<PAGE>   1

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

                                   FORM 10-K

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                       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: 000-26789

                            BROADBASE SOFTWARE, INC.
           (EXACT NAME OF THE REGISTRANT AS SPECIFIED IN ITS CHARTER)

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<S>                                            <C>
                   DELAWARE                                      77-0417081
(STATE OR OTHER JURISDICTION OF INCORPORATION)      (I.R.S. EMPLOYER IDENTIFICATION NO.)

            181 CONSTITUTION DRIVE
             MENLO PARK, CA 94025                              (650) 614-8300
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)         (THE REGISTRANT'S TELEPHONE NUMBER)
</TABLE>

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                    COMMON STOCK, $.001 PAR VALUE PER SHARE

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  YES [X]  NO [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [ ]

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<CAPTION>
                                                                  AS OF
                                                              MARCH 1, 2001
                                                              --------------
<S>                                                           <C>
Aggregate market value of the voting and nonvoting common
  equity held by non-affiliates of the Registrant, based the
  closing sale price of such stock*.........................   $259,087,281
                                                               ------------
Number of shares of common stock outstanding................     81,793,920
                                                               ------------
</TABLE>

---------------
* Shares of common stock held by each executive, director and 10% or greater
  shareholder have been excluded in that such persons may be deemed affiliates.
  This determination of affiliate status is not necessarily a conclusive
  determination for other purposes.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the definitive Proxy Statement for the Registrant's 2001 Annual
Meeting of Stockholders are incorporated by reference in Part III.

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<PAGE>   2

                            BROADBASE SOFTWARE, INC.

                        2000 ANNUAL REPORT ON FORM 10-K

                               TABLE OF CONTENTS

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<CAPTION>
                                                                        PAGE
                                                                        ----
<S>       <C>                                                           <C>
PART I
Item 1.   Business....................................................    1
Item 2.   Properties..................................................    8
Item 3.   Legal Proceedings...........................................    8
Item 4.   Submission of Matters to a Vote of Security Holders.........    8

PART II
Item 5.   Market for Registrant's Common Equity and Related
          Stockholder Matters.........................................    9
Item 6.   Selected Financial Data.....................................   10
Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations...................................   11
Item 7A.  Quantitative and Qualitative Disclosures About Market
          Risk........................................................   32
Item 8.   Financial Statements and Supplementary Data.................   33
Item 9.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosures...................................   59

PART III
Item 10.  Directors and Executive Officers of the Registrant..........   59
Item 11.  Executive Compensation......................................   61
Item 12.  Security Ownership of Certain Beneficial Owners and
          Management..................................................   66
Item 13.  Certain Relationships and Related Transactions..............   68

PART IV
Item 14.  Exhibits, Financial Statement Schedule and Reports on Form
          8-K.........................................................   69
          Signatures..................................................   71
</TABLE>

                                        i
<PAGE>   3

     We make many statements in this report, such as statements regarding our
plans, objectives, expectations and intentions and others, that are
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. We may identify these statements by the
use of words such as "believe," "expect," "anticipate," "intend," "plan' and
similar expressions. These forward-looking statements involve several risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of various factors, including
those we discuss in "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Risk Factors" and elsewhere in this report. These
forward-looking statements speak only as of the date of this report, and we
caution you not to rely on these statements without also considering the risks
and uncertainties associated with these statements and our business that are
addressed in this report.

                                     PART I

ITEM 1. BUSINESS

     We develop and market software that enables companies to conduct highly
effective, intelligent customer interactions through the Internet and
traditional business channels, thereby providing the basis for businesses to
improve their customer acquisition, retention and profitability. Our web-based
product suite combines operational marketing and service applications with
customer analytics. Our software integrates information from numerous points of
customer interaction, or touch points, by pulling information from multiple data
sources and transforming it into a standard format that can be analyzed and
acted upon. Our software then analyzes this reformatted information to provide a
comprehensive understanding of the customer lifecycle from initial
identification through acquisition and retention. Our software applications
translate this analysis into specific marketing, sales and service actions,
including the execution of targeted marketing campaigns, the delivery of
Internet and traditional-based customer service, and the personalization of all
customer interactions. By integrating, analyzing and acting on valuable customer
information, our products enable businesses to build long-lasting and profitable
customer relationships.

CORPORATE HISTORY AND RECENT EVENTS

     In November 1995, we began operations and were incorporated in California
under the name Broadbase Information Systems, Inc. In September 1999, we
reincorporated in Delaware under our current name and completed our initial
public offering.

     During 2000, we acquired the following five companies:

<TABLE>
<CAPTION>
     NAME OF        ACQUISITION
     COMPANY         COMPLETED                   DESCRIPTION OF COMPANY
     -------        -----------                  ----------------------
<S>                <C>             <C>
Servicesoft, Inc.  December 2000   Provider of e-service solutions, including
                                   self-help and assisted service, email management,
                                   live collaboration and an e-service portal.
Decisionism, Inc.  December 2000   Provider of analytic solutions for
                                   business-to-business digital marketplaces.
Panopticon, Inc.   September 2000  Developer of an application that produces
                                   context-sensitive, personalized real-time
                                   recommendations across web, wireless, e-mail and
                                   call center customer interaction points.
Aperio, Inc.       June 2000       Provider of e-commerce marketing consulting
                                   services.
Rubric, Inc.       February 2000   Provider of an e-marketing operational system that
                                   enables the execution of targeted marketing
                                   campaigns and proactive campaign management through
                                   both Internet and traditional-based channels.
</TABLE>

                                        1
<PAGE>   4

PRODUCTS AND SERVICES

  Product Offerings

     Our suite of analytic, service and marketing automation applications is
designed to enable companies to conduct highly effective, intelligent customer
interactions, enabling businesses to improve their customer acquisition,
retention and profitability. Each application is designed specifically to
address critical business functions. These applications analyze, measure and
evaluate information from numerous customer touch points by extracting the
information, reformatting it, performing various calculations and identifying
customer patterns that are useful for each specific business function. Our
product offerings consist of the following:

     - E-Marketing. Broadbase E-Marketing helps marketers identify, deliver and
       measure highly targeted online and offline marketing campaigns. Broadbase
       E-Marketing is a comprehensive marketing solution that predicts behavior,
       executes automated campaigns on an ongoing basis, and offers an efficient
       course of contact at any point in the buying process. We released the
       most recent version of Broadbase E-Marketing in June 2000.

     - E-Commerce. Broadbase E-Commerce is an analytic and real-time
       recommendation application that helps e-businesses interact more
       effectively with customers over their website. It helps online businesses
       convert browsers to buyers by delivering relevant content and targeted
       promotions to both registered and unregistered users. We released the
       most recent version of Broadbase E-Commerce in June 2000.

     - E-Marketplace. Broadbase E-Marketplace is an analytic application
       designed specifically for online marketplaces such as exchanges, auction
       sites and other many-to-many e-commerce businesses. It enables the online
       marketplace to take advantage of data in their transaction systems by
       turning it into valuable information for the marketplace. We first
       released Broadbase E-Marketplace in December 2000.

     - E-Service. Broadbase E-Service electronically emulates the behavior of a
       customer service representative. This application leverages intelligence,
       programmed into a knowledge base, to respond to customer inquiries in a
       personalized and immediate fashion. This application enables our
       customers to build customer loyalty, reduce interaction costs and
       maintain greater control over their contact center operations. The
       individual applications within E-Service include E-Service Analytics,
       Agent Assist, E-Mail Response, Live Collaboration, Self Service and
       E-Service Portal. This product, the most recent version of which was
       released in February 2001, builds on the e-service applications
       previously offered by Servicesoft.

     - E-Procurement. Broadbase E-Procurement is an analytic application
       designed to enable purchasing departments to gain more efficiencies and
       value from their online purchasing systems. Broadbase helps purchasing
       departments identify opportunities for further streamlining their
       procurement process, reducing procurement costs, and improving supplier
       performance. We first released Broadbase E-Procurement in September 2000.

     Our software incorporates a browser-based interface that enables business
users to take advantage of all of its capabilities with minimal training. This
intuitive interface guides business users through the process of analyzing
customer information, building and executing marketing campaigns and providing
online and offline customer service.

     Actual features and release dates for new applications and new versions of
existing applications could differ materially from those projected as a result
of a variety of factors, many of which are beyond our control. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Risk
Factors -- We may be unable to attract new customers if we do not develop new
products and enhancements". Even if development is completed when anticipated,
we may decide to postpone introduction of new applications or versions, or not
to introduce them at all.

                                        2
<PAGE>   5

  Analytic Software Platform

     Our suite of analytic, service and marketing automation applications is
built on Foundation, our software platform that enables our analytic
applications to perform complex analysis. Foundation, which was introduced in
the fourth quarter of 1997, enables our applications to extract data from
multiple sources, transform this data into a consistent format and store this
data in widely used databases such as Microsoft SQL Server and Oracle. This data
can include both real time and historic data from sources such as:

     - Internet-based or e-commerce systems, including websites, e-mail and
       online services;

     - front-office customer relationship management applications including
       sales, marketing and customer support systems;

     - back-office enterprise resource planning applications including finance,
       manufacturing and human resources; and

     - sources of demographic data.

     Foundation features adaptable and robust data extraction, transformation
and loading capabilities that extract and transform data from key data sources
and load that data into our applications. The extraction, transformation and
loading layer includes adapters for integration with key enterprise systems and
sources. Using adapters, Foundation integrates with:

     - e-commerce systems such as those offered by Art Technology Group,
       Allaire, BEA Systems, BroadVision, Intershop, InterWorld, Microsoft, Open
       Market and Vignette;

     - customer relationship management ("CRM") systems such as those offered by
       Baan, Nortel, Genesys, ONYX, Oracle, Pivotal, Saratoga Systems, Siebel
       and PeopleSoft;

     - enterprise resource planning applications that manage and integrate data
       from business operations, such as those offered by Baan, JD Edwards,
       Oracle, PeopleSoft and SAP;

     - custom, legacy and homegrown applications and systems;

     - demographic and other data from external providers such as Acxiom and Dun
       & Bradstreet; and

     - leading data warehouses, or enterprise-wide systems that store, retrieve
       and manage data such as those offered by IBM, Informix/Red Brick,
       Microsoft, NCR, Oracle and Sybase.

  Service Offerings

     Our professional services group helps businesses define, design and
implement e-business analysis solutions. Our customers benefit from the
accumulated expertise of our professional services group including its
experience in developing, deploying and implementing analytic applications,
enterprise applications and data warehouses. In addition, our professional
services group has built expertise in key functional areas including e-commerce,
customer relationship management and direct marketing. Moreover, our
professional services group has specific expertise in the systems with which our
solution is integrated and assists in the development of our adapters. We
augment the resources of our professional services group through third party
consultants to access their resources and specific capabilities. We generally
charge for our services on a time and materials basis and provide them worldwide
through our offices in the United States, Canada, Europe and Japan. Our
professional services include:

     - project planning and management;

     - system implementation;

     - software integration;

     - user training; and

     - ongoing customer support.

                                        3
<PAGE>   6

     In a typical application license transaction, our internal professional
services group or a third party consultant connects our products to the
customer's systems and data sources. The actual installation/connection process
can vary in duration, often being completed in a matter of days or in other
instances requiring several weeks. However, the timing of the commencement and
completion of this process is subject to factors that may be beyond our control,
as this process requires access to the customer's facilities and coordination
with the customer's personnel following delivery of the software. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Risk Factors -- The unpredictable timing of our sales and
implementation cycle makes it difficult to forecast our operating results".

     The goals of our professional services group are to rapidly deliver
solution value and meet the specific business needs of our customers. We will
continue to work closely with our network of systems integration partners and
expand our training capabilities both in the United States and internationally.
We believe that our professional services group can assist businesses in
developing innovative ways to implement our solutions, leading to increased
product adoption.

CUSTOMERS

     To date, over 500 end user customers have licensed our products from us and
from our indirect sales channel, which includes our distributors and companies
that sell our products as part of an integrated solution with their own
offerings. These end user customers include both traditional "bricks and mortar"
companies and Internet-only companies. No customer represented more than 10% of
our consolidated revenues during 2000.

     Currently, businesses that license our products generally license one or
more of our applications, together with Foundation and adapters to interface
with their existing data sources. Customers generally receive nonexclusive,
perpetual licenses to use our products for a specified number of servers and
named concurrent users. After the initial license, they may purchase licenses
for additional servers and users as needed. In addition, customers often
purchase professional services from us, including training services, although
they may use other consulting organizations. Customers that license our products
also usually purchase maintenance contracts, which provide software upgrades and
technical support over a stated term, typically 12 months.

MARKETING AND TECHNOLOGY RELATIONSHIPS

     We establish marketing and technology relationships, which we have named
the PartnerConnection, with other technology providers and with consulting
firms, to implement joint marketing and sales programs, to assist in the
implementation of our solutions, and to increase the interoperability of our
solutions with our partners' complementary products. By combining leading
resources from complementary product providers and services providers, we can
provide the necessary components for successful implementation of Internet
customer service applications and help our customers meet their business
objectives.

     The PartnerConnection is comprised of the following programs:

  Technology

     Our Technology Partner Program is designed for software and other
technology firms who offer solutions that complement our product suite.
Generally, our partners are software vendors, although select hardware and
service vendors may also qualify for our Technology Partner Program. The
Technology Partner Program permits our partners to work closely with us to
optimize product integration and implement joint marketing strategies and sales
tools. Our Technology Partners include Intershop Communications, Acxiom
Corporation, ATG, Baan, BEA Systems, BroadVision, Nortel, Compaq, DataMedica,
Dun & Bradstreet, Genesys Telecommunications Laboratories, Intershop, Microsoft,
Onyx, Oracle, Metamail, PeopleSoft, SAP and Vignette.

                                        4
<PAGE>   7

  Consulting and Systems Integrator

     Our Consulting and System Integrator Partner Program is designed for firms
that advise our customers on the implementation and deployment of our products
and that incorporate our products into e-commerce and other web-based systems
that they are implementing for their customers. They have developed expertise in
our applications through field implementation experience, and are certified and
capable of performing the turn-key installation of all our products. These firms
typically provide implementation abilities in such areas as e-commerce, customer
relationship management, marketing automation, closed loop marketing and
campaign management, one-to-one marketing and interactive advertising and
business intelligence, and may possess specific vertical industry expertise. Our
Consulting and System Integrator partners include Blue Hammock, Challenger
Systems, DiaLogos, EDS, Enteka, INT 21, KPMG, Perot Systems, Syncata, Deloitte
and Touche, Navigator Systems and Xpedior.

  Application Service Provider

     The Application Service Provider ("ASP") Partner Program consists of three
distinct areas: Outsourcing, Hosting and ASPs. Our Outsourcing partners provide
managed customer care programs for companies that want to offer customer care
but do not want to manage their own support program or operational/HR
operations. Our Hosting and ASP Partners manage networks, information
technology, servers, clusters, operating system, firewalls and reporting tools
for customers. Under the Hosting model, the partner remotely manages the
customer's applications. The ASP Partner model allows customers to have an ASP
company manage the information technology and infrastructure resources for them
under a monthly "rental" or "leased" pricing model.

     Hosting and ASP organizations can expand their programs and service
offerings by bundling our solution into their other e-business software
offerings or deliver outsourced customer care programs or delivering it as a
stand-alone Internet customer service product. Our ASP Partners include @Once,
CorporaTel, Usinetworking and Vestcom International.

  Terms of Agreements

     Our marketing and technology relationships are generally not documented in
writing, or are governed by agreements that can be terminated by either party
with little or no notice. These agreements generally provide for the parties to
cooperate to make joint press releases, market products and services jointly,
and, where appropriate, to integrate their products or make them compatible with
each other. These agreements may also specify that payments are to be made by us
to these companies for providing us with qualifying customer leads. The
generation of leads to date by these companies has not generally satisfied the
specified criteria and therefore payments for leads have been immaterial in
amount.

SALES AND MARKETING

     We license our software through both our direct sales force and indirect
sales channels. As of December 31, 2000, our sales group consisted of 212
employees in 35 locations, including 21 offices in the United States and 14
offices internationally, which are located in Austria, Belgium, Canada, France,
Germany, Hong Kong, Japan, Korea, the Netherlands, Spain, Sweden and the United
Kingdom. Our direct sales force consists of sales representatives as well as
sales personnel who provide pre-sales technical support and other support
personnel. We plan to expand our direct sales force significantly. Our corporate
sales organization is responsible for collecting inbound leads, performing
initial qualification and introducing each prospective customer to a direct
sales representative. We sell to companies at the departmental level, targeting
directors and executives in e-commerce, sales, marketing, customer service and
information technology.

     Our indirect sales channel includes companies such as BroadVision,
Nortel/Clarify, Genesys, Indus, Silicon Energy and USinternetworking, which sell
our products as part of an integrated solution with their own offerings. Sales
through these indirect sales channels accounted for approximately 28.7% of our
total revenues in 1998, 35.3% in 1999 and 13.6% in 2000. We also have
distributors and resellers in Japan and Europe, which

                                        5
<PAGE>   8

include Beacon Information Technology, Compaq Computer K.K., Oki Electric
Industry, Sharp System Products, Teijin Systems Technology, Tertio and Webegg.

     Our distribution relationships are generally governed by agreements that
can be terminated by either party with little or no prior notice. These
agreements generally grant nonexclusive licenses to distribute our products, are
not subject to minimum purchase requirements and provide for certain discounts
on the purchase prices of our products.

     We focus our marketing efforts on sales lead generation, sales support,
creating market awareness of our solutions and establishing strategic
relationships. Our marketing activities include direct mail and e-mail
campaigns, press relations and industry analyst briefings, speaking engagements,
attendance at partners' user group meetings and industry trade shows and
participation in sales and marketing programs of companies with whom we have
marketing relationships.

INTERNATIONAL OPERATIONS

     International sales represented approximately 5.1% of our total net revenue
in 1998, 23.2% in 1999 and 20.3% in 2000. For a further discussion of our
international total net revenue, as well as international long-lived assets,
please refer to "Note 10 -- Segment Information" of our Consolidated Financial
Statements included in item 8 of this report.

     We currently conduct our international sales primarily through direct sales
offices in Europe and Asia Pacific, through our Canadian subsidiary and through
distributors and resellers in Japan and Europe. Our products are sold
internationally both individually and as part of integrated solutions with the
product offerings of BroadVision, Nortel/Clarify and other companies. Our
relationships with our Japanese distributors are generally governed by
agreements that are similar to those described under "Sales and Marketing"
above. The end user companies that license our products internationally span
many industries. We believe that there will continue to be significant
international opportunities for our integrated e-business solutions. As a
result, we intend to expand our international operations and to continue to
invest in our sales infrastructure in order to support a growing global sales
force in international markets, particularly Asia Pacific and Europe.

     The expansion of our existing international operations and entry into
additional international markets will require significant management attention
and financial resources. In particular, we must develop local versions of our
products for foreign markets and must recruit and train an international staff.
Currently, we have only limited experience in localizing our products and in
marketing, selling and supporting our products and services overseas.

RESEARCH AND DEVELOPMENT

     Our research and development organization is comprised of separate groups
responsible for core product development, application development and product
strategy and management. The core product development group is responsible for
ongoing development of Foundation. Our application development group is
responsible for developing new applications and enhancing existing applications.
Our product strategy and management group is responsible for prioritizing
customer requirements and defining the resources and timelines necessary to
deliver products. Our current research and development efforts are focused on
the development of additional applications and other enhancements that extend
the e-business functionality of our solutions.

     Our research and development expenditures were approximately $3.7 million
in 1998, $6.0 million in 1999, and $17.2 million in 2000. We expect that we will
continue to commit significant resources to research and development in the
future. The market for our products and services is characterized by rapid
technological change, frequent new product introductions and enhancements,
evolving industry standards and rapidly changing customer requirements. Our
future success will depend in part on our ability to anticipate changes, enhance
our current products, develop and introduce new products that keep pace with
technological advancements and address the increasingly sophisticated needs of
our customers. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Risk Factors -- We may be unable to attract new
customers if we do not develop new products and enhancements".

                                        6
<PAGE>   9

COMPETITION

     Our competitors vary in company size, and in the scope and breadth of their
products and services. Our primary sources of competition are as follows:

     - providers of consulting services-based CRM solutions, such as E.piphany;

     - vendors of e-service software such as Brightware, eGain, and Kana;

     - vendors of online marketing automation software such as MarketFirst and
       Annuncio;

     - campaign management software vendors such as Exchange Applications and
       Prime Response;

     - vendors of point technologies that provide website analysis such as
       Accrue, Macromedia, Net Perceptions and Personify;

     - in-house development efforts by potential customers using traditional and
       generic decision support tools;

     - providers of outsourced e-mail marketing services such as Digital Impact
       and Responsys.com; and

     - providers of CRM and call center communications software such as Lucent,
       PeopleSoft and Siebel.

     In addition, we face competition from vendors of other enterprise
applications as they expand the functionality of their product offerings. These
vendors include Oracle, SAP, Siebel and other vendors of software designed for
decision support or management of customer relationships or of organizations'
operational information or for providing customer service. They also may include
vendors of database applications.

     Principal competitive factors include:

     - quality, breadth and depth of application offerings;

     - product robustness and extensibility;

     - openness of technology architecture;

     - ease of deployment and maintenance;

     - quality of services and customer support; and

     - price.

     Although we believe that our solutions compete favorably with respect to
these factors, our market is new and rapidly evolving. We may not be able to
maintain our competitive position against current and potential competitors. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Risk Factors -- We face intense competition which could make it
difficult to acquire and retain customers".

INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS

     Our success and ability to compete are dependent on our ability to develop
and maintain the proprietary aspects of our technology. We rely on a combination
of trademark, trade secret and copyright law and contractual restrictions to
protect the proprietary aspects of our technology. We have no issued patents. We
seek to protect our source code for our software, documentation and other
written materials under trade secret and copyright laws. We license our software
under signed license agreements, which impose restrictions on the licensee's
ability to utilize the software. Finally, we seek to avoid disclosure of our
intellectual property by requiring employees and consultants with access to our
proprietary information to execute confidentiality agreements with us and by
restricting access to our source code. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy aspects of our
products or to obtain and use information that we regard as proprietary. Our
success and ability to compete are also dependent on our ability to operate
without infringing upon the proprietary rights of others. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Risk
Factors -- We depend on our intellectual property, and litigation regarding our
intellectual property could harm our business".

                                        7
<PAGE>   10

     We currently rely on software that we have licensed from a number of
suppliers. These licenses may not continue to be available to us on commercially
reasonable terms or at all. If these licenses cease to be available, we believe
we could license equivalent software on commercially reasonable terms. In the
future, we expect to license other third party technologies to enhance our
products, meet evolving customer needs or adapt to changing technology
standards. Failure to license, or the loss of any license of necessary
technologies could result in delays or reductions of shipments of our products
until equivalent software is identified, licensed and integrated or developed by
us.

EMPLOYEES

     As of December 31, 2000, we had a total of 678 full-time employees,
including 212 in sales, 47 in marketing, 194 in research and development, 74 in
general and administrative, 111 in professional services and 40 in customer
support. Of these employees, 147 were located outside of the United States. Our
future success will depend in part on our ability to attract, train, retain,
integrate and motivate highly qualified sales, technical and management
personnel, for whom competition is intense. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Risk Factors -- We
need to attract, train and retain additional qualified personnel in a
competitive employment market". From time to time, we also employ independent
contractors to support our services, product development and sales and marketing
departments. Our employees are not represented by any collective bargaining
unit, and we have never experienced a work stoppage. We believe our relations
with our employees are good.

ITEM 2. PROPERTIES

     Our principal offices occupy buildings encompassing approximately 75,000
square feet in Menlo Park, California under leases that expire on July 31, 2002
and April 30, 2007. In addition, we also lease sales and support offices in the
United States in the metropolitan areas of Atlanta, Boston, Chicago, Cleveland,
Dallas, Denver, Houston, Los Angeles, New York, Oakland, Portland, Raleigh, San
Francisco, Seattle, and Washington D.C., and internationally in the metropolitan
areas of Amsterdam, Antwerpen, Berkshire, Courbevoie, Frankfurt, Hong Kong,
Lier, London, Madrid, Munich, Tokyo, Toronto, and Vienna. We believe that we
have adequate space for our current needs.

ITEM 3. LEGAL PROCEEDINGS

     We are not aware of any material legal proceedings as of December 31, 2000.

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

     A special meeting of our stockholders of was held on December 14, 2000.
Matters voted on at the meeting and votes cast on each were as follows:

     (1) Approval of the issuance of shares of our common stock in connection
         with our acquisition of Servicesoft and the adoption of our first
         amended and restated certificate of incorporation.

<TABLE>
<CAPTION>
           FOR           AGAINST       ABSTAIN      NON-VOTE
           ---          ---------      -------      --------
        <S>             <C>            <C>          <C>
        33,136,922      1,601,470      371,612         0
</TABLE>

     (2) Approval of an amendment to our 1999 Equity Incentive Plan to increase
         the number of shares authorized and reserved for issuance under this
         plan by 4,000,000 shares.

<TABLE>
<CAPTION>
           FOR           AGAINST       ABSTAIN      NON-VOTE
           ---          ---------      -------      --------
        <S>             <C>            <C>          <C>
        27,570,630      7,458,715       80,659         0
</TABLE>

     (3) Approval of an amendment to our 1999 Employee Stock Purchase Plan to
         increase the number of shares authorized and reserved for issuance
         under this plan by 1,000,000 shares.

<TABLE>
<CAPTION>
           FOR           AGAINST       ABSTAIN      NON-VOTE
           ---          ---------      -------      --------
        <S>             <C>            <C>          <C>
        33,085,344      1,947,967       76,693         0
</TABLE>

                                        8
<PAGE>   11

                                    PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

MARKET INFORMATION

     Our common stock has been quoted on the Nasdaq National Market under the
symbol "BBSW" since September 22, 1999. The following table presents, for the
periods indicated, the high and low sales prices for the common stock as
reported by the Nasdaq National Market. Trading prices have been adjusted to
reflect the two-for-one split of our common stock that was distributed as a
stock dividend to our stockholders on April 7, 2000.

<TABLE>
<CAPTION>
                                                      HIGH      LOW
                                                     ------    ------
<S>                                                  <C>       <C>
Fiscal Year Ended December 31, 1999:
  Third Quarter (from September 22, 1999)..........  $14.59    $ 7.75
  Fourth Quarter...................................   71.38      7.97
Fiscal Year Ended December 31, 2000:
  First Quarter....................................   86.00     32.50
  Second Quarter...................................   41.00     12.63
  Third Quarter....................................   39.50     12.94
  Fourth Quarter...................................   17.25      5.00
</TABLE>

HOLDERS

     As of March 1, 2001, there were approximately 1,120 holders of record of
our common stock. Because brokers and other institutions hold many shares on
behalf of our stockholders, we believe the total number of beneficial holders is
greater than that represented by these record holders.

DIVIDENDS

     We have never declared or paid any cash dividends on shares of our capital
stock. We intend to retain any future earnings to finance future growth and do
not anticipate paying any cash dividends in the future.

RECENT SALES OF UNREGISTERED SECURITIES

     On December 15, 2000, we issued 475,361 shares of our common stock in
exchange for all outstanding common stock of Decisionism, Inc., a provider of
analytic solutions for business-to-business digital marketplaces. We issued
these shares to eight venture capital funds and two other accredited investors
in a private transaction that was exempt from registration under the Securities
Act pursuant to Section 4(2) of the Securities Act and/or Rule 506 of Regulation
D.

                                        9
<PAGE>   12

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                             PERIOD FROM
                                          NOVEMBER 28, 1995                    YEARS ENDED
                                           (INCEPTION) TO                      DECEMBER 31,
                                            DECEMBER 31,       --------------------------------------------
                                                1996            1997        1998        1999        2000
                                          -----------------    -------    --------    --------    ---------
                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                       <C>                  <C>        <C>         <C>         <C>
Statement of Operations Data:
Net revenue:
  License...............................       $    --         $    --    $  2,996    $  7,689    $  34,646
  Professional services.................            --              --          --       1,610        9,259
  Maintenance...........................            --              --         443       1,143        4,349
                                               -------         -------    --------    --------    ---------
          Total net revenue.............            --              --       3,439      10,442       48,254
Cost of revenue:
  License...............................            --              --         713       1,437        4,452
  Professional services.................            --              --          --         679       14,253
  Maintenance...........................            --              --         254       1,931        1,731
  Amortization of acquired core and
     developed technology...............            --              --          --          --        1,696
                                               -------         -------    --------    --------    ---------
          Total cost of revenue.........            --              --         967       4,047       22,132
                                               -------         -------    --------    --------    ---------
Gross margin............................            --              --       2,472       6,395       26,122
Operating expenses:
  Sales and marketing...................           130           2,851       7,888      15,092       37,247
  Research and development..............           928           1,980       3,738       6,024       17,207
  General and administrative............           215             744       1,165       2,011        6,836
  Amortization of deferred stock
     compensation.......................            --              --       1,133       6,403       21,284
  Amortization of intangible assets and
     goodwill...........................            --              --          --          --       78,145
  Acquired in-process research and
     development........................            --              --          --          --       25,877
  Merger expenses.......................            --              --          --       1,000       45,509
                                               -------         -------    --------    --------    ---------
          Total operating expenses......         1,273           5,575      13,924      30,530      232,105
                                               -------         -------    --------    --------    ---------
Loss from operations....................        (1,273)         (5,575)    (11,452)    (24,135)    (205,983)
Interest income.........................            30             154         335       1,454       12,893
Interest expense........................           (29)            (66)       (226)       (889)        (341)
                                               -------         -------    --------    --------    ---------
Net loss................................       $(1,272)        $(5,487)   $(11,343)   $(23,570)   $(193,431)
                                               =======         =======    ========    ========    =========
Basic and diluted net loss per share....       $ (2.15)        $ (3.09)   $  (4.43)   $  (1.87)   $   (4.09)
                                               =======         =======    ========    ========    =========
Weighted-average shares used in
  computing basic and diluted net loss
  per share.............................           592           1,774       2,562      12,592       47,259
                                               =======         =======    ========    ========    =========
</TABLE>

<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                                    ----------------------------------------------------
                                                     1996      1997      1998       1999         2000
                                                    ------    ------    -------    -------    ----------
                                                                       (IN THOUSANDS)
<S>                                                 <C>       <C>       <C>        <C>        <C>
Balance Sheet Data:
Cash, cash equivalents and short-term
  investments.....................................  $5,512    $1,153    $13,990    $76,642    $  152,220
Working capital...................................   5,346        61      8,801     69,362       118,386
Total assets......................................   5,684     2,113     17,173     84,770     1,275,935
Bank line of credit, notes payable and capital
  lease obligations, net of current portion.......     225       916      9,360        333           703
Stockholders' equity (net capital deficiency).....   5,266       (75)     1,226     73,206     1,205,505
</TABLE>

                                        10
<PAGE>   13

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the financial
statements and notes included under Item 8 of this report. This discussion
contains forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. We may identify these
statements by the use of words such as "believe," "expect," "anticipate,"
"intend," "plan" and similar expressions. These forward-looking statements, such
as those concerning our expectations regarding operating results, involve
several risks and uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of various
factors, including those we discuss in "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Risk Factors" and elsewhere in
this report. These forward-looking statements speak only as of the date of this
report, and we caution you not to rely on these statements without also
considering the risks and uncertainties associated with these statements and our
business that are addressed in this report.

OVERVIEW

     We incorporated in November 1995 and from that date through December 1997
were in the development stage, conducting research and development of our
initial products. In the fourth quarter of 1997, we introduced Foundation,
software enabling organizations to build and manage datamarts for their customer
information. In the third quarter of 1998, we began offering applications, built
on Foundation, which provide analysis for customer relationship management. In
May 1999 we expanded our suite of products by introducing new applications built
on Foundation designed for internet sales channels, internet marketing and other
customer-focused e-business applications, as well as new versions of our
pre-existing applications. In February 2000, we added an operational marketing
automation system through our acquisition of Rubric, Inc ("Rubric"). In December
2000, we continued expansion of our product line by acquiring Servicesoft, Inc.
("Servicesoft"), a leading provider of e-service software applications.
Throughout these periods, we expanded our organization by hiring personnel in
key areas, particularly marketing, sales and research and development. We have
grown from a total of 75 full-time employees at December 31, 1998, to 131
full-time employees at December 31, 1999, to 678 full-time employees as of
December 31, 2000, including approximately 300 employees added in the fourth
quarter of 2000 primarily through our acquisition of Servicesoft.

     Our revenue comes principally from licenses of our software products, with
the balance coming from software maintenance and professional services. We
account for our software license, maintenance, and professional services revenue
under Statement of Position No. 97-2 "Software Revenue Recognition" ("SOP
97-2"), as amended. Under SOP 97-2 we recognize license revenue when persuasive
evidence of an agreement exists, delivery of the product has occurred, no
significant company obligations with regard to installation or implementation of
the software remain, the fee is fixed or determinable and collectibility is
probable. In a typical license sale to a new customer, our professional services
group installs our product(s) and, in the case of our analytic applications,
connects our product to the customer's systems or data sources. Upon completion
of the initial installation/connection when the software is effectively
operational and no significant obligations remain, we recognize the revenue
related to that license. The actual installation/ connection process can vary in
duration, often being completed in a matter of days or in other instances
requiring several weeks. However, the timing of the commencement and completion
of this process is subject to factors that may be beyond our control, as this
process requires access to the customer's facilities and coordination with the
customer's personnel following delivery of the software. Subsequent license
sales to existing customers and license sales where installation/connection is
performed by a third party are recognized upon shipment to the existing
customer. License revenue from the sale of our software to distributors and
other resellers is recognized upon receipt from the reseller of a third party
resale report and, if applicable, our shipment of the licensed software.
Maintenance fees associated with new product licenses and fees for renewed
maintenance contracts are deferred and recognized ratably over the contract
period, typically 12 months. Professional services revenue is recognized as
services are performed.

     Customers generally receive nonexclusive, perpetual licenses to use our
products for a specified number of servers and named users. After the initial
license, they may purchase licenses for additional servers and users as needed.
In addition, customers often purchase professional services from us, including
basic software

                                        11
<PAGE>   14

implementation, post implementation consulting, and training services, although
they may, and do, use other consulting organizations. Customers that license our
products also usually purchase maintenance contracts, which provide unspecified
software enhancements, upgrades and technical support over a stated term,
typically 12 months.

     We sell our products through our direct sales force and through indirect
sales channels. Direct sales are made by our direct sales force in North
America, Europe and Asia Pacific. Our indirect sales channels include software
application vendors, resellers and distributors also located in North America,
Europe and Asia Pacific. Sales through indirect sales channels accounted for
28.7%, 35.3% and 13.6% of our total net revenue for 1998, 1999, and 2000
respectively. The decrease from 1999 to 2000 was the result of our significant
expansion of our direct sales force during 2000 relative to 1999. In addition,
we shifted our indirect channel from smaller vertical and regional partners to
larger worldwide resellers, systems integrators and technology partners. Revenue
was not generated from these new partnerships until late in the third quarter of
2000.

     Revenue from customers outside the United States represented 5.1%, 23.2%,
and 20.3% of our total net revenue for 1998, 1999, and 2000 respectively. We
intend to continue to expand our international operations and to commit
significant management time and financial resources in developing our direct and
indirect international sales channels. International revenue may not, however,
increase as a percentage of total net revenue.

     We have experienced substantial net losses since our inception due
primarily to significant acquisition-related costs and amortization of acquired
intangibles, the significant costs incurred to develop our technology and
products, and costs related to the recruitment and training of personnel for our
engineering, sales, marketing, professional services and administrative
departments. As of December 31, 2000, we had an accumulated deficit of $235.1
million. We expect to continue to incur substantial losses for the foreseeable
future due in large part to acquisition-related amortization charges.

PUBLIC OFFERING OF COMMON STOCK

     On February 18, 2000, we completed a public offering of 6.9 million shares
of our common stock, of which 3.9 million shares were sold by us and 3.0 million
were sold by our stockholders at a price of $47.50 per share. Offering proceeds
to us, net of aggregate underwriters discounts and commissions and related
offering expenses, were approximately $174.9 million.

ACQUISITIONS

     The Company operates solely in one segment, the development and marketing
of eCustomer Relationship Management ("eCRM") software. The Company's five
acquisitions during 2000 did not have an impact on our segment structure, as
each of these acquisitions expanded our eCRM product suite designed to manage a
wide range of electronic customer interactions across an enterprise. A brief
description of the terms of each acquisition follows. More detailed information
regarding these acquisitions is provided in the Footnotes to our Consolidated
Financial Statements included elsewhere in this report.

     Rubric. On February 1, 2000, we completed our acquisition of Rubric, a
leading provider of e-marketing software applications. In connection with the
acquisition, we issued approximately 6.0 million shares of our common stock in
exchange for all outstanding shares of Rubric capital stock, and converted
outstanding options and warrants to acquire Rubric capital stock into options
and warrants to acquire approximately 1.2 million shares of our common stock. Of
the shares issued, approximately 600,000 shares of our common stock are being
held in escrow as collateral for indemnity obligations of Rubric and its
shareholders.

     Aperio. On June 23, 2000, we completed our acquisition of Aperio, Inc.
("Aperio"), a provider of e-commerce marketing solutions. In connection with the
acquisition, we issued approximately 561,000 shares of our common stock in
exchange for all outstanding shares of Aperio capital stock, and converted
outstanding options to acquire Aperio capital stock into options to acquire
approximately 119,000 shares of our common stock. Of the shares issued,
approximately 56,000 shares of our common stock are being held in escrow for a
period of one year as collateral for indemnity obligations of Aperio and its
shareholders.

                                        12
<PAGE>   15

     Panopticon. On September 15, 2000, we completed our acquisition of
Panopticon, Inc. ("Panopticon"), developers of a real-time recommendation engine
that produces context-sensitive, personalized recommendations across web,
wireless, e-mail and call center customer interaction points. In connection with
this acquisition, we issued approximately 2.7 million shares of our common stock
in exchange for all outstanding shares of Panopticon capital stock, and
converted outstanding options and warrants to acquire Panopticon capital stock
into options and warrants to purchase approximately 535,000 shares of our common
stock. Approximately 266,000 of the shares of our common stock are being held in
escrow for a period of one year as collateral for indemnity obligations of
Panopticon and its shareholders.

     Decisionism. On December 15, 2000, we completed our acquisition of
Decisionism, Inc. ("Decisionism"), a leading provider of analytic solutions for
business-to-business digital marketplaces. In connection with the acquisition,
we issued approximately 475,000 shares of our common stock in exchange for all
outstanding shares of Decisionism capital stock. Of the shares issued,
approximately 45,000 shares of our common stock are being held in escrow for a
period of one year as collateral for indemnity obligations of Decisionism and
its shareholders.

     Servicesoft. On December 18, 2000, we completed our acquisition of
Servicesoft, a leading provider of e-service solutions. In connection with this
acquisition, we issued approximately 29.3 million shares of our common stock in
exchange for all outstanding shares of Servicesoft capital stock, and converted
outstanding options and warrants to acquire Servicesoft capital stock into
options and warrants to purchase approximately 6.4 million shares of our common
stock. Of the shares issued, approximately 2.9 million shares of our common
stock are being held in escrow for a period of one year as collateral for
indemnity obligations of Servicesoft and its shareholders.

                                        13
<PAGE>   16

RESULTS OF OPERATIONS

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                           YEARS ENDED DECEMBER 31,
                                                        -------------------------------
                                                          1998       1999       2000
                                                        --------   --------   ---------
<S>                                                     <C>        <C>        <C>
Net revenue:
  License.............................................  $  2,996   $  7,689   $  34,646
  Professional services...............................        --      1,610       9,259
  Maintenance.........................................       443      1,143       4,349
                                                        --------   --------   ---------
          Total net revenue...........................     3,439     10,442      48,254
Cost of revenue:
  License.............................................       713      1,437       4,452
  Professional services...............................        --        679      14,253
  Maintenance.........................................       254      1,931       1,731
  Amortization of acquired core and developed
     technology.......................................        --         --       1,696
                                                        --------   --------   ---------
          Total cost of revenue.......................       967      4,047      22,132
                                                        --------   --------   ---------
Gross margin..........................................     2,472      6,395      26,122
Operating expenses:
  Sales and marketing.................................     7,888     15,092      37,247
  Research and development............................     3,738      6,024      17,207
  General and administrative..........................     1,165      2,011       6,836
  Amortization of deferred stock compensation.........     1,133      6,403      21,284
  Amortization of intangible assets and goodwill......        --         --      78,145
  Acquired in-process research and development........        --         --      25,877
  Merger expenses.....................................        --      1,000      45,509
                                                        --------   --------   ---------
          Total operating expenses....................    13,924     30,530     232,105
                                                        --------   --------   ---------
Loss from operations..................................   (11,452)   (24,135)   (205,983)
Interest income.......................................       335      1,454      12,893
Interest expense......................................      (226)      (889)       (341)
                                                        --------   --------   ---------
Net loss..............................................  $(11,343)  $(23,570)  $(193,431)
                                                        ========   ========   =========
Basic and diluted net loss per share..................  $  (4.43)  $  (1.87)  $   (4.09)
                                                        ========   ========   =========
Weighted-average shares used in computing basic and
  diluted net loss per share..........................     2,562     12,592      47,259
                                                        ========   ========   =========
</TABLE>

  Net Revenue

     License. Increases in license revenue comparing both 2000 to 1999 and 1999
to 1998 were attributable primarily to increases in the number of customers
licensing our products and increases in the average revenue per license
transaction. The increase in customers is primarily the result of the expansion
of our direct sales force, while the increase in the average revenue per license
transaction reflects our expanded line of bundled applications combining various
elements of our analytic, marketing automation, and e-service offerings. Due to
current economic slowdowns in the general economy, there is increased
uncertainty with respect to our expected revenues in 2001, and we cannot assure
you that the volume and average revenue per license transaction will continue to
increase. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Risk Factors -- We expect our quarterly revenue and
operating results to fluctuate, making it difficult to predict our future
operating results".

                                        14
<PAGE>   17

     Professional Services. Professional services include revenues from
consulting and customer training services. The growth in professional services
revenue comparing 2000 to 1999 reflects significant expansion of our installed
customer base requiring services and the increased capacity of our consulting
organization.

     Maintenance. Maintenance revenue is recognized on a straight-line basis
over the period customer support is provided, usually one year. The increase in
maintenance revenue during the periods presented reflects significant expansion
of our installed customer base and increased prices for support of bundled
products.

  Cost of Revenue

     Cost of Licenses. The cost of licenses consists primarily of royalties
payable to third parties as well as the cost of product manuals, media,
packaging and shipping. The increase in cost of licenses comparing 2000 to 1999
and 1999 to 1998 resulted primarily from increased royalty obligations incurred
as a result of an increased volume of license sales. Our royalty obligations
vary significantly by product; accordingly, our cost of licenses may vary
significantly from period to period as a percentage of license revenue depending
on the mix of products licensed in any given quarter.

     Cost of Professional Services. The cost of professional services consists
primarily of personnel costs for employees and contractors providing consulting
and training services. The increases in these costs over the periods presented
resulted primarily from expansion of our consulting and training organizations
and increased use of contract consultants as necessary to serve our expanding
customer base. We significantly increased our professional services capacity as
a result of the Servicesoft and Aperio acquisitions and we plan to continue
expanding our professional services capacity through partnerships with external
consultants and, to a lesser extent, through internal hiring. The significant
decrease in margins on consulting revenue resulted primarily from significant
investment during 2000 in our consulting practice in terms of hiring and
training, as well as investments in a project management system and other
infrastructure to support growth in our customer base.

     Cost of Maintenance. The cost of maintenance consists primarily of
personnel costs for employees in our customer support organization. The
increases in these costs over the periods presented resulted primarily from
expansion of our customer support organization and increased investments in
facilities and computer equipment necessary to provide support to our expanded
customer base. We expect continued growth in our installed customer base to
require us to continue to expand the capacity of our customer support
organization.

     Amortization of Acquired Core and Developed Technology. This cost
represents amortization of the core and developed technology acquired from
Rubric, Panopticon and Servicesoft during 2000. The cost of acquired core
technology is being amortized over a five-year useful life, while the cost of
acquired developed technology is being amortized over a one-year useful life.

  Operating Expenses

     Sales and Marketing. Sales and marketing expenses consist primarily of
costs for personnel, sales commissions, travel and entertainment, promotional
activities, advertising, and domestic and international field sales offices.
Increased sales and marketing expenses during the periods presented resulted
primarily from significant expansion of our domestic and international direct
sales force, both through direct hiring and acquisitions during 2000. We also
expanded our marketing organization, increasing both the number of employees and
the level of promotional and advertising activities. We plan to continue
expanding our sales organization during 2001.

     Research and Development. Research and development expenses consist
primarily of salaries for development personnel, development facilities and
computer equipment, development software, product localization, product
documentation, and quality assurance testing. Increased research and development
costs during the periods presented are primarily attributable to significant
expansion of our development workforce, including developers employed as a
result of acquisitions during 2000, and increased use of contractors and other
outside service providers to assist in development efforts. We expect our
research and development

                                        15
<PAGE>   18

expenses to continue to increase as a result of the Servicesoft acquisition and
continued expansion of our development organization.

     General and Administrative. General and administrative expenses consist
primarily of costs of executive, finance, human resources, legal, and
information technology personnel, as well as outside professional fees for
legal, tax, accounting and other services. The increase in general and
administrative costs during the periods presented resulted primarily from
personnel additions required to provide administrative and information
technology support for our expanded employee base. The use of professional
services, such as legal and accounting services, also increased significantly.
We expect to expand our general and administrative organizations to support our
operations in 2001.

     Amortization of Deferred Stock Compensation. The increase in amortization
of deferred stock compensation comparing 1999 to 1998 resulted from grants of
options during 1999 to purchase our common stock at an exercise price below the
fair market value of our common stock on the date of each option grant. The
increase comparing 2000 to 1999 resulted from a combination of (i) option grants
during 2000 to purchase our common stock at an exercise price below the fair
market value on the date of grant, which amounted to $11.3 million in 2000, and
(ii) the post-acquisition amortization of deferred compensation for the
estimated portion of the intrinsic value of unvested stock options assumed by us
in connection with the acquisitions of Panopticon and Servicesoft, which
amounted to $1.3 million in 2000. We granted options to certain employees to
purchase an aggregate of 2.1 million shares of our common stock at below fair
market value during 2000. In addition, in connection with the acquisitions of
Panopticon and Servicesoft, we assumed approximately 5.0 million unvested
options with an estimated intrinsic value of $20.9 million, which will be
amortized over the next four years. For all such options granted or assumed as
of December 31, 2000, amortization of deferred compensation will be
approximately $27.7 million for 2001, $11.5 million for 2002, $3.3 million for
2003 and $400,000 for 2004.

     Amortization of Intangible Assets and Goodwill. Amortization of intangible
assets and goodwill during 2000 represents amortization of the fair value of
acquired intangible assets and goodwill in connection with the acquisitions of
Rubric, Aperio, Panopticon, Decisionism and Servicesoft, compared to no such
acquisition activity during 1999 or 1998. Intangible assets and goodwill are
amortized over a period of three to five years, their estimated useful lives.
Total amortization expense to be recorded as a result of these acquisitions is
expected to be approximately $230.0 million, $226.2 million, $224.2 million,
$221.1 million and $142.8 million during 2001, 2002, 2003, 2004 and 2005,
respectively.

     Acquired In-Process Research and Development. Acquired in-process research
and development in 2000 represents the write-off of the fair value of acquired
research and development work obtained in connection with the acquisitions of
Rubric, Panopticon and Servicesoft. There were no such acquisitions during 1998
or 1999. For each of these acquisitions, the write-offs were necessary because
the acquired in-process research and development had not yet reached
technological feasibility and had no future alternative uses, and the related
products under development may not have achieved commercial viability. The
nature of the efforts required to develop the purchased in-process research and
development into commercially viable products principally relate to the
completion of all planning, designing, prototyping, verification and testing
activities that are necessary to establish that the product can be produced to
meet its design specifications, including functions, features and technical
performance requirements.

     We obtained independent valuations for these acquisitions, and values were
assigned to acquired core and developed technology, in-process research and
development, and other intangibles. The fair value of the acquired in-process
research and development was determined by estimating the projected net cash
flows related to the products, including costs to complete the development of
the technology and the future revenues to be earned upon commercialization of
the products. These cash flows were then discounted back to their net present
value. The projected net cash flows from the project were based on management's
estimates of revenues and operating profits related to the projects.

     The total charge for in-process research and development in the Rubric
acquisition was estimated to be $10.1 million based on the value allocated to
projects identified as in-process research and development on the Rubric eMA
product release versions 3.0 and 4.0. This amount was charged to expense in the
first quarter of

                                        16
<PAGE>   19

2000 immediately following the completion of the acquisition. At the date of
acquisition, the development on the next generation eMA versions was
approximately 60.0% complete. As of December 31, 2000, these projects were
complete; therefore, there will be no future effects on operating results.

     The total charge for in-process research and development in the Panopticon
acquisition was estimated to be $2.8 million based on the value allocated to
projects identified as in-process research and development of the Panopticon
eMerchandising engine product release version 2.0. This amount was charged to
expense during the third quarter of 2000 upon the close of the acquisition. At
the date of acquisition, the development of eMerchandising was approximately
82.8% complete. As of December 31, 2000, we do not anticipate the cost of
completing this development to have a significant impact on operating results.

     The total charge for in-process research and development in the Servicesoft
acquisition was estimated to be $13.0 million based on the value allocated to
projects identified as in-process research and development of the next
generation of Servicesoft 2001, their product suite which was released in August
2000. This amount was charged to expense in December 2000 immediately following
the completion of the acquisition. At the date of acquisition, the development
of the next generation product suite was approximately 82.5% complete. As of
December 31, 2000, we do not anticipate the cost of completing this development
to have a significant impact on operating results.

     Merger Expenses. In connection with the five acquisitions completed during
2000 we recorded merger and integration costs of approximately $45.5 million for
the year ended December 31, 2000. This amount included approximately $10.7
million of payments to fund working capital requirements of Rubric, Panopticon,
Decisionism and Servicesoft prior to the respective closings of those mergers,
$7.3 million of employee bonuses paid upon successful completion of the five
mergers, approximately $800,000 of costs to announce the mergers and
approximately $26.7 million of costs associated with combining the operations of
the five companies, including $22.6 million for customer integration costs, $1.7
million for severance and related costs and $2.4 million for write-off of
redundant assets and other costs. We expect to incur additional merger related
costs in the first and second quarters of 2001 as we complete the integration of
the Decisionism and Servicesoft acquisitions.

  Interest Income

     Interest income consists of interest earned on our cash, cash equivalents
and short-term and long-term investments. The significant increase in interest
income over the periods presented resulted from substantially higher cash
balances available for investment. Higher cash balances during the fourth
quarter of 1999 and throughout 2000 resulted primarily from our initial public
offering completed in September 1999 and our subsequent public offering
completed in February 2000.

  Interest Expense

     The increase in interest expense comparing 1998 to 1999 resulted from
higher debt balances attributable primarily to equipment lease lines used to
fund equipment and software purchases prior to our initial public offering in
September 1999. The decrease in interest expense comparing 2000 to 1999 was
attributable to lower debt balances during 2000 due to regular debt payments, as
well as early extinguishment of certain debt.

  Income Taxes

     There was no federal income tax provision in any period presented due to
our net operating losses. We had net deferred tax assets of approximately $13.2
million as of December 31, 1999 and $91.2 million as of December 31, 2000. Our
deferred tax assets primarily relate to net operating loss carryforwards and
compensation related to stock options. Approximately $58.4 million of the
valuation allowance at December 31, 2000 is attributable to deferred tax assets
that if realized, will first reduce unamortized goodwill, then other non-current
intangible assets of acquired subsidiaries, and then income tax expense.
Realization of deferred tax assets is dependent on future earnings, if any, the
timing and amount of which are uncertain. Accordingly, a valuation allowance, in
an amount equal to the net deferred tax assets as of December 31, 1999 and 2000,
has been established to reflect these uncertainties. As of December 31, 2000, we
had federal net

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<PAGE>   20

operating loss carryforwards of approximately $167.2 million, state net
operating loss carryforwards of approximately $98.6 million and foreign net
operating loss carryforwards of approximately $5.1 million. We also had federal
and state research and development tax credit carryforwards of approximately
$1.4 million and $1.0 million, respectively. The net operating loss and tax
credit carryforwards will expire at various dates beginning in 2004, if not
utilized. Utilization of the net operating loss and tax credit carryforwards may
be subject to a substantial annual limitation due to the "change in ownership"
provisions of the Internal Revenue Code of 1986 and similar state provisions.
The annual limitation may result in the expiration of net operating loss and tax
credit carryforwards before utilization.

LIQUIDITY AND CAPITAL RESOURCES

     Since inception, we have funded our net operating and capital expenditure
requirements primarily through the sale of equity securities, as well as through
limited debt financing during 1998 and 1999. Our working capital increased from
$69.4 million at December 31, 1999 to $118.4 million at December 31, 2000, due
primarily to proceeds from our public offering of common stock completed in
February 2000. Changes in current assets other than cash were largely offset by
changes in current liabilities. The increase in accounts receivable resulted
primarily from receivables assumed in connection with the acquisition of
Servicesoft and an increase in the proportion of license transactions deferred
until 2001, neither of which are reflected in 2000 revenue. The increase in
current liabilities resulted primarily from greater accrued compensation and
other expenses and an increase in deferred revenue resulting from a higher
volume of product sales transactions. Overall, net cash used in operating
activities increased to $66.1 million during 2000 from $13.7 million for during
1999, due primarily to increased operating losses (excluding non-cash charges)
and to one-time merger related costs incurred in connection with the
acquisitions during 2000.

     We have commitments under operating leases which are expected to require
payments in the aggregate of approximately $5.9 million in 2001. For more
detailed information regarding commitments, please refer to "Note
5 -- Commitments" of our Consolidated Financial Statements included in Item 8 of
this report.

     Use of cash in investing activities increased approximately $133.7 million
comparing 2000 to 1999. Investing activities consisted primarily of the net
purchase of $100.5 million in short-term investment securities and $15.5 million
in long-term investment securities using cash obtained in our initial and
secondary public offerings, as well as a $10.4 million increase in purchases of
property and equipment.

     Financing activities during 2000 generated $174.6 million, compared to
$79.0 million during the same period in 1999. Net cash provided from financing
activities during 2000 consisted primarily of $174.9 million in net proceeds
from our secondary public offering in February 2000. Net cash provided by
financing activities during 1999 consisted primarily of net proceeds from our
initial public offering in September 1999 and proceeds from the sale of our
Series E preferred stock in June 1999.

     As of December 31, 2000, we held $152.2 million of cash, cash equivalents
and short-term investments. We anticipate that our cash and cash equivalents and
short-term investments on hand, combined with cash flows generated from sales,
will be sufficient to fund operating and capital requirements for the
foreseeable future. However, should additional funding be required for operating
requirements, capital expenditures, acquisitions, or unanticipated events, we
may be required to obtain such additional funding through debt facilities or the
public or private sales of debt or equity securities. There can be no certainty
that such funding will be available in quantities or on terms favorable to us,
or at all. Failure to obtain such funding when needed could seriously harm us
and adversely affect our future results of operations. Furthermore, equity
securities issued to obtain any required funding in the future may substantially
dilute the ownership of common stockholders and have rights, preferences or
privileges to which common stockholders may be subordinate.

NEW ACCOUNTING PRONOUNCEMENTS

     In December 1999, the Securities and Exchange Commission ("SEC") issued SEC
Staff Accounting Bulletin No 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements. In October 2000, the SEC issued a
"Frequently Asked Questions" document on SAB 101 to provide further definitive
guidance on the

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<PAGE>   21

implementation of SAB 101. SAB 101 is effective for years beginning after
December 15, 1999 and we were required to adopt SAB 101 in the quarter ended
December 31, 2000 retroactive to the beginning of the year. SAB 101 did not have
an effect on our results of operations, financial position or cash flows.

     In March 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation -- an Interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies certain elements of APB Opinion No. 25, including: the definition of
an employee for purposes of applying APB Opinion No. 25, the criteria for
determining whether a plan qualifies as non-compensatory, the accounting
consequences of various modifications to the terms of a previously fixed stock
option award, and the accounting for an exchange of options in a business
combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN 44
cover specific events that have occurred after either December 15, 1998 or
January 12, 2000. The adoption of this interpretation required us to record
$20.9 million in deferred stock compensation in connection with the Panopticon
and Servicesoft acquisitions equivalent to the intrinsic value of options to
purchase our common stock, subject to post-acquisition vesting, exchanged for
options to purchase these companies common stock. Prior to the adoption of FIN
44, the full fair value of options to purchase our common stock, vested and
unvested at the time of acquisition, exchanged for options to purchase target
company stock, was allocated to the fair value of tangible and intangible assets
(including goodwill) acquired. The amortization of this deferred stock
compensation resulted in amortization of $1.3 million during 2000, and will
result in further amortization of $11.8 million, $5.4 million and $2.4 million
during 2001, 2002 and 2003, respectively.

     In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS
133"). FAS 133, as amended, establishes methods of accounting for derivative
financial instruments and hedging activities related to those instruments as
well as other hedging activities. We will be required to adopt FAS 133 effective
January 1, 2001. However, because we do not utilize derivative financial
instruments, we do not believe the impact of FAS 133 will be material to our
consolidated financial position or results of operations.

     On February 14, 2001, the FASB issued a limited revision of its September
7, 1999 Exposure Draft, "Business Combinations and Intangible Assets", that
proposes to significantly change the accounting for goodwill acquired in a
purchase business combination. Under the revised proposal, goodwill would not be
amortized but would be reviewed for impairment, using a complex methodology
different from the original proposal, when an event occurs indicating the
potential for impairment. Goodwill impairment charges would be presented as a
separate line item within the operating section of the income statement. The
nonamortization approach would apply to previously recorded goodwill as well as
goodwill arising from acquisitions completed after the application of the new
standard. Amortization of the remaining book value of goodwill would cease and
the new impairment-only approach would apply. The FASB expects to release the
final statement in June 2001. The provisions of the proposed statement are to be
applied at the beginning of the first fiscal quarter following its issuance for
all entities.

                                  RISK FACTORS

     You should carefully consider the risks described below and the other
information in this report before investing in our common stock. The risks
described below are not the only ones we face. Additional risks that we are
unaware of or that we currently believe are immaterial may become important
factors that affect our business. If any of the following risks occur, or if
others occur, our business, operating results and financial condition could be
seriously harmed. The trading price of our common stock could decline due to any
of these risks, and you may lose all or part of your investment.

                                        19
<PAGE>   22

RISKS RELATED TO OUR BUSINESS

OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE OUR OPERATING HISTORY IS LIMITED
AND BECAUSE WE JUST COMPLETED A MAJOR ACQUISITION.

     Because we are still in the early stages of our development, we will be
subject to the risks, expenses and uncertainties frequently encountered by a
young company. For example, because we introduced a number of our products in
May 1999, and our E-Service (formerly Servicesoft 2001) family of products in
August 2000, it is difficult to predict whether our products will continue to be
accepted by the market, which is evolving rapidly, and the level of revenues we
can expect to derive from sales of our products. Several members of our
management team have been with us for only a short period of time. Because of
our limited operating history and evolving product offerings, our insights into
trends that may emerge and affect our business are limited. In addition, on
December 18, 2000, we completed our acquisition of Servicesoft, which
substantially expanded the scale of our operations. Because we have limited
experience operating as a combined company, it is even more difficult to
evaluate our business.

WE HAVE INCURRED LOSSES SINCE INCEPTION AND WE EXPECT TO INCUR LOSSES FOR THE
FORESEEABLE FUTURE DUE IN LARGE PART TO ACQUISITION-RELATED AMORTIZATION
CHARGES.

     We incurred net losses and losses from operations for each period from our
inception through the end of 2000. As of December 31, 2000, we had accumulated
net losses of approximately $235.1 million. Servicesoft, which we acquired on
December 18, 2000, had accumulated net losses of approximately $120.8 million as
of that date. We have not achieved profitability to date, and we expect to
continue to incur substantial losses for the foreseeable future. Although our
revenues and Servicesoft's revenues grew significantly in 2000, our growth may
not continue at the current rate or at all. Further, our revenue growth may be
affected by the challenges we face as a result of the increasingly uncertain
economic conditions both generally and in our market. We expect to incur
increasing sales and marketing, research and development and general and
administrative expenses. In addition, we expect substantial noncash charges from
amortization of goodwill, intangible assets and stock compensation. As a result,
we will need to significantly increase our revenue to achieve profitability.
Even if we do achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis in the future.

WE EXPECT OUR QUARTERLY REVENUE AND OPERATING RESULTS TO FLUCTUATE, AND IT IS
DIFFICULT TO PREDICT OUR FUTURE OPERATING RESULTS.

     Our revenue and operating results have varied in the past and are likely to
continue to vary significantly from quarter to quarter in the future. These
fluctuations are due to a number of factors, many of which are outside of our
control, including:

     - changes in our pricing policies, or changes in the pricing policies of
       our competitors;

     - the size and timing of customer orders for our products and our
       professional services;

     - deferrals by our customers of order in anticipation of new products or
       product enhancements;

     - changes in the demand for our products, particularly our e-business
       applications;

     - uncertainty regarding the timing of the implementation cycle for our
       products;

     - increased expenses for sales and marketing, product development and
       administration;

     - changes in the level of sales of professional services as compared to
       product licenses;

     - our success in developing and introducing new products and the timing of
       the introduction of new product and services by us or our competitors,
       which could affect the demand for our existing products and services;

     - changes in the purchasing and budgeting cycles of our customers, and the
       discretionary nature of our customers' budgets for software and
       e-business related purchases;

                                        20
<PAGE>   23

     - the amount and timing of operating costs and capital expenditures
       relating to the expansion of our business, including acquisitions of
       technology or businesses;

     - changes in the mix of our domestic and international sales, together with
       fluctuations in foreign currency exchange rates;

     - changes in general economic and market conditions affecting our customers
       or our industry; and

     - a trend of continuing consolidation in our industry.

     We have experienced seasonality in our revenues, with the fourth quarter of
the year typically having the highest revenue for the year and with the revenue
growth from the third quarter to the fourth quarter of the year typically
exceeding the revenue growth for the fourth quarter to the first quarter of the
following year. We believe that this seasonality results primarily from the
budgeting cycles of our customers. We expect that this seasonality will
continue, and may increase. In addition, our customers' decisions to purchase
our products and services are discretionary and subject to their internal
budgets and purchasing processes. In addition, our ability to achieve increased
revenue and profitability depends on overall demand for e-business software and
related services, and in particular for customer-focused applications. Due to
current slowdowns in the general economy, we believe that many existing and
potential customers are reassessing or reducing their planned technology and
internet-related investments and deferring purchasing decisions. As a result,
there is increased uncertainty with respect to our expected revenues in 2001,
and further delays or reductions in business spending in the area of information
technology, particularly the eCRM market and related products and services,
could have a material adverse effect on our revenues and operating results.

     Our quarterly revenue increased 317% from the fourth quarter of 1999 to the
fourth quarter of 2000. We do not believe that these rates of growth are
indicative of the growth in revenues, if any, that we can expect in the future.
Accordingly, we believe that period-to-period comparisons of our operating
results may not be meaningful and you should not rely on these comparisons as an
indication of our future performance. Our operating results may fall below the
expectations of investors. In this event, the market price of our common stock
would likely decrease.

OUR OPERATING EXPENSES ARE INCREASING, AND IF WE FAIL TO MEET OUR REVENUE
FORECASTS, WE WILL NOT BE ABLE TO REDUCE THESE EXPENSES QUICKLY.

     We plan to significantly increase our operating expenses as we expand our
sales, marketing, research and development, professional services, customer
support and administrative groups and integrate acquired companies. These
expenses will be incurred before we generate any revenues from our increased
spending. If we do not significantly increase revenues as a result of these
efforts, we will not achieve profitability. Our operating expenses are based on
our expectations of future revenues and are relatively fixed in the short term.
As a result, we would not be able to reduce spending quickly if our revenue was
lower than we had projected. Therefore, if our revenue falls below our
expectations in any quarter, or if we increase our spending ahead of our revenue
growth, our operating results will be lower than expected.

THE UNPREDICTABLE TIMING OF OUR SALES AND IMPLEMENTATION CYCLE MAKES IT
DIFFICULT TO FORECAST OUR OPERATING RESULTS.

     Our products can have a long and unpredictable sales cycle. Potential
customers often require time to weigh the costs and benefits of our products
compared to those of in-house development and integration efforts. As a result,
our sales cycle for our products has typically ranged from two to seven months,
although it can take longer. Consequently, we face difficulty predicting the
quarter in which sales to expected customers will occur. This contributes to the
uncertainty of our future operating results.

     Delays and uncertainty in product and service implementations can compound
the difficulty of forecasting our operating results. In most customer sales, we
are involved in the installation of our software products at the customer site,
and we recognize revenue from a customer sale based in part on when our software
products are effectively operational. However, the timing of the commencement
and completion of

                                        21
<PAGE>   24

the installation process is subject to factors that may be beyond our control,
as this process requires access to the customer's facilities and coordination
with the customer's personnel after delivery of the software. In addition,
customers may elect to delay product implementations. Further, general
uncertainty in the economy may cause potential new clients to reduce or
eliminate their immediate need to purchase our products, or lead our existing
clients to decline to purchase additional products from us. These factors make
it difficult to forecast operating results and can result in significant
variability in period-to-period results.

IF OUR ACQUISITIONS ARE NOT PERCEIVED AS SUCCESSFUL, THIS MAY CAUSE A DECLINE IN
OUR STOCK PRICE.

     We recently acquired several companies, including Servicesoft, Decisionism
and Panopticon, and if we are presented with appropriate opportunities, we may
acquire additional companies or make investments in other companies, products or
technologies in the future. Many of these companies are in the early stages of
their development and have unproven business models. We may not realize the
anticipated benefits of these or other acquisitions or investments to the extent
that we anticipate, or at all. We may have to incur debt or issue equity
securities to pay for any additional future acquisitions or investments, the
issuance of which could be dilutive to our existing stockholders. If these
acquisitions are not perceived as accretive, our stock price may decline.

OUR ACQUISITIONS MAY RESULT IN DISRUPTIONS TO OUR BUSINESS DUE TO DIFFICULTIES
IN ASSIMILATING PERSONNEL, TECHNOLOGY AND OPERATIONS.

     The integration of acquired companies into our own has been and will
continue to be a complex, time consuming and expensive process and may disrupt
our business if not completed efficiently or in a timely manner. For example, we
completed our acquisition of Servicesoft on December 18, 2000, which
substantially expanded our scale of operations. The number of our full-time
employees increased from 350 at November 30, 2000 to 678 at December 31, 2000,
primarily as a result of this acquisition. We must demonstrate to customers and
suppliers that an acquisition will not result in adverse changes in client
service standards, or dilution of or distraction to our business focus. We may
not be able to successfully assimilate additional personnel, operations,
acquired technology or products into our business. In particular, we will need
to assimilate and retain key professional services, engineering and marketing
personnel. The difficulties of integrating other businesses could be greater
than we anticipate, and could disrupt our ongoing business, disrupt our
management and employees and increase our expenses.

ACCOUNTING CHARGES RELATING TO ACQUISITIONS WILL PREVENT US FROM ACHIEVING
POSITIVE NET INCOME UNDER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AS QUICKLY AS
WE MIGHT OTHERWISE.

     We have accounted for our recent acquisitions using the purchase method of
accounting. Under the purchase method, the purchase price of the acquired
company is allocated based on an independent valuation, to the specific tangible
and intangible assets acquired and liabilities assumed. We recorded
approximately $361.8 million, $28.8 million, $92.8 million, $10.7 million and
$630.0 million of intangible assets and goodwill on our balance sheet in
connection with our acquisitions of Rubric, Aperio, Panopticon, Decisionism and
Servicesoft, respectively. This will result in amortization expense of
approximately $230.0 million in 2001, $226.2 million in 2002, $224.2 million in
2003, $221.1 million in 2004 and $142.8 million for 2005. We will likely record
additional intangible assets and goodwill and merger related costs in connection
with potential future acquisitions. These charges will reduce our net income
reported under generally accepted accounting principles.

WE NEED TO ATTRACT, TRAIN AND RETAIN ADDITIONAL QUALIFIED PERSONNEL IN A
COMPETITIVE EMPLOYMENT MARKET.

     Our success depends on our ability to attract, train and retain qualified,
experienced employees. There is substantial competition for experienced
management, engineering, sales and marketing personnel, particularly in the
market segment in which we compete. If we are unable to retain our existing key
personnel, or to attract, train and retain additional qualified personnel, we
may experience inadequate levels of staffing to develop and sell our products
and perform services for our customers.

                                        22
<PAGE>   25

     The market price of our common stock has fluctuated substantially since our
initial public offering in September 1999, and has experienced a significant
decline since the first quarter of 2000. We have relied historically on our
ability to attract employees using equity incentives, and any perception by
potential and existing employees that our equity incentives are less attractive
could harm our ability to attract and retain qualified employees.

     We believe that our success will depend on the continued services of our
executive officers. These employees serve "at-will" and may elect to pursue
other opportunities at any time. The loss of any of our executive officers could
harm our business. Several of our executive officers joined us only recently and
have had limited experience working together. For example, five of our executive
officers commenced employment with us during 2000. We cannot assure you that our
new executive officers will be able to work effectively together to manage our
growth and continuing operations.

OUR GROWTH DEPENDS ON MARKET ACCEPTANCE OF OUR APPLICATIONS DESIGNED FOR
INTERNET-BASED SYSTEMS.

     We first introduced our applications designed for Internet-based systems in
May 1999, and our E-Service (formerly Servicesoft 2001) family of products in
August 2000. We expect that our future growth will depend significantly on
revenue from licenses of these applications and related services. There are
significant risks inherent in introducing Internet-based systems applications.
Market acceptance of these products will depend on the growth of the market for
e-business solutions. This growth may not occur. Further, we cannot assure you
that these e-business applications or any new ones we may introduce will meet
customer performance expectations. If they do not meet customer expectations or
the market for these products fails to develop or develops more slowly than we
expect, our business would be harmed.

OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO SIGNIFICANTLY EXPAND OUR SALES
FORCE.

     We sell our products primarily through our direct sales force. We must
significantly expand our direct sales operations to increase market awareness of
our products and increase revenue. We cannot be certain that we will be
successful in these efforts. Our products and services require sophisticated
sales efforts. As a result, our ability to increase our direct sales operation
will depend on our ability to recruit, train and retain top sales people with
advanced sales skills and technical knowledge. There is a shortage of sales
personnel with these qualifications, and competition for qualified personnel is
intense in our industry. If we are unable to hire or retain qualified sales
personnel, or if newly hired personnel fail to develop the necessary skills or
reach productivity more slowly than anticipated, our business could be harmed.

WE RELY ON MARKETING, TECHNOLOGY AND DISTRIBUTION RELATIONSHIPS THAT MAY
GENERALLY BE TERMINATED AT ANY TIME, AND IF OUR CURRENT AND FUTURE RELATIONSHIPS
ARE NOT SUCCESSFUL, OUR GROWTH MAY BE LIMITED.

     We rely on marketing and technology relationships with a variety of
companies that, in part, generate leads for the sale of our products. These
marketing and technology relationships include relationships with:

     - system integrators and consulting firms;

     - vendors of e-commerce and Internet software;

     - vendors of software designed for customer relationship management or for
       management of organizations' operational information;

     - vendors of key technology and platforms;

     - demographic data providers; and

     - an application service provider and an Internet hoster.

     If we cannot maintain successful marketing and technology relationships or
cannot enter into additional marketing and technology relationships, we may have
difficulty expanding the sales of our products and our growth may be limited.
While these companies do not sell or distribute our products, we believe that
many of our direct sales are the result of leads generated by vendors of
e-business and enterprise applications that work

                                        23
<PAGE>   26

with our products. Our marketing and technology relationships are generally not
documented in writing, or are governed by agreements that can be terminated by
either party with little or no prior notice. In addition, companies with which
we have marketing, technology or distribution relationships may promote products
of several different companies. If these companies choose not to promote our
products or if they develop, market or recommend software applications that
compete with our products, our business will be harmed.

     In addition, we have distribution relationships with companies located
around the world that distribute or resell our products. Sales through these
indirect sales channels accounted for approximately 28.7% of our total revenues
for 1998, 35.3% for 1999 and 13.6% for 2000. These channel partners may
experience reduced sales due to a number of factors, including general economic
uncertainty in our industry, which would cause our revenues to decline. If we
cannot maintain successful relationships with our indirect sales channel
partners, we may have difficulty expanding the sales of our products and our
international growth may be limited.

     In addition, we rely on distributors, value-added resellers, systems
integrators, consultants and other third-party resellers to recommend our
Servicesoft products and to install and support these products. If these
companies fail to implement our Servicesoft products successfully for our
customers, we may be unable to complete implementation on the schedule required
by the customers. We may not be able to maintain these relationships and enter
into additional relationships that will provide timely and cost-effective
customer support and service.

CUSTOMER SATISFACTION AND DEMAND FOR OUR PRODUCTS WILL DEPEND ON OUR ABILITY TO
EXPAND OUR PROFESSIONAL SERVICES GROUP, WHICH ASSISTS OUR CUSTOMERS WITH THE
IMPLEMENTATION OF OUR PRODUCTS.

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

WE MAY BE UNABLE TO ATTRACT NEW CUSTOMERS IF WE DO NOT DEVELOP NEW PRODUCTS AND
ENHANCEMENTS.

     If we do not continue to improve our products and develop new products that
keep pace with competitive product introductions and technological developments,
satisfy diverse and rapidly evolving customer requirements and achieve market
acceptance, we may be unable to attract new customers. For example, we have
recently released new versions of a number of our existing analytic applications
and our E-Service (formerly Servicesoft 2001) family of software products. We
may not be successful in marketing and supporting these new versions, or
developing and marketing other product enhancements and new products that
respond to technological advances and market changes, on a timely or
cost-effective basis. In addition, even if these products are developed and
released, they may not achieve market acceptance. We have in the past
experienced delays in releasing new products and product enhancements and may
experience similar delays in the future. These delays or problems in the
installation or implementation of our new releases may cause customers to forego
purchases of our products.

WE DEPEND ON INCREASED BUSINESS FROM OUR NEW CLIENTS, AND IF WE FAIL TO GROW OUR
CLIENT BASE OR GENERATE REPEAT BUSINESS, OUR OPERATING RESULTS COULD BE HARMED.

     If we fail to grow our client base or generate repeat and expanded business
from our current and future clients, our business and operating results will be
seriously harmed. In some cases, our customers initially make a limited purchase
of our products and services for pilot programs. These clients may not choose to

                                        24
<PAGE>   27

purchase additional licenses to expand their use of our products. These clients
have not yet developed or deployed initial applications based on our products.
If these clients do not successfully develop and deploy these initial
applications, they may choose not to purchase deployment licenses or additional
development licenses.

     The effectiveness of our Servicesoft products depends in part on the
widespread adoption and use of these products by customer support personnel.
Some of our clients who have made initial purchases of this software have
deferred or suspended implementation of our products due to slower than expected
rates of internal adoption by customer support personnel. If more clients decide
to defer or suspend implementation of these products in the future, our ability
to increase our revenue from these clients through additional licenses or
maintenance agreements will also be impaired, and our financial position may be
seriously harmed. Our business model generally depends on the expanded use of
our products within our clients' organizations.

     In addition, as we introduce new versions of our products or new products,
our current clients may not require the functionality of our new products and
may not ultimately license these products. Because the total amount of
maintenance and support fees we receive in any period depends in large part on
the size and number of licenses that we have previously sold, any downturn in
our software license revenue would negatively affect our future services
revenue. In addition, if clients elect not to renew their maintenance
agreements, our services revenue could decline significantly. Further, some of
our customers are Internet-based companies, which have been forced to
significantly reduce their operations in light of limited access to sources of
financing and the current economic slowdown. If customers are unable to pay for
their current products or are unwilling to purchase additional products, our
revenues would decline.

MARKET ACCEPTANCE OF OUR PRODUCTS MAY SUFFER IF WE ARE UNABLE TO KEEP PACE WITH
RAPID TECHNOLOGICAL CHANGES AND INDUSTRY STANDARDS.

     Rapidly changing technology and operating system standards, changes in
customer requirements and evolving industry standards may impede market
acceptance of our products. Our new applications have been designed based upon
currently prevailing Internet technology. If new Internet technologies emerge
that are incompatible with our applications, or if competing products emerge
which are based on new technologies or new industry standards which perform
better or cost less than our products, our key products may become obsolete and
our existing and potential customers may seek alternatives to our products. We
may not be able to quickly adapt our products to any new Internet technology,
customer requirements or industry standards.

     We have designed our products to work with databases such as Oracle and
Microsoft SQL Server. Any changes to those databases, or increasing popularity
of other databases, could require us to modify our products, and could cause us
to delay releasing future products and enhancements. Furthermore, software
adapters are necessary to integrate our products with other systems and data
sources used by our customers. We must develop and update these adapters to
reflect changes to these systems and data sources in order to maintain the
functionality provided by our products. As a result, uncertainties related to
the timing and nature of new product announcements, introductions or
modifications by vendors of operating systems, databases, customer relationship
management software, web servers and other enterprise and Internet-based
applications could delay our product development, increase our product
development expense or cause customers to delay evaluation, purchase and
deployment of our products.

OUR BUSINESS DEPENDS ON THE ACCEPTANCE AND USE OF THE WINDOWS NT OPERATING
SYSTEM.

     Both our analytic software products and our Servicesoft e-service software
products currently run only on the Windows NT operating system. Any change to
this operating system could require us to modify our products and could cause us
to delay product releases. Any decline in the market acceptance of the Windows
NT operating system for any reason, including as a result of errors or delayed
introduction of enhancement or upgrades, could seriously harm our business. If
potential customers do not want to use the Windows NT operating system, we will
need to develop products that run on other operating systems such as Windows
2000, the successor to Windows NT, or any of the UNIX based systems. The
development of new products in response to these risks would require us to
commit a substantial investment of resources, and we may not be

                                        25
<PAGE>   28

able to successfully develop or introduce such products on a timely or
cost-effective basis, or at all, which could lead potential customers to choose
alternative products.

FAILURE TO LICENSE NECESSARY THIRD PARTY SOFTWARE INCORPORATED IN OUR PRODUCTS
MAY CAUSE DELAYS OR REDUCTIONS IN OUR SALES.

     We license third party software that we incorporate into our products.
These licenses may not continue to be available on commercially reasonable terms
or at all. Some of this technology would be difficult to replace. The loss of
any such license could result in delays or reductions of our applications until
equivalent software is identified, licensed and integrated or developed by us.
If we are required to enter into license agreements with third parties for
replacement technology, we could be subject to higher royalty payments and a
loss of product differentiation. In the future, we may need to license other
software to enhance our products and meet evolving customer needs. If we are
unable to do this, we may experience reduced demand for our products.

WE FACE INTENSE COMPETITION WHICH COULD MAKE IT DIFFICULT TO ACQUIRE AND RETAIN
CUSTOMERS.

     Our market is intensely competitive, and we expect competition to intensify
in the future. In recent periods, some of our competitors reduced the prices of
their products and services (substantially in certain cases) in order to obtain
new customers. Competitive pressures may make it difficult for us to acquire and
retain customers and may require us to reduce the price of our products. Failure
to maintain and enhance our competitive position could seriously harm our
business. Our customers' requirements and the technology available to satisfy
those requirements are continually changing. Therefore, we must be able to
respond to these changes in order to remain competitive.

     Our competitors vary in size and in the scope and breadth of products and
services offered. We currently face competition from providers of
consulting-based analytic solutions, providers of e-service software products
similar to our Servicesoft products, vendors of point technologies that provide
website analysis, in-house development efforts by potential customers, and from
other software providers. We may also face competition from providers of
customer relationship management, e-commerce and communications solutions. In
addition, we face competition from vendors of other enterprise applications as
they expand the functionality of their product offerings, including companies
that design software for decision support, management of customer relationships
or of organizations operational information or for providing customer service,
as well as vendors of database applications. In addition, we expect that
competition may increase as a result of software industry consolidations and
formations of alliances among industry participants or with third parties. For
example, Kana Communications, Inc. recently acquired Silknet Software, Inc.,
eGain Communications Corp. recently acquired Inference Corporation, Siebel
Systems, Inc. recently acquired Onlink Technologies, Inc., and E.piphany, Inc.
recently acquired Octane Software, Inc. Finally, it is possible that new
competitors may emerge.

     Some of our current and potential competitors have longer operating
histories and significantly greater financial, technical, marketing and other
resources than we do, and thus may be able to respond more quickly to new or
changing opportunities, technologies and customer requirements. Also, many
current and potential competitors have wider name recognition and more extensive
customer bases that they could leverage, thereby gaining market share to our
detriment. They may be able to undertake more extensive promotional activities,
adopt more aggressive pricing strategies, and offer purchasers more attractive
terms than we can. Our competitors may develop products that are superior to
ours or that achieve greater market acceptance.

WE DEPEND ON OUR INTELLECTUAL PROPERTY, AND LITIGATION REGARDING OUR
INTELLECTUAL PROPERTY COULD HARM OUR BUSINESS.

     The success of our business is largely dependent on our ability to protect
our intellectual property. Our intellectual property includes our proprietary
technology, trade secrets, trademarks and copyrights in our software products.
We have no issued patents, although patents may become increasingly important in
software and e-business applications. Unauthorized use or misappropriation of
our intellectual property could seriously harm our business. Copyrights and
trademarks discourage unauthorized use of our software and

                                        26
<PAGE>   29

company and product names and provide us with a way to enforce our rights in the
event that this unauthorized use occurs. Trade secret laws protect the
confidentiality of our propriety technology and other business information.
However, existing copyright, trademark and trade secret laws afford only limited
protection, and the laws of some foreign countries do not protect our
proprietary rights to the same extent as do the laws of the United States. Third
parties may infringe upon our intellectual property rights, and we may be unable
to detect this unauthorized use or effectively enforce our rights. In addition,
any legal action that we may bring to protect our intellectual property rights
could be expensive and distract management from day-to-day operations.

     Our business activities may infringe upon the proprietary rights of others,
and other parties may assert infringement claims against us. If we become liable
to any other third party for infringing their intellectual property rights, we
could be required to pay substantial damage awards and to develop non-infringing
technology, obtain licenses or cease selling the applications that contain the
infringing intellectual property. We could have to redesign our products, which
could be costly and time-consuming and could substantially delay product
shipments, assuming that a redesign is even feasible. We may be unable to
develop non-infringing technology or obtain licenses on commercially reasonable
terms, if at all. Litigation is subject to inherent uncertainties and any of
these results in connection with a lawsuit could seriously harm our business.
Furthermore, we could incur substantial costs in defending against any
intellectual property litigation, and these costs could increase significantly
if any dispute were to go to trial. Our defense of any litigation, regardless of
the merits of the complaint, will likely be time-consuming, costly and a
distraction for our management personnel. Publicity related to any intellectual
property litigation could also harm the sale of our products and disrupt our
relationships with existing clients.

SOFTWARE DEFECTS COULD LEAD TO LOSS OF REVENUE OR DELAY IN MARKET ACCEPTANCE FOR
OUR PRODUCTS OR MAY EXPOSE US TO LIABILITY.

     Our software products are internally complex and may contain defects,
especially when they are first introduced or when new versions are released. In
the past, we have discovered software errors in some of our products after their
introduction. We recently released new versions of a number of our analytic
software applications and our E-Service (formerly Servicesoft 2001) family of
products. As a result, these products may be particularly susceptible to errors.
Although we continue to evaluate our products for errors following the
commencement of commercial shipments and receive information from customers
regarding errors they detect, if we are not able to detect and correct errors in
products or releases before commencing commercial shipments, we may experience
loss of or delay in revenues, loss of market share or failure to achieve market
acceptance for our products, diversion of development resources or injury to our
reputation.

     We may encounter product liability claims in the future as a result of any
product defects. Our license agreements with our customers typically contain
provisions designed to limit our exposure to potential product liability claims.
However, all domestic and international jurisdictions may not enforce these
limitations. Product liability claims brought against us could divert the
attention of management and key personnel, could be expensive to defend and may
result in adverse settlements and judgments.

BARRIERS TO INTERNATIONAL EXPANSION COULD LIMIT OUR FUTURE GROWTH.

     We have only a limited history of marketing, selling and supporting our
products and services internationally. We conduct our international sales
primarily through direct sales offices in Europe and Asia, through a Servicesoft
subsidiary in Canada and through distributors in Japan. Revenue from customers
outside the United States represented 5.1%, 23.2%, and 20.3% of our total net
revenue for 1998, 1999, and 2000 respectively. We intend to expand our
international operations, but we may face significant barriers to this
expansion. Our failure to manage our international operations effectively could
limit the future growth of our business. The expansion of our existing
international operations and entry into additional international markets will
require significant management attention and financial resources.

     Our products must be localized, or customized to meet local user needs, in
order to be sold in particular foreign countries. Developing localized versions
of our products for foreign markets is difficult and can take longer than we
anticipate. We currently have limited experience in localizing products and in
testing whether

                                        27
<PAGE>   30

these localized products will be accepted in the targeted countries. We cannot
assure you that our localization efforts will be successful.

     We also face certain other risks inherent in conducting business
internationally, such as:

     - difficulties and costs of staffing and managing international operations;

     - difficulties in recruiting and training an international staff;

     - difficulties in entering into strategic relationships with companies in
       international markets, particularly in Japan where the majority of our
       sales have been made through distributors;

     - language and cultural differences;

     - difficulties in collecting accounts receivable and longer collection
       periods;

     - seasonal business activity in certain parts of the world;

     - fluctuations in currency exchange rates;

     - legal and governmental regulatory requirements;

     - tariffs, duties, price controls and other trade barriers; and

     - potentially adverse tax consequences.

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

     To date, a majority of our international revenue and costs have been
denominated in foreign currencies. We have not engaged in any foreign exchange
hedging transactions to mitigate exchange rate risk. Accordingly, our results of
operations could be harmed by foreign currency exchange rate fluctuations.

WE ARE GROWING RAPIDLY, AND THE FAILURE TO MANAGE OUR GROWTH, INCLUDING
EXPANSION OF OUR MANAGEMENT SYSTEMS, COULD HARM OUR BUSINESS.

     We have grown rapidly and will need to continue to grow in all areas of
operation in order to execute our business strategy. Our total number of
full-time employees grew from 131 at December 31, 1999 to 678 at December 31,
2000. We anticipate further increases in the number of our employees. Our growth
has placed significant demands on management as well as on our administrative,
operational and financial resources and controls. We expect our future growth to
cause similar, and perhaps increased, strain on our systems and controls. If we
cannot effectively establish and improve our processes, we may not be able to
manage our growth successfully or sustain and manage the growth rates we have
experienced in the past.

     We recently completed the implementation of several new operational
information systems, and began an extensive upgrade of our finance, accounting,
and product distribution systems. In addition, we plan to deploy certain of
these systems in our international operations during the first quarter of 2001.
Failure to successfully complete these systems implementations, upgrades, and
deployments in a timely and effective manner may result in the disruption of our
operations, which could adversely affect our operating results.

OUR PROSPECTS FOR OBTAINING ADDITIONAL FINANCING, IF REQUIRED, ARE UNCERTAIN AND
FAILURE TO OBTAIN NEEDED FINANCING COULD AFFECT OUR ABILITY TO PURSUE FUTURE
GROWTH.

     We expect that our cash and cash equivalents and short-term investments on
hand will be sufficient to meet our working capital and capital expenditure
needs for the foreseeable future. However, we may need to raise additional funds
for expansion, to respond to competitive pressures or to acquire complementary
products, businesses or technologies. We cannot assure you that we would be able
to obtain additional financing on favorable terms, if at all, especially in
light of the currently uncertain market climate. If we issue additional equity
securities, stockholders may experience additional dilution or the new equity
securities may have rights, preferences or privileges senior to those of
existing holders of common stock. If we cannot raise necessary additional funds
on acceptable terms, we may not be able to fund expansion, take advantage of
future opportunities or respond to competitive pressures or unanticipated
requirements.

                                        28
<PAGE>   31

OUR STOCK PRICE MAY BE VOLATILE, WHICH COULD LEAD TO LOSSES BY INVESTORS AND TO
SECURITIES LITIGATION.

     The market price of our common stock has experienced a significant decline
in recent months. The price has been and is likely to continue to be highly
volatile due to several factors, such as:

     - variations in our actual and anticipated operating results;

     - changes in our earnings estimates by analysts;

     - the volatility inherent in stocks within the emerging sector within which
       we conduct business; and

     - the volume of trading in our common stock.

     In addition, stock markets, particularly the Nasdaq National Market, have
experienced extreme price and volume fluctuations, and the market prices of
securities of technology companies, especially Internet-related companies, have
declined significantly in recent months. Some of these declines have been
unrelated to the operating performance of such companies. Fluctuations or
declines such as these may continue to affect the market price of our common
stock in the future. Substantial sales of our common stock could also cause the
stock price to decline.

     In the past, securities class action litigation has often been instituted
against companies following periods of volatility in their stock price. This
type of litigation could result in substantial costs and could divert our
management's attention and resources.

WE HAVE ADOPTED ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT THE SALE OF
OUR COMPANY AND DIMINISH THE VOTING RIGHTS OF THE HOLDERS OF OUR COMMON STOCK.

     Provisions of our certificate of incorporation, bylaws and Delaware law
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders. For example, we have a classified board
of directors. In addition, our stockholders are unable to act by written consent
or to fill any vacancy on the board of directors. In addition, our stockholders
cannot call special meetings of stockholders for any purpose, including to
remove any director or the entire board of directors without cause. We will also
be subject to the provisions of Section 203 of the Delaware General Corporation
Law regulating corporate takeovers. These provisions could also limit the price
that investors might be willing to pay in the future for shares of our common
stock.

ADDITIONAL RISKS RELATED TO OUR RECENT ACQUISITION OF SERVICESOFT

IF WE DO NOT SUCCESSFULLY INTEGRATE THE OPERATIONS AND PERSONNEL OF SERVICESOFT
IN A TIMELY MANGER, THIS WILL DISRUPT OUR BUSINESS AND COULD NEGATIVELY AFFECT
OUR OPERATING RESULTS.

     The integration of Servicesoft into our business will be a complex, time
consuming and expensive process and may disrupt our business if not completed in
a timely and efficient manner. We must operate as a combined organization
utilizing common information and communication systems, operating procedures,
financial controls and human resources practices. We may encounter substantial
difficulties, costs and delays involved in integrating Servicesoft's operations
into our own, including:

     - potential incompatibility of business cultures;

     - perceived adverse changes in business focus;

     - potential conflicts in distribution, marketing or other important
       relationships; and

     - the loss of key employees and diversion of the attention of management
       from other ongoing business concerns.

     Our integration of Servicesoft's operations and personnel may be
particularly difficult due to the location of Servicesoft's headquarters in
Natick, Massachusetts. There are currently no plans to relocate or consolidate
our Menlo Park headquarters or our Servicesoft headquarters. Failure to complete
the integration successfully could result in the loss of key personnel and
customers. We will need to devote significant resources to the

                                        29
<PAGE>   32

integration of the acquired operations and personnel, and if unsuccessful, our
business will suffer. In addition, the attention and effort devoted to the
integration of Servicesoft will significantly divert our management's attention
from other important issues, which could negatively affect our business and
operating results.

IF WE DO NOT INTEGRATE OUR PRODUCTS AND TECHNOLOGIES QUICKLY AND EFFECTIVELY,
MANY OF THE POTENTIAL BENEFITS OF THE MERGER MAY NOT BE REALIZED.

     We will need to integrate Servicesoft's product development operations,
products and technologies with our own. This integration may be difficult and
unpredictable because our analytic and Servicesoft products are highly complex
and were developed independently and without regard to this integration.
Successful integration of Servicesoft's product development operations and
product lines with our own also requires coordination of different development
and engineering teams, as well as sales and marketing efforts and personnel.
This, too, may be difficult and unpredictable because of possible differences
between our corporate cultures and organizations, different product and
technology decisions and the geographic distance between our headquarters. In
addition, this integration may take longer than expected, and we may be required
to expend more resources on integration than anticipated. The need to expend
additional resources on integration would reduce the resources that would
otherwise be spent on developing each companies' own products and technologies.
If we cannot successfully integrate Servicesoft's operations, products and
technologies with our own, or if this integration takes longer than anticipated,
the combined company may not be able to operate efficiently or realize the
expected benefits of the merger.

IN ORDER TO ACHIEVE THE ANTICIPATED BENEFITS OF THE MERGER, WE WILL NEED TO
SUCCESSFULLY DEVELOP AND INTRODUCE NEW AND ENHANCED PRODUCTS.

     We expect to develop and introduce new products, and enhanced versions of
our currently existing analytic and Servicesoft products, that interoperate as a
single platform. In addition to the risks and uncertainties inherent in the
development and introduction of new products, the need to develop and introduce,
in a timely manner, new products and versions that work effectively together and
allow customers to achieve the benefits of a broader product offering presents
significant additional obstacles. In particular, because our market is
characterized by rapidly shifting customer requirements, we may not be able to
assess these requirements accurately, or our joint products may not sufficiently
satisfy these requirements. In addition, the introduction of these anticipated
new products and versions may result in longer sales cycles and product
implementations, which may cause revenue and operating income to fluctuate and
fail to meet expectations.

     To date, we have not thoroughly investigated the obstacles, technological,
market-driven or otherwise, to developing and marketing these new products and
services in a timely and efficient way. We may not be able to overcome these
obstacles, or market acceptance of new products and services developed by us may
not meet expectations.

IF WE ARE NOT ABLE TO SUCCESSFULLY CROSS-SELL OUR PRODUCTS AND SERVICES TO
BROADBASE AND SERVICESOFT CUSTOMERS, THIS MAY NEGATIVELY AFFECT OUR OPERATING
RESULTS.

     We intend to offer our current products to Servicesoft customers, and
Servicesoft's current products to existing customers of Broadbase products.
There can be no assurance that either company's customers will have an interest
in the other company's products and services. The failure of cross-marketing
efforts would diminish our ability to achieve one of the benefits that we expect
to realize as a result of the merger, and could have a material, negative impact
on our business, financial condition and operating results.

FAILURE TO RETAIN KEY EMPLOYEES COULD DIMINISH THE ANTICIPATED BENEFITS OF THE
MERGER.

     The success of the merger will depend in part on the retention of personnel
critical to the business and operations of the combined company due to, for
example, their technical skills or management expertise. Employees may
experience uncertainty about their future role with us until our strategies with
regards to Servicesoft's employees are announced or executed. We have different
corporate cultures, and Servicesoft

                                        30
<PAGE>   33

employees may not want to work for a larger, publicly-traded company instead of
a smaller, start-up company. Some officers, including the Chief Executive
Officer and President, and all directors of Servicesoft have agreements that
provide for benefits, including severance and other payments and acceleration of
vesting of stock options or restricted stock grants, that were triggered upon
the closing of the merger, and this may affect our ability to retain these
employees. In addition, competitors may recruit employees during our integration
of Servicesoft, as is common in high technology mergers. If we are unable to
retain personnel that are critical to the successful integration of Servicesoft
with our company, we could face disruptions to our operations, loss of key
information, expertise or know-how and unanticipated additional recruitment and
training costs. In addition, the loss of key personnel could diminish the
anticipated benefits of the merger.

RISKS RELATED TO OUR INDUSTRY

WE DEPEND ON THE GROWTH IN THE USE OF THE INTERNET FOR OUR BUSINESS.

     Our future success depends heavily on the increased acceptance and use of
the Internet for business. Although the Internet is experiencing rapid growth in
the number of users and traffic, this growth is a recent phenomenon and may not
continue. Furthermore, despite this growth in usage, the use of the Internet for
business transactions is relatively new. If use of the Internet for business
does not continue to increase or increases more slowly than expected, our
business would be seriously harmed. Consumers and businesses may reject the
Internet as a viable commercial medium, or be slow to adopt it, for a number of
reasons, including potentially inadequate network infrastructure, slow
development of enabling technologies, concerns about the security of
transactions and confidential information and insufficient commercial support.
The Internet infrastructure may not be able to support the demands placed on it
by increased Internet usage and bandwidth requirements. In addition, delays in
the development or adoption of new standards and protocols required to handle
increased levels of Internet activity, or increased governmental regulation,
could cause the Internet to lose its viability as a commercial medium.

     If these or any other factors cause use of the Internet for business to
slow or decline, our business would be harmed. For example, Servicesoft's
products address a new and emerging market for e-service solutions. Therefore,
our future success depends substantially upon the widespread adoption of the
Internet as a significant medium for commerce and business applications. If this
market fails to develop or develops more slowly than expected, demand for our
products and services will be reduced. Even if the required infrastructure,
standards, protocols or complementary products, services or facilities are
developed, we may incur substantial expenses adapting our products to changing
or emerging technologies.

INCREASING GOVERNMENTAL REGULATION OF THE INTERNET COULD LIMIT THE MARKET FOR
OUR PRODUCTS.

     A number of legislative and regulatory proposals under consideration by
federal, state, local and foreign governmental organizations may lead to laws or
regulations concerning various aspects of the Internet, such as user privacy,
taxation of goods and services provided over the Internet, pricing, content and
quality of products and services. Legislation could dampen the growth in
Internet usage and decrease or limit its acceptance as a communications and
commercial medium. If enacted, these laws and regulations could limit the market
for our products. In addition, existing laws could be applied to the Internet,
including consumer privacy laws. Legislation or application of existing laws
could expose companies involved in electronic commerce, or e-commerce, to
increased liability, which could limit the growth of e-commerce generally.

GOVERNMENT REGULATION OF THE COLLECTION AND USE OF PERSONAL DATA COULD REDUCE
DEMAND FOR OUR PRODUCTS.

     Our products connect to and analyze data from various applications,
including Internet applications, that enable businesses to capture and use
information about their customers. Government regulation which limits our
customers' use of this information could reduce the demand for our products. A
number of jurisdictions have adopted, or are considering adopting, laws that
restrict the use of customer information from Internet applications. The
European Union has required that its member states adopt legislation that
imposes restrictions on the collection and use of personal data, and that limits
the transfer of personally-identifiable data to countries that do not impose
equivalent restrictions. In the United States, the Children's Online

                                        31
<PAGE>   34

Privacy Protection Act was enacted in October 1998. This legislation directs the
Federal Trade Commission to regulate the collection of data from children on
commercial websites. In addition, the Federal Trade Commission has begun
investigations into the privacy practices of businesses that collect information
on the Internet. These and other privacy-related initiatives could reduce demand
for some of the Internet applications with which our products operate, and could
restrict the use of our products in some e-commerce applications. This could
reduce demand for our products.

THE IMPOSITION OF SALES AND OTHER TAXES ON PRODUCTS SOLD BY OUR CUSTOMERS OVER
THE INTERNET COULD HAVE A NEGATIVE EFFECT ON ONLINE COMMERCE AND THE DEMAND FOR
OUR PRODUCTS AND SERVICES.

     The imposition of new sales or other taxes could limit the growth of
Internet commerce generally and, as a result, the demand for our products and
services. Recent federal legislation limits the imposition of state and local
taxes on Internet-related sales. Congress may choose not to renew this
legislation in 2001, in which case state and local governments would be free to
impose taxes on electronically purchased goods. We believe that most companies
that sell products over the Internet do not currently collect sales or other
taxes on shipments of their products into states or foreign countries where they
are not physically present. However, one or more states or foreign countries may
seek to impose sales or other tax collection obligations on out-of-jurisdiction
companies that engage in e-commerce. A successful assertion by one or more
states or foreign countries that companies that engage in e-commerce should
collect sales or other taxes on the sale of their products over the Internet,
even though not physically in the state or country, could indirectly reduce
demand for our products.

PRIVACY CONCERNS RELATING TO THE INTERNET ARE INCREASING, WHICH COULD RESULT IN
LEGISLATION THAT NEGATIVELY AFFECTS OUR BUSINESS, IN REDUCED SALES OF OUR
PRODUCTS, OR BOTH.

     Businesses using our products capture information regarding their customers
when those customers contact them on-line with customer service inquiries.
Privacy concerns may cause visitors to resist providing the personal data
necessary to allow our customers to use our software products most effectively.
More importantly, even the perception of privacy concerns, whether or not valid,
may indirectly inhibit market acceptance of our products. In addition,
legislative or regulatory requirements may heighten these concerns if businesses
must notify Web site users that the data captured after visiting certain Web
sites may be used by marketing entities to unilaterally direct product promotion
and advertising to that user. While we are not aware of any such legislation or
regulatory requirements currently in effect in the United States, other
countries and political entities, such as the European Union, have adopted such
legislation or regulatory requirements and the United States may do so as well.
If consumer privacy concerns are not adequately addressed, our business could be
harmed.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our exposure to market risk for changes in interest rates relates primarily
to our investment portfolio. The primary objective of our investment activities
is to preserve principal while at the same time maximizing yields without
significantly increasing risk. At December 31, 2000, our portfolio included
money market funds, demand notes, commercial paper, municipal bonds, government
agency bonds, and corporate bonds. The diversity of the portfolio helps us to
achieve our investment objective. As of December 31, 2000, the weighted average
maturity of our portfolio was 97 days.

     Our debt obligations consist primarily of capital leases assumed in
connection with the acquisitions of Rubric and Aperio. These debt facilities
were used primarily to purchase capital items such as computers and office
equipment. Currently, all such capital spending is funded using working capital.
The interest rates on our assumed capital lease obligations are fixed.

     We are exposed to market risk from fluctuations in foreign currency
exchange rates. We manage exposure to variability in foreign currency exchange
rates primarily through the use of natural hedges, as both liabilities and
assets are denominated in the local currency. However, different durations in
our funding obligations and assets may expose us to the risk of foreign exchange
rate fluctuations. We have not entered into any derivative instrument
transactions to manage this risk. Based on our overall foreign currency rate
exposure at December 31, 2000, we do not believe that a hypothetical 10% change
in foreign currency rates would materially adversely affect our financial
position.

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<PAGE>   35

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Ernst & Young LLP, Independent Auditors...........   34
Consolidated Balance Sheets as of December 31, 1999 and
  2000......................................................   35
Consolidated Statements of Operations for the Years Ended
  December 31, 1998, 1999 and 2000..........................   36
Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1998, 1999 and 2000..........................   37
Consolidated Statements of Stockholders' Equity (Net Capital
  Deficiency) for the Years Ended December 31, 1998, 1999
  and 2000..................................................   38
Notes to Consolidated Financial Statements..................   40
</TABLE>

                                        33
<PAGE>   36

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Broadbase Software, Inc.

     We have audited the accompanying consolidated balance sheets of Broadbase
Software, Inc. as of December 31, 1999 and 2000, and the related consolidated
statements of operations, cash flows, and stockholders' equity (net capital
deficiency) for each of the three years in the period ended December 31, 2000.
Our audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Broadbase
Software, Inc. at December 31, 1999 and 2000, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

                                          /s/ Ernst & Young LLP

San Jose, California
January 17, 2001

                                        34
<PAGE>   37

                            BROADBASE SOFTWARE, INC.

                          CONSOLIDATED BALANCE SHEETS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                              ----------------------
                                                                1999         2000
                                                              --------    ----------
<S>                                                           <C>         <C>
Current assets:
  Cash and cash equivalents.................................  $ 76,642    $   51,186
  Short-term investments....................................        --       101,034
  Accounts receivable, net of allowances of $50 and $2,115
     at December 31, 1999 and 2000, respectively............     2,712        27,536
  Prepaid expenses and other current assets.................     1,239         8,357
                                                              --------    ----------
          Total current assets..............................    80,593       188,113
Restricted cash.............................................       633         2,473
Property and equipment, net.................................     2,868        17,730
Long-term investments.......................................        --        15,540
Goodwill and intangible assets, net.........................        --     1,044,287
Other assets................................................       676         7,792
                                                              --------    ----------
          Total assets......................................  $ 84,770    $1,275,935
                                                              ========    ==========

                        LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable..........................................  $    559    $   16,210
  Accrued compensation......................................     2,919         7,961
  Accrued expenses..........................................     2,341        28,890
  Current portion of bank line of credit, notes payable and
     capital lease obligations..............................       749           346
  Deferred revenue..........................................     4,663        16,320
                                                              --------    ----------
          Total current liabilities.........................    11,231        69,727
Bank line of credit, notes payable and capital lease
  obligations...............................................       333           703
                                                              --------    ----------
          Total liabilities.................................    11,564        70,430
Commitments and contingencies
Stockholders' equity:
  Preferred stock: par value $0.001 per share; 5,000,000
     shares authorized and none designated..................        --            --
  Common stock: par value $0.001 per share; 90,000,000
     shares authorized; 36,100,174 and 81,069,283 shares
     issued and outstanding at December 31, 1999 and 2000,
     respectively...........................................        36            81
  Additional paid-in capital................................   124,278     1,484,130
  Deferred stock compensation...............................    (8,710)      (42,899)
  Notes receivable from stockholders........................      (693)         (436)
  Accumulated other comprehensive loss......................       (33)         (268)
  Accumulated deficit.......................................   (41,672)     (235,103)
                                                              --------    ----------
          Total stockholders' equity........................    73,206     1,205,505
                                                              --------    ----------
          Total liabilities and stockholders' equity........  $ 84,770    $1,275,935
                                                              ========    ==========
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                        35
<PAGE>   38

                            BROADBASE SOFTWARE, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                            ---------------------------------
                                                              1998        1999        2000
                                                            --------    --------    ---------
<S>                                                         <C>         <C>         <C>
Net revenue:
  License.................................................  $  2,996    $  7,689    $  34,646
  Professional services...................................        --       1,610        9,259
  Maintenance.............................................       443       1,143        4,349
                                                            --------    --------    ---------
          Total net revenue...............................     3,439      10,442       48,254
Cost of revenue:
  License.................................................       713       1,437        4,452
  Professional services(1)................................        --         679       14,253
  Maintenance(2)..........................................       254       1,931        1,731
  Amortization of acquired core and developed
     technology...........................................        --          --        1,696
                                                            --------    --------    ---------
          Total cost of revenue...........................       967       4,047       22,132
                                                            --------    --------    ---------
Gross margin..............................................     2,472       6,395       26,122
Operating expenses:
  Sales and marketing(3)..................................     7,888      15,092       37,247
  Research and development(4).............................     3,738       6,024       17,207
  General and administrative(5)...........................     1,165       2,011        6,836
  Amortization of deferred stock compensation.............     1,133       6,403       21,284
  Amortization of intangible assets and goodwill..........        --          --       78,145
  Acquired in-process research and development............        --          --       25,877
  Merger expenses.........................................        --       1,000       45,509
                                                            --------    --------    ---------
          Total operating expenses........................    13,924      30,530      232,105
                                                            --------    --------    ---------
Loss from operations......................................   (11,452)    (24,135)    (205,983)
Interest income...........................................       335       1,454       12,893
Interest expense..........................................      (226)       (889)        (341)
                                                            --------    --------    ---------
Net loss..................................................  $(11,343)   $(23,570)   $(193,431)
                                                            ========    ========    =========
Basic and diluted net loss per share......................  $  (4.43)   $  (1.87)   $   (4.09)
                                                            ========    ========    =========
Weighted-average shares used in computing basic and
  diluted net loss per share..............................     2,562      12,592       47,259
                                                            ========    ========    =========
</TABLE>

---------------
(1) Excludes $45, $247 and $4,320 of amortization of deferred stock compensation
    for the years ended December 31, 1998, 1999 and 2000, respectively.

(2) Excludes $0, $11 and $92 of amortization of deferred stock compensation for
    the years ended December 31, 1998, 1999 and 2000, respectively.

(3) Excludes $482, $3,299 and $3,981 of amortization of deferred stock
    compensation for the years ended December 31, 1998, 1999 and 2000,
    respectively.

(4) Excludes $468, $1,731 and $6,742 of amortization of deferred stock
    compensation for the years ended December 31, 1998, 1999 and 2000,
    respectively.

(5) Excludes $138, $1,115 and $6,149 of amortization of deferred stock
    compensation for the years ended December 31, 1998, 1999 and 2000,
    respectively.

        See accompanying notes to the consolidated financial statements.

                                        36
<PAGE>   39

                            BROADBASE SOFTWARE, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                                              --------------------------------
                                                                1998       1999        2000
                                                              --------   --------   ----------
<S>                                                           <C>        <C>        <C>
Operating activities:
  Net loss..................................................  $(11,343)  $(23,570)  $ (193,431)
  Adjustments to reconcile net loss to net cash used in
     operating activities:
     Depreciation...........................................       507        961        3,083
     Acquired in-process research and development...........        --         --       25,877
     Write-off of note receivable from stockholder..........        --          7           --
     Amortization of acquired core and developed
      technology............................................        --         --        1,696
     Amortization of intangible assets and goodwill.........        --         --       78,145
     Amortization of deferred stock compensation............     1,133      6,403       21,284
     Value of common stock issued for severance and to
      non-employees.........................................        --        404          403
  Changes in balance sheet items:
     Accounts receivable....................................    (1,072)    (1,640)     (19,257)
     Prepaid expenses and other current assets..............      (243)      (913)     (21,959)
     Accounts payable.......................................       (91)       164        9,591
     Accrued expenses.......................................     1,649      3,196       19,750
     Deferred revenue.......................................     3,330      1,333        8,717
                                                              --------   --------   ----------
          Net cash used in operating activities.............    (6,130)   (13,655)     (66,101)
                                                              --------   --------   ----------
Investing activities:
  Changes in other assets...................................        --        108           --
  Purchase of short-term investments, net...................        --         --     (100,477)
  Purchase of long-term investments.........................        --         --      (15,540)
  Purchase of other investments.............................        --         --       (5,500)
  Change in restricted cash.................................        --       (633)      (1,840)
  Purchases of property and equipment.......................    (1,415)    (2,178)     (10,350)
                                                              --------   --------   ----------
          Net cash used in investing activities.............    (1,415)    (2,703)    (133,707)
                                                              --------   --------   ----------
Financing activities:
  Net proceeds from issuance of convertible preferred
     stock..................................................    11,906     19,979           --
  Proceeds from issuance of common stock upon exercise of
     options................................................        41        131        1,354
  Proceeds from issuance of common stock from employee stock
     purchase plan..........................................        --         --        1,105
  Net proceeds from issuance of common stock in initial
     public offering........................................        --     57,835           --
  Net proceeds from issuance of common stock in secondary
     public offering........................................        --         --      174,939
  Net proceeds from issuance of common stock in private
     placement..............................................        --        619           --
  Payments to repurchase unvested common stock..............        --        (11)          (5)
  Proceeds from payments on stockholders' notes
     receivable.............................................         1          4          707
  Issuance of notes receivable to stockholders..............      (400)        --           --
  Payments on notes payable.................................      (347)      (463)      (1,739)
  Principal payments on capital lease obligations...........       (32)       (30)        (209)
  Principal payments on equipment line of credit............        --       (333)      (1,565)
  Borrowings on equipment line of credit....................     1,000         --           --
  Proceeds from issuance of convertible debt................     8,250      1,275           --
                                                              --------   --------   ----------
          Net cash provided by financing activities.........    20,419     79,006      174,587
  Effect of foreign exchange rate changes on cash and cash
     equivalents............................................       (37)         4         (235)
                                                              --------   --------   ----------
  Net increase (decrease) in cash and cash equivalents......    12,837     62,652      (25,456)
Cash and cash equivalents:
  Beginning of period.......................................     1,153     13,990       76,642
                                                              --------   --------   ----------
  End of period.............................................  $ 13,990   $ 76,642   $   51,186
                                                              ========   ========   ==========
Supplemental disclosure of cash flow information:
  Cash paid for interest....................................  $    227   $    839   $       80
Supplemental schedule of noncash investing activity:
  Fair value of net liabilities acquired in connection with
     purchase business combinations.........................  $     --   $     --   $     (327)
  Issuance of common stock in connection with purchase
     business combinations..................................  $     --   $     --   $1,126,179
</TABLE>

        See accompanying notes to the consolidated financial statements.
                                        37
<PAGE>   40

                            BROADBASE SOFTWARE, INC.

    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>

                                      CONVERTIBLE                                                            NOTES
                                    PREFERRED STOCK        COMMON STOCK       ADDITIONAL     DEFERRED      RECEIVABLE
                                  -------------------   -------------------    PAID-IN        STOCK           FROM
                                    SHARES     AMOUNT     SHARES     AMOUNT    CAPITAL     COMPENSATION   STOCKHOLDERS
                                  ----------   ------   ----------   ------   ----------   ------------   ------------
<S>                               <C>          <C>      <C>          <C>      <C>          <C>            <C>
Balance at December 31, 1997.....  4,308,222     $4      4,985,650    $ 5     $    6,709     $     --        $ (34)
Issuance of Series C preferred
 stock, at $5.54 per share in
 February and March 1998 for
 cash, net of $94 issuance
 costs...........................  2,166,055      2             --     --         11,904           --           --
Deferred stock compensation
 related to certain options
 granted to employees............         --     --             --     --          3,471       (3,471)          --
Amortization of deferred stock
 compensation....................         --     --             --     --             --        1,133           --
Issuance of common stock upon
 exercise of options.............         --     --        587,778     --             87           --          (46)
Repurchase of common stock.......         --     --       (158,828)    --             (3)          --            3
Payments of notes receivable from
 stockholders....................         --     --             --     --             --           --            1
Note receivable from
 stockholder.....................         --     --             --     --             --           --         (400)
Comprehensive income (loss)......         --     --             --     --             --           --           --
 Net loss........................         --     --             --     --             --           --           --
 Foreign currency translation
   adjustment....................         --     --             --     --             --           --           --
Comprehensive loss...............         --     --             --     --             --           --           --
                                  ----------     --     ----------    ---     ----------     --------        -----
Balance at December 31, 1998.....  6,474,277      6      5,414,600      5         22,168       (2,338)        (476)
Debentures converted into Series
 D preferred stock in connection
 with the Company's IPO..........  1,313,793      1             --     --          9,524           --           --
Issuance of Series E preferred
 stock, at $9.13 per share in
 June 1999 for cash, net of $10
 of issuance costs...............  2,188,812      2             --     --         19,977           --           --
Conversion of Series A, Series B,
 Series C, Series D and Series E
 preferred stock to common stock
 in connection with the Company's
 IPO............................. (9,976,882)    (9)    19,953,764     20            (11)          --           --
Issuance of common stock in
 connection with the Company's
 IPO, net of issuance costs......         --     --      9,200,000      9         57,826           --           --
Issuance of common stock in
 private placement, net of
 issuance costs..................         --     --         90,126     --            619           --           --
Issuance of common stock in
 connection with license
 agreement.......................         --     --         80,000     --            400           --           --
Deferred stock compensation
 related to options granted to
 employees.......................         --     --             --     --         12,775      (12,775)          --
Amortization of deferred stock
 compensation....................         --     --             --     --             --        6,403           --
Issuance of common stock upon
 exercise of options.............         --     --      1,582,740      2          1,012           --         (229)
Issuance of common stock upon
 exercise of warrants............         --     --         73,528     --             86           --           --
Repurchase of unvested common
 stock...........................         --     --       (294,584)    --            (94)          --           --
Notes receivable from
 stockholder.....................         --     --             --     --             (4)          --           12
Comprehensive income (loss)......         --     --             --     --             --           --           --
 Net loss........................         --     --             --     --             --           --           --
 Foreign currency translation
   adjustment....................         --     --             --     --             --           --           --
Comprehensive loss...............         --     --             --     --             --           --           --
                                  ----------     --     ----------    ---     ----------     --------        -----

<CAPTION>
                                                                                     TOTAL
                                                    ACCUMULATED                  STOCKHOLDERS'
                                   COMPREHENSIVE       OTHER                        EQUITY
                                      INCOME       COMPREHENSIVE   ACCUMULATED   (NET CAPITAL
                                      (LOSS)           LOSS          DEFICIT      DEFICIENCY)
                                   -------------   -------------   -----------   -------------
<S>                                <C>             <C>             <C>           <C>
Balance at December 31, 1997.....    $      --         $  --        $  (6,759)    $       (75)
Issuance of Series C preferred
 stock, at $5.54 per share in
 February and March 1998 for
 cash, net of $94 issuance
 costs...........................           --            --               --          11,906
Deferred stock compensation
 related to certain options
 granted to employees............           --            --               --              --
Amortization of deferred stock
 compensation....................           --            --               --           1,133
Issuance of common stock upon
 exercise of options.............           --            --               --              41
Repurchase of common stock.......           --            --               --              --
Payments of notes receivable from
 stockholders....................           --            --               --               1
Note receivable from
 stockholder.....................           --            --               --            (400)
Comprehensive income (loss)......           --            --               --              --
 Net loss........................      (11,343)           --          (11,343)        (11,343)
 Foreign currency translation
   adjustment....................          (37)          (37)              --             (37)
                                     ---------
Comprehensive loss...............    $ (11,380)           --               --              --
                                     =========         -----        ---------     -----------
Balance at December 31, 1998.....           --           (37)         (18,102)          1,226
Debentures converted into Series
 D preferred stock in connection
 with the Company's IPO..........           --            --               --           9,525
Issuance of Series E preferred
 stock, at $9.13 per share in
 June 1999 for cash, net of $10
 of issuance costs...............           --            --               --          19,979
Conversion of Series A, Series B,
 Series C, Series D and Series E
 preferred stock to common stock
 in connection with the Company's
 IPO.............................           --            --               --              --
Issuance of common stock in
 connection with the Company's
 IPO, net of issuance costs......           --            --               --          57,835
Issuance of common stock in
 private placement, net of
 issuance costs..................           --            --               --             619
Issuance of common stock in
 connection with license
 agreement.......................           --            --               --             400
Deferred stock compensation
 related to options granted to
 employees.......................           --            --               --              --
Amortization of deferred stock
 compensation....................           --            --               --           6,403
Issuance of common stock upon
 exercise of options.............           --            --               --             785
Issuance of common stock upon
 exercise of warrants............           --            --               --              86
Repurchase of unvested common
 stock...........................           --            --               --             (94)
Notes receivable from
 stockholder.....................           --            --               --               8
Comprehensive income (loss)......           --            --               --              --
 Net loss........................      (23,570)           --          (23,570)        (23,570)
 Foreign currency translation
   adjustment....................            4             4               --               4
                                     ---------
Comprehensive loss...............    $ (23,566)           --               --              --
                                     =========         -----        ---------     -----------
</TABLE>

                                        38
<PAGE>   41
                            BROADBASE SOFTWARE, INC.

    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
                                  (CONTINUED)
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>

                                      CONVERTIBLE                                                            NOTES
                                    PREFERRED STOCK        COMMON STOCK       ADDITIONAL     DEFERRED      RECEIVABLE
                                  -------------------   -------------------    PAID-IN        STOCK           FROM
                                    SHARES     AMOUNT     SHARES     AMOUNT    CAPITAL     COMPENSATION   STOCKHOLDERS
                                  ----------   ------   ----------   ------   ----------   ------------   ------------
<S>                               <C>          <C>      <C>          <C>      <C>          <C>            <C>
Balance at December 31, 1999.....         --     --     36,100,174     36        124,278       (8,710)        (693)
Issuance of common stock in
 secondary offering, net of
 issuance costs..................         --     --      3,900,000      4        174,935           --           --
Issuance of common stock in
 connection with the acquisition
 of Rubric, Inc..................         --     --      5,984,196      6        362,947           --           --
Issuance of common stock in
 connection with the acquisition
 of Aperio, Inc..................         --     --        560,730      1         28,774           --           --
Issuance of common stock in
 connection with the acquisition
 of Panopticon, Inc..............         --     --      2,659,808      3         94,580           --           --
Deferred stock compensation
 related to the assumption of
 unvested stock options in
 connection with the acquisition
 of Panopticon, Inc..............         --     --             --     --          6,649       (6,649)          --
Issuance of common stock in
 connection with the acquisition
 of Decisionism, Inc.............         --     --        475,361     --         10,450           --           --
Issuance of common stock in
 connection with the acquisition
 of Servicesoft, Inc.............         --     --     29,314,554     29        629,389           --           --
Deferred stock compensation
 related to the assumption of
 unvested stock options in
 connection with the acquisition
 of Servicesoft, Inc.............         --     --             --     --         14,240      (14,240)          --
Issuance of common stock under
 employee stock purchase plan....         --     --        157,992     --          1,105           --           --
Deferred stock compensation
 related to options granted to
 employees.......................         --     --             --     --         34,584      (34,584)          --
Amortization of deferred stock
 compensation....................         --     --             --     --             --       21,284           --
Issuance of common stock upon
 exercise of options.............         --     --      1,848,026      2          1,928           --           --
Repurchase of unvested common
 stock...........................         --     --        (18,750)    --             (5)          --           --
Issuance of shares pursuant to a
 net exercise of warrants assumed
 in connection with the
 acquisition of Rubric, Inc......         --     --         14,754     --             --           --           --
Issuance of shares pursuant to a
 net exercise of warrants assumed
 in connection with the
 acquisition of Panopticon,
 Inc.............................         --     --         72,438     --             --           --           --
Compensation expense for
 severance arrangement...........         --     --             --     --            276           --           --
Notes receivable from
 stockholders....................         --     --             --     --             --           --         (450)
Payments of notes receivable from
 stockholders....................         --     --             --     --             --           --          707
Comprehensive income (loss)......         --     --             --     --             --           --           --
 Net loss........................         --     --             --     --             --           --           --
 Foreign currency translation
   adjustment....................         --     --             --     --             --           --           --
Comprehensive loss...............         --     --             --     --             --           --           --
                                  ----------     --     ----------    ---     ----------     --------        -----
Balance at December 31, 2000.....         --     $--    81,069,283    $81     $1,484,130     $(42,899)       $(436)
                                  ==========     ==     ==========    ===     ==========     ========        =====

<CAPTION>
                                                                                     TOTAL
                                                    ACCUMULATED                  STOCKHOLDERS'
                                   COMPREHENSIVE       OTHER                        EQUITY
                                      INCOME       COMPREHENSIVE   ACCUMULATED   (NET CAPITAL
                                      (LOSS)           LOSS          DEFICIT      DEFICIENCY)
                                   -------------   -------------   -----------   -------------
<S>                                <C>             <C>             <C>           <C>
Balance at December 31, 1999.....           --           (33)         (41,672)         73,206
Issuance of common stock in
 secondary offering, net of
 issuance costs..................           --            --               --         174,939
Issuance of common stock in
 connection with the acquisition
 of Rubric, Inc..................           --            --               --         362,953
Issuance of common stock in
 connection with the acquisition
 of Aperio, Inc..................           --            --               --          28,775
Issuance of common stock in
 connection with the acquisition
 of Panopticon, Inc..............           --            --               --          94,583
Deferred stock compensation
 related to the assumption of
 unvested stock options in
 connection with the acquisition
 of Panopticon, Inc..............           --            --               --              --
Issuance of common stock in
 connection with the acquisition
 of Decisionism, Inc.............           --            --               --          10,450
Issuance of common stock in
 connection with the acquisition
 of Servicesoft, Inc.............           --            --               --         629,418
Deferred stock compensation
 related to the assumption of
 unvested stock options in
 connection with the acquisition
 of Servicesoft, Inc.............           --            --               --              --
Issuance of common stock under
 employee stock purchase plan....           --            --               --           1,105
Deferred stock compensation
 related to options granted to
 employees.......................           --            --               --              --
Amortization of deferred stock
 compensation....................           --            --               --          21,284
Issuance of common stock upon
 exercise of options.............           --            --               --           1,930
Repurchase of unvested common
 stock...........................           --            --               --              (5)
Issuance of shares pursuant to a
 net exercise of warrants assumed
 in connection with the
 acquisition of Rubric, Inc......           --            --               --              --
Issuance of shares pursuant to a
 net exercise of warrants assumed
 in connection with the
 acquisition of Panopticon,
 Inc.............................           --            --               --              --
Compensation expense for
 severance arrangement...........           --            --               --             276
Notes receivable from
 stockholders....................           --            --               --            (450)
Payments of notes receivable from
 stockholders....................           --            --               --             707
Comprehensive income (loss)......           --            --               --              --
 Net loss........................     (193,431)           --         (193,431)       (193,431)
 Foreign currency translation
   adjustment....................         (235)         (235)              --            (235)
                                     ---------
Comprehensive loss...............    $(193,666)           --               --              --
                                     =========         -----        ---------     -----------
Balance at December 31, 2000.....                      $(268)       $(235,103)    $ 1,205,505
                                                       =====        =========     ===========
</TABLE>

        See accompanying notes to the consolidated financial statements.
                                        39
<PAGE>   42

                            BROADBASE SOFTWARE, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2000

 1. SUMMARY OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES

  The Company

     Broadbase Software, Inc. (the "Company" or "Broadbase") was incorporated on
November 28, 1995 and develops and markets customer-focused analytic, marketing
automation and e-service software applications that analyze customer data from
multiple touch points, and use that information to execute targeted marketing
campaigns, improve online merchandizing and content, deliver optimized Internet
and traditional-based customer service, and personalize all customer
interactions.

  Basis of Presentation

     The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.

  Use of Estimates

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ materially from
those estimates.

  Revenue Recognition

     The Company recognizes revenue in accordance with the American Institute of
Certified Public Accountants' Statement of Position No. 97-2, "Software Revenue
Recognition" ("SOP 97-2"), as amended by Statement of Position No. 98-9,
"Modification of SOP 97-2, Software Revenue Recognition With Respect to Certain
Transactions" ("SOP 98-9"). The Company derives revenue from the sale of
software licenses, post-contract support ("maintenance"), and other professional
services. Maintenance includes telephone technical support, bug fixes and rights
to upgrades and enhancements on a when-and-if available basis. Professional
services include training and basic post-implementation consulting, on a time
and materials basis, to meet specific customer needs.

     Revenue from license fees is recognized when persuasive evidence of an
agreement exists, delivery of the product has occurred, no significant company
obligations with regard to installation or implementation of the software
remain, the fee is fixed or determinable and collectibility is probable. If the
fee is not fixed or determinable, revenue is recognized as payments become due
from the customer. Revenue on arrangements with customers that are not the
ultimate end users (primarily resellers) is recognized upon receipt of a
reseller report of sale to the end user of the software and the Company's
shipment of the licensed software. Advance payments are recorded as deferred
revenue until the products are shipped, services are delivered or obligations
are met. The Company's products do not require significant customization.

     Revenue related to maintenance is recognized on a straight-line basis over
the period maintenance is provided and revenue allocable to professional
services is recognized as the services are performed.

     In December 1998, the American Institute of Certified Public Accountants
("AICPA") issued SOP 98-9. SOP 98-9 requires use of the "residual method" for
recognition of revenue when vendor-specific objective evidence exists for
undelivered elements but does not exist for delivered elements of a software
arrangement. The Company adopted the provisions of SOP 98-9 as of January 1,
2000, which did not have a material effect on our financial position, results of
operations or cash flows.

     In December 1999, the Securities and Exchange Commission ("SEC") issued SEC
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements. In October 2000, the SEC

                                        40
<PAGE>   43
                            BROADBASE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

issued a "Frequently Asked Questions" document on SAB 101 to provide further
definitive guidance on the implementation of SAB 101. SAB 101 is effective for
years beginning after December 15, 1999 and we were required to adopt SAB 101 in
the quarter ended December 31, 2000 retroactive to the beginning of the year.
SAB 101 did not have an effect on the Company's results of operations, financial
position or cash flows.

  Concentrations of Credit Risk and Credit Evaluations

     Financial instruments that subject the Company to concentrations of credit
risk primarily consist of cash and cash equivalents, short-term and long-term
investments and accounts receivable. The Company maintains its cash and cash
equivalents principally in domestic financial institutions of high credit
standing.

     The Company's short-term and long-term investments are placed with high
credit quality financial institutions and issuers. In addition to continuous
monitoring of the credit quality of issuers, the Company's investment policy
limits its exposure on investments to any one issuer.

     The Company's accounts receivables are derived primarily from sales of
software products and services. The Company performs ongoing credit evaluations
of its customers and generally does not require collateral. During 1998 and
1999, a limited number of customers accounted for a substantial portion of the
Company's revenues. One customer accounted for 18% and 11% of total revenue for
the years ended December 31, 1998 and 1999, respectively. Another customer
accounted for 10% of total revenue for the year ended December 31, 1998. No
customers accounted for more than 10% of the Company's total revenue for the
year ended December 31, 2000.

  Fair Value of Financial Instruments

     The amounts reported for cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses and short-term borrowings approximate fair
value because of the short maturity of these instruments. The estimated fair
value of short-term and long-term investments is based on quoted market prices.

     The estimated fair value of long-term borrowings is based on the borrowing
rates currently available to the Company for bank loans with similar terms and
maturities. At December 31, 2000, the fair value of long-term borrowings
approximated the carrying amount.

  Cash and Cash Equivalents

     The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. The following is a
summary of cash and cash equivalents:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           ------------------
                                                            1999       2000
                                                           -------    -------
                                                             (IN THOUSANDS)
<S>                                                        <C>        <C>
Cash in bank.............................................  $ 1,496    $ 3,352
Money market funds.......................................   75,146      2,215
Short-term taxable municipals............................       --      2,800
Demand notes.............................................       --     37,864
Commercial paper.........................................       --      4,955
                                                           -------    -------
                                                           $76,642    $51,186
                                                           =======    =======
</TABLE>

  Investments

     The Company considers all investments with an original maturity greater
than three months and less than one year to be short-term investments. All
investments with remaining maturities greater than one year are

                                        41
<PAGE>   44
                            BROADBASE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

categorized as long-term investments. As of December 31, 2000, all short-term
and long-term investments are classified as held-to-maturity as the Company has
both the ability and intent to hold these securities to maturity; therefore,
these securities are recorded on the accompanying balance sheets at amortized
cost. Interest, dividends and realized gains and losses are included in interest
income.

  Property and Equipment

     The Company records property and equipment at cost and calculates
depreciation using the straight-line method over the estimated useful lives of
the assets, generally three to five years. Equipment held under capital leases
is amortized on a straight-line basis over the shorter of the lease term or the
lives of the respective assets, generally three to five years.

     Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                      DECEMBER 31,
                                                   ------------------
                                                    1999       2000
                                                   -------    -------
                                                     (IN THOUSANDS)
<S>                                                <C>        <C>
Computer hardware and software...................  $ 3,232    $19,627
Leasehold improvements...........................       --      2,773
Furniture, fixtures and equipment................    1,234      4,777
                                                   -------    -------
                                                     4,466     27,177
Less accumulated depreciation and amortization...   (1,598)    (9,447)
                                                   -------    -------
                                                   $ 2,868    $17,730
                                                   =======    =======
</TABLE>

     As of December 31, 1999 and 2000, property and equipment include amounts
held under capital leases of approximately $64,000 and $613,000, respectively,
with related accumulated amortization of approximately $52,000 and $324,000,
respectively.

  Goodwill and Intangible Assets

     Goodwill resulting from business combinations accounted for as a purchase
is being amortized on a straight-line basis over five years. Intangible assets
acquired through business combinations include core and developed technology,
assembled workforces, customer bases, tradenames, patent applications and an OEM
distribution contract. Intangible assets are being amortized on a straight-line
basis over one to five years. The amortization of core and developed technology
is separately presented as a component of cost of revenue on the Consolidated
Statements of Operations, whereas the amortization of goodwill and other
intangible assets is included as a separate component of operating expenses.

     The following table summarizes the Company's goodwill and intangible assets
at December 31, 2000 (in thousands):

<TABLE>
<S>                                                        <C>
Goodwill.................................................  $1,090,270
Acquired intangibles.....................................      33,858
                                                           ----------
                                                            1,124,128
Less accumulated amortization............................     (79,841)
                                                           ----------
                                                           $1,044,287
                                                           ==========
</TABLE>

  Long-Lived Assets

     In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed Of" ("FAS
121"), the Company identifies and records

                                        42
<PAGE>   45
                            BROADBASE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

impairment losses, as circumstances dictate, on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets. No such impairments
have been identified with respect to the Company's long-lived assets, which
consist primarily of acquired intangible assets and goodwill, computer hardware
and software, furniture, fixtures and equipment and leasehold improvements.

  Software Development Costs

     Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to Be Sold, Leased or Otherwise Marketed," requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based upon the Company's product
development process, technological feasibility is established upon completion of
a working model. Costs incurred by the Company between the establishment of
technological feasibility and the point at which the product is ready for
general release have been insignificant. Accordingly, the Company has charged
all such costs to research and development expenses in the accompanying
Consolidated Statements of Operations.

  Stock-Based Compensation

     The Company accounts for stock-based awards to employees under the
intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB Opinion No. 25"), and
has adopted the disclosure-only alternative of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123").

  Advertising Expenses

     The Company expenses advertising costs in the period in which they are
incurred. Advertising expenses for 1998, 1999 and 2000, were approximately
$57,000, $187,000 and $1,551,000, respectively.

  Foreign Currency Translation

     Assets and liabilities of the Company's wholly-owned foreign subsidiaries
are translated to the U.S. dollar from their local functional currencies at
exchange rates in effect at the balance sheet date, and revenues and expenses
are translated at average exchange rates prevailing during the year. Resulting
translation adjustments are reflected as a separate component of stockholders'
equity (net capital deficiency). Foreign currency transaction gains and losses,
which have not been material, are included in results of operations.

                                        43
<PAGE>   46
                            BROADBASE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

  Net Loss Per Share

     Basic and diluted net loss per share are presented in conformity with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS
128") for all periods presented. In accordance with FAS 128, basic and diluted
net loss per share has been computed using the weighted-average number of shares
of common stock outstanding during the period, less shares subject to
repurchase.

<TABLE>
<CAPTION>
                                                             YEARS ENDED DECEMBER 31,
                                                    ------------------------------------------
                                                       1998           1999            2000
                                                    -----------    -----------    ------------
                                                     (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                 <C>            <C>            <C>
Net loss..........................................   $(11,343)      $(23,570)      $(193,431)
                                                     ========       ========       =========
Basic and diluted shares:
  Weighted-average shares of common stock
     outstanding..................................      5,230         14,158          47,932
  Less weighted-average shares subject to
     repurchase...................................     (2,668)        (1,566)           (673)
                                                     --------       --------       ---------
  Weighted-average shares of common stock
     outstanding used in computing basic and
     diluted net loss per share...................      2,562         12,592          47,259
                                                     ========       ========       =========
  Basic and diluted net loss per share............   $  (4.43)      $  (1.87)      $   (4.09)
                                                     ========       ========       =========
</TABLE>

     If the Company had reported net income, diluted net income per share would
have included 1,278,889, 3,195,489 and 24,417,757 common equivalent shares
related to outstanding options and warrants to purchase common stock not
included above at December 31, 1998, 1999 and 2000, respectively. The common
equivalent shares from options and warrants would be determined on a
weighted-average basis using the treasury stock method.

  Segment Information

     The Company operates solely in one segment, the development and marketing
of customer-focused analytic, marketing automation and e-service software
applications. The Company's acquisitions during 2000 did not have an impact on
its segment structure.

  Non-monetary Transactions

     During 2000, the Company entered into two contemporaneous transactions with
third parties in which the Company and the third party purchased each other's
software products. In both cases, license, maintenance and associated services
revenue recognized by the Company in connection with these transactions was
based on the fair value of the software and services received, which was
determined using quotes from competing vendors offering similar software and
services. Revenue from these two transactions was approximately 2% of total
revenue for the year ended December 31, 2000. Both systems are in production use
by the Company.

  Recent Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"). FAS 133, as amended,
establishes methods of accounting for derivative financial instruments and
hedging activities related to those instruments as well as other hedging
activities. The Company will be required to adopt FAS 133 effective January 1,
2001. However, because the Company does not currently utilize derivative
financial instruments, the Company does not believe the impact of FAS 133 will
be material to our financial position, results of operations, or cash flows.

                                        44
<PAGE>   47
                            BROADBASE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

  Stock Split

     In January 2000, the Company's Board of Directors approved a two-for-one
stock split of the Company's outstanding common shares payable in the form of a
dividend of one additional share of the Company's common stock for every share
owned by stockholders. The stock split became effective on April 7, 2000. All
prior period share and per share data have been adjusted retroactively to
reflect this split.

 2. ACQUISITIONS

  Rubric, Inc.

     On February 1, 2000, the Company completed its acquisition of Rubric, Inc.
("Rubric"), a leading provider of e-marketing software applications. In
connection with the acquisition, the Company issued approximately 6.0 million
shares of its common stock in exchange for all outstanding shares of Rubric
capital stock, and converted outstanding options and warrants to acquire Rubric
capital stock into options and warrants to acquire approximately 1.2 million
shares of the Company's common stock. Of the shares issued, approximately
600,000 shares of the Company's common stock are being held in escrow as
collateral for indemnity obligations of Rubric and its shareholders.

     The Company recorded this transaction using the purchase method of
accounting for business combinations. Accordingly, the fair market value of the
acquired assets and liabilities have been included in the consolidated financial
statements of the Company as of February 1, 2000 and the results of operations
of Rubric have been included thereafter. The purchase price of Rubric was
allocated based on fair value to the specific tangible and intangible assets
acquired and liabilities assumed from Rubric pursuant to an independent
valuation. The total purchase price for Rubric was $371.7 million, consisting of
$301.7 million of Broadbase common stock, $61.3 million of options to purchase
Broadbase common stock and $8.7 million of acquisition related costs consisting
primarily of direct transactions costs and involuntary termination benefits. As
a result, the Company recorded a charge to operations upon consummation of the
transaction related to acquired in-process research and development of
approximately $10.1 million. Also, the Company has incurred merger-related costs
of $28.4 as of December 31, 2000, of which $1.0 million were included in the
Company's 1999 results of operations. This amount included $2.0 million of
payments to Rubric to fund its working capital requirements prior to the closing
of the merger, $2.2 million of employee bonuses paid upon successful completion
of the merger, $400,000 of costs to announce the merger, and $23.8 million of
costs associated with combining the operations of the two companies, including
$22.6 million for assumed customer integration costs, $400,000 for severance and
related costs and $800,000 for write-off of redundant assets and other costs. In
addition, the Company recorded approximately $361.8 million of intangible assets
and goodwill on its balance sheet, which resulted in amortization expense of
approximately $66.9 million for 2000. Accumulated amortization of intangible
assets and goodwill, excluding the one-time write-off of acquired in-process
research and development, totaled approximately $66.9 million at December 31,
2000. Goodwill and intangible assets are being amortized on a straight-line
basis over two to five years.

  Aperio, Inc.

     On June 23, 2000, the Company completed its acquisition of Aperio, Inc.
("Aperio"), a provider of e-commerce marketing solutions. In connection with the
acquisition, the Company issued approximately 561,000 shares of its common stock
in exchange for all outstanding shares of Aperio capital stock, and converted
outstanding options to acquire Aperio capital stock into options to acquire
approximately 119,000 shares of the Company's common stock. Of the shares
issued, approximately 56,000 shares of our common stock are being held in escrow
for a period of one year as collateral for indemnity obligations of Aperio and
its shareholders.

                                        45
<PAGE>   48
                            BROADBASE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

     The Company recorded this acquisition using the purchase method of
accounting for business combinations. Accordingly, the fair market value of the
acquired assets and liabilities have been included in the consolidated financial
statements of the Company as of June 23, 2000 and the results of operations of
Aperio have been included thereafter. The total purchase price for Aperio was
$30.1 million, consisting of $23.8 million of Broadbase common stock, $5.0
million of options to purchase Broadbase common stock, and $1.3 million of
acquisition related costs consisting primarily of direct transaction expenses.
The purchase price of Aperio was allocated to the fair value of specific
tangible and intangible assets acquired and liabilities assumed from Aperio
pursuant to an independent valuation. As a result of the transaction, the
Company recorded approximately $28.8 million of intangible assets and goodwill
on its balance sheet, which will result in amortization expense of approximately
$2.9 million for 2000. Accumulated amortization of intangible assets and
goodwill totaled approximately $2.9 million at December 31, 2000. Goodwill and
intangible assets are being amortized on a straight-line basis over two to five
years.

  Panopticon, Inc.

     On September 15, 2000, the Company completed its acquisition of Panopticon,
Inc. ("Panopticon"), developers of a real-time recommendation engine that
produces context-sensitive, personalized recommendations across web, wireless,
e-mail and call center customer interaction points. In connection with this
acquisition, the Company issued approximately 2.7 million shares of common stock
in exchange for all outstanding shares of Panopticon capital stock, and
converted outstanding options and warrants to acquire Panopticon capital stock
into options and warrants to purchase approximately 535,000 shares of Broadbase
common stock. Approximately 266,000 of the shares of Broadbase common stock are
being held in escrow for a period of one year as collateral for indemnity
obligations of Panopticon and its shareholders.

     The Company recorded this transaction using the purchase method of
accounting for business combinations. Accordingly, the fair market value of the
acquired assets and liabilities have been included in the consolidated financial
statements of the Company as of September 15, 2000 and the results of operations
of Panopticon have been included thereafter. The total purchase price for
Panopticon was $102.1 million, consisting of $85.4 million of Broadbase common
stock, $15.9 million of options and warrants to purchase Broadbase common stock
and $800,000 of acquisition related costs. The purchase price of Panopticon was
allocated to the fair value of the specific tangible and intangible assets
acquired and liabilities assumed from Panopticon pursuant to an independent
valuation. As a result the Company recorded a charge to operations upon
consummation of the transaction related to acquired in-process research and
development of approximately $2.8 million. Also, the Company has incurred
merger-related costs of $2.4 million as of December 31, 2000. This amount
included approximately $2.0 million of payments to Panopticon to fund its
working capital requirements prior to the closing of the merger, $300,000 of
employee bonuses paid upon successful completion of the merger, and
approximately $100,000 of costs associated with combining the operations of the
two companies. In addition, the Company recorded approximately $92.8 million of
intangible assets and goodwill on its balance sheet, which will result in
amortization expense of approximately $4.5 million for 2000. Accumulated
amortization of intangible assets and goodwill, excluding the one-time write-off
of acquired in-process research and development, totaled approximately $4.5
million at December 31, 2000. Goodwill and intangible assets are being amortized
on a straight-line basis over three to five years.

  Decisionism, Inc.

     On December 15, 2000, the Company completed its acquisition of Decisionism,
Inc. ("Decisionism"), a leading provider of analytic solutions for
business-to-business digital marketplaces. In connection with the acquisition,
the Company issued approximately 475,000 shares of its common stock in exchange
for all outstanding shares of Decisionism capital stock. Of the shares issued,
approximately 45,000 shares of the

                                        46
<PAGE>   49
                            BROADBASE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

Company's common stock are being held in escrow for a period of one year as
collateral for indemnity obligations of Decisionism and its shareholders.

     The Company recorded this acquisition using the purchase method of
accounting for business combinations. Accordingly, the fair market value of the
acquired assets and liabilities have been included in the consolidated financial
statements of the Company as of December 15, 2000 and the results of operations
of Decisionism have been included thereafter. The total purchase price for
Decisionism was $10.7 million, consisting of $10.5 million of Broadbase common
stock and $200,000 of acquisition related costs consisting primarily of direct
transaction expenses. The purchase price of Decisionism was allocated to the
fair value of specific tangible and intangible assets acquired and liabilities
assumed from Decisionism pursuant to an independent valuation. Also, the Company
has incurred merger-related costs of $2.7 million as of December 31, 2000. These
costs were comprised of $1.7 million of payments to Decisionism to fund its
working capital requirements prior to the closing of the merger, $900,000 of
employee bonuses paid upon successful completion of the merger, and $100,000 of
costs in combining the operations of the two organizations. As a result of the
transaction, the Company recorded approximately $10.7 million of intangible
assets and goodwill on its balance sheet, which will result in amortization
expense of approximately $196,000 for 2000. Accumulated amortization of
intangible assets and goodwill totaled approximately $196,000 at December 31,
2000. Goodwill and intangible assets are being amortized on a straight-line
basis over one to five years.

  Servicesoft, Inc.

     On December 18, 2000, the Company completed its acquisition of Servicesoft,
Inc. ("Servicesoft"), a leading provider of e-service solutions. In connection
with this acquisition, the Company issued approximately 29.3 million shares of
Broadbase common stock in exchange for all outstanding shares of Servicesoft
capital stock, and converted outstanding options and warrants to acquire
Servicesoft capital stock into options and warrants to purchase approximately
6.4 million shares of Broadbase common stock. Of the shares issued,
approximately 2.9 million shares of the Company's common stock are being held in
escrow for a period of one year as collateral for indemnity obligations of
Servicesoft and its shareholders.

     The Company recorded this transaction using the purchase method of
accounting for business combinations. Accordingly, the fair market value of the
acquired assets and liabilities have been included in the consolidated financial
statements of the Company as of December 18, 2000 and the results of operations
of Servicesoft have been included thereafter. The purchase price of Servicesoft
was allocated to the fair value of the specific tangible and intangible assets
acquired and liabilities assumed from Servicesoft pursuant to an independent
valuation. The total purchase price for Servicesoft was $656.2 million,
consisting of $546.8 million of Broadbase common stock, $96.8 million of options
to purchase Broadbase common stock and $12.6 million of acquisition related
costs consisting primarily of direct transactions costs and involuntary
termination benefits. As a result, the Company recorded a charge to operations
upon consummation of the transaction related to acquired in-process research and
development of approximately $13.0 million. Also, the Company has incurred
merger-related costs of $13.0 million as of December 31, 2000. This amount
included $6.0 million of payments to Servicesoft to fund its working capital
requirements prior to the closing of the merger, $3.8 million of employee
bonuses paid upon successful completion of the merger, $400,000 of costs to
announce the merger, and $2.8 million of costs associated with combining the
operations of the two companies, including $1.3 million for severance and
related costs and $1.5 million for write-off of redundant assets and other
costs. In addition, the Company recorded approximately $630.0 million of
intangible assets and goodwill on its balance sheet, which will result in
amortization expense of approximately $5.3 million for 2000. Accumulated
amortization of intangible assets and goodwill, excluding the one-time write-off
of acquired in-process research and development, totaled approximately $5.3
million at December 31, 2000. Goodwill and intangible assets are being amortized
on a straight-line basis over one to five years.

                                        47
<PAGE>   50
                            BROADBASE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

  Pro Forma Information (Unaudited)

     The following unaudited pro forma summarized results of operations have
been prepared assuming that the acquisitions of Rubric, Panopticon and
Servicesoft had occurred at the beginning of the periods presented. The
acquisitions included in the pro forma results are those acquisitions deemed
significant by SEC guidelines. These results presented below are not necessarily
indicative of results of operations that would have occurred had the
acquisitions actually been consummated as of the beginning of 1999, nor are the
results presented below necessarily indicative of results to be expected in
future periods. The pro forma information excludes the impact of one-time
charges for in-process research and development costs and merger related costs.

<TABLE>
<CAPTION>
                                                       YEARS ENDED DECEMBER 31,
                                                       ------------------------
                                                          1999          2000
                                                       ----------    ----------
                                                            (IN THOUSANDS,
                                                        EXCEPT PER SHARE DATA)
<S>                                                    <C>           <C>
Net revenue..........................................  $  24,351     $  71,796
Net loss.............................................  $(302,435)    $(394,291)
Basic and diluted net loss per share.................  $   (5.98)    $   (8.34)
</TABLE>

 3. INVESTMENTS

     The following table summarizes the Company's investments at December 31,
2000:

<TABLE>
<CAPTION>
                                                     GROSS        GROSS      ESTIMATED
                                                   UNREALIZED   UNREALIZED     FAIR
                                      AMORTIZED     HOLDING      HOLDING      MARKET
                                        COST         GAINS        LOSSES       VALUE
                                      ---------    ----------   ----------   ---------
                                                       (IN THOUSANDS)
<S>                                   <C>          <C>          <C>          <C>
Short-term investments:
  Corporate bonds and commercial
     paper..........................  $ 76,632        $331         $ --      $ 76,963
  U.S. Government agencies..........     7,158          21           --         7,179
  Municipal notes and bonds.........    17,244           5           --        17,249
                                      --------        ----         ----      --------
                                      $101,034        $357         $ --      $101,391
                                      ========        ====         ====      ========
Long-term investments:
  Corporate bonds and commercial
     paper..........................  $  7,547        $ 46         $ --      $  7,593
  U.S. Government agencies..........     7,993          54           --         8,047
                                      --------        ----         ----      --------
                                      $ 15,540        $100         $ --      $ 15,640
                                      ========        ====         ====      ========
</TABLE>

     The following table summarizes the Company's debt securities at December
31, 2000:

<TABLE>
<CAPTION>
                                                                      ESTIMATED
                                                                        FAIR
                                                         AMORTIZED     MARKET
                                                           COST         VALUE
                                                         ---------    ---------
                                                             (IN THOUSANDS)
<S>                                                      <C>          <C>
Due in one year or less................................  $101,034     $101,391
Due after one year through two years...................    15,540       15,640
                                                         --------     --------
                                                         $116,574     $117,031
                                                         ========     ========
</TABLE>

                                        48
<PAGE>   51
                            BROADBASE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

 4. BANK LINE OF CREDIT AND NOTES PAYABLE

     Notes payable and line of credit borrowings consist of the following:

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                              --------------
                                                               1999     2000
                                                              ------    ----
                                                              (IN THOUSANDS)
<S>                                                           <C>       <C>
Notes payable...............................................  $  415    $--
Bank line of credit.........................................     667     --
                                                              ------    ---
                                                               1,082     --
Debt assumed through acquisitions:
  Canada Israel Industrial Research and Development
     Foundation.............................................      --     78
                                                              ------    ---
                                                               1,082     78
Less current portion........................................    (749)    --
                                                              ------    ---
Noncurrent portion..........................................  $  333    $78
                                                              ======    ===
</TABLE>

     During 1996 and 1997, the Company secured financing under the terms of
$300,000 and $1,000,000 three-year notes payable, respectively, at interest
rates of 15% and 14%, respectively. The full principal amount of notes payable
outstanding was paid during 2000.

     In connection with the issuance of the notes, the Company issued warrants
to purchase 12,537 and 24,227 shares of Series A and Series B preferred stock at
prices of $1.67 and $2.68 per share, respectively. At the date of grant, the
value ascribed to these warrants was immaterial for financial statement
purposes. In November 1999, the warrants were exercised in full.

     In July 1998, the Company entered into a loan and security agreement with a
financial institution. The agreement provided for an accounts receivable line of
credit not to exceed $2,000,000 and an equipment line of credit not to exceed
$1,000,000. Borrowings under the accounts receivable line of credit bear
interest at the institution's prime lending rate, and any borrowings under the
equipment line of credit bear interest at the institution's prime lending rate
plus 0.5%. As of December 31, 1999, the $2,000,000 line of credit had expired,
and $1,000,000, the full amount available, had been borrowed under the equipment
line of credit of which $333,000 had been repaid during 1999. During 2000, the
Company repaid the remaining balance and subsequently cancelled the $1,000,000
equipment line of credit.

     As part of the acquisition of Servicesoft, the Company assumed a liability
of approximately $78,000 that represented a loan arrangement between Balisoft
Technologies Inc., a former subsidiary of Servicesoft, and the Canada Israel
Industrial Research and Development Foundation. The remaining balance due will
be paid in equal tranches on June 30, 2001 and December 31, 2001.

 5. COMMITMENTS

  Leases

     On December 23, 1999 the Company entered into a seven year noncancelable
operating lease agreement commencing May 1, 2000 for a new corporate
headquarters. In accordance with the terms of this agreement, the Company has
put $580,000 into a restricted cash account as a security deposit.

     On August 11, 2000 the Company entered into a ten-year noncancelable
operating lease agreement commencing January 1, 2001 for additional office space
near its corporate headquarters. In accordance with the terms of this agreement,
the security deposit consisted of a $460,000 cash payment and a $1,840,000
letter of credit executed by the Company. In accordance with the terms of the
letter of credit, the Company has categorized $1,840,000 of its investments as
restricted cash.

                                        49
<PAGE>   52
                            BROADBASE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

     The gross rental payments under all operating leases were approximately
$230,000, $1,014,000 and $3,051,000 for the years ended December 31, 1998, 1999,
and 2000, respectively. Rental expense, net of reimbursements from sublessees,
was approximately $73,000, $679,000 and $2,484,000 in 1998, 1999 and 2000,
respectively.

     As of December 31, 2000, minimum lease payments under all noncancelable
lease agreements, including those assumed as a result of acquisition activity,
were as follows:

<TABLE>
<CAPTION>
                                                  CAPITAL LEASES    OPERATING LEASES
                                                  --------------    ----------------
                                                            (IN THOUSANDS)
<S>                                               <C>               <C>
Years ending December 31,
  2001..........................................      $  620            $ 5,926
  2002..........................................         418              5,562
  2003..........................................          59              5,217
  2004..........................................          38              5,359
  2005..........................................           4              4,838
  Thereafter....................................          --             17,339
                                                      ------            -------
Total minimum lease payments....................       1,139            $44,241
                                                                        =======
Less amount representing interest...............        (168)
                                                      ------
Present value of capital lease obligations......         971
Less current portion............................        (346)
                                                      ------
Long-term portion of capital lease
  obligations...................................      $  625
                                                      ======
</TABLE>

 6. STOCKHOLDERS' EQUITY

  Initial Public Offering

     On September 21, 1999, the Company consummated its initial public offering
of common stock, in which it sold 8,000,000 shares of its common stock at a
price of $7.00 per share. Offering proceeds to Broadbase, net of approximately
$3.9 million in aggregate underwriters discounts and commissions and $2.1
million in related offering expenses, were approximately $50.0 million. Upon
closing of the initial public offering, all convertible debentures were
converted into shares of Series D convertible preferred stock and each
outstanding share of the Company's Series A, Series B, Series C, Series D, and
Series E convertible preferred stock was converted into two shares of common
stock, resulting in the issuance of 19,953,764 shares of common stock. In
October 1999, an additional 1,200,000 shares of common stock were sold by the
Company at a price of $7.00 per share pursuant to the exercise of the
underwriters' overallotment option, generating additional net proceeds to the
Company of approximately $7.8 million.

  Subsequent Stock Offering

     On February 18, 2000, the Company completed a public offering of 6,900,000
shares of its common stock of which 3,900,000 shares were sold by the Company
and 3,000,000 were sold by its stockholders at a price of $47.50 per share.
Offering proceeds to the Company, net of aggregate underwriters discounts and
commissions and related offering expenses, were approximately $174.9 million.

  Shares Subject to Repurchase

     Shares subject to repurchase by the Company pursuant to the exercise of
stock options totaled 1,620,972, 859,768 and 415,989 at December 31, 1998, 1999,
and 2000, respectively.

                                        50
<PAGE>   53
                            BROADBASE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

  1999 Equity Incentive Plan

     On July 2, 1999, the Board of Directors approved the adoption of the
Company's 1999 Equity Incentive Plan (the "1999 Incentive Plan") under which a
total of 7,000,000 shares of common stock were initially reserved for issuance.
On December 14, 2000, the shareholders approved an additional 4,000,000 shares
of common stock to be reserved for issuance. Commencing on January 1, 2000,
annual increases equal to 5% of the outstanding shares on the preceding December
31 have been approved. The number of shares authorized for issuance under the
1999 Incentive Plan was increased to include shares reserved under the Company's
1996 Equity Incentive Plan that had not been issued and were not subject to
outstanding options as of the date of termination of the 1996 Equity Incentive
Plan upon completion of the Company's initial public offering, and shares
subject to options which had become unexercisable. The types of awards that may
be made under the 1999 Incentive Plan are options to purchase shares of common
stock, restricted stock and stock bonuses. The exercise price for incentive
stock options may not be less than 100% of the fair market value of the
Company's common stock on the date of grant (85% for nonstatutory options). In
the event of a change in control of the Company, an option or award under the
1999 Incentive Plan may be assumed or substituted by the successor corporation.
The Company's compensation committee may also accelerate the vesting of awards
upon a change of control transaction.

  2000 Stock Incentive Plan

     On May 3, 2000, the Board of Directors approved the adoption of the
Company's 2000 Stock Incentive Plan (the "2000 Incentive Plan"). A total of
3,000,000 shares of common stock were initially reserved for issuance under the
2000 Incentive Plan. The types of awards that may be made under the 2000
Incentive Plan are options to purchase shares of common stock and restricted
stock. Only nonstatutory options may be granted under this plan. The exercise
price for options under this plan may not be less than the par value of the
Company's common stock on the date of grant. In the event of a change in control
of the Company, an option or award under the 2000 Incentive Plan may be assumed
or substituted by the successor corporation. The Company's compensation
committee may also accelerate the vesting of awards upon a change of control
transaction.

                                        51
<PAGE>   54
                            BROADBASE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

     A summary of activity under stock option plans is as follows:

<TABLE>
<CAPTION>
                                                                     OPTIONS OUTSTANDING
                                                              ----------------------------------
                                                                                    WEIGHTED-
                                          SHARES AVAILABLE                           AVERAGE
                                             FOR GRANT        NUMBER OF SHARES    EXERCISE PRICE
                                          ----------------    ----------------    --------------
<S>                                       <C>                 <C>                 <C>
Balance at December 31, 1997............      2,389,050           1,250,300           $ 0.12
  Authorized............................      2,000,000                  --               --
  Granted...............................     (2,508,220)          2,508,220             0.24
  Exercised.............................             --            (587,778)            0.17
  Canceled..............................        686,492            (686,492)            0.22
  Repurchased...........................        158,828                  --             0.02
                                            -----------          ----------           ------
Balance at December 31, 1998............      2,726,150           2,484,250             0.20
  Authorized............................      8,000,000                  --               --
  Granted...............................     (6,794,530)          6,794,530             4.87
  Exercised.............................             --          (1,582,740)            0.83
  Canceled..............................      1,305,062          (1,305,062)            0.40
  Repurchased...........................        292,708                  --             0.04
                                            -----------          ----------           ------
Balance at December 31, 1999............      5,529,390           6,390,978             5.06
  Authorized............................     10,005,008                  --               --
  Plans assumed related to
     acquisitions.......................      7,920,614                  --               --
  Options converted related to
     acquisitions.......................     (7,920,614)          7,920,614             3.87
  Granted...............................    (14,966,973)         14,966,973            23.24
  Exercised.............................             --          (1,848,026)            1.08
  Canceled..............................      2,811,091          (2,811,091)           22.58
  Canceled under assumed plans..........             --            (346,814)            5.68
  Repurchased...........................         18,750                  --             0.28
                                            -----------          ----------           ------
Balance at December 31, 2000............      3,397,266          24,272,634           $13.90
                                            ===========          ==========           ======
</TABLE>

     The following table summarizes information about options outstanding at
December 31, 2000 (shares in thousands):

<TABLE>
<CAPTION>
                                     OPTIONS OUTSTANDING
                          -----------------------------------------       OPTIONS EXERCISABLE
                                              WEIGHTED                ---------------------------
                                               AVERAGE     WEIGHTED                      WEIGHTED
                               NUMBER         REMAINING    AVERAGE         NUMBER        AVERAGE
                            OUTSTANDING      CONTRACTUAL   EXERCISE     EXERCISABLE      EXERCISE
RANGE OF EXERCISE PRICE   AS OF 12/31/2000      LIFE        PRICE     AS OF 12/31/2000    PRICE
-----------------------   ----------------   -----------   --------   ----------------   --------
<S>                       <C>                <C>           <C>        <C>                <C>
    $ 0.02 - $ 0.43             3,689           7.80        $ 0.27         1,755          $ 0.27
    $ 0.57 - $ 2.85             4,850           8.97          1.10         1,128            1.05
    $ 4.66 - $13.47             6,891           9.52          9.06           577           11.77
    $14.52 - $27.00             4,449           9.30         19.01           712           19.83
    $28.75 - $41.69             2,346           9.02         39.93           525           40.52
    $44.13 - $47.00             2,048           9.09         44.18           454           44.24
                               ------           ----        ------         -----          ------
                               24,273           9.02        $13.90         5,151          $12.42
                               ======           ====        ======         =====          ======
</TABLE>

                                        52
<PAGE>   55
                            BROADBASE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

  1999 Employee Stock Purchase Plan

     On July 2, 1999, the Board of Directors approved the adoption of the
Company's 1999 Employee Stock Purchase Plan (the "1999 Purchase Plan"). A total
of 1,000,000 shares of common stock were reserved for issuance under the 1999
Purchase Plan. On December 14, 2000, the shareholders approved an additional
1,000,000 shares of common stock to be reserved for issuance. Commencing on
January 1, 2000, annual increases equal to 1% of the Company's outstanding
common shares on the preceding December 31. The 1999 Purchase Plan permits
eligible employees to acquire shares of the Company's common stock through
periodic payroll deductions of up to 10% of their cash compensation, subject to
certain maximum purchase limitations. Each offering period will have a maximum
duration of 24 months and will consist of four six-month purchase periods. The
price at which the common stock may be purchased is 85% of the lesser of the
fair market value of the Company's common stock on the first day of the
applicable offering period or the last day of each respective purchase period.
This initial offering period began on September 22, 1999. During 2000, 157,992
shares were issued under the 1999 Purchase Plan. At December 31, 2000, 2,203,008
shares were available for issuance under the 1999 Purchase Plan.

  Stock Based Compensation

     Pro forma information regarding net income and earnings per share is
required by FAS 123. This information is required to be determined as if the
Company had accounted for its employee stock options (including shares issued
under the 1999 Purchase Plan, collectively called "options") granted subsequent
to June 30, 1995 under the fair value method of that statement. The fair value
of options granted during 1998 reported below has been estimated at the date of
grant using the minimum value method option pricing model. The fair value of
options granted in 1999 and 2000, reported below has been estimated at the date
of grant using a Black-Scholes option pricing model with the following weighted
average assumptions:

<TABLE>
<CAPTION>
                                                                         EMPLOYEE STOCK
                                                       EMPLOYEE             PURCHASE
                                                    STOCK OPTIONS         PLAN SHARES
                                                 --------------------    --------------
                                                 1998    1999    2000    1999     2000
                                                 ----    ----    ----    -----    -----
<S>                                              <C>     <C>     <C>     <C>      <C>
Expected life (in years).......................    4        4       5    1.75      0.5
Risk-free interest rate........................  6.0%     6.0%    6.3%    6.0%     6.3%
Volatility.....................................  N/A     0.60    1.61    0.60     1.61
Dividend yield.................................    0%       0%      0%      0%       0%
</TABLE>

     The following table summarizes information about weighted average fair
values and weighted average exercise prices of options granted in the years
ended December 31, 1998 and 1999.

<TABLE>
<CAPTION>
                                        1998                    1999                    2000
                                ---------------------   ---------------------   ---------------------
                                             WEIGHTED                WEIGHTED                WEIGHTED
                                 WEIGHTED    AVERAGE     WEIGHTED    AVERAGE     WEIGHTED    AVERAGE
                                 AVERAGE     EXERCISE    AVERAGE     EXERCISE    AVERAGE     EXERCISE
                                FAIR VALUE    PRICE     FAIR VALUE    PRICE     FAIR VALUE    PRICE
                                ----------   --------   ----------   --------   ----------   --------
<S>                             <C>          <C>        <C>          <C>        <C>          <C>
Exercise price equals fair
  value.......................    $0.05       $0.13       $8.17       $15.86      $21.36      $27.48
Deemed fair value exceeds
  exercise price..............    $1.43       $0.29       $3.49       $ 0.82      $20.98      $ 9.33
</TABLE>

                                        53
<PAGE>   56
                            BROADBASE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:

<TABLE>
<CAPTION>
                                                           YEARS ENDED DECEMBER 31,
                                                    ---------------------------------------
                                                       1998          1999          2000
                                                    ----------    ----------    -----------
                                                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                 <C>           <C>           <C>
Pro forma net loss................................   $(11,702)     $(54,405)     $(272,740)
                                                     ========      ========      =========
Pro forma basic and diluted net loss per share....   $  (4.57)     $  (4.32)     $   (5.77)
                                                     ========      ========      =========
</TABLE>

     Pro forma net loss represents the difference between compensation expense
recognized under APB Opinion No. 25 and the related expense using the fair value
method of FAS 123 taking into account any additional tax effects of applying FAS
123. The effects on pro forma disclosures of applying FAS 123 for all years
presented are not likely to be representative of the effects on pro forma
disclosures of future years.

     In connection with the grant of certain options to employees during the
years ended December 31, 1998, 1999 and 2000, the Company recorded deferred
stock compensation of approximately $3,471,000, $12,775,000 and $34,584,000,
respectively, based on the difference between the exercise prices of those
options at their respective grant dates and the deemed fair value for accounting
purposes of the shares of common stock subject to such options. Such amounts are
included as a reduction of stockholders' equity and are being amortized on a
graded vesting method. The compensation expense of approximately $1,133,000,
$6,403,000 and $19,991,000 during 1998, 1999 and 2000, respectively, relate to
options awarded to employees in all operating expense categories.

     In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation -- an Interpretation of APB
Opinion No. 25" ("FIN 44"). FIN 44 clarifies certain elements of APB Opinion No.
25, including: the definition of employee for purposes of applying APB Opinion
No. 25, the criteria for determining whether a plan qualifies as
non-compensatory, the accounting consequences of various modifications to the
terms of a previously fixed stock option award, and the accounting for an
exchange of stock compensation in a business combination. FIN 44 is effective
July 1, 2000, but certain conclusions in FIN 44 cover specific events that have
occurred after either December 15, 1998 or January 12, 2000. The adoption of
this interpretation required us to record $20.9 million in deferred stock
compensation in connection with the Panopticon and Servicesoft acquisitions
equivalent to the intrinsic value of options to purchase our common stock,
subject to post-acquisition vesting, exchanged for options to purchase these
companies common stock. Prior to the adoption of FIN 44, the full fair value of
options to purchase our common stock, vested and unvested at the time of
acquisition, exchanged for options to purchase target company stock, was
allocated to the fair value of tangible and intangible assets (including
goodwill) acquired. The amortization of this deferred stock compensation
resulted in amortization of $1.3 million during 2000, and will result in further
amortization of $11.8 million, $5.4 million and $2.4 million during 2001, 2002
and 2003, respectively.

                                        54
<PAGE>   57
                            BROADBASE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

  Warrants

     In connection with the acquisitions of Rubric, Panopticon and Servicesoft,
the Company converted warrants to acquire these companies capital stock into
warrants to purchase approximately 250,000 shares of Broadbase common stock. The
value of the warrants converted, which was recorded as a component of the
respective companies purchase price and additional paid-in capital in connection
with these acquisitions, was approximately $7.8 million. Warrants outstanding at
December 31, 2000 are as follows:

<TABLE>
<CAPTION>
 WARRANTS     EXERCISE   EXPIRATION
OUTSTANDING    PRICE       DATES
-----------   --------   ----------
<S>           <C>        <C>
    2,432      $0.11       8/15/04
    3,793       0.13        1/1/03
    6,950       0.29       8/30/03
   13,900       1.95       4/12/05
    5,486       2.16        6/2/05
   25,904       2.85      12/17/04
      234       5.11        1/1/03
   86,424       9.72      10/16/10
  -------
  145,123
  =======
</TABLE>

     All of the above warrants were exercisable at December 31, 2000.

  Shares Reserved for Future Issuance

     At December 31, 1999 and 2000, the Company has reserved common shares for
issuance as follows:

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                      ------------------------
                                                         1999          2000
                                                      ----------    ----------
<S>                                                   <C>           <C>
Stock options:
  Outstanding.......................................   6,390,978    24,272,634
  Available for grant...............................   5,529,390     3,397,266
  Employee Stock Purchase Plan......................   1,000,000     2,203,008
  Warrants..........................................          --       145,123
                                                      ----------    ----------
                                                      12,920,368    30,018,031
                                                      ==========    ==========
</TABLE>

 7. EMPLOYEE BENEFIT PLANS

     The Company has a 401(k) plan which stipulates that all full-time employees
can elect to contribute to the 401(k) plan, subject to certain limitations, up
to 20% of their salary on a pre-tax basis. The Company has the option to provide
matching contributions but has not done so to date.

                                        55
<PAGE>   58
                            BROADBASE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

 8. INCOME TAXES

     The Company's income tax provision (benefit) differs from the income tax
provision (benefit) determined by applying the U.S. federal statutory rate to
the net loss as follows:

<TABLE>
<CAPTION>
                                                  YEARS ENDED DECEMBER 31,
                                               ------------------------------
                                                1998       1999        2000
                                               -------    -------    --------
                                                       (IN THOUSANDS)
<S>                                            <C>        <C>        <C>
Tax provision (benefit) at U.S. statutory
  rate.......................................  $(3,857)   $(8,143)   $(65,767)
Amortization of deferred stock
  compensation...............................       --      2,177       7,241
Nondeductible amortization...................       --         --      35,944
Valuation allowance for deferred tax
  assets.....................................    3,857      5,966      22,582
                                               -------    -------    --------
Tax provision (benefit)......................  $    --    $    --    $     --
                                               =======    =======    ========
</TABLE>

     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities for federal and state income
taxes are as follows:

<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER 31,
                                                         ------------------------
                                                            1999          2000
                                                         ----------    ----------
                                                              (IN THOUSANDS)
<S>                                                      <C>           <C>
Deferred tax assets:
Net operating loss carryforwards.......................   $ 10,700      $ 64,600
Stock options assumed in acquisitions..................         --        21,600
Tax credit carryforwards...............................        700         1,500
Amortization of deferred stock compensation............         --         7,200
Deferred revenue.......................................        900         4,600
Capitalized research and development...................        300            --
Other accruals and reserves not deductible for tax
  purposes.............................................        600         3,200
                                                          --------      --------
Total gross deferred tax assets........................     13,200       102,700
Less valuation allowance...............................    (13,200)      (91,200)
                                                          --------      --------
Total deferred tax assets..............................         --        11,500
Deferred tax liabilities:
Acquisition-related intangibles........................         --       (11,500)
                                                          --------      --------
Net deferred tax assets................................   $     --      $     --
                                                          ========      ========
</TABLE>

     Realization of deferred tax assets is dependent on future earnings, if any,
the timing and amount of which are uncertain. Accordingly, a valuation allowance
in an amount equal to the net deferred tax assets as of December 31, 1999 and
2000 has been established to reflect these uncertainties. The valuation
allowance increased by approximately $3.6 million, $6.7 million and $78.0
million during the years ended December 31, 1998, 1999 and 2000, respectively.
Approximately $58.4 million of the valuation allowance at December 31, 2000 is
attributable to deferred tax assets that if realized, will first reduce
unamortized goodwill, then other non-current intangible assets of acquired
subsidiaries, and then income tax expense.

     Approximately $4.6 million of the valuation allowance at December 31, 2000
is attributable to stock option deductions, the benefit of which, will be
credited to additional paid-in capital if realized.

     As of December 31, 2000, the Company had federal, state and foreign net
operating loss carryforwards of approximately $167.2 million, $98.6 million, and
$5.1 million, respectively. The Company also had federal and

                                        56
<PAGE>   59
                            BROADBASE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

state research and development tax credit carryforwards of approximately $1.4
million and $1.0 million, respectively. The net operating loss and tax credit
carryforwards will expire at various dates beginning in 2004, if not utilized.

     Utilization of the net operating loss and tax credit carryforwards may be
subject to a substantial annual limitation due to the "change in ownership"
provisions of the Internal Revenue Code of 1986 and similar state provisions.
The annual limitation may result in the expiration of net operating loss and tax
credit carryforwards before utilization.

 9. RELATED PARTY TRANSACTIONS

     In April 2000, the Company provided loans in the amount of $250,000 and
$200,000 to officers, who are also stockholders, in exchange for nonrecourse
promissory notes which are secured by a security interest in the underlying
common stock. The loans, which bear interest annually at 7%, are due on or
before December 31, 2001 or upon the sale of any common stock of the Company
acquired through the exercise of options granted by the Company.

10. SEGMENT INFORMATION

     The Company operates in a single segment and has no organizational
structure dictated by product lines, geography or customer type. The following
table presents revenue and long-lived assets, excluding goodwill and other
intangible assets, information by geographic area as of and for the years ended
December 31, 1998, 1999 and 2000:

<TABLE>
<CAPTION>
                                            TOTAL REVENUE              LONG-LIVED ASSETS
                                      --------------------------   -------------------------
                                       1998     1999      2000      1998     1999     2000
                                      ------   -------   -------   ------   ------   -------
                                                          (IN THOUSANDS)
<S>                                   <C>      <C>       <C>       <C>      <C>      <C>
North America.......................  $3,264   $ 8,457   $39,801   $1,610   $3,015   $17,299
Europe..............................      --         5     4,560       --        2       471
Asia Pacific........................     175     1,980     3,893       --       --         8
                                      ------   -------   -------   ------   ------   -------
                                      $3,439   $10,442   $48,254   $1,610   $3,017   $17,778
                                      ======   =======   =======   ======   ======   =======
</TABLE>

11. SUMMARIZED QUARTERLY DATA (UNAUDITED)

     The following tables set forth certain consolidated statement of operations
data for each of the eight quarters beginning with the quarter ended March 31,
1999 through the quarter ended December 31, 2000. This quarterly information is
unaudited, but has been prepared on the same basis as the annual consolidated
financial statements and, in the opinion of management, reflects all
adjustments, consisting only of normal recurring adjustments necessary for a
fair representation of the information for the periods presented.
<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED
                             --------------------------------------------------------------------------
                             MARCH 31,   JUNE 30,   SEPTEMBER 30,   DECEMBER 31,   MARCH 31,   JUNE 30,
                               1999        1999         1999            1999         2000        2000
                             ---------   --------   -------------   ------------   ---------   --------
                                                           (IN THOUSANDS)
<S>                          <C>         <C>        <C>             <C>            <C>         <C>
STATEMENT OF OPERATIONS
  DATA:
Net revenue................   $ 1,486    $ 2,053       $ 2,764        $ 4,139      $  6,301    $ 10,393
Gross margin...............       835      1,344         1,532          2,684         3,611       5,376
Loss from operations.......    (4,428)    (6,092)       (6,591)        (7,024)      (39,504)    (34,130)
Net loss...................   $(4,575)   $(6,312)      $(6,629)       $(6,054)     $(37,458)   $(30,666)
Basic and diluted net loss
  per share................   $ (1.29)   $ (1.54)      $ (0.85)       $ (0.35)     $  (0.92)   $  (0.67)
Weighted-average shares
  used in computing basic
  and diluted net loss per
  share....................     3,554      4,101         7,808         17,446        40,532      45,603

<CAPTION>
                                  THREE MONTHS ENDED
                             ----------------------------
                             SEPTEMBER 30,   DECEMBER 31,
                                 2000            2000
                             -------------   ------------
                                    (IN THOUSANDS)
<S>                          <C>             <C>
STATEMENT OF OPERATIONS
  DATA:
Net revenue................    $ 14,320        $ 17,240
Gross margin...............       8,377           8,758
Loss from operations.......     (41,062)        (91,287)
Net loss...................    $(37,370)       $(87,937)
Basic and diluted net loss
  per share................    $  (0.78)       $  (1.59)
Weighted-average shares
  used in computing basic
  and diluted net loss per
  share....................      48,001          55,405
</TABLE>

                                        57
<PAGE>   60
                            BROADBASE SOFTWARE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 2000

12. SUBSEQUENT EVENTS (UNAUDITED)

  FASB Exposure Draft on Business Combinations and Intangible Assets --
Accounting for Goodwill

     On February 14, 2001, the FASB issued a limited revision of its September
7, 1999 Exposure Draft, "Business Combinations and Intangible Assets", that
proposes to significantly change the accounting for goodwill acquired in a
purchase business combination. Under the revised proposal, goodwill would not be
amortized but would be reviewed for impairment, using a complex methodology
different from the original proposal, when an event occurs indicating the
potential for impairment. Goodwill impairment charges would be presented as a
separate line item within the operating section of the income statement. The
nonamortization approach would apply to previously recorded goodwill as well as
goodwill arising from acquisitions completed after the application of the new
standard. Amortization of the remaining book value of goodwill would cease and
the new impairment-only approach would apply. The FASB expects to release the
final statement in June 2001. The provisions of the proposed statement are to be
applied at the beginning of the first fiscal quarter following its issuance for
all entities.

                                        58
<PAGE>   61

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES

     Not applicable.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table shows the name, age and position of each of our
executive officers and directors as of March 1, 2001:

<TABLE>
<CAPTION>
            NAME              AGE                    PRINCIPAL OCCUPATION
            ----              ---                    --------------------
<S>                           <C>   <C>
Chuck Bay...................  43    Chairman of the Board, Chief Executive Officer and
                                    President
Rusty Thomas................  40    Executive Vice President and Chief Financial Officer
Fabio Angelillis............  40    Executive Vice President, Engineering
Thomas Doyle................  50    Chief Operating Officer and Executive Vice President
                                    of Sales
Brian Kelly.................  35    Executive Vice President of Products
Chris Maeda.................  34    Executive Vice President and Chief Technology Officer
David Milam.................  45    Executive Vice President, Marketing
Greg Martin.................  36    Senior Vice President, Consulting and Customer
                                    Advocacy
Eric Willgohs...............  35    General Counsel, Vice President Legal and Secretary
Robert Davoli...............  52    Director
Kevin Harvey................  36    Director
Massood Zarrabian...........  52    Director and President E-Services Division of
                                    Broadbase
</TABLE>

     CHUCK BAY joined Broadbase in January 1998 and currently serves as Chairman
of the Board, Chief Executive Officer and President of Broadbase. Mr. Bay
previously served as our Chief Financial Officer, General Counsel and Executive
Vice President of Operations. From July 1997 to January 1998, he served as Chief
Financial Officer and General Counsel for Reasoning, Inc., a software company.
From January 1995 to August 1997, he served as Chief Financial Officer and
General Counsel, for Pure Atria Software, Inc., a software company. Mr. Bay
holds a B.S. degree in business administration from Illinois State University
and a J.D. degree from the University of Illinois.

     RUSTY THOMAS has served as Executive Vice President and Chief Financial
Officer since joining Broadbase in January 2000. From June 1982 to July 1995 and
from April 1998 to January 2000, Mr. Thomas held various positions in the high
technology practice of KPMG LLP, including 8 years as a partner in the Silicon
Valley office and most recently as an Industry Leader for Electronics and
Software segments. From July 1995 to April 1998, he served as a Vice President
in the finance department of Rubbermaid Inc., a consumer products company. Mr.
Thomas holds a B.S. degree in business administration from Creighton University.

     FABIO ANGELILLIS has served as Executive Vice President, Engineering since
joining Broadbase in September 2000. From October 1990 to September 2000, Mr.
Angelillis held various management positions, including Vice President of
Research and Development and Operations, at Cadence Design Systems, Inc. a
provider of electronic design automation software. From January 1998 to October
1990, he served as Engineering Manager at Teradyne, Inc., a manufacturer of
automatic test equipment and related software for the electronics and
communications industries. From May 1985 to January 1988, he served as Software
Engineer at Hewlett-Packard Company, a provider of computing and imaging
solutions and services. Mr. Angelillis holds a B.S. degree in computer
engineering from the University of Florida.

     THOMAS DOYLE joined Broadbase in April 1999 in the capacity of Executive
Vice President of Sales and currently serves as Chief Operating Officer and
Executive Vice President of Sales. From October 1996 to April 1999, Mr. Doyle
served as Senior Vice President of Worldwide Sales at Reasoning, Inc. From May
1984

                                        59
<PAGE>   62

to September 1996, he held various sales and sales management positions at
Tandem Computers Incorporated, a provider of computer systems and client/server
solutions. Mr. Doyle holds a B.S. degree in finance from the University of
Missouri.

     BRIAN KELLY joined Broadbase in December 1998 and currently serves as
Executive Vice President of Products. Mr. Kelly previously served as our
Executive Vice President of Applications and Engineering. From June 1998 to
December 1998, he served as Director of Product Strategy, Analytic Applications
at PeopleSoft, Inc., a provider of enterprise software and services. From June
1996 to June 1998, he served as Vice President of Product Strategy at Intrepid
Systems, Inc., a software company. From December 1992 to June 1996, he served as
President of Kelly Information Systems, a software company. Mr. Kelly holds a
B.S. degree in computer science from the University of Cincinnati.

     CHRIS MAEDA joined Broadbase in February 2000 and currently serves as
Executive Vice President and Chief Technology Officer. From March 1997 until its
acquisition by Broadbase in February 2000, Dr. Maeda served as Chief Technology
Officer of Rubric, Inc., a provider of e-marketing software applications, which
he co-founded. From May 1995 to February 1997, he held various positions at the
Xerox Palo Alto Research Center. Dr. Maeda holds a B.S. degree in computer
science from the Massachusetts Institute of Technology, and M.S. and Ph.D.
degrees in computer science from Carnegie Mellon University.

     DAVID MILAM has served as Executive Vice President, Marketing since joining
Broadbase in April 2000. From 1995 to April 2000, he served as Vice President,
Full Custom IC Design Services, Vice President of Product Marketing, and Vice
President Methodology Services Marketing of Cadence Design Systems, Inc. From
1989 to 1995, he served as Director Product Marketing and European Marketing
Director at Structural Dynamics Research Corporation, a provider of software
solutions for collaborative product development. From 1984 to 1989, he served as
Director of Market Development and Director of Distribution Programs of Cimlic
Corporation, a design and document automation software company. Mr. Milam holds
a B.S. degree in Financial Management and Quantitative Systems and an M.B.A.
degree, both from California State University at Long Beach.

     GREG MARTIN has served as Senior Vice President, Consulting and Customer
Advocacy since joining Broadbase in January 2000. From December 1988 to January
2000, Mr. Martin held various positions in the high technology practice of KPMG
LLP, including partner and Industry Leader for Customer Relationship and
eBusiness Solution Integration. Mr. Martin holds a B.S. degree in chemistry from
the State University of New York.

     ERIC WILLGOHS joined Broadbase in July 1999 and currently serves as General
Counsel, Vice President Legal and Secretary. From September 1997 to July 1999,
Mr. Willgohs held various positions with Reasoning, Inc., most recently as
General Counsel. From July 1993 to July 1997, Mr. Willgohs held various
positions with Pure Atria Software, Inc., most recently as Associate General
Counsel. Mr. Willgohs holds a B.S. degree in electrical engineering from
Vanderbilt University and a J.D. degree from Stanford University.

     ROBERT DAVOLI has served as a member of our board of directors since
December 2000. From March 1998 until its acquisition by Broadbase in December
2000, he was a director of Servicesoft. Since January 1995, Mr. Davoli has also
been a Managing Director of Sigma Partners, a venture capital firm. He is also a
director of Vignette Corporation, Versata, Inc., ISS Group, Inc., Storage
Networks and several privately held companies. Mr. Davoli holds a B.A. degree in
History from Ricker College.

     KEVIN HARVEY has served as a member of our board of directors since January
1996. Mr. Harvey has been a managing member of Benchmark Capital, a venture
capital firm, since it was founded in January 1995. Mr. Harvey is also a
director of Red Hat Software, a developer and provider of open source software
and services, Ashford.com, an Internet retailer, Critical Path, an e-mail
hosting services company and several privately held companies. Mr. Harvey holds
a B.S. degree in electrical engineering from Rice University.

     MASSOOD ZARRABIAN has served as a member of our board of directors, and as
an employee of Broadbase in the position of President, E-Service Division, since
joining us in December 2000. From July 1999 until its acquisition by Broadbase
in December 2000, he held various positions with Servicesoft, a customer
relationship management software company, including most recently as Chief
Executive Officer, President
                                        60
<PAGE>   63

and a director. From January 1999 to July 1999, he served as Vice President of
Product Operations, and from October 1998 to January 1999 as Vice President of
Product Development, at Lewtan Technologies, Inc., a software company
specializing in securitized transactions. From July 1997 to October 1998, held
various positions with Cayenne Software, Inc., a case tools company, including
most recently as Executive Vice President and Chief Operating Officer. From
February 1994 to July 1996, he held the positions of Vice President, Research
and Development and Vice President, Product Operations at Cayenne's predecessor
company, Bachman Information Systems. Mr. Zarrabian holds a B.S. degree in civil
engineering from the Massachusetts Institute of Technology.

COMPLIANCE UNDER SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

     The information required by this item is hereby incorporated by reference
into this report from the Proxy Statement for the 2001 Annual Meeting of
Stockholders or a Form 10-K/A. We intend to file either the Proxy Statement or a
Form 10-K/A on or before April 30, 2001.

ITEM 11. EXECUTIVE COMPENSATION

     The following table provides compensation awarded to, earned by or paid for
services rendered to Broadbase in all capacities during 1998, 1999 and 2000 by
our Chief Executive Officer and our four other most highly compensated executive
officers who earned at least $100,000 in 2000 and who were serving as executive
officers at the end of 2000. All share figures have been adjusted to reflect the
two-for-one split of our common stock that was distributed as a stock dividend
to our stockholders on April 7, 2000.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                       LONG-TERM
                                                                                      COMPENSATION
                                                                                         AWARDS
                                                                                      ------------
                                                                ANNUAL COMPENSATION    SECURITIES
                                                                -------------------    UNDERLYING
              NAME AND PRINCIPAL POSITION                YEAR    SALARY     BONUS       OPTIONS
              ---------------------------                ----   --------   --------   ------------
<S>                                                      <C>    <C>        <C>        <C>
Chuck Bay..............................................  2000   $205,000   $ 60,000     900,500
  Chairman of the Board, Chief                           1999    150,000     60,000     400,000
  Executive Officer and President                        1998    143,269     40,000     518,000
Thomas Doyle...........................................  2000    225,000    768,649     400,500
  Chief Operating Officer and Executive                  1999    225,000    500,000     480,000
  Vice President of Sales                                1998         --         --          --
Eric Willgohs..........................................  2000    120,000    130,000      20,500
  General Counsel, Executive Vice                        1999     47,308         --     120,000
  President Legal and Secretary                          1998         --         --          --
Greg Martin............................................  2000    199,231     30,000     325,500
  Senior Vice President, Consulting and                  1999         --         --          --
  Customer Advocacy                                      1998         --         --          --
Rusty Thomas...........................................  2000    199,231     25,000     500,500
  Executive Vice President and                           1999         --         --          --
  Chief Financial Officer                                1998         --         --          --
</TABLE>

                                        61
<PAGE>   64

OPTION GRANTS IN 2000

     The following table provides information regarding each stock option grant
during 2000 to the executive officers named in the Summary Compensation Table
above. Except as noted below, each option is subject to vesting at a rate of
2.08% per month over a period of four years, subject to acceleration in some
cases as described in the section entitled "-- Employment Agreements and Stock
Option Grants". Each option has a term of ten years, subject to earlier
termination in the event the optionee's service with us terminates. The percent
of total options granted is based on an aggregate of 14,966,973 options that we
granted to our employees during 2000.
<TABLE>
<CAPTION>
                                                      INDIVIDUAL GRANTS
                                -------------------------------------------------------------
                                             PERCENTAGE
                                NUMBER OF     OF TOTAL                 DEEMED
                                  SHARES      OPTIONS     EXERCISE   FAIR MARKET
                                UNDERLYING   GRANTED TO    PRICE      VALUE ON
                                 OPTIONS     EMPLOYEES      PER        DATE OF     EXPIRATION
             NAME                GRANTED      IN 2000      SHARE        GRANT         DATE
             ----               ----------   ----------   --------   -----------   ----------
<S>                             <C>          <C>          <C>        <C>           <C>
Chuck Bay.....................   900,000        6.0%       $41.69      $41.69       01/20/10
                                     500*                    1.00       32.44       07/07/10
Thomas Doyle..................   300,000        2.7         41.69       41.69       01/20/10
                                     500*                    1.00       32.44       07/07/10
                                 100,000                    11.38       11.38       10/06/10
Eric Willgohs.................    20,000        0.1         41.69       41.69        1/20/10
                                     500*                    1.00       32.44        07/0710
Greg Martin...................   250,000        2.2         27.00       47.00       01/04/10
                                  50,000                     1.00       16.25       05/03/10
                                     500*                    1.00       32.44       07/07/10
                                  25,000                     1.00        6.75       12/18/10
Rusty Thomas..................   350,000        3.3         27.00       47.00       01/04/10
                                 100,000                     1.00       16.25       05/03/10
                                     500*                    1.00       32.44       07/07/10
                                  50,000                    11.38       11.38       10/06/10

<CAPTION>

                                         POTENTIAL REALIZABLE
                                           VALUE AT ASSUMED
                                        ANNUAL RATES OF STOCK
                                          PRICE APPRECIATION
                                           FOR OPTION TERM
                                --------------------------------------
             NAME                   0%           5%            10%
             ----               ----------   -----------   -----------
<S>                             <C>          <C>           <C>
Chuck Bay.....................          --   $23,596,755   $59,798,811
                                $   15,720        25,921        41,571
Thomas Doyle..................          --     7,865,585    19,932,937
                                    15,720        25,921        41,571
                                        --       715,682     1,813,679
Eric Willgohs.................          --       524,372     1,328,862
                                    15,720        25,921        41,571
Greg Martin...................   5,000,000    12,389,512    23,726,474
                                   762,500     1,273,477     2,057,416
                                    15,720        25,921        41,571
                                   143,750       249,876       412,694
Rusty Thomas..................   7,000,000    17,345,317    33,217,063
                                 1,525,000     2,546,954     4,114,831
                                    15,720        25,921        41,571
                                        --       357,841       906,839
</TABLE>

---------------
* This option vests as to 4.167% of the shares each month over a period of two
  years.

     Potential realizable values are calculated based on the assumption that the
fair market value of the stock on the date of grant appreciates at the annual
rates shown over each year of the ten-year term of the option, less the exercise
price per share and before taxes. Stock price appreciation assumptions of 0%, 5%
and 10% are required by the rules of the Securities and Exchange Commission and
do not represent our prediction of our stock price performance. Actual gains, if
any, on stock option exercises will be dependent on the future performance of
our common stock, and therefore the potential realizable values shown in this
table may never be achieved.

     In January 2001, we granted options to purchase 1,000,000 shares to Chuck
Bay and options to purchase 20,000 shares to Eric Willgohs. These options each
have an exercise price of $4.56 per share and vest monthly over four years,
beginning January 1, 2001.

                                        62
<PAGE>   65

AGGREGATED OPTION EXERCISES IN 2000 AND YEAR-END OPTION VALUES

     The following table provides information concerning stock option exercises
by each of the executive officers named in the Summary Compensation Table above
during the fiscal year ended December 31, 2000 and information concerning
unexercised options held by these officers at the end of 2000. The value
realized represents the difference between the deemed fair value of our common
stock used by us for accounting purposes and the exercise price of the option.
The value of unexercised in-the-money options is based on the closing price of
our common stock on December 31, 2000 of $6.25 per share, minus the exercise
price, multiplied by the number of shares issuable upon exercise of the option.

<TABLE>
<CAPTION>
                                                     NUMBER OF SECURITIES
                                                    UNDERLYING UNEXERCISED         VALUE OF UNEXERCISED
                                                          OPTIONS AT               IN-THE-MONEY OPTIONS
                         SHARES                        DECEMBER 31, 2000           AT DECEMBER 31, 2000
                       ACQUIRED ON     VALUE      ---------------------------   ---------------------------
        NAME            EXERCISE      REALIZED    EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
        ----           -----------   ----------   -----------   -------------   -----------   -------------
<S>                    <C>           <C>          <C>           <C>             <C>           <C>
Chuck Bay............         --             --     323,020(1)     977,480      $      546      $  2,079
Thomas Doyle.........    122,666     $5,307,156     432,438(2)     325,396       2,103,457         2,079
Eric Willgohs........     13,059        331,556      81,629(3)      15,812         306,002         2,079
Greg Martin..........         --             --      71,979        253,521          77,106       319,268
Rusty Thomas.........         --             --      98,021        402,479          77,107       450,518
</TABLE>

---------------
(1) Of these shares, 179,078 shares would, if exercised, be subject to a right
    of repurchase by us that lapses at a rate of 2.083% per month.

(2) Of these shares, 271,489 shares would, if exercised, be subject to a right
    of repurchase by us that lapses at a rate of 2.083% per month.

(3) Of these shares, 77,499 shares would, if exercised, be subject to a right of
    repurchase by us that lapses at a rate of 2.083% per month.

     Broadbase did not pay any compensation intended to serve as incentive for
performance to occur over a period longer than one year pursuant to a long-term
incentive plan to any named executive officer during 2000. Broadbase does not
have any defined benefit or actuarial plan under which benefits are determined
primarily by final compensation and years of service with any of the named
executive officers.

DIRECTOR COMPENSATION

     Our directors do not receive cash compensation for their services as
directors, but are eligible to be reimbursed for their reasonable and necessary
expenses in attending board and committee meetings. To date, none of the members
of the board of directors has received a fee for attending board meetings.

     In May 2000, we granted options to purchase 20,000 shares of our common
stock at an exercise price of $20.81 per share to Kevin Harvey, Mark Kremer,
Paul Levy and Nancy Schoendorf. During December 2000, in conjunction with the
acquisition of Servicesoft, Mark Kremer and Nancy Schoendorf resigned their
director positions and were replaced by Massood Zarrabian and Robert Davoli. In
December 2000, we granted an option to purchase 20,000 shares of our common
stock at an exercise price of $5.38 per share to Robert Davoli. Each option was
fully vested and exercisable upon grant. Generally, each non-employee director
who becomes a member of our board of directors and who has not previously
received shares or options in Broadbase will be granted an option to purchase
20,000 shares of our common stock under the 1999 Equity Incentive Plan. In
addition, immediately following each annual meeting of our stockholders, each
non-employee director will automatically be granted an additional option to
purchase 20,000 shares under that plan if the director has served continuously
as a member of our board of directors since the date of the director's initial
grant. Each option will have an exercise price equal to the fair market value of
our common stock on the date of grant and will have a ten-year term. Each of
these options will be immediately exercisable and fully vested.

     On September 18, 2000, in conjunction with our acquisition of Servicesoft,
we entered into an employment agreement with Massood Zarrabian that became
effective on December 18, 2000, the date the acquisition was completed. Pursuant
to the employment agreement, Mr. Zarrabian accepted the position of

                                        63
<PAGE>   66

President, E-Services Division. The agreement provides for an initial annual
base salary of $200,000 and annual bonuses of up to $60,000. In addition,
pursuant to the employment agreement, we modified the vesting of Mr. Zarrabian's
option for 619,732 shares of our common stock such that 50% of the shares would
become immediately vested and exercisable upon the completion of the
acquisition, while the remaining shares would vest as to 4.17% of the shares
each month over the two-year period following the acquisition. Mr. Zarrabian's
other options continue to vest in accordance with their original terms. The
agreement provides that, if Mr. Zarrabian is terminated from Broadbase without
cause or is "constructively terminated" due to changes in the terms of his
employment during the two years following the close of the merger, then he will
receive one year's salary, plus bonuses, payable in one lump sum and any
unvested shares under the option to purchase 619,372 shares, plus 50% of any
unvested shares subject to his other stock options that we assumed in the
acquisition, will become fully vested and exercisable. Mr. Zarrabian's
employment is "at-will", which allows us or Mr. Zarrabian to terminate the
employment relationship at any time, for any reason, with or without notice,
subject to the above terms. Upon termination of his employment, Mr. Zarrabian
would also resign his position as a director of Broadbase.

EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS

     In July 1999, we executed an offer letter to Eric Willgohs, our General
Counsel, Vice President, Legal and Secretary. This letter established Mr.
Willgohs' annual salary at $120,000 and provides for bonuses up to $150,000 a
year. As part of the offer letter, we granted to Mr. Willgohs an option to
purchase 120,000 shares at an exercise price of $2.28 per share. This option is
immediately exercisable in full. This option vests as to 2,500 shares each
month. In the event of a change in control of Broadbase coupled with the
termination of Mr. Willgohs as General Counsel, this option will accelerate or
the repurchase right will lapse, as applicable, as to 50% of the then unvested
shares. We will provide Mr. Willgohs with the same health, holiday, vacation and
other benefits that are available to all of our employees. Mr. Willgohs'
employment is considered an "at-will" agreement. We or Mr. Willgohs may
terminate the employment relationship at any time for any reason.

     In January 2000, we granted Chuck Bay an option to purchase 900,000 shares
of common stock at an exercise price of $41.69 per share. This option vests as
to 9,375 shares each month over four years. In the event of a change of control,
after which Mr. Bay is not offered one of several specified executive positions,
this option will vest as to 50% of the unvested shares.

     In May 2000, we granted Rusty Thomas an option to purchase 100,000 shares
of Broadbase common stock at an exercise price of $1.00. This option vests as to
2,083 shares each month over four years, subject to full acceleration should
Broadbase be acquired by another company and Mr. Thomas not be retained in the
role of Chief Financial Officer.

     In January 2001, we granted an option to purchase 1,000,000 shares to Chuck
Bay at an exercise price of $4.56 per share. This option vests as to 20,833
shares each month over four years. However, in the event of a change in control
of Broadbase, all unvested options will immediately vest.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The current members of our compensation committee are Messrs. Harvey and
Davoli. None of the members of our compensation committee has at any time since
our formation been an officer or employee of Broadbase. None of our executive
officers currently serves, or in the past has served, as a member of the board
of directors or compensation committee of any entity that has one or more
executive officers serving on our board of directors or compensation committee.

REPORT ON EXECUTIVE COMPENSATION

     The information with respect to the Compensation Committee report under
item 11 is incorporated herein by reference.

                                        64
<PAGE>   67

STOCK PRICE PERFORMANCE

     The stock price performance graph below is required by the Securities and
Exchange Commission. This graph shall not be deemed to be filed under the
Securities Act or Exchange Act, or incorporated by reference by any general
statement incorporating this proxy statement by reference into any filing made
under the Securities Act or Exchange Act, except to the extent that we
specifically incorporate this graph by reference.

     The graph below compares the cumulative total stockholder return on our
common stock, the Nasdaq Stock Market -- Composite Index and the Chase H&Q
Computer Software Index from September 22, 1999 (the effective date of our
registration statement with respect to our initial public offering) to December
31, 2000 (assuming the investment of $100 in our common stock and in each of the
other indices on the date of our initial public offering, and reinvestment of
all dividends). The comparisons in the graph below are based on historical data
and are not intended to forecast the possible future performance of our common
stock. The stock prices below are adjusted to reflect the two-for-one split of
our common stock that was distributed as a stock dividend to our stockholders on
April 7, 2000.

                                        65
<PAGE>   68

                COMPARISON OF 15 MONTH CUMULATIVE TOTAL RETURN*
                        AMONG BROADBASE SOFTWARE, INC.,
                      THE NASDAQ STOCK MARKET (U.S.) INDEX
                AND THE JP MORGAN H & Q COMPUTER SOFTWARE INDEX

[PERFORMANCE GRAPH]
---------------
* $100 INVESTED ON 9/22/99 IN STOCK OR INDEX -- INCLUDING REINVESTMENT OF
  DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.

     The above graph was plotted using the following data:

<TABLE>
<CAPTION>
                                                          NASDAQ STOCK MARKET    MORGAN STANLEY HIGH
                                       BROADBASE            COMPOSITE INDEX       TECHNOLOGY INDEX
                                  --------------------    -------------------    -------------------
                                  MARKET    INVESTMENT             INVESTMENT             INVESTMENT
                                  PRICE       VALUE       INDEX      VALUE       INDEX      VALUE
                                  ------    ----------    -----    ----------    -----    ----------
<S>                               <C>       <C>           <C>      <C>           <C>      <C>
09/21/99........................  $ 7.00       $100       $ 962       $100       $1514       $100
09/30/99........................  $ 7.97       $114       $ 923       $ 96       $1484       $ 98
12/31/99........................  $56.25       $804       $1365       $142       $2665       $176
3/31/00.........................  $39.88       $570       $1532       $159       $2811       $186
6/30/00.........................  $30.63       $438       $1332       $138       $2483       $164
9/29/00.........................  $13.56       $194       $1226       $127       $2882       $190
12/29/00........................  $ 6.25       $ 89       $ 821       $ 85       $1993       $132
</TABLE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table presents information as to the beneficial ownership of
our common stock as of March 1, 2001 by:

     - each stockholder known by us to be the beneficial owner of more than 5%
       of our common stock;

     - each of our directors;

     - our Chief Executive Officer and each of our four other most highly
       compensated executive officers during 2000; and

     - all of our executive officers and directors as a group.

                                        66
<PAGE>   69

     Beneficial ownership is determined under the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Unless indicated above, to our knowledge, the persons and
entities named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable. Percentage ownership is based on 81,793,920 shares outstanding
as of March 1, 2001. Shares of common stock subject to options and warrants
exercisable on or before April 30, 2001 (within 60 days of March 1, 2001) are
deemed to be outstanding and to be beneficially owned by the person holding the
options or warrants for the purpose of computing the percentage ownership of
such person but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person. Unless indicated above, the address
for each director and executive officer listed below is Broadbase Software,
Inc., 181 Constitution Drive, Menlo Park, CA 94025.

<TABLE>
<CAPTION>
                                                               NUMBER OF SHARES
                                                              BENEFICIALLY OWNED    PERCENT
                                                              ------------------    -------
<S>                                                           <C>                   <C>
Kevin Harvey(1).............................................      4,091,832           5.0%
  c/o Benchmark Capital
  2480 Sand Hill Road, Suite 200
  Menlo Park, CA 94025
Robert E. Davoli(2).........................................      2,540,136           3.1
  c/o Sigma Partners
  20 Custom House Street, Suite 830
  Boston, Massachusetts 02110
Chuck Bay(3)................................................        777,154           1.4
Massood Zarrabian(4)........................................        526,434           1.2
Thomas Doyle(5).............................................        230,121             *
Rusty Thomas(6).............................................        141,075             *
Eric Willgohs(7)............................................        117,638             *
Greg Martin(8)..............................................        104,945             *
All directors and executive officers as a group (12
  persons)(9)...............................................      9,509,313          11.4
</TABLE>

---------------
 *  Less than 1%

(1) Represents 3,440,743 shares of common stock held by Benchmark Capital
    Partners, L.P., 448,741 shares held by Benchmark Founders' Fund, L.P.,
    162,348 shares held by Mr. Harvey, and options to purchase 40,000 shares
    held by Mr. Harvey that are fully vested and exercisable. Mr. Harvey, a
    member of the board of directors of Broadbase, is a Managing Member of
    Benchmark Capital Management Co., LLC, the general partner of Benchmark
    Capital Partners, L.P. and Benchmark Founders' Fund, L.P. Mr. Harvey
    disclaims beneficial ownership of shares held by Benchmark Capital except to
    the extent of his pecuniary interest arising from his interest in Benchmark
    Capital.

(2) Represents 1,464,974 shares of common stock and a fully exercisable warrant
    to purchase 10,025 shares of common stock held by Sigma Partners IV, L.P.,
    438,407 shares held by Sigma Partners V, L.P., 403,202 shares and a fully
    exercisable warrant to purchase 2,618 shares of common stock held by Sigma
    Associates IV, L.P., 101,850 shares held by Sigma Associates V, L.P., 48,056
    shares and a fully exercisable warrant to purchase 308 shares of common
    stock held by Sigma Investors IV, L.P., 14,686 shares held by Sigma
    Investors V, L.P., 36,010 shares held by Mr. Davoli which shares are subject
    to a right of repurchase that lapses as to 2,970 shares quarterly for three
    years so long as a service relationship exists between Broadbase and Mr.
    Davoli and an option to purchase 20,000 shares held by Mr. Davoli that are
    fully vested and exercisable. Mr. Davoli, a member of the board of directors
    of Broadbase, is a Managing Director of Sigma Management IV, L.L.C. and
    Sigma Management V, L.L.C., the general partner of Sigma Partners IV, L.P.,
    Sigma Associates IV, L.P., Sigma Investors IV, L.P., and Sigma Partners V,
    L.P., Sigma Associates V, L.P., and Sigma Investors V, L.P., respectively,
    and accordingly may be deemed to beneficially own shares owned by the funds.
    Investment decisions of the funds are made by a five-member committee of
    which Mr. Davoli is a member. Mr. Davoli disclaims beneficial ownership of
    any shares in which he does not have a pecuniary interest.

                                        67
<PAGE>   70

(3) Represents 345,716 shares held by Mr. Bay, of which 64,876 shares are
    subject to a right of repurchase that lapses at a rate of 7,208 shares per
    month until January 2002 and 71,672 shares are subject to a right of
    repurchase that lapses as to 3,583 shares per month until December 2002, and
    options that will be exercisable as to 431,438 shares as of April 30, 2001.
    Mr. Bay is Chairman of the Board, Chief Executive Officer and President of
    Broadbase.

(4) Represents 31,901 shares held by Mr. Zarrabian, and options which will be
    exercisable as to 494,533 shares as of April 30, 2001. Mr. Zarrabian is
    President, E-Services Division, and a member of the board of directors of
    Broadbase.

(5) Represents 4,266 shares held by Mr. Doyle, and options that will be
    exercisable as to 225,855 shares as of April 30, 2001. Mr. Doyle is
    Executive Vice President of Sales of Broadbase.

(6) Represents 1,304 shares held by Mr. Thomas and options which will be
    exercisable as to 139,771 shares as of April 30, 2001. Mr. Thomas is Chief
    Financial Officer and Executive Vice President of Broadbase.

(7) Represents 34,259 shares held by Mr. Willgohs and options which will be
    exercisable as to 83,379 shares as of April 30, 2001. Mr. Willgohs is
    General Counsel, Vice President Legal and Secretary.

(8) Represents 1,632 shares held by Mr. Martin and options which will be
    exercisable as to 103,313 shares as of April 30, 2001. Mr. Martin is Senior
    Vice President, Consulting and Customer Advocacy of Broadbase.

(9) Represents 7,562,827 shares held by these individuals, and affiliated
    entities, and options and warrants that will be exercisable as to an
    aggregate of 1,946,486 shares as of April 30, 2001.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Other than the transactions described in "Executive Compensation" above,
the agreements described under "Employment Agreements and Stock Options" above
and the transactions described below, since January 1, 2000, there has not been
nor is there currently proposed any transaction or series of similar
transactions to which we were or will be a party:

     - in which the amount involved exceeded or will exceed $60,000; and

     - in which any director, executive officer, holder of more than 5% of our
       common stock or any member of his or her immediate family had or will
       have a direct or indirect material interest.

INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS

     RUSTY THOMAS. In April 2000, Rusty Thomas, our Executive Vice President and
Chief Financial Officer, executed a promissory note in the principal amount of
$250,000. This note is non-recourse and will be secured by any Broadbase common
stock issued upon exercise of Mr. Thomas' stock options, bears interest at an
annual rate of 7% and is payable on or before December 31, 2001. As of March 1,
2001, $250,000 plus accrued interest was due under this loan.

     GREG MARTIN. In April 2000, Greg Martin, our Senior Vice President,
Consulting and Customer Advocacy, executed a promissory note in the principal
amount of $200,000. This note is non-recourse and will be secured by any
Broadbase common stock issued upon exercise of Mr. Martin's stock options, bears
interest at an annual rate of 7% and is payable on or before December 31, 2001.
As of March 1, 2001, $200,000 plus accrued interest was due under this loan.

INDEMNIFICATION AGREEMENTS

     We have entered into indemnification agreements with each of our directors
and executive officers. These agreements provide the maximum indemnity available
to them under Section 145 of the Delaware General Corporation Law and under our
bylaws, as well as certain additional procedural protections. These agreements
provide generally that we will advance expenses incurred by directors and
executive officers in any action or proceeding as to which they may be
indemnified, and require us to indemnify such individuals to the fullest extent
permitted by law.

                                        68
<PAGE>   71

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

     (a) The following documents are filed as part of this report:

        1. Financial Statements. See Index to Financial Statements at Item 8 on
page 33 of this report.

        2. Financial Statement Schedules.

          See Schedule II -- Valuation and Qualifying Accounts on page 72 of
     this report. Other schedules have been omitted either because they are not
     required to be included, or because the information required is already
     included in the financial statements or related notes included under Item 8
     of this report.

          3. Exhibits. The following exhibits are filed as part of, or
     incorporated by reference into, this report:

<TABLE>
<CAPTION>
                                                             INCORPORATED BY REFERENCE
EXHIBIT                                               ----------------------------------------    FILED
NUMBER               EXHIBIT DESCRIPTION              FORM   FILE NO.    EXHIBIT   FILING DATE   HEREWITH
-------              -------------------              ----   ---------   -------   -----------   --------
<C>       <S>                                         <C>    <C>         <C>       <C>           <C>
  2.01    Agreement and Plan of Reorganization,        S-1   333-95125     2.01     01/21/00
          dated December 9, 1999, between Broadbase
          and Rubric, Inc.
  2.02    Agreement and Plan of Merger, dated July     8-K                 2.01     09/26/00
          6, 2000, between Broadbase and Panopticon,
          Inc.
  2.03    Agreement and Plan of Merger, dated          S-4   333-48696     2.01     11/09/00
          September 18, 2000, between Broadbase and
          Servicesoft, Inc.
  3.01    First Amended and Restated Certificate of    S-4   333-48696     4.05     11/09/00
          Incorporation, filed with the Delaware
          Secretary of State on December 18, 2000.
  3.02    Bylaws, as adopted on July 2, 1999.          S-8   333-38480     4.05     06/02/00
  4.01    Form of specimen certificate for Broadbase   S-1   333-82251     4.01     08/12/99
          common stock.
  4.02    Fourth Amended and Restated Investors'       S-1   333-82251     4.02     07/02/99
          Rights Agreement, dated June 30, 1999,
          between Broadbase and the shareholders
          named therein.
 10.01    Form of Indemnity Agreement entered into     S-1   333-82251    10.01     07/02/99
          by Broadbase with each of its directors
          and executive officers.*
 10.02    1996 Equity Incentive Plan, amended as of    S-1   333-82251    10.02     08/12/99
          November 17, 1998 and related forms of
          agreements.*
 10.03    1999 Equity Incentive Plan, amended as of    S-4   333-48696     4.09     11/09/00
          November 2, 2000.*
 10.04    Related forms of agreements for 1999         S-1   333-82251    10.03     08/30/99
          Equity Incentive Plan.*
 10.05    1999 Employee Stock Purchase Plan, amended   S-4   333-48696     4.11     11/09/00
          as of November 2, 2000.*
 10.06    Related forms of agreements for 1999         S-1   333-82251    10.04     08/30/99
          Employee Stock Purchase Plan.*
 10.07    2000 Stock Incentive Plan, adopted on May    S-8   333-38480     4.09     06/02/00
          3, 2000, and related forms of agreements.*
 10.08    Non-Plan Stock Option Agreement, dated       S-8   333-32120     4.12     03/10/00
          January 4, 2000, between Broadbase and
          Greg Martin.*
 10.09    Non-Plan Stock Option Agreement, dated       S-8   333-32120     4.13     03/10/00
          January 4, 2000, between Broadbase and
          Rusty Thomas.*
</TABLE>

                                        69
<PAGE>   72

<TABLE>
<CAPTION>
                                                             INCORPORATED BY REFERENCE
EXHIBIT                                               ----------------------------------------    FILED
NUMBER               EXHIBIT DESCRIPTION              FORM   FILE NO.    EXHIBIT   FILING DATE   HEREWITH
-------              -------------------              ----   ---------   -------   -----------   --------
<C>       <S>                                         <C>    <C>         <C>       <C>           <C>
 10.10    Offer letter to Thomas Doyle dated April     S-1   333-82251    10.07     07/02/99
          12, 1999.*
 10.11    Offer letter to Rusty Thomas dated January   S-1   333-95125    10.14     01/21/00
          4, 2000.*
 10.12    Offer letter to Greg Martin dated January                                               X
          4, 2000.*
 10.13    Offer letter to Eric Willgohs dated July                                                X
          20, 1999.*
 10.14    Employment agreement with Massood                                                       X
          Zarrabian dated September 18, 2000.*
 10.15    Sublease, dated June 1, 1998, between        S-1   333-82251    10.05     07/02/99
          Broadbase and SaRonix.
 10.15    Lease Agreement, dated December 23, 1999,   10-Q                10.03     05/11/00
          between Broadbase and Bohannon Trusts
          Partnership II.
 10.16    Lease Agreement, dated August 11, 2000,     10-Q                 10.4     11/13/00
          between Broadbase and J. Robert S.
          Wheatley and Roger A. Fields, d.b.a. R & R
          Properties.
 21.01    List of subsidiaries of Broadbase.                                                      X
 23.01    Consent of Ernst & Young LLP, Independent                                               X
          Auditors.
 24.01    Power of Attorney (see signature page                                                   X
          following Item 14).
</TABLE>

---------------
* Management contracts or compensatory plans required to be filed as an exhibit
  to this annual report.

     (b) Reports on Form 8-K.

     On November 3, 2000, we filed an amended current report on Form 8-K under
Item 7 to file historical and pro forma financial information required in
connection with our acquisition of Panopticon, Inc.

     On November 17, 2000, we filed a current report on Form 8-K under Item 5
announcing that (1) we had retained McKenzie Partners, Inc. to solicit proxies
in anticipation of the special meeting of Broadbase stockholders held on
December 14, 2000, and (2) we had issued a press release regarding the proposed
timing of our acquisition of Servicesoft, Inc. and the revenue and earnings
expectations for the combined company.

     On December 22, 2000, we filed a current report on Form 8-K under Item 2
announcing that we had completed our acquisition of Servicesoft, Inc.

                                        70
<PAGE>   73

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15 (d) 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, on this 23rd day of
March, 2001.

                                         BROADBASE SOFTWARE, INC.

                                         By:        /s/ RUSTY THOMAS
                                           -------------------------------------
                                           Rusty Thomas
                                           Executive Vice President and Chief
                                             Financial Officer

                               POWER OF ATTORNEY

     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Chuck Bay and Eric Willgohs, jointly and
severally, his attorney in fact, each with the full power of substitution, for
such person, in any and all capacities, to sign any and all amendments to this
Annual Report on Form 10-K, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully to all intents and purposes as he
might do or could do in person hereby ratifying and confirming all that each of
said attorneys-in-fact and agents, or his substitute, may do or cause to be done
by virtue hereof.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
                        NAME                                         TITLE                    DATE
                        ----                                         -----                    ----
<S>                                                    <C>                               <C>
            PRINCIPAL EXECUTIVE OFFICER:

                    /s/ CHUCK BAY                          Chief Executive Officer,      March 23, 2001
-----------------------------------------------------    President and Chairman of the
                      Chuck Bay                                Board of Directors

           PRINCIPAL FINANCIAL OFFICER AND
            PRINCIPAL ACCOUNTING OFFICER:

                  /s/ RUSTY THOMAS                       Executive Vice President and    March 23, 2001
-----------------------------------------------------       Chief Financial Officer
                    Rusty Thomas

                     DIRECTORS:

                  /s/ ROBERT DAVOLI                                Director              March 23, 2001
-----------------------------------------------------
                    Robert Davoli

                  /s/ KEVIN HARVEY                                 Director              March 23, 2001
-----------------------------------------------------
                    Kevin Harvey

                /s/ MASSOOD ZARRABIAN                              Director              March 23, 2001
-----------------------------------------------------
                  Massood Zarrabian
</TABLE>

                                        71
<PAGE>   74

                            BROADBASE SOFTWARE, INC.

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000

<TABLE>
<CAPTION>
                                                                   ADDITIONS
                                                           -------------------------
                                                            AMOUNTS
                                                BALANCE    CHARGED TO
                                                  AT        REVENUE,      ASSUMED      WRITE-OFFS    BALANCE
                                               BEGINNING    COSTS OR      THROUGH        NET OF      AT END
                 DESCRIPTION                   OF PERIOD    EXPENSES    ACQUISITIONS   RECOVERIES   OF PERIOD
                 -----------                   ---------   ----------   ------------   ----------   ---------
                                                                       (IN THOUSANDS)
<S>                                            <C>         <C>          <C>            <C>          <C>
Allowance for Doubtful Accounts:
  Year Ended December 31, 1998...............     $--         $ 50         $   --         $ --       $   50
  Year Ended December 31, 1999...............     $50         $ --         $   --         $ --       $   50
  Year Ended December 31, 2000...............     $50         $948         $1,615         $498       $2,115
</TABLE>

     This schedule should be read in conjunction with our financial statements
and related notes included under Item 8 of this report.

                                        72
<PAGE>   75

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
                                                             INCORPORATED BY REFERENCE
EXHIBIT                                               ----------------------------------------    FILED
NUMBER               EXHIBIT DESCRIPTION              FORM   FILE NO.    EXHIBIT   FILING DATE   HEREWITH
-------              -------------------              ----   ---------   -------   -----------   --------
<C>       <S>                                         <C>    <C>         <C>       <C>           <C>
  2.01    Agreement and Plan of Reorganization,        S-1   333-95125     2.01     01/21/00
          dated December 9, 1999, between Broadbase
          and Rubric, Inc.
  2.02    Agreement and Plan of Merger, dated July     8-K                 2.01     09/26/00
          6, 2000, between Broadbase and Panopticon,
          Inc.
  2.03    Agreement and Plan of Merger, dated          S-4   333-48696     2.01     11/09/00
          September 18, 2000, between Broadbase and
          Servicesoft, Inc.
  3.01    First Amended and Restated Certificate of    S-4   333-48696     4.05     11/09/00
          Incorporation, filed with the Delaware
          Secretary of State on December 18, 2000.
  3.02    Bylaws, as adopted on July 2, 1999.          S-8   333-38480     4.05     06/02/00
  4.01    Form of specimen certificate for Broadbase   S-1   333-82251     4.01     08/12/99
          common stock.
  4.02    Fourth Amended and Restated Investors'       S-1   333-82251     4.02     07/02/99
          Rights Agreement, dated June 30, 1999,
          between Broadbase and the shareholders
          named therein.
 10.01    Form of Indemnity Agreement entered into     S-1   333-82251    10.01     07/02/99
          by Broadbase with each of its directors
          and executive officers.*
 10.02    1996 Equity Incentive Plan, amended as of    S-1   333-82251    10.02     08/12/99
          November 17, 1998 and related forms of
          agreements.*
 10.03    1999 Equity Incentive Plan, amended as of    S-4   333-48696     4.09     11/09/00
          November 2, 2000.*
 10.04    Related forms of agreements for 1999         S-1   333-82251    10.03     08/30/99
          Equity Incentive Plan.*
 10.05    1999 Employee Stock Purchase Plan, amended   S-4   333-48696     4.11     11/09/00
          as of November 2, 2000.*
 10.06    Related forms of agreements for 1999         S-1   333-82251    10.04     08/30/99
          Employee Stock Purchase Plan.*
 10.07    2000 Stock Incentive Plan, adopted on May    S-8   333-38480     4.09     06/02/00
          3, 2000, and related forms of agreements.*
 10.08    Non-Plan Stock Option Agreement, dated       S-8   333-32120     4.12     03/10/00
          January 4, 2000, between Broadbase and
          Greg Martin.*
 10.09    Non-Plan Stock Option Agreement, dated       S-8   333-32120     4.13     03/10/00
          January 4, 2000, between Broadbase and
          Rusty Thomas.*
 10.10    Offer letter to Thomas Doyle dated April     S-1   333-82251    10.07     07/02/99
          12, 1999.*
 10.11    Offer letter to Rusty Thomas dated January   S-1   333-95125    10.14     01/21/00
          4, 2000.*
 10.12    Offer letter to Greg Martin dated January                                               X
          4, 2000.*
 10.13    Offer letter to Eric Willgohs dated July                                                X
          20, 1999.*
 10.14    Employment agreement with Massood                                                       X
          Zarrabian dated September 18, 2000.*
 10.15    Sublease, dated June 1, 1998, between        S-1   333-82251    10.05     07/02/99
          Broadbase and SaRonix.
</TABLE>
<PAGE>   76

<TABLE>
<CAPTION>
                                                             INCORPORATED BY REFERENCE
EXHIBIT                                               ----------------------------------------    FILED
NUMBER               EXHIBIT DESCRIPTION              FORM   FILE NO.    EXHIBIT   FILING DATE   HEREWITH
-------              -------------------              ----   ---------   -------   -----------   --------
<C>       <S>                                         <C>    <C>         <C>       <C>           <C>
 10.15    Lease Agreement, dated December 23, 1999,   10-Q                10.03     05/11/00
          between Broadbase and Bohannon Trusts
          Partnership II.
 10.16    Lease Agreement, dated August 11, 2000,     10-Q                 10.4     11/13/00
          between Broadbase and J. Robert S.
          Wheatley and Roger A. Fields, d.b.a. R & R
          Properties.
 21.01    List of subsidiaries of Broadbase.                                                      X
 23.01    Consent of Ernst & Young LLP, Independent                                               X
          Auditors.
 24.01    Power of Attorney (see signature page                                                   X
          following Item 14).
</TABLE>

---------------
* Management contracts or compensatory plans required to be filed as an exhibit
  to this annual report.