<PAGE>

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

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-Q

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

    For the quarterly period ended September 30, 2000

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

    For the transition period from ____________ to ____________

                         Commission File Number 0-25361

                           ONYX SOFTWARE CORPORATION
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                            <C>
                 Washington                                      91-1629814
       (State or other jurisdiction of                         (IRS Employer
       incorporation or organization)                       Identification No.)
</TABLE>

                             3180-139th Avenue S.E.
                                   Suite 500
                           Bellevue, Washington 98005
              (Address of principal executive offices) (Zip code)

                                 (425) 451-8060
                        (Registrant's telephone number)

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

  The number of shares of common stock, no par value, outstanding on November
3, 2000 was 37,073,604.

--------------------------------------------------------------------------------
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<PAGE>

                           ONYX SOFTWARE CORPORATION

                                    CONTENTS

<TABLE>
 <C>        <S>                                                             <C>
 PART I--FINANCIAL INFORMATION.............................................   1

    Item 1. Consolidated Financial Statements.............................    1

            Consolidated Balance Sheets as of September 30, 2000 and
            December 31, 1999.............................................    1

            Consolidated Statements of Operations for the Three and Nine
            Months Ended September 30, 2000 and 1999......................    2

            Consolidated Statement of Shareholders' Equity for the Three
            Months Ended March 31, 2000, June 30, 2000 and September 30,
            2000..........................................................    3

            Consolidated Statements of Cash Flows for the Nine Months
            Ended September 30, 2000 and 1999.............................    4

            Notes to Consolidated Financial Statements....................    5

    Item 2. Management's Discussion and Analysis of Financial Condition
            and Results of Operations.....................................   12

    Item 3. Quantitative and Qualitative Disclosures About Market Risk....   27

 PART II--OTHER INFORMATION................................................  28

    Item 6. Exhibits and Reports on Form 8-K..............................   28

 SIGNATURES................................................................  29
</TABLE>

                                       i
<PAGE>

                         PART I--FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

                          CONSOLIDATED BALANCE SHEETS
                (In thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                     September 30, December 31,
                                                         2000          1999
                                                     ------------- ------------
                                                      (Unaudited)

                       ASSETS
                       ------

<S>                                                  <C>           <C>
Current assets:
 Cash and cash equivalents..........................    $11,356      $ 3,691
 Securities available-for-sale......................      7,011       19,804
 Accounts receivable, less allowances of $1,406 in
  2000 and $1,154 in 1999...........................     31,063       22,987
 Prepaid expense and other..........................      4,285        2,570
                                                        -------      -------
   Total current assets.............................     53,715       49,052
 Long-term marketable securities....................        --           991
 Property and equipment, net........................     16,510        8,628
 Purchased technology, net..........................      2,363        3,071
 Other intangibles, net.............................     20,603       10,683
 Other assets.......................................      3,300          755
                                                        -------      -------
   Total assets.....................................    $96,491      $73,180
                                                        =======      =======

<CAPTION>
        LIABILITIES AND SHAREHOLDERS' EQUITY
        ------------------------------------

<S>                                                  <C>           <C>
Current liabilities:
 Accounts payable...................................    $ 4,266      $ 1,906
 Salary and benefits payable........................      5,733        2,557
 Accrued liabilities................................      4,126        2,673
 Income taxes payable...............................        682          435
 Current portion of long-term obligations...........        125          306
 Notes payable to shareholders in the form of
  common stock......................................      7,920          --
 Deferred revenues..................................     16,877       11,028
                                                        -------      -------
   Total current liabilities........................     39,729       18,905
Long-term obligations, net of current portion.......         65          133
Deferred tax liability..............................      1,926        2,304

Commitments and Contingencies

Shareholders' equity:
 Preferred stock, $0.01 par value:
  Authorized shares--20,000,000 shares;
  Designated shares--none...........................        --           --
 Common stock, $0.01 par value:
  Authorized shares--80,000,000 shares;
  Issued and outstanding shares--36,854,849 shares
   at September 30, 2000
   and 35,329,864 at December 31, 1999..............     65,542       61,166
 Notes receivable from officers for common stock....       (157)        (212)
 Deferred stock-based compensation..................       (503)        (903)
 Accumulated deficit................................     (9,981)      (8,065)
 Accumulated other comprehensive loss...............       (130)        (148)
                                                        -------      -------
   Total shareholders' equity.......................     54,771       51,838
                                                        -------      -------
   Total liabilities and shareholders' equity.......    $96,491      $73,180
                                                        =======      =======
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       1
<PAGE>

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                             Three Months      Nine Months
                                                 Ended            Ended
                                             September 30,    September 30,
                                            ---------------- ----------------
                                             2000     1999    2000     1999
                                            -------  ------- -------  -------
                                              (Unaudited)      (Unaudited)
<S>                                         <C>      <C>     <C>      <C>
Revenues:
  License.................................. $20,403  $ 9,922 $51,359  $25,238
  Support and service......................  12,367    5,821  32,230   15,016
                                            -------  ------- -------  -------
                                             32,770   15,743  83,589   40,254
Cost of revenues:
  License..................................     877      494   2,368    1,488
  Support and service......................   6,401    2,946  16,615    7,558
                                            -------  ------- -------  -------
                                              7,278    3,440  18,983    9,046
                                            -------  ------- -------  -------
Gross margin...............................  25,492   12,303  64,606   31,208
Operating expenses:
  Sales and marketing......................  15,486    7,484  40,452   20,322
  Research and development.................   6,150    2,643  14,729    7,760
  General and administrative...............   3,006    1,567   7,667    4,184
  Acquisition-related amortization.........   1,551      552   3,518      770
                                            -------  ------- -------  -------
    Total operating expenses...............  26,193   12,246  66,366   33,036
                                            -------  ------- -------  -------
Income (loss) from operations..............    (701)      57  (1,760)  (1,828)
Interest income, net.......................     181      407     664      942
Loss from equity investment................     (63)     --     (500)     --
                                            -------  ------- -------  -------
    Income (loss) before income taxes......    (583)     464  (1,596)    (886)
Income tax provision.......................     108      128     320      315
                                            -------  ------- -------  -------
Net income (loss)..........................    (691)     336  (1,916)  (1,201)
Preferred stock accretion..................     --       --      --    (1,442)
                                            -------  ------- -------  -------
Income (loss) to common shareholders....... $  (691) $   336 $(1,916) $(2,643)
                                            =======  ======= =======  =======
Earnings (loss) per share:
  Basic and diluted........................ $ (0.02) $  0.01 $ (0.06) $ (0.09)
  Pro forma basic and diluted..............      NA       NA      NA  $ (0.04)
Shares used in calculation of earnings
 (loss) per share:
  Basic....................................  35,084   32,193  34,670   29,664
  Diluted..................................  35,084   39,519  34,670   29,664
  Pro forma basic and diluted..............      NA       NA      NA   30,752
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       2
<PAGE>

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                       (In thousands, except share data)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                              Receivable                            Accumulated
                             Common Stock        from       Deferred                   Other         Total
                          ------------------ Officers for Stock-Based  Accumulated Comprehensive Shareholders'
                            Shares   Amount  Common Stock Compensation   Deficit   Income (Loss)    Equity
                          ---------- ------- ------------ ------------ ----------- ------------- -------------
<S>                       <C>        <C>     <C>          <C>          <C>         <C>           <C>
Balance at January 1,
 2000...................  35,329,864 $61,166    $(212)       $(903)      $(8,065)      $(148)       $51,838
  Issuance of common
   stock in connection
   with acquisition.....      69,398   2,261      --           --            --          --           2,261
  Amortization of
   deferred stock
   compensation.........         --      --       --           149           --          --             149
  Exercise of stock
   options..............     677,374     583      --           --            --          --             583
  Shareholder loan
   repayment............         --      --        55          --            --          --              55
  Stock-based
   compensation.........         --       57      --           --            --          --              57
Comprehensive income
 (loss):                         --      --       --           --            --          --
  Cumulative translation
   gain.................         --      --       --           --            --           33
  Unrealized gains on
   marketable
   securities...........         --      --       --           --            --            7
  Net loss..............         --      --       --           --           (487)        --
  Total comprehensive
   loss.................                                                                               (447)
                          ---------- -------    -----        -----       -------       -----        -------
Balance at March 31,
 2000...................  36,076,636  64,067     (157)        (754)       (8,552)       (108)        54,496
  Amortization of
   deferred stock
   compensation.........         --      --       --           146           --          --             146
  Exercise of stock
   options..............     404,276     389      --           --            --          --             389
  Issuance of common
   stock under ESPP.....      53,014     840      --           --            --          --             840
  Cumulative translation
   gain.................         --      --       --           --            --           40
  Unrealized losses on
   marketable
   securities...........         --      --       --           --            --          (16)
  Net loss..............         --      --       --           --           (738)        --
  Total comprehensive
   loss.................                                                                               (714)
                          ---------- -------    -----        -----       -------       -----        -------
Balance at June 30,
 2000...................  36,533,926  65,296     (157)        (608)       (9,290)        (84)        55,157
  Amortization of
   deferred stock
   compensation.........         --      --       --           105           --          --             105
  Exercise of stock
   options..............     320,923     246      --           --            --          --             246
Comprehensive income
 (loss):                         --      --       --           --            --          --
  Cumulative translation
   loss.................         --      --       --           --            --          (75)
  Unrealized gains on
   marketable
   securities...........         --      --       --           --            --           29
  Net loss..............         --      --       --           --           (691)        --
  Total comprehensive
   loss.................                                                                               (737)
                          ---------- -------    -----        -----       -------       -----        -------
Balance at September 30,
 2000...................  36,854,849 $65,542    $(157)       $(503)      $(9,981)      $(130)       $54,771
                          ========== =======    =====        =====       =======       =====        =======
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       3
<PAGE>

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                            Nine Months Ended
                                                              September 30,
                                                            ------------------
                                                              2000      1999
                                                            --------  --------
                                                               (Unaudited)
<S>                                                         <C>       <C>
Operating activities:
  Net loss to common shareholders.......................... $ (1,916) $ (2,643)
  Adjustments to reconcile net loss to net cash provided by
   operating activities:
    Preferred stock accretion..............................      --      1,442
    Noncash acquisition-related charge.....................      --        390
    Depreciation and amortization..........................    6,847     1,612
    Accretion of premium on investments....................       51        92
    Deferred income taxes..................................     (378)      --
    Noncash stock-based compensation expense...............      457       745
    Write-down of equity investment........................      500       --
    Changes in operating assets and liabilities:
      Accounts receivable..................................   (7,895)   (4,846)
      Other assets.........................................   (4,666)     (646)
      Accounts payable and accrued liabilities.............    6,139     1,516
      Deferred revenue.....................................    5,849     2,889
      Income taxes.........................................      209       158
                                                            --------  --------
        Net cash provided by operating activities..........    5,197       709
Investing activities:
  Purchases of securities..................................   (7,007)  (31,953)
  Proceeds from maturity of securities.....................   20,740     6,990
  Acquisition of Versametrix, net of cash..................      --       (162)
  Acquisition of CSN, net of cash..........................   (2,127)      --
  Purchases of property and equipment......................  (10,449)   (7,032)
                                                            --------  --------
        Net cash provided by (used in) investing
         activities........................................    1,157   (32,157)
Financing activities:
  Proceeds from exercise of stock options..................    1,218       146
  Proceeds from issuance of shares under employee stock
   purchase plan...........................................      840       419
  Payments on capital lease obligations....................     (126)     (175)
  Payments on long-term debt...............................     (576)   (4,389)
  Proceeds from shareholder notes..........................       55       --
  Payments on operating line of credit.....................     (107)      --
  Net proceeds from initial public offering................      --     41,873
                                                            --------  --------
        Net cash provided by financing activities..........    1,304    37,874
Effects of exchange rate changes on cash...................        7        (4)
                                                            --------  --------
Net increase in cash and cash equivalents..................    7,665     6,422
Cash and cash equivalents at beginning of period...........    3,691     1,853
                                                            --------  --------
Cash and cash equivalents at end of period................. $ 11,356  $  8,275
                                                            ========  ========
Supplemental cash flow disclosure:
  Interest paid............................................ $    168  $     70
  Income taxes paid, net...................................      512       157
  Issuance of common stock to employees in connection with
   fourth quarter 1998 bonus...............................      --        119
  Issuance of common stock in connection with
   acquisition.............................................    2,261     1,554
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                           ONYX SOFTWARE CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

1. Description of Business and Basis of Presentation

 Description of the Company

  Onyx Software Corporation and subsidiaries (Company) provide enterprise-
wide, customer-centric e-business solutions. Using the Internet in combination
with traditional forms of interaction, including phone, mail, fax and email,
the Company's solutions enable enterprises to more effectively acquire, manage
and maintain customer, partner and other relationships. The Company designed
its solution for companies that want to merge new e-business processes with
traditional business processes to enhance their customer-facing operations.
The Company's software applications use a single data model across all
customer interactions, resulting in a single repository for all marketing,
sales and service information. The Company was incorporated in Washington on
February 23, 1994 and maintains its headquarters in Bellevue, Washington.

 Interim Financial Information

  The accompanying unaudited consolidated financial statements have been
prepared in conformity with United States generally accepted accounting
principles for interim financial information and with the instructions for
Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information
and footnote disclosures normally included in financial statements prepared in
accordance with United States generally accepted accounting principles have
been condensed, or omitted, pursuant to the rules and regulations of the
Securities and Exchange Commission. In our opinion, the statements include all
adjustments necessary (which are of a normal and recurring nature) for a fair
presentation for the results of the interim periods presented. These financial
statements should be read in conjunction with our audited consolidated
financial statements for the year ended December 31, 1999, included in our
Form 10-K filed with the Securities and Exchange Commission on March 21, 2000.
Our results of operations for any interim period are not necessarily
indicative of the results of operations for any other interim period or for a
full fiscal year.

2. Summary of Significant Accounting Policies

 Revenue Recognition

  Statement of Position 97-2, "Software Revenue Recognition" (SOP 97-2), was
issued in October 1997 by the American Institute of Certified Public
Accountants and was amended by Statement of Position 98-4 (SOP 98-4). The
Company adopted SOP 97-2 effective January 1, 1998 and SOP 98-9 effective
January 1, 2000.

  The Company generates revenues through two sources: (1) software license
revenues and (2) service revenues. Software license revenues are generated
from licensing the rights to use the Company's products directly to end-users
and indirectly through sublicense fees from resellers and, to a lesser extent,
through third-party products the Company distributes. Service revenues are
generated from sales of customer support services, consulting services and
training services performed for customers that license the Company's products.

  Revenues from software license agreements are recognized upon delivery of
software if persuasive evidence of an arrangement exists, collection is
probable, the fee is fixed or determinable, and vendor-specific objective
evidence exists to allocate the total fee to elements of the arrangement.
Vendor-specific objective evidence is based on the price charged when an
element is sold separately or, in the case of an element not yet sold
separately, the price established by authorized management, if it is probable
that the price, once established, will

                                       5
<PAGE>

                           ONYX SOFTWARE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                  (Unaudited)

not change before market introduction. Elements included in multiple element
arrangements could consist of software products, upgrades, enhancements,
customer support services or consulting services. If an acceptance period is
required, revenues are recognized upon the earlier of customer acceptance or
the expiration of the acceptance period. The Company's agreements with its
customers and resellers do not contain product return rights.

  Revenues from customer support services are recognized ratably over the term
of the contract, typically one year. Consulting revenues are primarily related
to implementation services performed on a time-and-materials basis under
separate service arrangements related to the installation of the Company's
software products. Revenues from consulting and training services are
recognized as services are performed. If a transaction includes both license
and service elements, license fee revenues are recognized on shipment of the
software, provided services do not include significant customization or
modification of the base product, and the payment terms for licenses are not
subject to acceptance criteria. In cases where license fee payments are
contingent on the acceptance of services, the Company defers recognition of
revenues from both the license and the service elements until the acceptance
criteria are met.

 Research and Development Costs

  Research and development costs, which consist primarily of software
development costs, are expensed as incurred. Financial accounting standards
provide for the capitalization of certain software development costs after
technological feasibility of the software is established. Under our current
practice of developing new products and enhancements, the technological
feasibility of the underlying software is not established until substantially
all product development is complete, including the development of a working
model. To date, the period between achieving technological feasibility and the
general availability of such software has been short; therefore, software
development costs qualifying for capitalization have been immaterial.

                                       6
<PAGE>

                           ONYX SOFTWARE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                  (Unaudited)


3. Earnings Per Share

  Basic earnings per share is computed by dividing net income (loss) available
to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution of securities by including other common stock equivalents, including
stock options and convertible preferred stock, in the weighted average number
of common shares outstanding for a period, if dilutive.

  Pro forma earnings per share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding and the weighted
average redeemable convertible preferred stock outstanding as if such shares
were converted to common stock at the time of issuance.

<TABLE>
<CAPTION>
                                                                Nine Months
                                         Three Months Ended        Ended
                                            September 30,      September 30,
                                         -------------------- ----------------
                                           2000       1999     2000     1999
                                         ---------  --------- -------  -------
                                           (in thousands, except per share
                                                        data)
<S>                                      <C>        <C>       <C>      <C>
Net income (loss) (A)..................  $    (691) $     336 $(1,916) $(1,201)
Preferred stock accretion (1)..........        --         --      --    (1,442)
                                         ---------  --------- -------  -------
Income (loss) to common shareholders
 (B)...................................  $    (691) $     336 $(1,916) $(2,643)
                                         =========  ========= =======  =======
Weighted average number of common
 shares (2)(C).........................     35,084     32,193  34,670   29,664
  Effect of dilutive securities:
  Stock options........................         *       7,326      *        *
  Redeemable convertible preferred
   stock                                        *          *       *        *
                                         ---------  --------- -------  -------
Adjusted weighted average shares and
 assumed conversions (D)...............     35,084     39,519  34,670   29,664
Pro forma adjustment for redeemable
 convertible preferred stock...........        --         --      --     1,088
                                         ---------  --------- -------  -------
Pro forma weighted average shares (E)..     35,084     39,519  34,670   30,752
                                         =========  ========= =======  =======
Loss per share:
  Basic (B)/(C)........................  $   (0.02) $    0.01 $ (0.06) $ (0.09)
  Diluted (B)/(D)......................  $   (0.02) $    0.01 $ (0.06) $ (0.09)
  Pro forma basic and diluted (A)/(E)..         NA         NA      NA  $ (0.04)
</TABLE>
--------
(1)  Included within preferred stock accretion in the nine months ended
     September 30, 1999 is a $1.3 million deemed dividend resulting from the
     200,000 share increase in the number of shares of common stock issued
     upon conversion of the Series B Convertible Preferred Stock.
(2)  For purposes of determining the weighted average number of common shares
     outstanding, shares of restricted common stock acquired through the July
     1998 exercise of stock options in exchange for promissory notes to the
     Company are only considered in the calculation of diluted earnings per
     share. The number of restricted shares during the three and nine months
     ended September 30, 2000 was 1,600,000 and during the three and nine
     months ended September 30, 1999 was 2,600,000.
 *   Excluded from the computation of diluted earnings per share because the
     effects are antidilutive. Options to purchase 8,402,276 shares of common
     stock with exercise prices of $0.06 to $38.09 per share were outstanding
     as of September 30, 2000 and options to purchase 10,196,072 shares of
     common stock with exercise prices of $0.05 to $11.68 per share were
     outstanding as of September 30, 1999.


                                       7
<PAGE>

                           ONYX SOFTWARE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                  (Unaudited)

4. Comprehensive Income (Loss)

  The following table reconciles net income (loss) as reported to
comprehensive income (loss) under the provisions of SFAS 130 for the three and
nine months ended September 30, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                Nine Months
                                         Three Months Ended   Ended September
                                           September 30,            30,
                                         -------------------- ----------------
                                           2000       1999     2000     1999
                                         ---------  --------- -------  -------
                                                   (in thousands)
<S>                                      <C>        <C>       <C>      <C>
Net income (loss)....................... $    (691) $    336  $(1,916) $(1,201)
Other comprehensive income (loss):
  Unrealized currency gain (loss).......       (75)        5       (2)     (16)
  Unrealized gain (loss) on marketable
   securities...........................        29       (35)      20      (80)
                                         ---------  --------  -------  -------
    Total comprehensive income (loss)... $    (737) $    306  $(1,898) $(1,297)
                                         =========  ========  =======  =======
</TABLE>

                                       8
<PAGE>

                           ONYX SOFTWARE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                  (Unaudited)


5. International Operations

  The Company reports operating results based on geographic areas. A summary
of key financial data by segment is as follows (in thousands):

<TABLE>
<CAPTION>
                                                       North  Rest of
                                                      America  World    Total
                                                      ------- -------  -------
<S>                                                   <C>     <C>      <C>
Quarter ended September 30, 2000 (unaudited):
  Revenues........................................... $22,600 $10,170  $32,770
  Operating loss (including acquisition-related
   amortization).....................................   2,013  (2,714)    (701)
  Interest income, net...............................     178       3      181
  Depreciation and amortization......................   1,496   1,442    2,938
  Purchases of property and equipment................   3,120   1,609    4,729
  Long-lived assets..................................  40,048   2,728   42,776
  Total assets.......................................  84,957  11,534   96,491

Quarter ended September 30, 1999 (unaudited):
  Revenues........................................... $12,970 $ 2,773  $15,743
  Operating income (loss) (including acquisition-
   related amortization).............................     726    (669)      57
  Interest income, net...............................     407     --       407
  Depreciation and amortization......................     716      20      736
  Purchases of property and equipment................   3,174      50    3,224
  Long-lived assets..................................  12,941     604   13,545
  Total assets.......................................  63,727   1,690   65,417

Nine months ended September 30, 2000 (unaudited):
  Revenues........................................... $61,335 $22,254  $83,589
  Operating loss (including acquisition-related
   amortization).....................................   7,587  (9,347)  (1,760)
  Interest income, net...............................     671      (7)     664
  Depreciation and amortization......................   3,713   3,134    6,847
  Purchases of property and equipment................   8,586   1,863   10,449
  Long-lived assets..................................  40,048   2,728   42,776
  Total assets.......................................  84,957  11,534   96,491

Nine months ended September 30, 1999 (unaudited):
  Revenues........................................... $33,250 $ 7,004  $40,254
  Operating loss (including acquisition-related
   amortization).....................................     689  (2,517)  (1,828)
  Interest income, net...............................     942     --       942
  Depreciation and amortization......................   1,558      54    1,612
  Purchases of property and equipment................   6,864     168    7,032
  Long-lived assets..................................  12,941     604   13,545
  Total assets.......................................  63,727   1,690   65,417
</TABLE>

                                       9
<PAGE>

                           ONYX SOFTWARE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                  (Unaudited)


6. Long-Term Debt, Commitments and Contingencies

 Leases

  In June 2000, the Company signed a lease for approximately 178,000 square
feet near its corporate headquarters in Bellevue, Washington. In July 2000,
the lease was amended to add approximately 84,000 square feet bringing the
total square footage of the lease to 262,000. Approximately 178,000 square
feet have a lease term of 10 years expected to commence April 1, 2001. The
remaining 84,000 square feet have a lease term of 12 years expected to
commence March 1, 2001. The minimum lease payments associated with this lease
total $88.2 million over the initial lease term. The Company has the option to
extend the lease for two additional five-year terms. The Company must provide
a $6.6 million letter of credit as security for the lease. The letter of
credit shall be reduced over the course of the lease term in accordance with
the lease agreement.

 Purchased Technology Obligations

  In March 2000, the Company acquired technology from a third-party software
developer for $500,000 that is currently embedded in one of the Company's core
products. The acquired technology was capitalized as purchased technology and
a corresponding short-term liability was recorded at the time of acquisition.
The intangible is being expensed on a straight-line basis over one year from
the date the technology was acquired. We made payments totaling $500,000
during the second and third quarters of 2000 against this liability. There are
no future commitments associated with this agreement.

7. Stock Split

  In March 2000, the Company completed a two-for-one stock split (effective in
the form of a stock dividend). All share and per share amounts in the
accompanying consolidated financial statements have been adjusted to reflect
this stock split.

8. Acquisitions and Joint Ventures

 Amendment to Market Solutions Limited Sale and Purchase Agreement

  On October 1, 1999, the Company acquired Market Solutions Limited, a
corporation formed under the laws of England, pursuant to a sale and purchase
agreement dated as of October 1, 1999, by and among the Company and the
shareholders of Market Solutions. Pursuant to the terms of the original sale
and purchase agreement, at closing the Company paid $5 million in cash and
issued approximately $1 million (132,048 shares) of common stock in exchange
for all the outstanding capital stock of Market Solutions. The Company also
agreed to issue up to an additional $3.6 million in common stock on October 1,
2000 and up to an additional $4.32 million in common stock on October 1, 2001,
depending on Market Solutions' attainment of certain revenue and profitability
targets in each of the first two years following the acquisition (the Earnout
Payments).

  In July 2000, the Company's management team elected to amend the sale and
purchase agreement to better align the financial incentives of the U.K.
management team with the strategic and financial objectives of the Company as
a whole. As a result, on July 7, 2000, the Company and the shareholders of
Market Solutions agreed to remove the revenue and profitability conditions to
the Earnout Payments. The Company will therefore make the full amount of the
Earnout Payments according to the original schedule described above and the
number of shares of the Company's common stock to be issued in satisfaction of
the Earnout Payments will be determined based on the average of the closing
prices of the Company's common stock on each of the three trading days prior
to each issuance. The additional consideration has been accounted for as
additional purchase price related to goodwill and will be amortized over the
remaining expected useful life.

                                      10
<PAGE>

                           ONYX SOFTWARE CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                  (Unaudited)


  The Company issued 162,712 shares on October 1, 2000 in satisfaction of the
first installment of the Earnout Payments.

 Japanese Joint Venture

  On September 14, 2000, the Company entered into a joint venture with
Softbank Investment Corporation and Prime Systems Corporation to create Onyx
Software Co., Ltd. (Onyx Japan), a Japanese corporation, for the purpose of
distributing Onyx's technology and product offerings in Japan. In October
2000, the Company made an initial contribution of $4.3 million in exchange for
58% of the outstanding common stock of Onyx Japan. Onyx Software Corporation
has a controlling interest in Onyx Japan. As a result, Onyx Japan will be
included in the consolidated financial statements of Onyx Software
Corporation. The minority shareholders' interest in Onyx Japan's earnings or
losses will be accounted for accordingly.

                                      11
<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

Forward-Looking Information

  Our disclosure and analysis in this report contain forward-looking
statements. When used in this discussion, the words "believes," "anticipates"
and "intends" are intended to identify forward-looking statements, but the
absence of these words does not necessarily mean that a statement is not
forward-looking. Forward-looking statements provide our current expectations
or forecasts of future events. In particular, these include, but are not
limited to, statements about our plans, objectives, expectations and
intentions that are subject to risks and uncertainties that could cause actual
results to differ materially from those expected or implied by these forward-
looking statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this report.
Our actual results could differ materially from those anticipated in these
forward-looking statements for many reasons, including the factors described
under "Important Factors That May Affect Our Business, Our Results of
Operations and Our Stock Price" and elsewhere in this report. We undertake no
obligation to publicly release any revisions to these forward-looking
statements that may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events. Readers are
urged, however, to review the factors and risks we describe in reports we file
from time to time with the Securities and Exchange Commission.

Overview

  Onyx is a leading provider of enterprise-wide, customer-centric e-business
solutions. Using the Internet in combination with traditional forms of
interaction, including phone, mail, fax and email, our solutions enable
enterprises to more effectively acquire, manage and maintain customer, partner
and other relationships. We designed our solution for companies that want to
merge new e-business processes with traditional business processes to enhance
their customer-facing operations. Our solutions use a single data model across
all customer interactions, resulting in a single repository for all marketing,
sales and service information. We designed our solution from inception to be
fully integrated across all customer-facing departments and interaction media.
Our solutions are easy to use, widely accessible, rapidly deployable,
scalable, flexible, customizable and reliable, resulting in a low total cost
of ownership and rapid return on investment.

History of Operations

  Onyx was founded in February 1994. We commercially released version 1.0 of
our flagship product, Onyx Customer Center, in December 1994. In our first
three years of operation, we focused primarily on research and development
activities, recruiting personnel, purchasing operating assets, marketing our
products, building a direct sales force and expanding our service business.
Our revenues totaled $2.2 million in 1995 and $9.6 million in 1996. In mid-
1996, we substantially expanded our operations to capitalize on our
opportunity within the rapidly emerging customer relationship management, or
CRM, market. We decided, at the potential expense of profitability, to
accelerate our investments in research and development, marketing, domestic
and international sales channels, professional services and our general and
administrative infrastructure. We believe these investments have been critical
to our growth. Our revenues grew to $19.4 million in 1997, $35.1 million in
1998 and $60.6 million in 1999. Nevertheless, these investments have also
significantly increased our operating expenses, contributing to the net losses
that we incurred in each fiscal quarter from the first quarter of 1997 through
the second quarter of 1999. After achieving profitability in the third and
fourth quarters of 1999, we decided to again accelerate our investments in
research and development, marketing, domestic and international sales
channels, professional services and our general and administrative
infrastructure to further capitalize on our opportunity within the CRM market.
Excluding acquisition-related amortization and minority equity investment
losses after tax, net income for the first nine months of 2000 totaled $1.7
million. Including these charges, we incurred a net loss in the first nine
months of 2000 totaling $1.9 million. We anticipate that our operating
expenses will increase substantially in dollar amount for the foreseeable
future as we expand our product development, sales and marketing and
professional services staff and, as a result, we may incur operating losses in
future quarters.

                                      12
<PAGE>

Onyx's Results of Operations

  The following table presents certain financial data, derived from our
unaudited statements of operations, as a percentage of total revenues for the
periods indicated. The operating results for the three and nine months ended
September 30, 2000 and 1999 are not necessarily indicative of the results that
may be expected for the full year or any future period.

<TABLE>
<CAPTION>
                                        Three Months         Nine Months
                                            Ended               Ended
                                        September 30,       September 30,
                                       -----------------   -----------------
                                        2000      1999      2000      1999
                                       -------   -------   -------   -------
<S>                                    <C>       <C>       <C>       <C>
Consolidated Statement of Operations
 Data:
Revenues:
  License.............................    62.3 %    63.0 %    61.4 %    62.7 %
  Service.............................    37.7      37.0      38.6      37.3
                                       -------   -------   -------   -------
    Total revenues....................   100.0     100.0     100.0     100.0
                                       -------   -------   -------   -------
Cost of revenues:
  License.............................     2.7       3.1       2.8       3.7
  Service.............................    19.5      18.7      19.9      18.8
                                       -------   -------   -------   -------
    Total cost of revenues............    22.2      21.8      22.7      22.5
                                       -------   -------   -------   -------
Gross margin..........................    77.8      78.2      77.3      77.5
Operating expenses:
  Sales and marketing.................    47.3      47.5      48.4      50.5
  Research and development............    18.8      16.8      17.6      19.3
  General and administrative..........     9.2      10.0       9.2      10.4
  Acquisition-related amortization....     4.7       3.5       4.2       1.9
                                       -------   -------   -------   -------
    Total operating expenses..........    80.0      77.8      79.4      82.1
                                       -------   -------   -------   -------
Income (loss) from operations.........    (2.2)      0.4      (2.1)     (4.6)
Interest income, net..................     0.6       2.6       0.8       2.4
Equity investment loss................    (0.2)      --       (0.6)      --
                                       -------   -------   -------   -------
Income (loss) before income taxes.....    (1.8)      3.0      (1.9)     (2.2)
Income tax provision..................     0.3       0.8       0.4       0.8
                                       -------   -------   -------   -------
Net income (loss).....................    (2.1)%     2.2%     (2.3)%    (3.0)%
                                       =======   =======   =======   =======
</TABLE>

Revenues

  Total revenues, which consist of software license and service revenues,
increased 108% to $32.8 million in the third quarter of 2000 from $15.7
million in the third quarter of 1999. Total revenues increased 108% to
$83.6 million in the first nine months of 2000 from $40.3 million in the first
nine months of 1999. No single customer accounted for more than 10% of our
revenues in any of these periods.

  Our license revenues increased 106%, to $20.4 million in the third quarter
of 2000 from $9.9 million in the third quarter of 1999. The increase was
primarily due to increased sales to new customers. For the nine months ended
September 30, 2000, license revenues increased 103% to $51.4 million from
$25.2 million during the same period of 1999. Of the increase, $20.0 million
was due to increased sales to new customers and $6.2 million was due to
increased follow-on sales to existing customers.

  Our support and service revenues increased 112%, to $12.4 million in the
third quarter of 2000 from $5.8 million in the third quarter of 1999. Of the
increase, $3.9 million was due to increased consulting and training services
and $2.7 million was due to increased maintenance and support revenues.
Support and service revenues represented 38% of our total revenues in the
third quarter of 2000 and 37% in the third quarter of 1999. Our support and
service revenues increased 115%, to $32.2 million in the first nine months of
2000 from

                                      13
<PAGE>

$15.0 million in the first nine months of 1999. Of the increase, $9.9 million
was due to increased consulting and training services and $7.3 million was due
to increased maintenance and support revenues. Support and service revenues
represented 39% of our total revenues in the first nine months of 2000 and 37%
in the first nine months of 1999. We expect the proportion of support and
service revenues to total revenues to fluctuate in the future, depending in
part on our customers' direct use of third-party consulting and implementation
service providers and the ongoing renewals of customer support contracts.

  Revenues outside of North America increased 266%, to $10.2 million in the
third quarter of 2000 from $2.8 million in the third quarter of 1999. For the
first nine months of 2000, revenues outside of North America increased 218%,
to $22.3 million from $7.0 million in the same period of 1999.The increase in
international revenues resulted from our investment in direct and indirect
sales channels, primarily in Europe, Australia and Singapore, including the
acquisitions of Market Solutions in the United Kingdom and CSN Computer
Consulting in Germany. We do not believe that we can sustain our historical
percentage growth rates of license and service revenues as our revenue base
increases.

Cost of Revenues

 Cost of license revenues

  Cost of license revenues consists of license fees for third-party software,
amortization of acquired technology, product media, product duplication,
manuals, product fulfillment and shipping costs. Cost of license revenues
increased 78%, to $877,000 in the third quarter of 2000 from $494,000 in the
third quarter of 1999. Cost of license revenues as a percentage of related
license revenues was 4% in the third quarter of 2000 and 5% in the third
quarter of 1999. Cost of license revenues increased 59%, to $2.4 million in
the first nine months of 2000 from $1.5 million in the first nine months of
1999. In the first nine months of 2000, cost of license revenues as a
percentage of related license revenues was 5% compared to 6% in the same
period of 1999. The decrease in cost of license revenues as a percentage of
related license revenues resulted primarily from a decrease in the relative
proportion of products we sold with third-party technology in the third
quarter and first nine months of 2000 as compared to the same periods of 1999,
which contribute significantly lower margins.

 Cost of service revenues

  Cost of service revenues consists of personnel and third-party service
provider costs related to consulting services, customer support and training.
Cost of service revenues increased 117%, to $6.4 million in the third quarter
of 2000 from $2.9 million in the third quarter of 1999. In the first nine
months of 2000, cost of service revenues increased 120% to $16.6 million from
$7.6 million in the same period of 1999. The increase in dollar amount
resulted primarily from hiring and training consulting, support and training
personnel to support our growing customer base. Our service employees
increased to 195 as of September 30, 2000 from 89 as of September 30, 1999.
Cost of service revenues as a percentage of related service revenues was 52%
in the third quarter of 2000 compared to 51% in the third quarter of 1999.
Cost of service revenues as a percentage of related service was 52% in the
nine months ended September 30, 2000 compared to 50% in the nine months ended
September 30, 1999. The increase in cost of service revenues as a percentage
of related service revenues in the first nine months of 2000 is due to a
higher proportion of service revenues from consulting and training services
which have a higher cost structure and therefore contribute lower margins than
our customer support services. The cost of services as a percentage of service
revenues may vary between periods primarily for two reasons: (1) the mix of
services we provide (consulting, customer support, training), which have
different cost structures, and (2) the resources we use to deliver these
services (internal versus third parties).

Costs and Expenses

 Sales and marketing

  Sales and marketing expenses consist primarily of salaries, commissions and
bonuses earned by sales and marketing personnel, travel and promotional
expenses and facility and communication costs for direct sales offices. Sales
and marketing expenses increased 107%, to $15.5 million in the third quarter
of 2000 from

                                      14
<PAGE>

$7.5 million in the third quarter of 1999. In the first nine months of 2000,
sales and marketing expenses increased 99% to $40.5 million from $20.3 million
in the same period of 1999. The increase in dollar amount was primarily
attributable to the expansion of our worldwide sales and marketing
organization, which included significant increases in personnel-related costs
associated with the employment of additional sales representatives, sales
engineers and marketing professionals. Sales and marketing employees increased
to 256 as of September 30, 2000 from 140 as of September 30, 1999. The
increase in dollar amount is also the result of an increase in sales
commissions and bonuses associated with increased revenues and an increase in
marketing activities, including trade shows, cyber seminars, our worldwide
customer conference and direct mail campaigns in the first nine months of
2000. Sales and marketing expenses represented 47% of our total revenues in
the third quarter of 2000 compared to 48% in the third quarter of 1999. Sales
and marketing expenses represented 48% of our total revenues in the nine
months ended September 30, 2000 compared to 50% in the nine months ended
September 30, 1999. The decrease in sales and marketing expenses as a
percentage of total revenues reflects the more rapid growth in our revenues in
this period compared to the growth of sales and marketing expenses due to
maturing direct and indirect sales channels. We believe that we need to
significantly increase our sales and marketing efforts to expand our market
position and further increase acceptance of our products. Accordingly, we
anticipate that sales and marketing expenses will increase in future periods.

 Research and development

  Research and development expenses consist primarily of salaries, benefits
and equipment for software developers, quality assurance personnel, program
managers and technical writers and payments to outside contractors. Research
and development expenses increased 133%, to $6.2 million in the third quarter
of 2000 from $2.6 million in the third quarter of 1999. In the first nine
months of 2000, research and development expenses increased 90% to $14.7
million from $7.8 million in the same period of 1999. The increase was
primarily due to an increase in the use of outside contractors coupled with an
increase in the number of development personnel. Research and development
employees increased to 115 as of September 30, 2000 from 84 as of September
30, 1999. Research and development costs represented 19% of our total revenues
in the third quarter of 2000 compared to 17% in the third quarter of 1999. The
increase in research and development expenses as a percentage of total
revenues in the third quarter of 2000 compared to the third quarter of 1999 is
largely related to investments we are making in expanding our product line to
the Unix/Oracle platform. In the first nine months of 2000, research and
development costs represented 18% of our total revenues compared to 19% in the
same period of 1999. We believe that we need to significantly increase our
research and development investment to expand our market position and continue
to expand our product line. Accordingly, we anticipate that research and
development expenses will increase in future periods.

 General and administrative

  General and administrative expenses consist primarily of salaries, benefits
and related costs for our executive, finance, human resource and
administrative personnel and professional services fees. General and
administrative expenses increased 92%, to $3.0 million in the third quarter of
2000 from $1.6 million in the third quarter of 1999. In the first nine months
of 2000, general and administrative expenses increased 83% to $7.7 million
from $4.2 million in the same period of 1999. The increase was primarily due
to the addition of finance, human resource, executive and administrative
personnel to support the growth of our business globally, together with an
increase in professional fees and investor relations activities associated
with being a public company. General and administrative employees increased to
90 as of September 30, 2000 from 40 as of September 30, 1999. General and
administrative costs represented 9% of our total revenues both in the third
quarter of 2000 and in the nine months ended September 30, 2000 compared to
10% of our total revenues both in the third quarter of 1999 and in the nine
months ended September 30, 1999. The decrease in general and administrative
expenses as a percentage of total revenues primarily reflects the more rapid
growth in our revenues in this period compared to the growth in general and
administrative expenses as we begin to achieve economies of scale in our
support infrastructure. We believe our general and administrative expenses
will continue to increase as we expand our domestic and international
administrative staff and incur significant expenses associated with
professional services used to support our global activities.

                                      15
<PAGE>

 Acquisition-related amortization

  Acquisition-related amortization consists of intangible amortization
associated with our acquisitions of EnCyc in 1998, Versametrix and Market
Solutions in 1999, and CSN Computer Consulting in 2000. Acquisition-related
amortization totaled $1.6 million in the third quarter of 2000 and $552,000 in
the third quarter of 1999. For the first nine months of 2000, acquisition-
related amortization totaled $3.5 million compared to $770,000 in the same
period of 1999. The increase in acquisition-related amortization in the third
quarter and first nine months of 2000 over the prior year is primarily the
result of the completion of the acquisitions of Market Solutions and CSN
Computer Consulting.

 Deferred compensation

  We recorded deferred compensation of $2.2 million in 1998, representing the
difference between the exercise prices of options granted to acquire shares of
common stock during 1998 and the deemed fair value for financial reporting
purposes of our common stock on the grant dates. We amortized deferred
compensation expense of $105,000 during the third quarter of 2000 compared to
$184,000 in the third quarter of 1999. In the first nine months of 2000, we
amortized $400,000 compared to $726,000 in the same period of 1999. Deferred
compensation is amortized over the vesting periods of the options.

 Interest income, net

  Interest income, net consists of earnings on our cash and cash equivalent
and short-term investment balances offset by interest expense associated with
debt obligations. Interest income, net was $181,000 in the third quarter of
2000 compared to $407,000 in the third quarter of 1999. In the first nine
months of 2000, interest income, net was $664,000 compared to $942,000 in the
first nine months of 1999. The decrease in both the third quarter and the nine
months ended September 30, 2000 compared to the prior periods is the result of
a lower average cash and investment base during the current periods as
compared to the same periods of 1999.

 Income taxes

  We recorded an income tax provision of $108,000 in the third quarter of 2000
and $128,000 in the third quarter of 1999 in connection with our foreign
operations. In the first nine months of 2000, we recorded an income tax
provision of $320,000 and in the first nine months of 1999, we recorded an
income tax provision of $315,000 in connection with our foreign operations. We
made no provision or benefit for federal or state income taxes due to our
historical operating losses, resulting in deferred tax assets. We have
recorded a valuation allowance for the entire deferred tax asset as a result
of uncertainties regarding the realization of the asset balance.

Liquidity and Capital Resources

  Prior to our initial public offering, we primarily financed our operations
through private placements of our common and preferred stock. To a lesser
extent, we have financed our operations through equipment financing and
traditional financing arrangements. In February 1999, we completed our initial
public offering and issued 7,130,000 shares of common stock at an initial
public offering price of $6.50 per share, as adjusted to reflect the 2-for-1
split of our common stock effected March 1, 2000. We received approximately
$41.9 million in cash proceeds from the offering, net of underwriting
discounts, commissions and other offering costs.

  As of September 30, 2000, we had cash and cash equivalents of $11.4 million,
an increase of $7.7 million from cash and cash equivalents held as of December
31, 1999. The increase in cash and cash equivalents from year-end is primarily
the result of short-term marketable securities maturing during the first nine
months of 2000, which were subsequently reinvested in securities with an
original maturity date of 90 days or less. We have invested our cash in excess
of current operating requirements in a portfolio of investment-grade
securities. Short-term marketable securities totaled $7.0 million at September
30, 2000. The investments have variable and fixed

                                      16
<PAGE>

interest rates and maturities of less than one year. In accordance with SFAS
115, "Accounting for Certain Investments in Debt and Equity Securities," such
investments are classified as "available for sale." Included in current
liabilities at September 30, 2000 is a $7.9 million note payable to
shareholders of Market Solutions in connection with the acquisition completed
in October 1999. This liability will be settled through the issuance of our
common stock. Excluding this liability, our working capital at September 30,
2000 was $21.9 million, compared to $30.1 million at December 31, 1999.
Including this liability, our working capital at September 30, 2000 was $14.0
million.

  We have a $25.0 million working capital revolving line of credit, shared
equally by Silicon Valley Bank and Comerica Bank, that is secured by our
accounts receivable and intellectual property. This facility allows us to
borrow up to the lesser of 80% of our eligible accounts receivable or $25.0
million and bears interest at the bank's prime rate, which was 9.5% as of
September 30, 2000. The facility expires in August 2001. The agreement under
which the line of credit was established requires us to maintain specified
financial ratios. As of September 30, 2000, we had no outstanding borrowings
under the working capital facility; however, there was approximately $4.3
million in standby letters of credit outstanding in connection with facility
leases. We also have a term loan with Silicon Valley Bank which was
established for the purpose of financing new capital equipment purchases. This
facility operated as a revolver through August 1999, at which point the
facility converted to a 36-month term loan bearing interest at a rate equal to
the bank's prime rate plus 0.25%, which equaled 9.75% as of September 30,
2000. As of September 30, 2000, we had borrowed $63,000 under this term loan
facility. The balance was paid off in full in October 2000. We were in
compliance with all financial covenants of the credit facility as of September
30, 2000.

  Our operating activities resulted in net cash inflows of $5.2 million in the
first nine months of 2000 compared to net cash inflows of $709,000 in the
first nine months of 1999. The operating cash inflows in the first nine months
of 2000 were primarily the result of cash provided by increases in deferred
revenues and other current liabilities coupled with income from our operations
adjusted for noncash amortization charges, offset in part by increases in
accounts receivable and other assets. The operating cash inflows in the first
half of 1999 were primarily the result of cash provided by increases in
deferred revenues and other current liabilities, offset by increases in
accounts receivable and other assets in the first nine months of 1999. The
improvement in our operating cash flow in the first nine months of 2000 over
the same period of 1999 is the result of reduced losses, increased non-cash
charges within the losses for 2000, increases in accounts payable and accrued
liabilities and deferred revenues offset by increases in accounts receivable
and other operating assets.

  Investing activities provided cash of $1.2 million in the first nine months
of 2000, primarily due to proceeds from the maturity of securities offset by
cash used to purchase capital equipment and cash used to acquire CSN Computer
Consulting. Investing activities used cash of $32.2 million in the first nine
months of 1999, primarily for the purchase of short-term and long-term
securities following our initial public offering and the purchase of capital
equipment.

  Financing activities provided cash of $1.3 million in the first nine months
of 2000 due to proceeds from the exercise of stock options and stock issued
through our employee stock purchase plan, offset in part by payments on
capital lease and other debt obligations. Financing activities provided cash
of $37.9 million in the first nine months of 1999 primarily due to the
proceeds from our initial public offering, offset in part by payments on our
credit facility and capital lease obligations.

  We currently anticipate that we will continue to experience significant
growth in our operating expenses for the foreseeable future as we

  .  enter new markets for our products and services;

  .  increase research and development spending;

  .  increase sales and marketing activities;

  .  develop new distribution channels;

                                      17
<PAGE>

  .  improve our operational and financial systems; and

  .  broaden our professional service capabilities.

These operating expenses will consume a material amount of our cash resources.
We may also use a portion of our cash resources to acquire complementary
technologies or businesses; however, we currently have no commitments or
agreements and are not involved in any material negotiations with respect to
any transactions of this nature. We believe that our existing cash and cash
equivalents, investments and available bank borrowings will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures
for the next twelve months. However, we may seek additional funds before that
time through public or private equity financing or from other sources to fund
our operations and pursue our growth strategy. We have no commitment for
additional financing, and we may experience difficulty in obtaining additional
financing on favorable terms, if at all. Any financing we obtain may dilute
your ownership interest in Onyx.

IMPORTANT FACTORS THAT MAY AFFECT OUR BUSINESS, OUR RESULTS OF OPERATIONS AND
 OUR STOCK PRICE

Our operating results fluctuate and could fall below expectations of
securities analysts and investors, resulting in a decline of our stock price.

  Our operating results have varied widely in the past, and we expect that
they will continue to fluctuate in the future. As a result, our operating
results for a particular quarter or year may fall below the expectations of
securities analysts and investors, which could result in a decrease in our
stock price. Some of the factors that could affect the amount and timing of
our software license revenues and related expenses and cause our operating
results to fluctuate include:

  .  our ability to compete in the highly competitive eBusiness systems
     market;

  .  our ability to enable our products to operate on multiple platforms;

  .  market acceptance of our products;

  .  our ability to expand our sales and support infrastructure;

  .  our ability to develop, introduce and market new products on a timely
     basis;

  .  our ability to successfully expand our international operations;

  .  the timing of customer orders, which can be affected by customer order
     deferrals in anticipation of new product introductions, product
     enhancements and customer ordering and budgeting cycles; and

  .  general economic conditions, which may affect our customers' capital
     investment levels in management information systems.

As a result of all of these factors, we cannot predict our revenues with any
significant degree of certainty and future product revenues may differ from
historical patterns. It is particularly difficult to predict the timing or
amount of our license revenues, which comprise the majority of our total
revenues, because

  .  our sales cycles are lengthy and variable, typically ranging between two
     to six months from our initial contact with a potential customer to the
     signing of a license agreement, although the sales cycle varies
     substantially from customer to customer and occasionally sales require
     substantially more time;

  .  we recognize a substantial portion of our license revenues in the last
     month of a quarter, and often in the last weeks or days of a quarter;
     and

  .  the amount of unfulfilled orders for our products at the beginning of a
     quarter is small because our products are typically shipped shortly
     after orders are received.

  Even though our revenues are difficult to predict, we base our decisions
regarding our operating expenses on anticipated revenue trends. Many of our
expenses are relatively fixed, and we cannot quickly reduce spending

                                      18
<PAGE>

if our revenues are lower than expected. As a result, revenue shortfalls could
result in significantly lower income or greater loss than anticipated for any
given period, which could result in a decrease in our stock price.

Our operating results may fluctuate seasonally, and these fluctuations may
cause our stock price to decline.

  Our stock price may decline due to seasonal fluctuations in our revenues. We
continue to experience significant seasonality with respect to software
license revenues. In recent years, we have recognized more license revenues in
our fourth quarter than in each of the first three quarters of a fiscal year
and have experienced lower license revenues in our first quarter than in the
preceding fourth quarter. We believe that these fluctuations are caused in
part by customer buying patterns and the efforts of our direct sales force to
meet or exceed fiscal year-end quotas. We expect that these seasonal trends
are likely to continue in the future.

We have a limited operating history and are subject to the risks of new
enterprises.

  We commenced operations in February 1994 and commercially released the first
version of our flagship product in December 1994. Accordingly, we have a
limited operating history, and we face all of the risks and uncertainties
encountered by early-stage companies. These risks and uncertainties include:

  .  no history of sustained profitability;

  .  uncertain market acceptance of our products;

  .  reliance on one product family;

  .  the risk that competition, technological change or evolving customer
     preferences could adversely affect sales of our products;

  .  the need to expand our sales and support infrastructure;

  .  the need to expand our international operations;

  .  dependence on a limited number of key technical, customer support, sales
     and managerial personnel; and

  .  the risk that our management will not be able to effectively manage
     growth or any acquisition we may undertake;

The new and evolving nature of the eBusiness systems market increases these
risks and uncertainties. Our limited operating history makes it difficult to
predict how our business will develop.

We have incurred losses and may not achieve profitability, which could cause a
decline in our stock price.

  If we do not return to profitability in future quarters, our stock price
could decline. We incurred net losses in each quarter from Onyx's inception
through the third quarter of 1994, from the first quarter of 1997 to the
second quarter of 1999, and in the first three quarters of 2000. As of
September 30, 2000, we had an accumulated deficit of $10.0 million. We expect
to continue to devote substantial resources to our product development and
sales and customer support. In addition, we currently anticipate that we will
continue to experience significant growth in our operating expenses for the
foreseeable future as we

  .  enter new markets for our products and services;

  .  increase research and development spending;

  .  increase sales and marketing activities;

  .  develop new distribution channels;

                                      19
<PAGE>

  .  improve our operational and financial systems; and

  .  broaden our professional service capabilities.

  As a result, we will need to generate significant quarterly revenues to
achieve profitability. We cannot assure you that our revenues will increase.
Our business strategies may not be successful and we may not be profitable in
any future period as a result. Further, in the near term, we may elect to
accelerate investments in our operations at the potential expense of
profitability to capitalize on our opportunity within the rapidly emerging e-
business systems market.

If we are unable to compete successfully in the highly competitive eBusiness
market, our business will fail.

  Our products target the eBusiness systems market. This market is intensely
competitive, fragmented, rapidly changing and significantly affected by new
product introductions. We face competition in the eBusiness systems market
primarily from front-office software application vendors, large enterprise
software vendors and our potential customers' information technology
departments, which may seek to develop proprietary eBusiness systems. The
dominant competitor in our industry is Siebel Systems, Inc. Other companies
with which we compete include, but are not limited to, BroadVision, Inc.,
E.piphany, Inc., Kana Communications, Inc., Nortel Networks, Oracle
Corporation, PeopleSoft, Inc., and Pivotal Software, Inc.

  In addition, as we develop new products, including new product versions
operating on new platforms, we may begin competing with companies with whom we
have not previously competed. It is also possible that new competitors will
enter the market or that our competitors will form alliances that may enable
them to rapidly increase their market share. An increase in competitive
pressures in our market or our failure to compete effectively may result in
pricing reductions, reduced gross margins and loss of market share. Many of
our competitors have longer operating histories, greater name recognition,
larger customer bases and significantly greater financial, technical,
marketing and other resources than we do. In addition, a number of our
competitors have recently been acquired by other large technology companies,
which further enhances their resources. As a result, they may be able to adapt
more quickly to new technologies and customer needs, devote greater resources
to promoting or selling their products and services, initiate and withstand
substantial price competition, take advantage of acquisition or other
strategic opportunities more readily or develop and expand their product and
service offerings more quickly.

If we are unsuccessful in our attempt to enable our products to operate on
multiple platforms, our revenue growth could be limited.

  To date, we have designed our products to operate exclusively on the Windows
NT and Microsoft BackOffice platforms. As a result, we have only been able to
market our products to customers which have developed their enterprise
computing systems around these platforms. We recently decided to begin
developing a version of our products that will operate on platforms other than
Windows NT and Microsoft BackOffice. However, these development efforts may be
unsuccessful or involve significantly greater-than-expected costs. If we delay
release of new product versions for new platforms, or if they fail to achieve
market acceptance when released, our revenue growth will be limited.

Because many potential customers are unaware of the benefits of eBusiness
systems, our products may not achieve market acceptance.

  The market for eBusiness systems is still emerging, and continued growth in
demand for and acceptance of eBusiness products remains uncertain. Even if the
market for eBusiness systems grows, businesses may purchase our competitors'
products or develop their own. We believe that many of our potential customers
are not fully aware of the benefits of eBusiness systems and that they may
never achieve market acceptance. We have spent, and will continue to spend,
considerable resources educating potential customers about our products and

                                      20
<PAGE>

eBusiness systems in general. However, even with these educational efforts,
market acceptance of our products may not increase. We will not succeed unless
we can educate our market about the benefits of eBusiness systems and about
our ability to provide them in a cost-effective and easy-to-use manner.

  The development of the Internet and our plan to integrate additional
electronic commerce features with the Onyx e-Business Engine present
additional challenges and uncertainties. We are uncertain how businesses will
use the Internet as a means of communication and commerce and whether a
significant market will develop for Internet-based eBusiness systems. The use
of the Internet is evolving rapidly, and many companies are developing
products and services that use the Internet. We do not know what forms of
products and services may emerge as alternatives to our existing products or
to any future Internet-based or electronic commerce features and services we
may introduce.

If potential customers do not accept the Onyx e-Business Engine product
family, our business will fail.

  Product license revenues from the Onyx e-Business Engine product family
accounted for approximately 50% of our total revenues, or 79% of total license
revenues, in 1999 and for 50% of our total revenues, or 82% of total license
revenues, in the first nine months of 2000. We expect product license revenues
from the Onyx e-Business Engine product family to continue to account for a
substantial majority of our future revenues. As a result, factors adversely
affecting the pricing of or demand for the Onyx e-Business Engine product
family, such as competition or technological change, could dramatically affect
our operating results. If we are unable to successfully deploy current
versions of the Onyx e-Business Engine product family and to develop,
introduce and establish customer acceptance of new and enhanced versions of
the Onyx e-Business Engine product family, our business will fail.

If we are unable to continue to develop products that are compatible with the
Internet and if use of the Internet does not continue to expand, demand for
our products may be limited.

  Our products communicate through public and private networks over the
Internet. The success of our products may depend, in part, on our ability to
continue developing products that are compatible with the Internet. We cannot
predict with any assurance whether the Internet will be a viable commercial
marketplace or whether the demand for Internet-related products and services
will increase or decrease in the future. The increased commercial use of the
Internet could require substantial modification of our products and the
introduction of new products.

  Critical issues concerning the commercial use of the Internet, including
security, demand, reliability, cost, ease of use, accessibility, quality of
service and potential tax or other government regulation, remain unresolved
and may affect the use of the Internet as a medium to support the
functionality of our products and distribution of our software. If these
critical issues are not favorably resolved, our Internet-related products may
not achieve market acceptance.

We may be unable to expand our sales and support infrastructure, which could
harm our ability to expand our business.

  To date, we have sold our products primarily through our direct sales force
and have supported our customers with our consulting and customer support
staff. Our future revenue growth will depend in large part on recruiting and
training additional direct sales, consulting and customer support personnel
and expanding our indirect distribution channels, such as distributors,
resellers, original equipment manufacturer, or OEM, partners and system
integrators and consultants. If we are unable to hire and retain highly
skilled direct sales personnel, our revenue growth will be limited. In
addition, we believe that customer satisfaction is critical to our ability to
compete in the eBusiness systems market, and we rely on experienced consulting
and customer support staff to support our customers. If we are unable to hire
highly trained consulting and customer support personnel, we may be unable to
satisfy customer demands. We have experienced and continue to experience
difficulty in recruiting qualified sales and support personnel and in
establishing third-party relationships with distributors,

                                      21
<PAGE>

resellers, OEM partners and systems integrators and consultants. We may not be
able to successfully expand our direct sales force or other distribution
channels, which could limit our ability to expand our business. Even if we are
successful in expanding our direct sales force and other distribution
channels, the expansion may not result in expected revenue growth.

If we do not retain our key employees and expand our management team, our
ability to execute our business strategy will be limited.

  Our future performance will depend largely on the efforts and abilities of
our key technical, customer support and managerial personnel and on our
ability to attract and retain them. In addition, our ability to execute our
business strategy will depend on our ability to recruit additional experienced
management personnel, including a chief financial officer, and to retain our
existing executive officers. The competition for qualified personnel in the
computer software and Internet markets is particularly intense. We have in the
past experienced difficulty in hiring qualified technical, customer support,
sales and managerial personnel, and we may be unable to attract and retain
such personnel in the future. In addition, due to the intense competition for
qualified employees, we may be required to increase the level of compensation
paid to existing and new employees, which could materially increase our
operating expenses. Our key employees are not obligated to continue their
employment with us and could leave at any time.

Rapid changes in technology could render our products and services obsolete or
unmarketable, and we may be unable to introduce new products and services
timely and successfully.

  The software market in which we compete is characterized by rapid change due
to changing customer needs, rapid technological developments and advances
introduced by competitors. Existing products can become obsolete and
unmarketable when products using new technologies are introduced and new
industry standards emerge. New technologies, including the rapid growth of the
Internet, could change the way eBusiness systems are sold or delivered As a
result, the life cycles of our products are difficult to estimate. We may also
need to modify our products when third parties change software that we
integrate into our products.

  To be successful, we must continue to enhance our current product line and
develop new products that successfully respond to changing customer needs,
technological developments and competitive product offerings. We may not be
able to successfully develop or license the applications necessary to respond
to these changes, or to integrate new applications with our existing products.
We have delayed enhancements or new product release dates several times in the
past and may not be able to introduce enhancements or new products
successfully or in a timely manner in the future. If we delay release of our
products and product enhancements, or if they fail to achieve market
acceptance when released, it could harm our reputation and our ability to
attract and retain customers and our revenues may decline. In addition,
customers may defer or forego purchases of our products if we, our competitors
or major hardware, systems or software vendors introduce or announce new
products or product enhancements.

If we do not expand our international operations and successfully overcome the
risks inherent in international business activities, the growth of our
business will be limited.

  To be successful, we must continue to expand our international operations
and enter new international markets. This expansion will require significant
management attention and financial resources to successfully translate and
localize our software products to various languages and to develop direct and
indirect international sales and support channels. We may not be able to
maintain or increase international market demand for the Onyx e-Business
Engine product family. We, or our distributors or resellers, may not be able
to sustain or increase international revenues from licenses or from consulting
and customer support. In addition, our international sales are subject to the
risks inherent in international business activities, including

  .  costs of customizing products for foreign countries;

  .  export and import restrictions, tariffs and other trade barriers;


                                      22
<PAGE>

  .  reduced protection of intellectual property rights and increased
     liability exposure; and

  .  regional economic, cultural and political conditions.

Our foreign subsidiaries operate primarily in local currencies, and their
results are translated into U.S. dollars. We do not currently engage in
currency hedging activities, but we may do so in the future. Increases in the
value of the U.S. dollar relative to foreign currencies have not materially
affected our operating results in the past. Our operating results could be
materially adversely affected if we enter into license agreements providing
for significant amounts of foreign currencies with extended payment terms.

If we are unable to develop and maintain effective long-term relationships
with our key partners, or if our key partners fail to perform, our ability to
sell our products and services will be limited.

  We rely on our relationships with a number of key partners that are
important to worldwide sales and marketing of our products. These key partners
often provide consulting, implementation and customer support services, and
endorse our products during the competitive evaluation stage of the sales
cycle. Although we seek to maintain relationships with our key partners, many
of them have similar, and often more established, relationships with our
competitors. These key partners, many of which have significantly greater
resources than we have, may in the future market software products that
compete with ours or reduce or discontinue their relationships with us or
their support of our products. In addition, our sales will be limited if:

  .  we are unable to develop and maintain effective, long-term relationships
     with our key partners;

  .  we are unable to adequately train a sufficient number of key partners;

  .  our key partners do not have or do not devote the resources necessary to
     implement our products; or

  .  our key partners endorse a product or technology other than ours.

If we fail to maintain our existing relationships, or to establish new
relationships, or if our partners do not perform to our expectations, our
ability to sell and market our products and services will be limited.

If our relationships with application service providers are unsuccessful, our
ability to market and sell our products and services will be limited.

  We expect a significant percentage of our revenues to be derived from our
relationships with domestic and international application service providers,
or ASPs, that market and sell our eBusiness systems, such as Telstra, Ltd. and
Singapore Telecommunications Telemedia. If these ASPs are unsuccessful in
marketing our eBusiness systems, our operating results will be materially
harmed. Because our relationships with ASPs are relatively new, we cannot
predict the degree to which the ASPs will succeed in marketing and selling our
products and services. In addition, because the ASP model for selling software
is relatively new and unproven, we cannot predict the degree to which our
potential customers will accept this delivery model. If the ASPs fail to
provide adequate implementation and support for our products and services,
end-users could decide not to subscribe, or cease subscribing, for our
products and services. The ASPs typically offer our products and services in
combination with other products and services, some of which may be competitive
with our products and services.

Our sales cycle is long, and sales delays could cause our operating results to
fluctuate, which could cause a decline in our stock price.

  An enterprise's decision to purchase an eBusiness system is discretionary,
involves a significant commitment of its resources and is influenced by its
budget cycles. To successfully sell our products, we generally must educate
our potential customers regarding the use and benefit of our products, which
can require significant time and resources. Consequently, the period between
initial contact and the purchase of our products is often long and subject to
delays associated with the lengthy budgeting, approval and competitive
evaluation processes that

                                      23
<PAGE>

typically accompany significant capital expenditures. Our sales cycles are
lengthy and variable, typically ranging between two to six months from our
initial contact with a potential customer to the signing of a license
agreement, although it varies substantially from customer to customer and
occasionally sales require substantially more time. Sales delays could cause
our operating results to fall below the expectations of securities analysts or
investors, which could result in a decrease in our stock price.

Fluctuations in service revenues could decrease our total revenues or decrease
our gross margins, which could cause a decline in our stock price.

  Support and service revenues represented 37% of our total revenues in 1999
and 39% of our total revenues in the first nine months of 2000. We anticipate
that service revenues will continue to represent a significant percentage of
total revenues. Because service revenues have lower gross margins than license
revenues, a continued increase in the percentage of total revenues represented
by service revenues or an unexpected decrease in license revenues could have a
detrimental impact on overall gross margins and on our operating results. We
subcontract certain consulting, customer support and training services to
third-party service providers. Third-party contract revenues generally carry
lower gross margins than our service business overall. As a result, our
service revenues and related margins may vary from period to period, depending
on the mix of these third-party contract revenues. Service revenues depend in
part on ongoing renewals of support contracts by our customers, some of which
may not renew their support contracts. In addition, consulting revenues as a
percentage of total revenues could decline if customers select third-party
service providers to install and service our products more frequently than
they have in the past. If service revenues are lower than anticipated, our
operating results could fall below the expectations of securities analysts or
investors, which could result in a decrease in our stock price.

Delivery of our products and services may be delayed if we cannot continue to
license third-party technology that is important to the functionality of our
solution.

  We incorporate into our products certain software that is licensed to us by
third-party software developers, currently Sybase, Scribe Software, Greyware
Automation Products, Inso and Trilogy Software. We depend on these third
parties' abilities to deliver and support reliable products, enhance their
current products, develop new products on a timely and cost-effective basis,
and respond to emerging industry standards and other technological changes.
The third-party software currently offered in conjunction with our products
may become obsolete or incompatible with future versions of our products. We
believe there are other sources for this licensed software and that we could
replicate the functionality of this licensed software within a relatively
short period of time, approximately four to six months. However, a significant
interruption in the supply of this technology could delay our development
sales until we can find, license and integrate equivalent technology.

We may have to reduce or cease operations if we are unable to obtain the
funding necessary to meet our working capital requirements.

  Our future revenues may be insufficient to support the expenses of our
operations and the expansion of our business. We may therefore need additional
equity or debt capital to finance our operations. If we are unable to generate
sufficient cash flow from operations or obtain funds through additional
financing, we may have to reduce some or all of our development and sales and
marketing efforts or cease operations. We believe that our existing cash and
cash equivalents balances and our existing lines of credit will be sufficient
to meet our capital requirements for at least the next twelve months. However,
we may seek additional funds before that time through public or private equity
financing or from other sources to fund our operations and pursue our growth
strategy. We have no commitment for additional financing, and we may
experience difficulty in obtaining funding on favorable terms, if at all. Any
financing we obtain may dilute your ownership interest in Onyx.

Failure to address strain on our resources caused by our rapid growth will
result in our inability to effectively manage our business.

  Our current systems, management and resources will be inadequate if we
continue to grow. Our business has grown rapidly in size and complexity. This
rapid expansion has placed significant strain on our

                                      24
<PAGE>

administrative, operational and financial resources and has resulted in ever-
increasing responsibilities for our management personnel. We will be unable to
effectively manage our business if we are unable to timely and successfully
alleviate the strain on our resources caused by our rapid growth.

We may be unable to adequately protect our proprietary rights, which may limit
our ability to compete effectively.

  Our success depends in part on our ability to protect our proprietary
rights. To protect our proprietary rights, we rely primarily on a combination
of copyright, trade secret and trademark laws, confidentiality agreements with
employees and third parties, and protective contractual provisions such as
those contained in license agreements with consultants, vendors and customers,
although we have not signed these agreements in every case. Despite our
efforts to protect our proprietary rights, unauthorized parties may copy
aspects of our products and obtain and use information that we regard as
proprietary. Other parties may breach confidentiality agreements and other
protective contracts we have entered into, and we may not become aware of, or
have adequate remedies in the event of, such breach. We face additional risk
when conducting business in countries that have poorly developed or
inadequately enforced intellectual property laws. While we are unable to
determine the extent to which piracy of our software products exists, we
expect piracy to be a continuing concern, particularly in international
markets and as a result of the growing use of the Internet. In any event,
competitors may independently develop similar or superior technologies or
duplicate the technologies we have developed, which could substantially limit
the value of our intellectual property.

Intellectual property claims and litigation could subject us to significant
liability for damages and invalidation of our proprietary rights.

  In the future, we may have to resort to litigation to protect our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others. Any litigation,
regardless of its success, would probably be costly and require significant
time and attention of our key management and technical personnel. Litigation
could also force us to

  .  stop or delay selling, incorporating or using products that incorporate
     the challenged intellectual property;

  .  pay damages;

  .  enter into licensing or royalty agreements, which may be unavailable on
     acceptable terms; or

  .  redesign products or services that incorporate infringing technology.

  Although we have not been sued for intellectual property infringement, we
may face infringement claims from third parties in the future. The software
industry has seen frequent litigation over intellectual property rights, and
we expect that participants in the industry will be increasingly subject to
infringement claims as the number of products, services and competitors grows
and the functionality of products and services overlaps.

Our products may suffer from defects or errors, which could result in loss of
revenues, delayed market acceptance of our products, increased costs and
reputational damage.

  Software products as complex as ours frequently contain errors or defects,
especially when first introduced or when new versions are released. We have
had to delay commercial release of certain versions of our products until
software problems were corrected, and in some cases have provided product
enhancements to correct errors in released products. Our new products or
releases may not be free from errors after commercial shipments have begun.
Any errors that are discovered after commercial release could result in loss
of revenues or delay in market acceptance, diversion of development resources,
damage to our reputation, increased service and warranty costs or claims
against us.

                                      25
<PAGE>

The integration of Market Solutions, CSN Computer Consulting and any future
acquisitions may be difficult and disruptive.

  In October 1999, we acquired Market Solutions, a privately held provider of
Web-based CRM systems in the United Kingdom. In February 2000, we acquired CSN
Computer Consulting, a privately held e-business consulting, training and
technology development company headquartered in Germany. We are currently in
the process of integrating these companies with our business. This integration
is subject to risks commonly encountered in making acquisitions, including

  .  risk of loss of key personnel;

  .  difficulties associated with assimilating technologies, products,
     personnel and operations;

  .  potential disruption of our ongoing business; and

  .  the inability of our sales force, consultants and development staff to
     adapt to the new product line.

We may not successfully overcome these or any other problems encountered in
connection with the integration of Market Solutions and CSN. As part of our
business strategy, we expect to consider acquiring other companies. We may not
be able to successfully integrate any technologies, products, personnel or
operations of companies that we have acquired or that we may acquire in the
future.

The concentrated ownership of our common stock could delay or prevent a change
of control, which could reduce the market price of our common stock.

  As of September 30, 2000, our officers, directors and affiliated entities
together beneficially owned approximately 20.6% of the outstanding shares of
our common stock. As a result, these shareholders may, as a practical matter,
be able to exert significant influence over all matters requiring shareholder
approval, including the election of directors and approval of significant
corporate transactions such as acquisitions, and to block unsolicited tender
offers. This concentration of ownership may delay, deter or prevent a third
party from acquiring control over us at a premium over the then-current market
price of our common stock, which could result in a decrease in our stock
price.

Our stock price may be volatile.

  Since our initial public offering in February 1999, the price of our common
stock has been volatile, particularly in the last three quarters. The trading
price of our common stock could be subject to fluctuations for a number of
reasons, including

  .  future announcements concerning us or our competitors;

  .  actual or anticipated quarterly variations in operating results;

  .  changes in analysts' earnings projections or recommendations;

  .  announcements of technological innovations;

  .  the introduction of new products or changes in product pricing policies
     by us or our competitors;

  .  proprietary rights litigation or other litigation; or

  .  changes in accounting standards that adversely affect our revenues and
     earnings.

In addition, stock prices for many technology companies fluctuate widely for
reasons that may be unrelated to operating results of these companies. These
fluctuations, as well as general economic, market and political conditions,
such as international currency and stock market volatility, recessions or
military conflicts, may materially and adversely affect the market price of
our common stock, regardless of our operating performance. In the past,
following periods of volatility in the market price of a company's securities,
securities class action

                                      26
<PAGE>

litigation has often been instituted against these companies. Litigation
brought against us could result in substantial costs and a diversion of
management's attention and resources, which could have a material adverse
effect on our business, financial condition and operating results.

Changes in accounting standards and in the way we charge for licenses could
affect our future operating results.

  We recognize revenues from the sale of software product licenses on delivery
of our products if:

  .  persuasive evidence of an arrangement exists;

  .  collection is probable;

  .  the fee is fixed or determinable; and

  .  we can objectively allocate the total fee among all elements of the
     arrangement.

  We recognize revenues from customer support services ratably over the
contract term, typically one year, and recognize revenues for consulting and
training services as the services are performed.

  Statement of Position 97-2, "Software Revenue Recognition," was issued in
October 1997 by the American Institute of Certified Public Accountants and was
amended by Statement of Position 98-4. We adopted Statement of Position 97-2
effective January 1, 1998. The American Institute of Certified Public
Accountants has also issued Statement of Position 98-9, which is effective for
us for transactions entered into beginning January 1, 2000. However, full
implementation guidelines for this standard have not yet been issued. Once
available, these implementation guidelines could lead to unanticipated changes
in our current revenue accounting practices.

  Accounting standard setters, including the Securities and Exchange
Commission and the Financial Accounting Standards Board, are also currently
reviewing the accounting standards related to business combinations and
revenue recognition. Any changes to these accounting standards or any other
accounting standards or the way these standards are interpreted or applied
could require us to change the manner in which we recognize revenue or the way
we account for stock compensation or for any acquisition we may pursue or
other aspects of our business, in a manner that could adversely affect our
reported financial results.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

  We are exposed to financial market risks, including changes in interest
rates and foreign currencies.

Interest Rate Risk

  We typically do not attempt to reduce or eliminate our market exposures on
our investment securities because the majority of our investments are short
term. We do not have any derivative instruments. The fair value of our
investment portfolio or related income would not be significantly impacted by
either a 100 basis point increase or decrease in interest rates due primarily
to the short-term nature of the major portion of our investment portfolio. All
of the potential changes noted above are based on sensitivity analysis
performed on our balances as of September 30, 2000.

Foreign Currency Risk

  The majority of our sales and our expenses are currently denominated in U.S.
dollars. As a result, we have not experienced significant foreign exchange
gains and losses. While we conducted some transactions in foreign currencies
during the first nine months of 2000 and expect to continue to do so in the
future, foreign exchange gains or losses have not been and are not expected to
be material to Onyx. Although we have not engaged in foreign currency hedging
to date, we may do so in the future.

                                      27
<PAGE>

                           PART II--OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

  (a) Exhibits

<TABLE>
<CAPTION>
 Exhibit No.                             Description
 -----------                             -----------
 <C>         <S>
     3.1     Restated Articles of Incorporation of the registrant.

     3.2     Amended and Restated Bylaws of the registrant (incorporated by
             reference to the registration statement on Form S-1 (No. 333-6889)
             filed by registrant on December 8, 1998, as amended).

     4.1     Rights Agreement, dated as of October 25, 1999, between the
             registrant and ChaseMellon Shareholder Services, LLC (incorporated
             by reference to the registration statement on Form 8-A (No. 0-
             25361) filed by registrant on October 28, 1999).

    27.1     Financial Data Schedule.
</TABLE>

  (b) Reports on Form 8-K

  (1)  On July 17, 2000, we filed a current report on Form 8-K with respect
       to the amendment of the Market Solutions Limited Sale and Purchase
       Agreement.

                                       28
<PAGE>

                                   SIGNATURES

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

                                          ONYX SOFTWARE CORPORATION
                                          (Registrant)

                                                   /s/ Brent R. Frei
Date: November 13, 2000                   By: _________________________________
                                                       Brent R. Frei
                                                 President, Chief Executive
                                             Officer and Chairman of the Board

                                                  /s/ Amy E. Kelleran
Date: November 13, 2000                   By: _________________________________
                                                      Amy E. Kelleran
                                              Interim Chief Financial Officer
                                                  and Assistant Secretary
                                                  (Principal financial and
                                                 chief accounting officer)

                                       29
<PAGE>

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
 Exhibit No.                             Description
 -----------                             -----------
 <C>         <S>
     3.1     Restated Articles of Incorporation of the registrant.

     3.2     Amended and Restated Bylaws of the registrant (incorporated by
             reference to the registration statement on Form S-1 (No. 333-6889)
             filed by registrant on December 8, 1998, as amended).

     4.1     Rights Agreement, dated as of October 25, 1999, between the
             registrant and ChaseMellon Shareholder Services, LLC (incorporated
             by reference to the registration statement on Form 8-A (No. 0-
             25361) filed by registrant on October 28, 1999).

    27.1     Financial Data Schedule.
</TABLE>