UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON D.C. 20549

                                   FORM 10-Q/A
                                Amendment No. 1

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

                  For the quarterly period ended March 31, 2001

                                       OR

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

          FOR THE TRANSITION PERIOD FROM _____________ TO _____________

                        Commission file number 000-29757

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

           DELAWARE                                             68-0255203
(State or other jurisdiction of                              (I.R.S. Employer
 Incorporation or organization)                             Identification No.)

                         300 Lakeside Drive, Suite 1500
                                OAKLAND, CA 94612
               (Address of principal executive offices) (Zip Code)

                                 (510) 238-4100
              (Registrant's telephone number, including area code)

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

                                 Not Applicable
              (Former name, former address and former fiscal year,
                          if changed since last report)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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 [ ]

         As of March 31,  2001,  the total number of  outstanding  shares of the
Registrant's common stock was 41,460,490.

Explanatory Note:

The following  10-Q/A amends the previously  reported  stock-based  compensation
expense for the three months ended March 31, 2001.


<PAGE>


<TABLE>
                                                                INDEX
<CAPTION>
                                                                                                                         PAGE NUMBER
                                                                                                                         -----------
                                                    PART I. FINANCIAL INFORMATION
<S>                                                                                                                            <C>
Item 1. Financial Statements:

Condensed Consolidated Balance Sheets At March 31, 2001 And December 31, 2000 ..............................................    3


Condensed Consolidated Statements Of Operations and Comprehensive Loss For The Three Months Ended March 31, 2001 And 2000 ..    4


Condensed Consolidated Statements Of Cash Flows For The Three Months Ended March 31, 2001 And 2000 .........................    5

Notes To Condensed Consolidated Financial Statements .......................................................................    6

Item 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations ..............................   11

Item 3. Quantitative And Qualitative Disclosures About Market Risk .........................................................   21


                                                     Part II. OTHER INFORMATION

Item 1. Legal Proceedings ..................................................................................................   21

Item 2. Changes In Securities And Use Of Proceeds ..........................................................................   21

Item 4. Submission Of Matters To A Vote Of Security Holders ................................................................   22

Item 6. Exhibits And Reports On Form 8-K ...................................................................................   22

Signatures .................................................................................................................   22
</TABLE>

                                                                 2

<PAGE>


<TABLE>
                                                    PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                                                            VERSATA, INC.
                                                CONDENSED CONSOLIDATED BALANCE SHEETS
                                                      (in thousands, unaudited)



<CAPTION>
                                                                                                   MARCH 31,            DECEMBER 31,
                                                                                                     2001                   2000
                                                                                                   ---------              ---------
<S>                                                                                                <C>                    <C>
ASSETS
Current assets:
     Cash and cash equivalents .......................................................             $  30,663              $  39,272
     Short-term investments ..........................................................                16,875                 29,926
     Accounts receivable, net of allowance of $1,893 at
          March 31, 2001 and $1,795 at December 31, 2000 .............................                10,761                 14,177
     Unbilled receivables ............................................................                 2,712                  3,584
     Prepaid expenses and other current assets .......................................                 2,745                  3,075
                                                                                                   ---------              ---------
              Total current assets ...................................................                63,756                 90,034
Restricted cash ......................................................................                 5,262                  5,189
Property and equipment, net ..........................................................                12,702                 11,901
Notes receivable from related parties ................................................                   108                    156
Intangible assets ....................................................................                11,302                 12,205
Other assets .........................................................................                   216                    354
                                                                                                   ---------              ---------
              Total assets ...........................................................             $  93,346              $ 119,839
                                                                                                   =========              =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable ................................................................             $   5,650              $   9,040
     Accrued liabilities .............................................................                15,029                 13,146
     Accrued stock-based compensation ................................................                  --                    1,095
     Deferred revenue ................................................................                 7,327                  8,661
     Current portion of long-term debt ...............................................                   125                    134
                                                                                                   ---------              ---------
              Total current liabilities ..............................................                28,131                 32,076
Long-term debt, less current portion .................................................                   182                    218
                                                                                                   ---------              ---------
              Total liabilities ......................................................                28,313                 32,294
Stockholders' equity:
     Common stock ....................................................................                    41                     41
     Additional paid-in capital ......................................................               220,500                226,352
     Notes receivable from stockholders ..............................................                (2,345)                (3,868)
     Unearned stock-based compensation ...............................................                (7,324)               (13,870)
     Accumulated other comprehensive income/(loss) ...................................                  (219)                   166
     Accumulated deficit .............................................................              (145,620)              (121,276)
                                                                                                   ---------              ---------
              Total stockholders' equity .............................................                65,033                 87,545
                                                                                                   ---------              ---------
              Total liabilities and stockholders' equity .............................             $  93,346              $ 119,839
                                                                                                   =========              =========


<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</FN>
</TABLE>

                                                                 3

<PAGE>


<TABLE>
                                                            VERSATA, INC.
                               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                                                (In thousands, except per share data)
                                                             (Unaudited)


<CAPTION>
                                                                                                         THREE MONTHS ENDED
                                                                                                                MARCH 31,
                                                                                                     ------------------------------
                                                                                                       2001                  2000
                                                                                                     --------              --------
<S>                                                                                                  <C>                   <C>

Revenue:
  Software license .....................................................................             $  4,140              $  4,136
  Services and other fees ..............................................................                6,892                 5,970
                                                                                                     --------              --------
        Total revenue ..................................................................               11,032                10,106
Cost of revenue:
  Software license .....................................................................                  157                   194
  Services (exclusive of stock-based compensation of $782
    and $4,048, respectively) ..........................................................                8,388                 5,478
                                                                                                     --------              --------
        Total cost of revenue ..........................................................                8,545                 5,672
                                                                                                     --------              --------
Gross profit ...........................................................................                2,487                 4,434
Operating expenses:
  Sales and marketing (exclusive of stock-based compensation of
    $1,758 and $5,130, respectively) ...................................................               11,940                10,189
  Product development (exclusive of stock-based compensation of
    $(460) and $1,072  respectively) ...................................................                3,895                 1,857
  General and administrative (exclusive of stock-based
    compensation of $121 and $824, respectively) .......................................                3,992                 2,001
  Stock-based compensation .............................................................                 (141)               11,074
  Amortization of intangibles ..........................................................                1,145                   190
  Restructuring and other expenses (excludes the benefit of $2,342 for the three months
  ended March 31, 2001, relating to the reversal of previously recorded stock-based
  compensation related to employees terminated in the restructuring)....................                6,909                  --
                                                                                                     --------              --------
               Total operating expenses ................................................               27,740                25,311

Loss from operations ...................................................................              (25,253)              (20,877)
Interest income (expense), net .........................................................                  909                   665
                                                                                                     --------              --------
Net loss ...............................................................................             $(24,344)             $(20,212)
                                                                                                     --------              --------
Change in unrealized gain(loss) on marketable securities ...............................                   23                  --
Change in foreign currency translation adjustments .....................................                 (408)                 --
                                                                                                     --------              --------
Comprehensive Loss .....................................................................             $(24,729)             $(20,212)
                                                                                                     ========              ========
Basic and diluted net loss per share ...................................................             $  (0.61)             $  (1.33)
                                                                                                     ========              ========
Weighted average common shares used in computing basic
  and diluted net loss per share .......................................................               39,821                15,203
                                                                                                     ========              ========


<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</FN>
</TABLE>

                                                                 4

<PAGE>


<TABLE>
                                                            VERSATA, INC.
                                           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                           (In Thousands)
                                                             (Unaudited)



<CAPTION>
                                                                                                           Three Months Ended
                                                                                                                March 31,
                                                                                                       ----------------------------
                                                                                                          2001               2000
                                                                                                       ---------          ---------
<S>                                                                                                    <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net Loss .................................................................................         $ (24,344)         $ (20,212)
    Adjustments to reconcile net loss to net cash
       used in operating activities:
          Depreciation and amortization ......................................................             1,945                406
          Provision for doubtful accounts ....................................................               787                376
          Write-down of leasehold improvements and office furniture in
             connection with restructuring ...................................................             2,894               --
          Stock-based compensation expense ...................................................              (141)            11,074
    Change in operating assets and liabilities:
          Trade accounts receivable ..........................................................             2,657             (4,191)
          Unbilled receivable ................................................................               844                516
          Prepaid expenses and other assets ..................................................               319             (1,295)
          Restricted Cash ....................................................................               (73)                 0
          Other assets .......................................................................               138               (234)
          Accounts payable and accrued liabilities ...........................................            (1,752)             5,661
          Deferred revenues ..................................................................            (1,334)             1,750
                                                                                                       ---------          ---------
                       Net cash used in operating activities .................................           (18,000)            (6,149)
                                                                                                       ---------          ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Maturities of short-term investments ......................................................            13,074               --
   Purchase of property and equipment ........................................................            (4,492)            (1,547)
   Increase (Decrease) in notes receivable from related parties ..............................                 2               (289)
   Cash paid in connection with acquisition and subsequent earnout payments ..................              (187)              (351)
                                                                                                       ---------          ---------
                       Net cash provided by (used in) investing activities ...................             8,397             (2,187)
                                                                                                       ---------          ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Principal payments on capital lease obligations ..........................................               (20)               (21)
    Principal payments on equipment loan .....................................................               (25)               (22)
    Net proceeds from issuance of convertible preferred stock ................................              --                1,500
    Net proceeds from issuance of common stock ...............................................              --               96,654
    Proceeds from issuance of common stock under
       employee stock purchase plan ..........................................................             1,429               --
    Proceeds from exercise of stock options and warrants .....................................                73                783
    Repurchase of common stock from stockholders .............................................              --                   (6)
    Payments from stockholders on notes receivable ...........................................                 5                272
    Loans provided to stockholders ...........................................................              --                 (650)
                                                                                                       ---------          ---------
                       Net cash provided by financing activities .............................             1,462             98,510
                                                                                                       ---------          ---------
Effects of exchange rate changes on cash and cash equivalents ................................              (408)              --
                                                                                                       ---------          ---------
                       Decrease (Increase) in cash and cash equivalents ......................            (8,609)            90,174
                                                                                                       ---------          ---------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .............................................            39,272             20,655
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...................................................         $  30,663          $ 110,829
                                                                                                       =========          =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest .....................................................         $      14          $      17
                                                                                                       =========          =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
  FINANCING ACTIVITIES
Common stock issued for notes receivable from stockholders ...................................         $    --            $   1,813
                                                                                                       =========          =========
Conversion of preferred stock to common stock on date of public offering .....................         $    --            $      26
                                                                                                       =========          =========
Issuance of convertible preferred stock in connection with acquisition .......................         $    --            $   1,087
                                                                                                       =========          =========
Notes receivable cancelled in exchange for repurchase of common stock from
 stockholders ................................................................................         $   1,518          $    --
                                                                                                       =========          =========


<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</FN>
</TABLE>

                                                                 5

<PAGE>

                                  VERSATA, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. OUR COMPANY

         Versata,   Inc.  was   incorporated   on  August  27,  1991,   and  was
reincorporated  in the State of Delaware on February  24,  2000.  Versata,  Inc.
helps the world's leading  companies  achieve true business  agility by enabling
them to create business rules for their business  policies and processes,  which
are used to automate the development of transaction-intensive,  process-oriented
applications.

The consolidated  financial statements include the accounts of Versata, Inc. and
its subsidiaries,  all of which are wholly and located in North America, Europe,
Australia.  All intercompany  accounts and transactions  have been eliminated in
consolidation.  Versata,  Inc. and its subsidiaries are collectively referred to
as the "Company" or "Versata."

2. INTERIM FINANCIAL INFORMATION AND BASIS OF PRESENTATION

The accompanying  unaudited condensed  consolidated  financial  statements as of
March 31, 2001,  and for the three month  periods ended March 31, 2001 and 2000,
have been prepared in accordance with accounting  principles  generally accepted
in the United States of America for interim financial statements and pursuant to
the rules and regulations of the Securities and Exchange Commission, and include
the accounts of Versata,  Inc. and its wholly-owned  subsidiaries.  Intercompany
accounts have been eliminated in consolidation. Certain information and footnote
disclosures  normally  included  in  annual  consolidated  financial  statements
prepared in accordance  with  generally  accepted  accounting  principles in the
United States of America,  have been condensed or omitted pursuant to such rules
and  regulations.   In  the  opinion  of  management,  the  unaudited  condensed
consolidated  financial  statements reflect all adjustments  (consisting of only
normal recurring  adjustments)  necessary for fair presentation of the financial
position at March 31,  2001,  and the  operating  results and cash flows for the
three month periods  ended March 31, 2001 and 2000.  These  unaudited  condensed
consolidated  financial  statements  should  be read  in  conjunction  with  the
Company's audited consolidated financial statements and notes for the year ended
December 31, 2000.

The unaudited condensed consolidated balance sheet at December 31, 2000 has been
derived from the audited  consolidated  financial  statements at that date,  but
does not include all of the  information  and  footnotes  required by  generally
accepted  accounting  principles  in the United  States of America for  complete
financial statements.

Certain balances in prior fiscal years have been  reclassified to conform to the
presentation  adopted in the current fiscal year.  The restricted  cash balances
have been  reclassified in a separate caption in the Consolidated  Balance Sheet
as of December 31, 2000.

During the half quarter of 2001,  the Company  reduced its  workforce  and these
reductions  resulted in employees  forfeiting  unvested  options.  However,  we
incorrectly  calculated  the reversal of the previously  recognized  stock-based
compensation  charges by including  the  reversal of charges  related to options
that had already vested at the employees' termination dates. As a result, we are
restating our previously  reported  stock-based  compensation credit of $865,000
for the three months ended March 31, 2001.


During the first half of 2001 our stock price  decreased  sch that the liability
related to the Stock  Appreciation  Rights Plan ("SAR"),  which we assumed on an
acquisition in 2000, was reduced to zero under variable  accounting for the SAR.
However,  we incorrectly reduced this liability to zero in the second quarter of
2001 rather than the first quarter of 2001.  The effect of this  adjustment is a
decrease in the  stock-based  compensation  expense of $1,127,000  for the three
months ended March 31, 2001.


For the three months  ended March 31, 2001,  the net impact of these two matters
is as follows:



                                                 Three Months Ended
                                                   March 31, 2001
                                          -------------------------------------
                                           As Reported            As Restated
Net Loss                                  $   23,620,000         $   24,344,000
Basic and diluted net loss per share      $        (0.59)        $        (0.61)



REVENUE RECOGNITION

         Our Company derives  revenue from two sources as follows:  (i) software
license and  maintenance  revenue to end users,  value added  resellers  (VARs),
system integrators and application  service providers;  and (ii) service revenue
which includes  consulting,  training services and customer support. Our Company
records revenue from licensing of software  products to end-users when a license
agreement  is  signed  by both  parties,  the  fee is  fixed  and  determinable,
collection  is  reasonably  assured and  delivery  of the product has  occurred.
Generally,  our Company  provides  payment  terms that range from thirty days to
ninety days from the invoice date. Accordingly, payment terms that exceed ninety
days are not  considered  fixed and  determinable  and revenue is  recognized as
payments become due. When contracts  contain  multiple  elements,  and for which
vendor  specific  objective  evidence  ("VSOE")  of fair  value  exists  for the
undelivered elements,  our Company recognizes revenue for the delivered elements
based upon the residual method.  Undelivered  elements consist primarily of post
contract  customer  support  ("PCS")  and  other  services  such as  consulting,
mentoring and training.  Services are generally not considered  essential to the
functionality  of the  software.  Our Company  recognizes  revenue  allocated to
maintenance  and  support  ratably  over the period of the  maintenance  and the
support contracts,  respectively,  which is generally twelve months. For revenue
related to consulting  services,  our Company  recognizes revenue as the related
services are performed.  In instances where services are deemed essential to the
software, both the software license fee and consulting fees are recognized using
the percentage-of-completion method of contract accounting.

         In December 1999, the Securities and Exchange  Commission  issued Staff
Accounting  Bulletin  No.  101, or SAB 101,  Revenue  Recognition  in  Financial
Statements.  SAB 101 provides  guidance for revenue  recognition  under  certain
circumstances.  The  accounting  and  disclosures  prescribed  by SAB  101  were
effective for all periods  beginning  after December 31, 1999 and did not have a
significant impact on our financial  position or results of operations,  or cash
flows.

                                       6
<PAGE>

NET LOSS PER SHARE

         The Company  computes  net loss per share in  accordance  with SFAS No.
128, Earnings per Share. Under the provisions of SFAS No. 128, basic and diluted
net loss per share is computed by dividing the net loss  available to holders of
common stock for the period by weighted average number of shares of common stock
outstanding  during the period.  The  calculation  of diluted net loss per share
excludes  potential  common  stock if their  effect is  antidilutive.  Potential
common stock consists of unvested restricted common stock, incremental common or
preferred  shares  issuable upon the exercise of stock options and warrants and,
prior to our public  offering,  shares issuable upon conversion of the Series A,
Series B, Series C, Series D, Series E and Series F convertible preferred stock.

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


                                                            THREE MONTHS ENDED
                                                                MARCH 31,
                                                          ---------------------
                                                            2001         2000
                                                          --------     --------
Numerator:
  Net Loss ...........................................    $(24,344)    $(20,212)
                                                          ========     ========
Denominator:
  Weighted average shares outstanding ................      41,328       17,640
  Weighted average unvested shares of common stock
        subject to repurchase ........................      (1,507)      (2,437)
                                                          --------     --------
  Denominator for basic and diluted calculation ......      39,821       15,203
                                                          ========     ========
Basic and diluted net loss per share .................    $  (0.61)    $  (1.33)
                                                          ========     ========



         The following  table sets forth  potential  shares of common stock that
are not included in the diluted net loss per share  calculation above because to
do so would be antidilutive for the periods presented (in thousands):

                                                              THREE MONTHS ENDED
                                                                  MARCH 31,
                                                              ----------------
                                                               2001      2000
                                                              ------    ------
Weighted average effect of common stock equivalents:
  Unvested common stock subject to repurchase ..............   1,507     2,437
  Options outstanding ......................................   7,990     6,376
  Shares resulting from the conversion of the:
     Series A convertible preferred stock ..................    --       1,250
     Series B convertible preferred stock ..................    --       3,669
     Series C convertible preferred stock ..................    --       5,231
     Series D convertible preferred stock ..................    --       5,822
     Series E convertible preferred stock ..................    --       3,751
     Series F convertible preferred stock ..................    --       2,658
  Warrants to purchase convertible preferred stock .........    --         206
  Warrants to purchase common stock ........................    --         475
                                                              ------    ------
     Total common stock equivalents excluded from the
       computation of earnings per share as their effect
        was antidilutive ...................................   9,497    31,875
                                                              ======    ======

                                       7

<PAGE>


SEGMENT INFORMATION

         Effective  January 1, 1998, our Company  adopted the provisions of SFAS
No. 131,  Disclosures  about Segments of an Enterprise and Related  Information.
Versata  identifies  its operating  segments  based on the business  activities,
management  responsibility  and  geographical  location.  Revenue for geographic
regions reported below are based upon the customers'  locations.  Following is a
summary of the geographic information related to revenues (in thousands):

                                                    THREE MONTHS ENDED MARCH 31,
                                                    ----------------------------
                                                       2001            2000
                                                      -------         -------
Software license revenue:
             United States                            $ 2,339         $ 3,088
             Europe                                     1,661             995
             Other international                          140              53
                                                      -------         -------
                                                        4,140           4,136
Services revenue:
             United States                            $ 5,292         $ 5,622
             Europe                                     1,263             348
             Other international                          337            --
                                                      -------         -------
                                                        6,892           5,970
Total revenue:
             United States                            $ 7,631         $ 8,710
             Europe                                     2,924           1,343
             Other international                          477              53
                                                      =======         =======
                                                      $11,032         $10,106
                                                      =======         =======

         Long-lived assets,  predominantly  intangibles and property,  plant and
equipment,  are based on the location of the assets,  or, for  intangibles,  the
location of the entity owning the  intangible  asset.  As of March 31, 2001, and
December 31, 2000, approximately $23,235,000 and $23,308,000,  respectively,  of
long-lived  assets were located in the United States,  $943,000 and  $1,054,000,
respectively,  were located in Europe, and $150,000 and $254,000,  respectively,
were located elsewhere.

RECENT ACCOUNTING PRONOUNCEMENTS

         In June 1998,  the FASB issued SFAS No. 133,  Accounting for Derivative
Instruments  and Hedging  Activities.  SFAS No. 133  establishes a new model for
accounting for  derivatives  and hedging  activities and supercedes and amends a
number  of  existing  accounting  standards.  SFAS  No.  133  requires  that all
derivatives  be  recognized  in the balance sheet at their fair market value and
that the  corresponding  derivative  gains or losses be  reported  either in the
statement of  operations  or as a deferred  item  depending on the type of hedge
relationship  that exists with respect to these  derivatives.  In July 1999, the
Financial  Accounting  Standards  Board  issued  SFAS No.  137,  Accounting  for
Derivative  Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133. SFAS No. 137 deferred the effective date until fiscal
years  commencing  after June 15, 2000.  In June 2000,  the FASB issued SFAS No.
138,   Accounting  for  Certain  Derivative   Instruments  and  Certain  Hedging
Activities  -- An  Amendment  of FASB  Statement  No.  133,  which  amended  the
accounting  and  reporting  standards  for certain  derivative  instruments  and
hedging  activities.  Accordingly,  we have  adopted SFAS No. 133 in the quarter
ending  March 31, 2001,  and the adoption did not have a material  impact on our
financial condition or results of operations or cash flows.

4. Comprehensive Income

         Our  Company  adopted  the  provisions  of  SFAS  No.  130,   Reporting
Comprehensive  Income,  effective  January  1,  1998.  This  statement  requires
companies  to  classify  items of  comprehensive  income by their  nature in the
financial statements and display the accumulated balance of comprehensive income
separately from retained  earnings and additional  paid-in capital in the equity
section of the balance sheet.


         Total  comprehensive  loss was $24.7  million and $20.2 million for the
quarters ended March 31, 2001 and 2000,  respectively.  Total comprehensive loss
consists of net loss, the net changes in foreign currency translation adjustment
and the net unrealized gains and losses on available-for-sale securities.

                                       8
<PAGE>


5. Restructuring and Other Expenses


         On January 9, 2001,  we  implemented  a cost  cutting  initiative  that
included  a  reduction  in total  staff of  approximately  13%.  This  reduction
primarily reflected a shift in the strategy of our services organization.

         In March 2001, the Company announced a restructuring plan to streamline
operations,  enhance customer focus and reduce costs. Overall expense reductions
were  necessary  both to lower  existing cost  structure and to better align the
work force with customer needs. The  restructuring  plan was precipitated by the
changing economic  conditions and declining  revenues from recent past quarters.
Management  effected the restructuring  plan during the first quarter of 2001 by
eliminating  certain employee positions and is reducing office space and related
overhead  expenses  beginning in the second  quarter of 2001. We expect that the
majority of the  remaining  restructuring  actions  such as office  closures and
subleasing  will  be  completed  by the  end  of  the  third  quarter  of  2001.
Obligations  related to  subleasing  may continue  until 2008 as  estimated  and
accrued for as of March 31, 2001.

         The following table summarizes the components of the  restructuring and
other nonrecurring expenses, by geographic region (in thousands):


<TABLE>
<CAPTION>
                                                                                                                           Total
                                                                                                                      Restructuring
                                                                   Office        Asset                                   and other
                                                    Employee     Subleasing     Disposal   Nonrecoverable    Other      Nonrecurring
                                                    Severance      Costs         Losses         Loan         Costs         Costs
                                                    ---------      -----         ------         ----         -----         -----
<S>                                                  <C>           <C>           <C>           <C>           <C>           <C>
United States                                        $1,033        $1,703        $3,210        $  500        $  334        $6,780
EMEA                                                    111          --            --            --            --             111
Canada and Asia Pacific                                  18          --            --            --            --              18
                                                     ------        ------        ------        ------        ------        ------
Consolidated expense, March 31, 2001                  1,162         1,703         3,210           500           334         6,909
Noncash portion in first quarter                          0             0         2,895           500             0         3,395
Cash payments in first quarter                          458           238             0             0           161           857
                                                     ------        ------        ------        ------        ------        ------
Accrual balance, March 31, 2001                      $  704        $1,465        $  315        $ --          $  173        $2,657
                                                     ======        ======        ======        ======        ======        ======
</TABLE>



6. Subsequent Events

         In January, 2001, we provided a guarantee to a financial institution to
secure a loan of  $1,000,000  made to an officer of our Company by the financial
institution.  The guarantee and the loan were secured with 559,300 shares of our
Company's  common  stock owned by the  officer and the officer  delivered a full
recourse  reimbursement  agreement to our Company. In April, 2001, the financial
institution  requested  payment  of the  loan  and we paid  $988,000  under  our
guarantee  obligations.  In  connection  with the  payment  by our  Company,  we
received the right to receive  proceeds from the remaining  549,300  shares from
the  officer as well as a  guarantee  to repay any  amounts due in excess of the
value of the shares.


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

         The  following  Management's   Discussion  and  Analysis  of  Financial
Condition  and Results of Operations  of Versata  should be read in  conjunction
with  the  condensed  consolidated  financial  statements  of  Versata  and  the
accompanying  notes  included  in  this  Form  10-Q.  This  discussion  contains
forward-looking  statements within the meaning of the Private  Securities Act of
1995.  These  statements  may contain  words such as  "expects,"  "anticipates,"
"intends,"  "plans,"  "believes,"  "estimates," or other words indicating future
results.  These  forward-looking  statements are based on  management's  current
expectations,   assumptions   and  projections  and  entail  various  risks  and
uncertainties  including  those set forth  below under  "Risk  Factors  That May
Affect Future  Results,"  that could cause actual  results to differ  materially
from those projected in the  forward-looking  statements.  Versata undertakes no
obligation to revise or publicly  revise or publicly  release the results of any
revision  to  these   forward   looking   statements.   Given  these  risks  and
uncertainties,  readers  are  cautioned  not  to  place  undue  reliance  on the
forward-looking statements.

         OVERVIEW

         We provide a comprehensive  suite of software and services that enables
our  customers to rapidly  deploy  business  software  applications  that can be
modified quickly to meet constantly  changing  business  requirements.  From our
incorporation  in August 1991  through  December  1994,  we were a  professional
services company and generated revenue from technical  consulting  projects.  In
January 1995, we commenced development efforts on our initial software products,
from which we generated  revenue from late 1995 through early 1998. In September
1996, we began  development of our first Web-based  software  product,  which we
began shipping  commercially in September 1997. In September 1998, we introduced
the first generation of what is now our Suite of software products.  To date, we
have licensed our products and provided  services to approximately 500 customers
around the world.

                                       9

<PAGE>

         We derive our revenue  from the sale of software  product  licenses and
from related  services.  Our software is priced on a per server basis.  Software
license revenue also includes product  maintenance,  which provides the customer
with  unspecified  software  upgrades over a specified  term,  typically  twelve
months.  Services  revenue  consists  of fees  from  professional  services  and
customer support. Professional services include consulting, training, mentoring,
staff augmentation and project  management or rapid requirements  development to
complete  turnkey  solution   services.   Customers   typically  purchase  these
professional  services  from us to enlist  our  support by way of  training  and
mentoring  activities  directed at optimizing the customer's use of our software
product. Professional services are sold generally on a time-and-materials basis,
while customer support is priced based on the particular level of support chosen
by the customer.

         We recognize  revenue in accordance  with  Statement of Position  97-2,
Software Revenue  Recognition.  Software license revenue is recognized when both
parties sign a license agreement, the fee is fixed and determinable,  collection
is reasonably  assured and delivery of the product has  occurred.  Our customers
usually  purchase  maintenance  agreements for product  updates,  and revenue is
recognized  ratably over the term of the  agreement,  typically  one year,  as a
component  of  software  license  revenue.  We bill  professional  service  fees
generally on a  time-and-materials  basis and recognize  revenue as the services
are performed.  Services are not generally essential to the functionality of the
software.  In instances where the services are deemed essential to the software,
both  the  software  license  and  consulting  fees  are  recognized  using  the
percentage-of-completion  method of contract accounting.  Fees from arrangements
that provide for extended  payment terms are recognized as revenue when payments
become due. The portion of fees related to either products delivered or services
rendered  which are not due under our  standard  payment  terms is  reflected in
deferred revenue and in unbilled receivables until payments become due. Deferred
revenue balances also include amounts billed in advance of services rendered.

         We market our  products  and  services  through our direct sales force,
international   distributors,   consulting  and  system  integration   partners,
companies that sell pre-packaged  software  applications,  companies that custom
develop and integrate  software  applications  and companies  that sell software
applications over the Internet on a subscription  services basis, often referred
to as application service providers.

         Our revenue to date has been derived  predominantly  from  customers in
the United States.  Net revenues from  international  sales represented 30.8% of
our total revenue in the first quarter of 2001 and 13.8% of our total revenue in
the first quarter of 2000.

         Our cost of software  license revenue  consists of royalty  payments to
third parties for technology  incorporated into our product, the cost of manuals
and product documentation, as well as packaging and distribution costs. Our cost
of service revenue consists of salaries of professional  service personnel,  and
payments to third party  consultants  incurred in  providing  customer  support,
training,  and consulting services.  Cost of services revenue as a percentage of
services revenue is likely to vary significantly from period to period depending
on overall  utilization  rates, the mix of services we provide and whether these
services are provided by us or by third-party contractors.

         Since our inception,  we have incurred substantial costs to develop our
technology  and  products,  to  recruit  and  train  personnel  for our  product
development,  sales and marketing and professional services departments,  and to
establish our administrative  infrastructure.  To date, all software development
costs have been  expensed in the period  incurred.  Historically,  our operating
expenses have exceeded the revenue generated by our products and services.  As a
result,  we have incurred net losses in each quarter since  inception and had an
accumulated  deficit of $144.9  million and $121.3  million as of March 31, 2001
and December 31, 2000, respectively.

         On January 9, 2001,  we  implemented  a cost  cutting  initiative  that
included  a  reduction  in total  staff of  approximately  13%.  This  reduction
primarily reflected a shift in the strategy of our services organization.

         In March  2001,  we  announced  a  restructuring  effort to realign the
company's  expenses  with a business plan geared to the changing  economy.  This
restructuring  was designed to align the workforce with customer needs and focus
on core business products.  The restructuring plan includes the  discontinuation
of further development of non-core business products,  facility  consolidations,
and a reduction in total staff,  including domestic and international  employees
and contractors,  including staff in our subsidiaries,  of approximately 30%. We
expensed $6.9 million for restructuring and other non-recurring  expenses in the
first quarter of 2001.

                                       10
<PAGE>

         RESULTS OF OPERATIONS

         The following table sets forth for the periods indicated the percentage
revenues represented by certain lines in our Condensed  Consolidated  Statements
of Operations:


                                                          THREE MONTHS ENDED
                                                               MARCH 31
                                                     -------------------------
                                                       2001              2000
                                                     -------           -------
Revenue:
  Software license .......................              37.5%             40.9%
  Services ...............................              62.5              59.1
                                                     -------           -------
Total revenue ............................             100.0             100.0
                                                     -------           -------
Cost of Revenue:
  Software license .......................               1.4               1.9
  Services ...............................              76.0              54.2
                                                     -------           -------
Total cost of revenue ....................              77.4              56.1
Gross profit .............................              22.6              43.9
Operating expense:
  Sales and marketing ....................             108.2             100.8
  Product development ....................              35.3              18.4
  General and administrative .............              36.2              19.8
  Stock-based compensation ...............              (1.3)            109.6
  Amortization of intangibles ............              10.4               1.9
  Nonrecurring Expense ...................              62.6
                                                     -------           -------
Total operating expense ..................             251.4             250.5
Loss from operations .....................            (228.9)           (206.6)
  Interest income (expense)
  Other, net .............................               8.2               6.6
                                                     -------           -------
Net loss .................................            (220.7)%          (200.0)%
                                                     =======           =======



         REVENUE

         Total  revenue  consists  of  software  license  revenue  and  services
revenue. Total revenue increased by $0.9 million, or 9.1%, from $10.1 million in
the first quarter of 2000 to $11.0  million in the first  quarter of 2001.  This
increase is  principally  attributable  to the growth in new  customers,  repeat
business from existing customers and growth in international markets.

         Software License Revenue

         Software  license revenue was $4.1 million in both quarters ended March
31, 2001 and 2000. Software license revenues decreased in the number of licenses
sold domestically,  which was offset by the growth in international  sales. As a
result of the growth of our international  operations,  software license revenue
from international sales increased by $0.3 million or 18.6% from $1.4 million in
the first quarter of 2000 to $1.7 million in the first quarter of 2001.

         Services Revenue

         Services revenue increased by $0.9 million, or 15.4%, from $6.0 million
in the first quarter of 2000 to $6.9 million in the first quarter of 2001. These
increases  were  attributable  to growth in the number of customers  and support
contracts.  Services  revenue  from  international  customers  increased by $0.8
million or 173.9% from $0.5  million in first  quarter  2000 to $1.3  million in
first quarter of 2001.

         COST OF REVENUE

         Total cost of revenue  consists of cost of software license revenue and
cost of service  revenue.  Total cost of revenue  increased by $2.9 million,  or
50.8%,  from $5.7  million in the first  quarter of 2000 to $8.6  million in the
first quarter of 2001. These increases were mainly  attributable to the increase
of cost of consulting, training and customer support.

                                       11

<PAGE>

         Cost of Software License Revenue

         Cost of software  license revenue consists of royalty payments to third
parties for technology  incorporated  into our product,  the cost of manuals and
product  documentation,  as well as packaging and  distribution  costs.  Cost of
software  license  revenue  decreased by $37,000 or 19.1%,  from $194,000 in the
first quarter of 2000 to $157,000 in the first quarter of 2001.  These decreases
were attributable to a change in the mix of royalty rates paid to third parties.

         Cost of Services Revenue

         Cost of service revenue  consists of salaries of  professional  service
personnel and payments to third party consultants incurred in providing customer
support, training, and consulting services. Cost of service revenue increased by
$2.9 million,  or 53.1%,  from $5.5 million in the first quarter of 2000 to $8.4
million in the first quarter of 2001. These increases were principally due to an
increase  in the  number  of  our  consulting,  training  and  customer  support
personnel compared to the same period last year.

         OPERATING EXPENSES

         Operating  expense  increased  by $2.4  million,  or 9.6%,  from  $25.3
million in the first  quarter of 2000 to $27.7  million in the first  quarter of
2001.  The majority of these  increases were due to the  nonrecurring  charge of
$6.9  million,  which is related  to the  restructuring  effort to  realign  the
company's  expenses with a business  plan geared to the changing  economy in the
first  quarter of 2001.  The  balance  of the  increases  were due to  increased
investments in our operations and an increase in  amortization of intangibles as
a result  of an  acquisition  made in 2000.  These  increases  were  offset by a
decrease in stock-based compensation.

         Sales and Marketing

         Sales and  marketing  expense  consists of salaries,  commissions,  and
expense from our sales offices,  travel and entertainment  expense and marketing
programs.  Sales and marketing expense increased by $1.8 million, or 17.2%, from
$10.2 million in the first quarter of 2000 to $11.9 million in the first quarter
of 2001.  These  increases  were  attributable  to growth in the number of sales
employees in North America,  as well as the expansion of our international sales
operations. As a percentage of total revenue, sales and marketing increased from
100.8% in the first  quarter of 2000 to 108.2% in the first  quarter of 2001 due
to investments  made to improve our market position and expand our  distribution
channels.

         Product Development

         Product   development   expense  includes  costs  associated  with  the
development  of  new  products,   enhancements  to  existing  products,  quality
assurance and technical publication activities. These costs consist primarily of
employee  salaries and the cost of  consulting  resources  that  supplement  our
product  development  teams.  Product  development  expense  increased  by  $2.0
million,  or  109.7%,  from $1.9  million  in the first  quarter of 2000 to $3.9
million  in  the  first  quarter  of  2001.   These   increases  were  primarily
attributable  to  increases  in the number of  personnel  in  Versata's  product
development  and  engineering  organization.  As a percentage of total  revenue,
product development expense increased from 18.4% in the first quarter of 2000 to
35.3% in the first quarter of 2001. To date, all software development costs have
been expensed in the period incurred.

         General and Administrative

         General and administrative  expense consists of salaries for executive,
finance and administrative  personnel,  information  systems costs and allowance
for doubtful  accounts.  General and  administrative  expense  increased by $2.0
million,  or 99.5%,  from $2.0  million  in the  first  quarter  of 2000 to $4.0
million in the first quarter of 2001.  These  increases were  attributable  to a
growing  number of  employees  and an increase in  insurance  and other costs to
support a publicly traded company. As a percentage of total revenue, general and
administrative  expense  increased  from  19.8% in the first  quarter of 2000 to
36.2% in the first quarter of 2001, as the revenue base only increased  slightly
in the first quarter of 2001 compared to the same period of 2000.

         Stock-Based Compensation

         Stock-based  compensation expense includes the amortization of unearned
employee stock-based  compensation and expenses for stock granted to consultants
in exchange for services. Employee stock-based compensation expense is amortized
on an  accelerated
                                       12

<PAGE>


basis over the vesting period of the related options, generally 50 months. If an
employee terminates prior to full vesting of their options,  that portion of the
expenses  related to  unvested  options  that was  previously  recognized  on an
accelerated  basis is  reversed.  We  incurred a  non-cash  charge  (credit)  of
$(141,000) million for the first quarter of 2001 as compared to $11.1 million in
the first  quarter  of 2000,  related  to the  issuance  of stock  options  with
exercise prices below fair market value on the date of grant.  The credit in the
first  quarter  of 2001  relates  to the  impact  of  option  cancellations  for
terminated  employees  exceeding  the  amortization  for the period.  Additional
unvested  outstanding  options  will  continue  to vest over the next 38 months,
which will  result in  additional  compensation  expense of  approximately  $7.3
million in the aggregate in periods  subsequent to March 31, 2001, which will be
charged to operations over the next 38 months.


         Amortization of Intangibles

         We incurred  non-cash  charges of $1.1 million in the first  quarter of
2001 for the  amortization of goodwill related to the acquisitions of Pragma6 in
the fourth quarter of 1999, the  acquisitions of McGilly and Webink in the first
quarter of 2000, and the  acquisitions  of Verve,  Inc. in the fourth quarter of
2000.  There were no such  charges in the first  quarter  of 2000.  Goodwill  of
approximately  $11.3 million will  continue to be charged to operations  ratably
over the period of benefit, which is three years.

         Restructuring and Other Expenses


         Restructuring and Other Expenses expenses primarily relate to severance
and  office  consolidation  costs.  In  March  2001,  the  Company  announced  a
restructuring plan to streamline  operations,  enhance customer focus and reduce
costs.  Overall  expense  reductions  were necessary both to lower existing cost
structure  and  to  better  align  the  work  force  with  customer  needs.  The
restructuring  plan was  precipitated  by the changing  economic  conditions and
declining   revenues  from  recent  past  quarters.   Management   effected  the
restructuring  plan  during  the first  quarter of 2001 by  eliminating  certain
employee  positions and is reducing office space and related  overhead  expenses
beginning  in the second  quarter of 2001.  We expect  that the  majority of the
remaining  restructuring  actions such as office closures and subleasing will be
completed  by the end of the  third  quarter  of 2001.  Obligations  related  to
subleasing  may continue until 2008 as estimated and accrued for as of March 31,
2001.  We had  restructuring  and other  expenses  of $6.9  million in the first
quarter of 2001. There were no such charges in the first quarter of 2000.


         Interest Income (Expense), Net

         Interest  income  (expense),  net is  primarily  comprised  of interest
income from our cash and investments. We had net interest income of $909,000 for
the first  quarter of 2001  compared to net interest  income of $665,000 for the
first quarter of 2000.  These increases were  principally due to interest income
earned  from  higher  average  cash  balances  during the first  quarter of 2001
compared to the first quarter of 2000.

         Provision for Income Taxes

         We have  incurred  operating  losses  for all  periods  from  inception
through  March 31, 2001.  We have  recorded a valuation  allowance  for the full
amount of our deferred tax assets, as the future realization of the tax benefits
is uncertain.

         LIQUIDITY AND CAPITAL RESOURCES


         Since inception,  we have funded our operations  primarily  through the
private  sale  of our  equity  securities,  and  our  initial  public  offering,
resulting in the aggregate,  net proceeds of  approximately  $167.2 million.  We
have also funded our operations  through  equipment  financing.  As of March 31,
2001,  we had  $52.8  million  in  cash  and  cash  equivalents  and  short-term
investments  and $35.4  million in working  capital.  Net cash used in operating
activities  was $18.1  million in the first  quarter of 2001 and $6.1 million in
the first quarter of 2000.  Net cash flows used by operating  activities in each
period reflect  increasing  net losses,  offset by non-cash  expenses  including
stock-based  compensation,  nonrecurring  charge due to fixed  asset  write-off,
depreciation,  amortization,  and  provision for doubtful  accounts.  The use of
operating  cash was also  impacted  to a lesser  extent by  changes  in  working
capital.


         Net cash provided in investing activities was $8.4 million in the first
quarter of 2001 and net cash used in  investing  activities  was $2.2 million in
the first quarter of 2000. The increase in cash provided in investing activities
during the first three  months of 2001  primarily  reflects  the  maturities  of
short-term  investments  of $13.1  million,  net of purchases of $4.5 million of
property  and  equipment.   Our  capital  expenditures  consisted  primarily  of
purchases  of  office  furniture,   equipment  and  leasehold   improvements  in
connection  with the  relocation  of the  Company's  headquarters  in the  first
quarter of 2001.

         Net cash provided by financing activities was $1.5 million in the first
quarter of 2001 and $98.5 million in the first quarter of 2000.

                                       13

<PAGE>


         We  believe  that  the net  proceeds  from  the  sale of  common  stock
generated by our initial  public  offering,  together with funds  generated from
operations, will be sufficient to meet our general expenses, working capital and
capital expenditure  requirements for at least the next twelve months.  However,
we may find it necessary to obtain  additional  equity or debt  financing in the
future.  In the event  additional  financing is required,  we may not be able to
raise it on acceptable terms or at all.

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS

         We operate in a rapidly  changing  environment  that involves  numerous
risks, some of which are beyond our control. The following discussion highlights
some of these risks.

WEAKENING  OF  WORLD  WIDE   ECONOMIC   CONDITIONS   REALIZED  IN  THE  INTERNET
INFRASTRUCTURE SOFTWARE MARKET MAY RESULT IN DECREASED REVENUES OR LOWER REVENUE
GROWTH RATES.

         The revenue  growth of our business  depends on the overall  demand for
computer software, particularly in the product segments in which we compete. Any
slowdown  of the  worldwide  economy  affects the buying  decision of  corporate
customers.  Because  our  sales are  primarily  to Global  2000  customers,  our
business also depends on general economic and business  conditions.  A reduction
in demand for computer software,  caused by a weakening of the economy,  such as
occurred  in 2001,  or  otherwise,  may result in  decreased  revenues  or lower
revenue growth rates.

THE INTERNET  INFRASTRUCTURE  SOFTWARE  MARKET IS HIGHLY  COMPETITIVE AND WE MAY
LOSE MARKET SHARE TO LARGER COMPETITORS WITH GREATER RESOURCES.

         The Internet  infrastructure software market in general, and the market
for our software and related  services in particular,  are new, rapidly evolving
and highly competitive.  Many of our competitors have longer operating histories
and significantly  greater financial,  technical,  marketing and other resources
than we do. As a result,  they may be able to  respond  more  quickly  to new or
changing  opportunities,  technologies  and customer  requirements.  Many of our
competitors   also  have  more  extensive   customer  bases,   broader  customer
relationships and broader industry  alliances that they could leverage,  thereby
establishing  relationships  with many of our current and  potential  customers.
These companies also have  significantly  more established  customer support and
professional  service  organizations.  In addition,  these  companies  may adopt
aggressive  pricing  policies or offer more attractive  terms to customers,  may
bundle  their  competitive  products  with  broader  product  offerings  or  may
introduce  new products and  enhancements.  Furthermore,  current and  potential
competitors may establish  cooperative  relationships  among  themselves or with
third parties to enhance their  products.  As a result,  it is possible that new
competitors  or  alliances  among  competitors  may emerge and  rapidly  acquire
significant  market  share.  If  we  fail  to  compete   successfully  with  our
competitors, the demand for our products would decrease. Any reduction in demand
could lead to loss of market  share,  a decrease  in the price of our  products,
fewer  customer  orders,  reduced  revenues,   reduced  margins,  and  increased
operating losses. These competitive  pressures could seriously harm our business
and operating results.

NEW VERSIONS  AND  RELEASES OF OUR  PRODUCTS  MAY CONTAIN  ERRORS OR DEFECTS AND
RESULT IN LOSS OF REVENUE.

         The  software  products we offer are  complex  and,  despite  extensive
testing and quality  control,  may have had, and in the future could have errors
or defects,  especially when we first introduce them. Typically we need to issue
corrective  releases  of our  software  products  to fix any  defects or errors.
Defects or errors could also cause damage to our  reputation,  loss of revenues,
product  returns  or  order  cancellations,  lack of  market  acceptance  of our
products,  and  expose  us  to  litigation.   Accordingly,   defects  or  errors
particularly  if they are more numerous than expected  could have a material and
adverse effect on our business, results of operations and financial condition.

OUR FAILURE TO ACCURATELY  FORECAST SALES MAY LEAD TO A DISAPPOINTMENT OF MARKET
EXPECTATIONS.

         Our Company uses a "pipeline"  system, a common industry  practice,  to
forecast  sales and trends in our  business.  Our sales  personnel  monitor  the
status of all  proposals,  such as the date when they  estimate  that a customer
will make a purchase  decision and the  potential  dollar amount of the sale. We
aggregate these estimates periodically in order to generate a sales pipeline. We
compare  the  pipeline  at  various  points  in time to look for  trends  in our
business.  While this  pipeline  analysis  may provide us with some  guidance in
business  planning and  budgeting,  these  pipeline  estimates  are  necessarily
speculative  and may not  consistently  correlate  to revenues  in a  particular
quarter or over a longer  period of time. A variation in the  conversion  of the
pipeline into contracts or in the pipeline itself such as occurred in the fourth
quarter of 2000 could cause our Company to improperly plan or budget and thereby

                                       14

<PAGE>


adversely  affect our  business or results of  operations.  In  particular,  the
current slowdown in the economy is causing  purchasing  decisions to be delayed,
reduced in amount or cancelled  which will therefore  reduce the overall license
pipeline conversion rates in a particular period of time.

THE PRICE OF OUR COMMON STOCK IS VOLATILE AND IT MAY FLUCTUATE SIGNIFICANTLY.

         The market price of our common stock has fluctuated  significantly  and
has declined  sharply since our initial  public  offering in March 2000 and more
recently following our announcement on March 29, 2001 that we would delay filing
our Annual Report on Form 10-K for fiscal year 2000.  Our Company's  stock price
is  affected  by a number of  factors,  some of which  are  beyond  our  control
including:

o        quarterly  variations  in  results,  announcements  that our revenue or
         income are below analysts' expectations;

o        the competitive landscape;

o        technological innovations by us or our competitors;

o        changes in earnings estimates or recommendations by analysts;

o        sales of large blocks of our common  stock,  sales or the  intention to
         sell stock by our executives and directors;

o        general economic and market conditions;

o        additions or departures of key personnel and estimates and  projections
         by the investment community; and

o        fluctuations in stock market price and volume,  which are  particularly
         common among highly volatile securities of software companies.

         As a result, our stock price is subject to significant  volatility.  In
the past,  following  periods of  volatility or decline in the market price of a
company's  securities,  securities  class  action  litigation  has at times been
instituted  against  that  company.  We  are  currently  subject  to  securities
litigation, and may be subject to additional litigation.  This could cause us to
incur substantial costs and experience a diversion of management's attention and
resources.

OUR QUARTERLY REVENUES AND OPERATING RESULTS MAY FLUCTUATE IN FUTURE PERIODS.

         Our revenues are relatively difficult to forecast and vary from quarter
to quarter due to various factors including the:

o        relatively long sales cycles for our products;

o        size and timing of  individual  license  transactions,  the  closing of
         which tend to be delayed by customers until the end of a fiscal quarter
         as a negotiating tactic;

o        introduction  of new  products  or  product  enhancements  by us or our
         competitors;

o        potential  for delay or  deferral of  customer  implementations  of our
         software;

o        changes in customer budgets;

o        seasonality  of  technology   purchases  and  other  general   economic
         conditions; and

o        changes in our pricing policies or those of our competitors.

         Accordingly,  our quarterly  results are difficult to predict until the
end of the quarter.  Delays in product delivery or closing of sales near the end
of a quarter  caused  quarterly  revenues  and net income to fall  significantly
short of anticipated  levels in the first quarter of 2001, and given the current
economic slowdown, may well occur in future quarters.

                                       15

<PAGE>

         Our license  revenues in any quarter  are  substantially  dependent  on
orders  booked and shipped in that quarter.  We typically  receive and fulfill a
majority of our orders within the quarter,  with the substantial majority of our
orders  received in the last month of each fiscal quarter.  As a result,  we may
not learn of revenue shortfalls until late in a fiscal quarter,  after it is too
late to adjust  expenses  for that  quarter.  Since our  operating  expenses are
relatively  fixed  and are  based  on  anticipated  revenue  levels,  a delay in
bookings  from  even  a  small  number  of  license   transactions  could  cause
significant variations in revenues quarter to quarter and could cause net income
to fall  significantly  short of anticipated  levels. As an example,  the dollar
amounts of large orders for our products have been  increasing and therefore the
operating  results for a quarter  could be  materially  adversely  affected if a
number  of  large  orders  are  either  not  received  or  are  delayed,  due to
cancellations,  delays, or deferrals by customers. This circumstance occurred in
the first quarter of 2001.  Revenue shortfalls below our expectations could have
an immediate and significant adverse effect on our results of operations.

         Our services revenue in any quarter is  substantially  dependent on our
license revenue.  Services are normally  purchased in conjunction with software,
although it is not a requirement.  Should our license revenues  decrease,  there
will be a reduced  market for our  services.  Any revenue  shortfall in services
could  have an  immediate  and  significant  adverse  effect on our  results  of
operations.

         Our operating  results have in the past been,  and will continue to be,
subject to  quarterly  fluctuations  as a result of a number of  factors.  These
factors include:

o        competition in the Internet infrastructure software market;

o        the  integration  of people,  operations,  and products  from  acquired
         businesses and technologies;

o        the overall trend toward industry consolidation;

o        the  introduction  and  market   acceptance  of  new  technologies  and
         standards;

o        variations in mix of products sold; and

o        changes in general economic conditions and specific economic conditions
         in the Internet infrastructure software market.

         Any of the above  factors could have a material  adverse  impact on our
operations and financial results.

THE  PRIVATE  SECURITIES  CLASS  ACTION  LAWSUITS  AGAINST US AND CERTAIN OF OUR
DIRECTORS  AND OFFICERS  COULD HAVE A MATERIAL  ADVERSE  EFFECT ON OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

         We and  certain  of our  directors  and  officers  have  been  named as
defendants in several private securities class action lawsuits. Other litigation
and inquiries may be instituted. Depending on the outcome of such litigation, we
may be required to pay substantial damages or settlement costs, which could have
a material  adverse effect on our financial  condition or results of operations.
Regardless of the outcome of these  matters,  we may incur  substantial  defense
costs and that  such  actions  may  cause a  diversion  of  management  time and
attention.

         Our  liability  insurance  for actions  taken by officers and directors
provides only limited liability protection. To the extent that these policies do
not  adequately  cover our expenses  related to any  shareholder  lawsuits,  our
business and financial condition could be seriously harmed.  Under Delaware law,
in  connection  with our charter  documents  and  indemnification  agreements we
entered into with our executive  officers and  directors,  we must indemnify our
current and former  officers and  directors to the fullest  extent  permitted by
law. Subject to certain  conditions,  the indemnification may cover expenses and
liabilities  reasonably incurred in connection with the investigation,  defense,
settlement, or appeal of legal proceedings.

ANY  POTENTIAL  DELISTING  OF VERSATA'S  COMMON  STOCK FROM THE NASDAQ  NATIONAL
MARKET COULD HARM OUR BUSINESS.

         Versata's common stock trades on the Nasdaq National Market,  which has
certain compliance requirements for continued listing of common stock, including
a requirement  that Versata's common stock have a minimum bid price of $1.00 per
share.  On May 14, 2001,  Versata's  common stock closed at a price per share of
$1.28.

                                       16
<PAGE>

         Under requirements to be listed on Nasdaq  Marketplace,  if the minimum
closing  bid price per share is less than  $1.00 for a period of 30  consecutive
trading days, Versata's shares may be delisted following a 90 day notice period,
subject to Versata's right to appeal.  If Versata's minimum closing bid price is
above $1.00 for 10 consecutive trading days during the 90 day notice period, the
delisting  procedures will be halted.  Versata  anticipates that it would appeal
any determination to delist its common stock from the Nasdaq National Market.

         If Versata's  common stock is delisted and any appeal we file  receives
an  unfavorable  determination  by NASD,  our common stock would be removed from
listing on the Nasdaq National Market which could have a material adverse effect
on us and on the price of our common stock.

WE HAVE INCURRED INCREASING  OPERATING LOSSES SINCE OUR INCEPTION AND ARE LIKELY
TO INCUR NET LOSSES AND NEGATIVE CASH FLOWS FOR THE FORESEEABLE FUTURE.

         We have  experienced  operating  losses in each  quarterly  and  annual
period since inception, and we expect to incur significant losses in the future.
If our  revenue  grows  less than we  anticipate  or if our  operating  expenses
increase more than expected or are not reduced in the event of lower revenue, we
may never achieve  profitability.  As of March 31, 2001,  we had an  accumulated
deficit  of  $144.9  million.   Although  we  have  an  objective  of  achieving
profitability  as  soon as  practical,  we  cannot  assure  you  that we will be
successful.  In order to achieve  and  maintain  profitability,  we will need to
increase revenues while decreasing expenses.

WE MAY REQUIRE FUTURE ADDITIONAL FUNDING TO STAY IN BUSINESS.

         Over time, we may require additional  financing for our operations.  We
have not been  operating on a profitable  basis and have relied on sale of stock
to finance our operations. We may need to return to the capital markets in order
to receive additional financing.  This additional financing may not be available
to us on a timely basis if at all, or, if available,  on terms acceptable to us.
Moreover, additional financing will cause dilution to existing stockholders.

IF WE DO NOT DEVELOP AND  ENHANCE  NEW AND  EXISTING  PRODUCTS TO KEEP PACE WITH
TECHNOLOGICAL, MARKET AND INDUSTRY CHANGES, OUR REVENUES MAY DECLINE.

         The markets for our products are  characterized by rapid  technological
advances in software development,  evolving standards in software technology and
frequent new product  introductions and enhancements.  Product introductions and
short product life cycles  necessitate  high levels of expenditures for research
and development. To maintain our competitive position, we must:

o        enhance and improve  existing  products and  continue to introduce  new
         products that keep pace with technological developments;

o        satisfy increasingly sophisticated customer requirements; and

o        achieve market acceptance.

         The success of new products is dependent on several  factors  including
proper new product definition,  product cost, timely completion and introduction
of new products,  differentiation of new products from those of our competitors,
and market acceptance of these products.  There can be no assurance that we will
successfully identify new product opportunities,  develop and bring new products
to market in a timely manner,  and achieve market  acceptance of our products or
that products and technologies  developed by others will not render our products
or  technologies  obsolete or  noncompetitive.  Our  inability  to run on new or
increasingly  popular  operating  systems,  and/or our  failure to  successfully
enhance  and  improve  our  products  in a timely  manner  could have a material
adverse effect on our business,  results of operations,  financial  condition or
cash flows.

IF THE VERSATA E-BUSINESS  AUTOMATION SYSTEM AND RELATED SERVICES DO NOT ACHIEVE
WIDESPREAD  MARKET  ACCEPTANCE,  THE SOURCE OF SUBSTANTIALLY  ALL OF OUR REVENUE
WILL BE AT RISK.

         We cannot predict the level of market  acceptance that will be achieved
or   maintained   by  our  products  and   services.   If  either  the  Internet
infrastructure  software  market in general,  or the market for our  software or
related  services  in  particular,  fails to grow or grows more  slowly  than we
anticipate,  or if  either  market  fails to accept  our  products  and  related
services,  the source of  substantially  all of our revenue will be at risk.  We
expect to continue to derive substantially all our revenue from and be dependent
upon the Versata System and related  services in the future.  The market for the
Versata System and related services is new, rapidly evolving and

                                       17
<PAGE>


highly  competitive,  and we  cannot be  certain  that a viable  market  for our
products will ever develop or be  sustained.  Our future  financial  performance
will  depend  in large  part on the  successful  development,  introduction  and
customer  acceptance  of our new  products,  product  enhancements  and  related
services in a timely and cost effective  manner. We expect to continue to commit
significant  resources to market and further  develop our E-Business  Automation
System and related  services and to enhance the brand  awareness of our software
and services.

IF JAVA  TECHNOLOGY  DOES NOT  CONTINUE  TO BE  WIDELY  ADOPTED  FOR  E-BUSINESS
APPLICATION DEVELOPMENT, OUR BUSINESS WILL SUFFER.

         Our products are based on Java technology,  an object-oriented software
programming  language  and  distributed  computing  platform  developed  by  Sun
Microsystems.  Java is a relatively new language and was developed primarily for
the  Internet  and  corporate  intranet  applications.  It is still too early to
determine whether Java will achieve greater acceptance as a programming language
and  platform  for  enterprise   applications.   Alternatives  to  Java  include
Microsoft's C+ language and .net computing platform. Should Java not continue to
be widely adopted, or is adopted more slowly than anticipated, our business will
suffer. Alternatively,  if Sun Microsystem makes significant changes to the Java
language  or its  proprietary  technology,  or  fails  to  correct  defects  and
limitations in these  products,  our ability to continue  improving and shipping
our products  could be impaired.  In the future,  our customers also may require
the ability to deploy our products on platforms for which technically acceptable
Java  implementations  either do not exist or are not available on  commercially
reasonable terms.

WE DEPEND ON INCREASED  BUSINESS  FROM OUR CURRENT AND NEW  CUSTOMERS  AND IF WE
FAIL TO GENERATE  REPEAT AND EXPANDED  BUSINESS OR GROW OUR CUSTOMER  BASE,  OUR
PRODUCT AND SERVICES REVENUE WILL LIKELY DECLINE.

         In order to be  successful,  we need to broaden our business by selling
product  licenses  and  services  to  current  and  new  customers.  Many of our
customers  initially  make a limited  purchase of our  products and services for
pilot programs.  These customers may not choose to purchase  additional licenses
to expand their use of our products.  These and other  potential  customers also
may not yet have developed or deployed  initial software  applications  based on
our products.  If these customers do not  successfully  develop and deploy these
initial  software  applications,  they may  choose  not to  purchase  deployment
licenses or additional  development  licenses.  In addition, as we introduce new
versions of our products or new products,  our current customers may not require
the functionality of our new products and may not license these products.

         If we fail to add new customers who license our products,  our services
revenue will also likely  decline.  Our service revenue is derived from fees for
professional  services and customer  support related to our products.  The total
amount of services  and support  fees we receive in any period  depends in large
part on the size and number of software licenses that we have previously sold as
well as our customers  electing to renew their customer support  agreements.  In
the event of a downturn in our  software  license  revenue  such as is likely at
least for some period  during 2001 or a decline in the  percentage  of customers
who renew their annual  support  agreements,  our services  revenue could become
flat or decline.

OUR FAILURE TO MAINTAIN ONGOING SALES THROUGH DISTRIBUTION  CHANNELS WILL RESULT
IN LOWER REVENUES.

         To date, we have sold our products principally through our direct sales
force, as well as through indirect sales channels,  such as packaged application
software  vendors  (ISVs),  systems  integrators  and  independent  consultants,
application  service providers (ASPs) and  distributors.  Our ability to achieve
revenue  growth in the future  will  depend in part on our success in making our
direct sales force more  efficient  and in further  establishing  and  expanding
relationships with distributors,  ASPs, ISVs, OEMs and systems  integrators.  We
intend  to seek  distribution  arrangements  with  additional  ISVs to embed our
Versata Logic Server and Versata  Interaction  Server in their  products.  It is
possible that we will not be able to increase the efficiency of our direct sales
force  or  other  distribution  channels,  or  secure  license  agreements  with
additional ISVs on commercially  reasonable terms. Moreover,  even if we succeed
in these  endeavors,  it still  may not  increase  our  revenues.  If we  invest
resources  in these types of expansion  and our revenues do not  correspondingly
increase,  our business,  results of operations and financial  condition will be
materially and adversely affected.

         We rely on  informal  relationships  with a number  of  consulting  and
systems integration firms to enhance our sales,  support,  service and marketing
efforts, particularly with respect to implementation and support of our products
as well as lead generation and assistance in the sales process.  We will need to
expand our relationships  with third parties in order to support license revenue
growth. Many such firms have similar, and often more established,  relationships
with our  principal  competitors.  It is  possible  that  these and other  third
parties  will not provide the level and quality of service  required to meet the
needs of our customers,  that we will not be able

                                       18

<PAGE>

to maintain an effective,  long term relationship with these third parties,  and
that these third parties will not successfully meet the needs of our customers.

FAILURE TO EXPAND OR GROW THE SERVICE  OFFERINGS THAT  COMPLEMENT OUR E-BUSINESS
AUTOMATION SYSTEM COULD PUT AT RISK A SUBSTANTIAL COMPONENT OF OUR REVENUE.

         We believe that growth in our product  license  revenue  depends on our
ability to provide our  customers  with  comprehensive  services  and to educate
third-party  resellers,  instructors  and  consultants on how to provide similar
services. These services include customer support,  training,  mentoring,  staff
augmentation and project management services.  If we fail to attract,  train and
retain the  skilled  persons  who  deliver  these  services,  our  business  and
operating  results  could be  jeopardized.  However,  competition  for qualified
service personnel is intense, and we may not be able to attract,  train, retain,
or employ through acquisition,  the number of highly qualified service personnel
that our business needs.

         Our objective is to increase our service revenue in dollar amount as we
continue to provide  mentoring,  training and  customer  support  services  that
complement our products and as our installed base of customers  grows.  However,
our services revenue is substantially related to our license revenue. Should our
license  revenue  decline or should there be a decline in the price of or demand
for our service  offerings,  a substantial  component of our revenue could be at
risk.  The  economic  slowdown  of the first  quarter of 2001 has had a negative
impact on our service revenues and may continue to do so.

FAILURE TO ATTRACT,  TRAIN AND RETAIN KEY  PERSONNEL,  OR THE  INABILITY  OF OUR
SENIOR MANAGEMENT TEAM TO WORK TOGETHER EFFECTIVELY, COULD HARM OUR BUSINESS.

         Our success depends  largely on the skills,  experience and performance
of the members of our senior management team and other key personnel,  including
our Interim Chief  Executive  Officer and Executive  Vice President of Worldwide
Field Operations,  our Chief Operating Officer and Chief Financial Officer,  and
our Vice President of Human Resources,  each of whom have joined us recently. As
a result, our senior management team has had a limited time to work together. If
they are unable to work together  effectively  and manage our  organization as a
public company,  our business will suffer.  Furthermore,  if we lose officers or
other key  employees,  our business  and  operating  results  could be seriously
harmed.  We do not maintain key person  insurance  on any of our  employees.  In
addition,  our future  success will depend largely on our ability to continue to
attract, train and retain highly skilled personnel.  We face intense competition
for  qualified  personnel  including  sales,  engineering,  service and support.
Furthermore, the cash compensation necessary to attract and retain these skilled
employees  is likely to  increase  as  current  and  prospective  employees  may
perceive that the stock option component of our  compensation  package is not as
valuable as it was in the past.  If we are unable to hire and retain  additional
qualified  employees,  our business  could suffer,  particularly  our ability to
develop new products and enhance our existing products.

OUR LIMITED EXPERIENCE IN MANAGING A LARGE SALES FORCE MAY IMPAIR OUR ABILITY TO
EXPAND SALES AND GENERATE INCREASED REVENUE.

         Until recently, we did not have a large direct sales force. Despite the
recent  reductions  in force in the first  quarter of 2001, we have expanded our
direct sales force over the past year.

Our products and services  require a sophisticated  sales effort targeted at the
senior  management of our prospective  customers.  Newly hired employees require
extensive  training  and  generally  take at least nine  months to achieve  full
productivity.  We have  limited  experience  in  managing  a  large,  expanding,
geographically  dispersed sales force. In addition,  we have limited  experience
marketing our products broadly to a large number of potential customers.  We may
have difficulty in hiring enough qualified individuals in the future or assuring
that newly hired employees will achieve necessary levels of productivity.

OUR BUSINESS IS SUBJECT TO RISKS FROM INTERNATIONAL OPERATIONS.

         We  conduct  business  internationally.  Accordingly,  a portion of our
revenues is derived from  international  sales and is  therefore  subject to the
related risks  including the general  economic  conditions in each country,  the
overlap of different tax structures,  the difficulty of managing an organization
spread over various countries,  changes in regulatory  requirements,  compliance
with a variety  of  foreign  laws and  regulations,  longer  payment  cycles and
volatilities of exchange rates in certain countries.  There can be no assurances
that we will be able to  successfully  address each of these  challenges.  Other
risks  associated  with  international  operations  include  import  and  export
licensing requirements, trade restrictions and changes in tariff rates.

                                       19
<PAGE>


         A portion of our  business is conducted  in  currencies  other than the
U.S. dollar.  Changes in the value of major foreign  currencies  relative to the
value of the U.S. dollar may adversely affect revenues and operating results.

IF WE  INFRINGE  THE  PATENTS  OR  PROPRIETARY  RIGHTS OF OTHERS  OUR  BUSINESS,
FINANCIAL CONDITION AND OPERATING RESULTS WOULD BE HARMED.

         We do not believe our products infringe the proprietary rights of third
parties,  but third parties may nevertheless  assert infringement claims against
us in the future.  Regardless  of whether  these claims have merit,  they can be
time consuming and expensive to defend or settle,  and can harm our business and
reputation.  Furthermore,  we may initiate  claims or  litigation  against third
parties for infringement of our proprietary  rights or to establish the validity
of our proprietary  rights.  Litigation,  whether  resolved in our favor or not,
could  be   time-consuming  to  defend,   result  in  increased  costs,   divert
management's  attention and resources,  cause product shipment delays or require
us to enter into unfavorable royalty or licensing agreements.

WE MAY INCUR SUBSTANTIAL EXPENSES IF WE ARE SUED FOR PRODUCT LIABILITY.

         Our license agreements with our customers  typically contain provisions
designed to limit our  exposure to potential  product  liability  claims.  It is
possible,  however, that the limitation of liability provisions contained in our
license  agreements  may not be  effective  as a result  of  existing  or future
federal,  state or local laws or ordinances or unfavorable  judicial  decisions.
Although we have not experienced any product  liability claims to date, sale and
support  of our  products  entails  the  risk of such  claims,  which  could  be
substantial  in light of  customers'  use of such  products in  mission-critical
applications.  If a claimant  brings a product  liability  claim  against us, it
could have a material adverse effect on our business,  results of operations and
financial  condition.  Our products  interoperate with many parts of complicated
computer systems, such as mainframes,  servers, personal computers,  application
software, databases, operating systems and data transformation software. Failure
of any one of these parts could cause all or large parts of computer  systems to
fail. In such circumstances, it may be difficult to determine which part failed,
and it is likely that customers will bring a lawsuit against several  suppliers.
Even if our software  was not at fault,  we could  suffer  material  expense and
material diversion of management time in defending any such lawsuits.

SINCE THE  LICENSING OF OUR  AUTOMATION  TECHNOLOGY IS A KEY COMPONENT OF SALES,
OUR BUSINESS MAY SUFFER IF WE CANNOT PROTECT OUT INTELLECTUAL PROPERTY.

         Approximately  37.5% of our  revenue  in the first  quarter of 2001 was
derived from the sales of software product licenses. We rely on a combination of
contractual provisions, confidentiality procedures, and patent, trademark, trade
secret and copyright laws to protect the proprietary  aspects of our technology.
We currently have a U.S. patent relating to our automated  development tool that
uses a  drag-and-drop  metaphor.  This patent is scheduled to expire on April 9,
2016. In addition,  we have a U.S. patent pending relating to our business rules
automation  in  database  application  development  and  maintenance.  We cannot
predict whether this patent application will result in an issued patent, or if a
patent is issued, whether it will provide any meaningful  protection.  Moreover,
these legal protections  afford only limited protection and competitors may gain
access  to our  intellectual  property  which  may  result  in the  loss  of our
customers.

         Despite  our efforts to protect our  proprietary  rights,  unauthorized
parties  may  attempt to copy  aspects of our  products or to obtain and use our
proprietary information. Litigation may be necessary to enforce our intellectual
property rights,  to protect our trade secrets and to determine the validity and
scope of the  proprietary  rights of  others.  Any  litigation  could  result in
substantial  costs and  diversion of resources  with no assurance of success and
could seriously harm our business and operating  results.  In addition,  we sell
our products internationally,  and the laws of many countries do not protect our
proprietary  rights as well as do the laws of the United States.  Our patent and
future  patents,  if any, may be  successfully  challenged or may not provide us
with any competitive advantages.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Versata is exposed to a variety of risks, including changes in interest
rates affecting the return on its investments  and, to a lesser extent,  foreign
currency  fluctuations.  In the normal  course of business  Versata  establishes
policies and procedures to manage its exposure to fluctuations in interest rates
and foreign currency values.

INTEREST RATE RISKS. Versata's exposure to interest rate risks results primarily
from its short-term  investments.  These securities have been classified as cash
equivalents  when  the  maturity  dates  are  less  than 90 days at the  date of
issuance,  and as short-term  investments when the maturity dates are between 90
and 365 days at the date of  issuance.  Versata does not believe its exposure to

                                       20

<PAGE>


interest rate risk is material  given the  short-term  nature of its  investment
portfolio.  Declines  in  interest  rates  over time will,  however,  reduce our
interest income.

FOREIGN CURRENCY RISKS. As of March 31, 2001, Versata had operating subsidiaries
located in the United  Kingdom,  Germany,  Belgium,  Hong Kong,  Australia,  and
France.  Internationally,  Versata invoices customers  primarily in U.S. dollars
and we maintain  only nominal  foreign  currency  cash  balances.  Working funds
necessary to facilitate the short-term  operations of our  subsidiaries are kept
in local  currencies in which they do business.  We do not currently  enter into
foreign currency hedge  transactions.  Through March 31, 2001,  foreign currency
fluctuations have not had a material impact on our financial position or results
of operations.


                                     PART II

                                OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

SECURITIES CLASS ACTION

Since April 11, 2001,  several putative  securities class action complaints were
filed against us, and certain of our current and former  officers and directors.
The complaints allege violations of the federal  securities laws. The complaints
seek an  unspecified  amount of damages on behalf of persons who  purchased  our
stock during the proposed class periods.

We intend to defend these  actions  vigorously.  There can be no assurance  that
there will not be additional lawsuits filed and that the pending actions will be
resolved  without  costly  litigation,  or in a  manner  that is not  materially
adverse to our  financial  position,  results of  operations  or cash flows.  No
estimate can be made of the possible loss or possible  range of loss  associated
with the resolution of these contingencies.


ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

(a) Sales of Unregistered Securities

         During the period from January 1, 2000 to March 31, 2001,  employees of
Versata  exercised  options  to  purchase  92,267  shares of  common  stock at a
weighted  average  exercise  price of $0.81 per share.  The options were granted
pursuant to our 1997 Stock Option  Plan.  We sold these  securities  in reliance
upon Rule 701 promulgated under the Securities Act of 1933, as amended.

(b) Use of Proceeds

         Versata has invested the net proceeds from its initial public  offering
of common stock in interest bearing investment grade  instruments.  We expect to
use the net proceeds  primarily to fund working capital,  technology and product
development  and sales and  marketing.  None of the net  proceeds of our initial
public offering were paid to any of our directors or officers,  or to any person
owning 10% or more of any class of our equity securities.


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

None.

                                       21

<PAGE>


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) The following exhibits are included herein:

        EXHIBIT
         NUMBER                      DESCRIPTION OF DOCUMENT
         ------                      -----------------------

          2.1(1)  Agreement  and Plan of  Reorganization  by and among  Versata,
                  Inc.,  VATA  Acquisition   Corp.,   Verve,  Inc.  and  Certain
                  Shareholders of Verve, Inc., dated October 18, 2000

          3.1(2)  Amended and Restated Certificate of Incorporation of Versata.

          3.2(2)  Amended and Restated Bylaws of Versata.

          4.1(2)  Form of Specimen Common Stock Certificate.

         10.1(2)* 2000 Stock Incentive Plan of Versata.

         10.2(2)* Employee Stock Purchase Plan of Versata.

         10.3(2)  Fourth Amended and Restated Investors' Rights Agreement, among
                  Versata and some of its stockholders, dated November 30, 1999.

         10.4(2)  Form of  Indemnification  Agreement to be entered into between
                  Versata and each of its directors and executive officers.

         10.5(2)  Office Lease dated June 17, 1997,  between Versata and Webster
                  Street Partners, Ltd., for 2101 Webster.

         10.6(2)  Agreement of Sublease dated October 18, 1999,  between Versata
                  and ICF Kaiser International, Inc.

         10.7(2)  Loan and Security  Agreement,  dated January 23, 1997, between
                  Versata and Venture  Banking  Group,  a division of  Cupertino
                  National Bank, as amended September 22, 1998.

         10.8(2)  Senior Loan and  Security  Agreement,  dated  August 20, 1999,
                  between Versata and Phoenix Leasing  Incorporated,  as amended
                  on October 1, 1999.

         10.9(2)+ Joint Product and  Marketing  Agreement,  dated  September 27,
                  1999, between Versata and IBM.

         10.10(3) Lease  agreement,  dated as of April 10, 2000,  by and between
                  Versata and Kaiser  Center,  Inc.  for the  sublease of office
                  space in Oakland, CA.

         10.11(4) Software Remarketing Agreement,  effective September 27, 2000,
                  between   Versata   and   International    Business   Machines
                  Corporation.

         21.1**   Subsidiaries of Versata.

+        Specified  portions of this  agreement  have been omitted and have been
         filed separately with the Securities and Exchange  Commission  pursuant
         to a request for confidential treatment.

*        Management contract or compensatory plan or arrangement.

**       Previously filed.

(1)      Incorporated by reference from the Company's Form 8-K dated December 1,
         2000.

(2)      Incorporated by reference from the Company's  Registration Statement on
         Form S-1 (File No. 333-92451).

(3)      Incorporated by reference from the Company's Form 10-Q dated August 14,
         2000.

(4)      Incorporated  by reference from the Company's Form 10-Q dated September
         24, 2000.

(b)      Reports on Form 8-K:

                                       22

<PAGE>


         The  Company  filed an  Amended  Current  Report on Form  8-K/A,  dated
January 30, 2001, containing Verve, Inc.'s consolidated financial statements for
the year ended June 30, 2000.


                                  VERSATA, INC.

                                   SIGNATURES

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned thereunto duly authorized.


VERSATA, INC.


Date: November 16, 2001             /s/  DOUGLAS ROBERTS
                                    --------------------------------------------
                                         Chief Executive Officer and President


                                    /s/  JIM DOEHRMAN
                                    --------------------------------------------
                                         Chief Operating Officer,
                                         Chief Financial Officer, Secretary
                                         and Executive Vice President

                                       23