet-based software
applications will increasingly be subject to infringement claims as the number
of products and competitors in our industry segment grows and the functionality
of products in different industry segments overlaps. Any claims, with or without
merit, could be time consuming, result in costly litigation, cause product
shipment delays or require us to enter into royalty or licensing agreements.
Royalty or licensing agreements, if required, may not be available on terms
acceptable to us or at all, which could seriously harm our business.

ANY FUTURE ACQUISITIONS OF COMPANIES OR TECHNOLOGIES MAY RESULT IN DISTRACTION
OF OUR MANAGEMENT AND DISRUPTIONS TO OUR BUSINESS.

     We may acquire or make investments in complementary businesses,
technologies, services or products if appropriate opportunities arise. From time
to time we may engage in discussions and negotiations with companies regarding
our acquiring or investing in such companies' businesses, products, services or
technologies. We cannot make assurances that we will be able to identify future
suitable acquisition or investment candidates, or if we do identify suitable
candidates, that we will be able to make such acquisitions or investments on
commercially acceptable terms or at all. If we acquire or invest in another
company, we could have difficulty assimilating that company's personnel,
operations, technology or products and service offerings. In addition, the key
personnel of the acquired company may decide not to work for us. These
difficulties could disrupt our ongoing business, distract our management and
employees, increase our expenses and adversely affect our results of operations.
Furthermore, we may incur indebtedness or issue equity securities to pay for any
future acquisitions. The issuance of equity securities could be dilutive to our
existing stockholders.

WE HAVE ANTI-TAKEOVER PROVISIONS IN OUR CHARTER AND IN OUR CONTRACTS THAT COULD
DELAY OR PREVENT AN ACQUISITION OF OUR COMPANY, EVEN IF SUCH AN ACQUISITION
WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.

     Provisions of our certificate of incorporation, our bylaws, Delaware law
and the employment agreements of some of our key officers could make it more
difficult for a third party to acquire us, even if doing so might be beneficial
to our stockholders.

OUR BUSINESS MAY FACE ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO
US WHICH COULD CAUSE OUR BUSINESS TO SUFFER.

     In addition to the risks specifically identified in this Risk Factors
section or elsewhere in this prospectus, we may face additional risks and
uncertainties not presently known to us or that we currently deem immaterial
which ultimately may impair our business, results of operations and financial
condition.

                                       21
<PAGE>   22

                         RISKS RELATED TO OUR INDUSTRY

OUR SUCCESS WILL DEPEND UPON THE GROWTH AND ACCEPTANCE OF THE MARKET WE ADDRESS
AND OUR ABILITY TO MEET THE NEEDS OF THE EMERGING MARKET FOR OUR SOLUTIONS.

     The market for our workforce optimization applications and services is at
an early stage of development. Our success will depend upon the continued
development of this market and the increasing acceptance by customers of the
benefits to be provided by workforce optimization applications and services. In
addition, as the market evolves, it is unclear whether the market will accept
our suite of applications as a preferred solution for workforce optimization
needs. Accordingly, our products and services may not achieve significant market
acceptance or realize significant revenue growth. Unless a critical mass of
organizations and their suppliers use our solutions and recommend them to new
customers, our solutions may not achieve widespread market acceptance, which may
cause our business to suffer.

CUSTOMERS MAY NOT ACCEPT THE INTERNET AS A MEANS TO ACCESS ENTERPRISE
APPLICATIONS, AND THIS WOULD LIKELY CAUSE OUR BUSINESS MODEL TO BE UNSUCCESSFUL.

     To date, enterprises have generally managed operational functions through
internal computer or manual systems rather than over the Internet. Our business
model assumes that enterprises and their employees will increasingly adopt the
Internet or corporate intranets as a means of managing important business
functions. This business model is not yet proven, and if we are unable to
successfully implement our business model, our business will be materially
adversely affected.

MARKET PRICES OF INTERNET AND TECHNOLOGY COMPANIES HAVE BEEN HIGHLY VOLATILE,
AND THE MARKET FOR OUR STOCK MAY BE VOLATILE AS WELL.

     The stock market has experience significant price and trading volume
fluctuations especially this past year, and the market prices of technology
companies generally, and Internet-related software companies particularly, have
been extremely volatile. Recent initial public offerings by technology
companies, including ours, have been accompanied by exceptional share price and
trading volume changes. Technology companies that have been publicly traded for
a long period of time have also experienced extreme fluctuations in the price of
their common stock. Investors may not be able to resell their shares at or above
the price they paid for the stock. In the past, following periods of volatility
in the market price of a public company's securities, securities class action
litigation has often been instituted against the company. Such litigation could
result in substantial costs and diversion of management's attention and
resources.

SECURITY RISKS AND CONCERNS MAY DETER THE USE OF THE INTERNET FOR CONDUCTING
ELECTRONIC COMMERCE.

     A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. Advances
in computer capabilities, new discoveries in the field of cryptography or other
events or developments could result in compromises or breaches of our security
systems or those of other websites to protect proprietary information. If any
well-publicized compromises of security were to occur, it could have the effect
of substantially reducing the use of the Internet for commerce and
communications. Anyone who circumvents our security measures could
misappropriate proprietary information or cause interruptions in our services or
operations. The Internet is a public network, and data is sent over this network
from many sources. In the past, computer viruses and software programs that
disable or impair computers have been distributed and have rapidly spread over
the Internet. Computer viruses could be introduced into our systems or those of
our customers or suppliers, which could disrupt our software solutions or make
them inaccessible to customers or suppliers. We may be required to expend
significant capital and other resources to protect against the threat of
security breaches or to alleviate problems caused by breaches. To the extent
that our activities may involve the storage and transmission of proprietary
information, such as credit card numbers, security breaches could expose us to a
risk of loss or litigation and possible liability. Our security measures may be
inadequate to prevent security breaches, and our business would be harmed if we
do not prevent them.

                                       22
<PAGE>   23

INCREASING GOVERNMENT REGULATION COULD LIMIT THE MARKET FOR, OR IMPOSE SALES AND
OTHER TAXES ON THE SALE OF, OUR PRODUCTS AND SERVICES.

     As Internet commerce evolves, we expect that federal, state or foreign
agencies will adopt regulations covering issues such as user privacy, pricing,
taxation of goods and services provided over the Internet, and content and
quality of products and services. It is possible that legislation could expose
companies involved in electronic commerce to liability, which could limit the
growth of electronic commerce generally. Legislation could dampen the growth in
Internet usage and decrease its acceptance as a communications and commercial
medium. If enacted, these laws, rules or regulations could limit the market for
our products and services.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     We develop products in the United States and market our products in North
America and, to a lesser extent, in Europe and the rest of the world. As a
result, our financial results could be affected by factors such as changes in
foreign currency rates or weak economic conditions in foreign markets. Because
the majority of our revenues are currently denominated in U.S. dollars, a
strengthening of the dollar could make our products less competitive in foreign
markets.

INTEREST RATE RISK

     We have an investment portfolio of money market funds and fixed income
certificates of deposit. The fixed income certificates of deposit, like all
fixed income securities, are subject to interest rate risk and will fall in
value if market interest rates increase. We attempt to limit this exposure by
investing primarily in short-term securities. In view of the nature and mix of
our total portfolio, a 10% movement in market interest rates would not have a
significant impact on the total value of our portfolio as of September 30, 2000.
Our interest expense is not sensitive to changes in the general level of U.S.
interest rates because all of our debt arrangements are based on fixed rates of
interest.

                                       23
<PAGE>   24

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     The company is not involved in any legal proceedings that are material to
its business or financial condition.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

     a. Not applicable.

     b. Not applicable.

     c. Not applicable.

     d. Use of proceeds from sale of Registered Securities.

     On January 27, 2000, the SEC declared effective the Company's Registration
Statement on Form S-1/A. Pursuant to this Registration Statement, the Company
completed an initial public offering of 4,600,000 shares of its common stock
(including 600,000 shares sold pursuant to the exercise of the Underwriters'
over-allotment option) at an initial public offering price of $20.00 per share
("the Offering"). Proceeds to the Company, after deduction of the underwriters'
discount and commission, from the Offering totaled approximately $83.3 million,
net of offering costs of approximately $2.2 million.

     To date we have used $24.9 million to fund working capital. All remaining
proceeds are invested in cash, cash equivalents, or short-term investments
consisting of highly liquid money market funds, commercial paper,
government/federal notes and bonds, certificates of deposit, and auction rate
preferred stock. The use of these proceeds does not represent a material change
in the use of proceeds described in the prospectus.

     Upon completion of the Offering, the Company's preferred stock was
converted into 14,594,549 shares of common stock. Upon conversion of the
preferred stock, all rights to accrued and unpaid dividends were terminated.

ITEM 3. DEFAULT UPON SENIOR SECURITIES

     None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

ITEM 5. OTHER INFORMATION

     None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits

<TABLE>
        <C>         <S>
           27       Financial Data Schedule
</TABLE>

     (b) Reports on Form 8-K:

     None.

                                       24
<PAGE>   25

                                   SIGNATURE

     Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized,

November 14, 2000                         EXTENSITY, INC.

                                          By       /s/ KENNETH R. HAHN
                                            ------------------------------------
                                                      Kenneth R. Hahn
                                                  Chief Financial Officer
                                            (Principal Financial and Accounting
                                                          Officer)

                                       25
<PAGE>   26

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                             DESCRIPTION
-------                            -----------
<C>        <S>
 27.1      Financial Data Schedule
</TABLE>

                                       26