<PAGE>

================================================================================

                      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 June 30, 2001

[ ]  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)

        Washington                                            91-1629814
(State or other jurisdiction of                              (IRS Employer
incorporation or organization)                            Identification No.)

                            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, par value $0.01 per share,
outstanding on August 6, 2001 was 40,977,542.

================================================================================
<PAGE>

                           ONYX SOFTWARE CORPORATION

                                   CONTENTS

<TABLE>
<S>        <C>                                                                                                            <C>
PART I--FINANCIAL INFORMATION...........................................................................................   2

Item 1.    Consolidated Financial Statements............................................................................   2

           Consolidated Balance Sheets as of December 31, 2000 and June 30, 2001........................................   2

           Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2000 and 2001..............   3

           Consolidated Statement of Shareholders' Equity for the Three Months Ended March 31, 2001 and June 30, 2001...   4

           Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2000 and 2001........................   5

           Notes to Consolidated Financial Statements...................................................................   6

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations........................  13

Item 3.    Quantitative and Qualitative Disclosures About Market Risk...................................................  30

PART II--OTHER INFORMATION..............................................................................................  30

Item 4.    Submission of Matters to a Vote of Security Holders..........................................................  30

Item 6.    Exhibits and Reports on Form 8-K.............................................................................  30

SIGNATURES..............................................................................................................  31
</TABLE>

                                       1
<PAGE>

                         PART I--FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements

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

<TABLE>
                                                                                        December 31,      June 30,
                                                                                            2000            2001
                                                                                        ------------    -----------
                                                                                          (Restated)    (Unaudited)
<S>                                                                                     <C>             <C>
                                 ASSETS
                                 ------
Current assets:
 Cash and cash equivalents...........................................................      $ 11,492     $ 20,387
 Short-term investments..............................................................         5,522        4,902
 Accounts receivable, less allowances of $1,732 in 2000 and $3,000 in 2001...........        41,135       27,376
 Prepaid expense and other...........................................................         4,533        6,118
                                                                                           --------     --------
   Total current assets..............................................................        62,682       58,783

 Property and equipment, net.........................................................        20,848       28,872
 Purchased technology, net...........................................................         1,958        1,315
 Other intangibles, net..............................................................        19,674       21,121
 Other assets........................................................................         3,878        2,028
                                                                                           --------     --------
   Total assets......................................................................      $109,040     $112,119
                                                                                           ========     ========

                  LIABILITIES AND SHAREHOLDERS' EQUITY
                  ------------------------------------

Current liabilities:
 Accounts payable....................................................................      $  6,792     $  5,039
 Salary and benefits payable.........................................................         5,778        3,829
 Accrued liabilities.................................................................         4,691        5,743
 Income taxes payable................................................................           808          650
 Current portion of long-term obligations............................................           242          172
 Restructuring-related liabilities...................................................            --          425
 Deferred revenues...................................................................        19,119       18,195
                                                                                           --------     --------
   Total current liabilities.........................................................        37,430       34,053

Long-term obligations, net of current portion........................................           428          339
Deferred tax liability...............................................................         2,201        1,908
Minority interest in joint venture                                                            2,895        2,228

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--37,597,670 shares at December 31, 2000
   and 40,964,458 at June 30, 2001...................................................        75,416      113,963
 Common stock issuable in acquisition................................................         4,320        4,320
 Notes receivable from officers for common stock.....................................          (157)          --
 Deferred stock-based compensation...................................................          (413)      (1,384)
 Accumulated deficit.................................................................       (12,776)     (42,204)
 Accumulated other comprehensive loss................................................          (304)      (1,104)
                                                                                           --------     --------
   Total shareholders' equity........................................................        66,086       73,591
                                                                                           --------     --------
   Total liabilities and shareholders' equity........................................      $109,040     $112,119
                                                                                           ========     ========
</TABLE>

         See accompanying notes to consolidated financial statements.

                                       2
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                 Three Months Ended      Six Months Ended
                                                                                      June 30,               June 30,
                                                                                ---------------------  ---------------------
                                                                                   2000       2001       2000        2001
                                                                                 -------    --------    -------    --------
                                                                                    (Unaudited)            (Unaudited)
<S>                                                                             <C>         <C>        <C>         <C>
Revenues:
 License......................................................................   $16,615    $ 11,779    $30,956    $ 24,767
 Support and service..........................................................    11,020      17,118     19,863      32,445
                                                                                 -------    --------    -------    --------
   Total revenues.............................................................    27,635      28,897     50,819      57,212
Cost of revenues:
 License......................................................................       831         588      1,491       1,488
 Acquisition-related amortization - technology................................       205         204        410         408
 Support and service..........................................................     5,634       9,704     10,148      19,378
                                                                                 -------    --------    -------    --------
   Total cost of revenues.....................................................     6,670      10,496     12,049      21,274
                                                                                 -------    --------    -------    --------
Gross margin..................................................................    20,965      18,401     38,770      35,938
Operating expenses:
 Sales and marketing..........................................................    13,421      16,196     24,801      35,384
 Research and development.....................................................     4,784       5,844      8,542      13,073
 General and administrative...................................................     2,458       4,684      4,577       8,750
 Restructuring and other related charges......................................        --       3,589         --       3,589
 Acquisition-related amortization - other intangibles.........................       881       1,623      1,557       3,246
 Amortization of stock-based compensation.....................................       146         226        352         536
                                                                                 -------    --------    -------    --------
   Total operating expenses...................................................    21,690      32,162     39,829      64,578
                                                                                 -------    --------    -------    --------
Loss from operations..........................................................      (725)    (13,761)    (1,059)    (28,640)
Interest income, net..........................................................       291         151        483         442
Equity investment losses and impairment.......................................      (200)       (500)      (437)     (2,000)
                                                                                 -------    --------    -------    --------
Loss before income taxes......................................................      (634)    (14,110)    (1,013)    (30,198)
Income tax provision (benefit)................................................       104          (8)       212        (102)
Minority interest in loss of consolidated subsidiary..........................        --        (414)        --        (668)
                                                                                 -------    --------    -------    --------
Net loss......................................................................   $  (738)   $(13,688)   $(1,225)   $(29,428)
                                                                                 =======    ========    =======    ========
Net loss per share:
 Basic and diluted............................................................    $(0.02)     $(0.35)    $(0.04)     $(0.76)
                                                                                 =======    ========    =======    ========
Shares used in calculation of net loss per share:
 Basic and diluted............................................................    34,720      39,213     34,487      38,505
                                                                                 =======    ========    =======    ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                  Note
                                                                  Common        Receivable
                                             Common Stock          Stock     from Officer for    Deferred
                                         ---------------------  Issuable in       Common        Stock-Based   Accumulated
                                           Shares     Amount    Acquisition       Stock        Compensation     Deficit
                                         ----------  ---------  -----------  ----------------  -------------  ------------
<S>                                      <C>         <C>        <C>          <C>               <C>            <C>
Balance at January 1, 2001 (restated)..  37,597,670  $ 75,416        $4,320            $(157)       $  (413)     $(12,776)
Issuance of common stock and
 options in connection with
 acquisition...........................     185,463     5,659            --               --         (1,840)           --
Amortization of deferred
 stock compensation....................          --        --            --               --            310            --
Exercise of stock options..............     401,072       560            --               --             --            --
Proceeds from public offering,
 net of offering costs of
 $350..................................   2,500,000    31,525            --               --             --            --
Comprehensive income (loss):
Cumulative translation loss............          --        --            --               --             --
Unrealized losses on
 marketable securities.................          --        --            --               --             --
Net loss (restated)....................          --        --            --               --             --       (15,740)
Total comprehensive loss (restated)....
                                         ----------  --------   -----------  ---------------        -------   -----------
Balance at March 31, 2001 (restated)...  40,684,205  $113,160        $4,320            $(157)       $(1,943)     $(28,516)
                                         ==========  ========   ===========  ===============        =======   ===========
 Issuance of common stock
 under ESPP............................     137,102       932
Exercise of stock options..............     143,151        99
Amortization of deferred
 stock compensation....................                                                                 226
Reversal of deferred stock
  compensation associated with
  terminated employees.................                  (333)                                          333
Warrants issued in connection with
  financing............................                                105
Officerloan repayment..................                                                 157
Cumulative translation loss............
Unrealized losses on
 marketable securities.................
Net loss...............................                                                                          (13,688)
Total comprehensive loss...............
                                        ----------  --------   -----------  ---------------        -------   -----------
Balance at June 30, 2001............... 40,964,458  $113,963        $4,320   $         --          $(1,384)     $(42,204)
                                        ==========  ========   ===========  ===============        =======   ===========
</TABLE>

<TABLE>
<CAPTION>
                                     Accumulated Other
                                       Comprehensive     Shareholders'
                                            Loss             Equity
                                     ------------------  --------------
<S>                                  <C>                 <C>
Balance at January 1, 2001.........            $  (304)       $ 66,086
Issuance of common stock and
 options in connection with
 acquisition.......................                 --           3,819
Amortization of deferred
 stock compensation................                 --             310
Exercise of stock options..........                 --             560
Proceeds from public offering,
 net of offering costs of
 $350..............................                 --          31,525
Comprehensive income (loss):
Cumulative translation loss........               (780)
Unrealized losses on
 marketable securities.............                (12)
Net loss...........................
Total comprehensive loss...........                            (16,532)
                                               -------        --------
Balance at March 31, 2001..........            $(1,096)       $ 85,768
                                               =======        ========
 Issuance of common stock
 under ESPP........................                                932
Exercise of stock options..........                                 99
Amortization of deferred
 stock compensation................                                226
Reversal of deferred stock
  compensation associated with
  terminated employees.............                                 --
Warrants issued in connection with
  financing........................                                105
Officerloan repayment..............                                157
Cumulative translation loss........                 (4)
Unrealized losses on
 marketable securities.............                 (4)
Net loss...........................
Total comprehensive loss...........                            (13,696)
                                               -------         --------
Balance at June 30, 2001...........            $(1,104)        $ 73,591
                                               =======         ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In thousands)

<TABLE>
<CAPTION>
                                                                                          Six Months Ended
                                                                                              June 30,
                                                                                        ---------------------
                                                                                            2000        2001
                                                                                         -------    --------
                                                                                            (Unaudited)
<S>                                                                                     <C>        <C>
Operating activities:
Net loss to common shareholders.......................................................   $(1,225)   $(29,428)
Adjustments to reconcile net loss to net cash provided by operating activities:
 Depreciation and amortization........................................................     3,909       6,954
 Accretion of premium on investments..................................................        43           5
 Deferred income taxes................................................................      (267)       (293)
 Noncash stock-based compensation expense.............................................       352         536
 Minority interest in loss of consolidated subsidiary.................................        --        (667)
 Equity investment losses and impairment                                                     437       2,000
 Changes in operating assets and liabilities:
  Accounts receivable.................................................................      (614)     13,652
  Other assets........................................................................    (4,469)     (1,671)
  Accounts payable and accrued liabilities............................................     4,237      (2,159)
  Deferred revenue....................................................................     3,948      (1,131)
  Income taxes........................................................................       183        (158)
                                                                                         -------    --------
   Net cash provided by (used in) operating activities................................     6,534     (12,360)
Investing activities:
Purchases of securities...............................................................    (7,007)     (4,900)
Proceeds from maturity of securities..................................................    16,270       5,515
Acquisition of CSN in 2000 and RevenueLab in 2001, net of cash........................      (996)       (869)
Purchases of property and equipment...................................................    (5,720)    (11,000)
                                                                                         -------    --------
   Net cash provided by (used in) investing activities................................     2,547     (11,254)
Financing activities:
Proceeds from exercise of stock options...............................................       972         659
Proceeds from issuance of shares under employee stock purchase plan...................       840         932
Payments on capital lease obligations.................................................       (90)       (159)
Payments on long-term debt............................................................      (326)         --
Proceeds from shareholder notes.......................................................        55         157
Payments on operating line of credit..................................................      (107)
Net proceeds from sale of common stock................................................        --      31,525
                                                                                         -------    --------
   Net cash provided by financing activities..........................................     1,344      33,114
Effects of exchange rate changes on cash..............................................        12        (605)
Net increase in cash and cash equivalents.............................................    10,437       8,895
Cash and cash equivalents at beginning of period......................................     3,691      11,492
                                                                                         -------    --------
Cash and cash equivalents at end of period............................................   $14,128    $ 20,387
                                                                                         =======    ========

Supplemental cash flow disclosure:
Interest paid.........................................................................   $   101    $    116
Income taxes paid, net................................................................       296         349
Issuance of common stock and stock options in connection with acquisition.............     2,261       5,659
Issuance of short-term debt in connection with acquisition............................     1,131          --
Technology purchased through short-term debt..........................................       509          --
Warrants issued in connection with financing arrangement..............................       509         105
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       5
<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, or the Company, is a leading
provider of enterprise-wide, customer relationship management, or CRM, solutions
designed to promote strategic business improvement and revenue growth by
enhancing the way businesses market, sell and service their products. Using the
Internet in combination with traditional forms of interaction, including phone,
mail, fax and email, the Company's solution helps 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 such as marketing, sales, customer service and
technical support. The Company's solution uses 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 the state of Washington
on February 23, 1994 and maintains its headquarters in Bellevue, Washington.

Interim Financial Information

     On August 10, 2001, the Company announced the completion of an
investigation prompted by its discovery in mid-July 2001 of an unauthorized side
agreement. The investigation included a review of selected transactions entered
into in 1999, 2000 and the first six months of 2001. The investigation efforts
were directed by the Company's audit committee of the board of directors, and
carried out by the Company's outside law firm and its auditors, with the full
cooperation of the Company's management. As a result of the investigation, the
Company identified two definitive unauthorized side agreements and two possible
unauthorized side agreements with respect to contracts aggregating $797,000, and
determined that the accounting for these contracts required revision. In
addition, upon completion of the investigation and a thorough review of all the
facts now available with the benefit of hindsight, the Company believed it was
appropriate to reverse three other transactions aggregating $1.4 million, all of
which have not been paid. All of these transactions were recorded during the
fourth quarter of 2000, and reversal of the transactions resulted in a $2.2
million adjustment to license revenues for that quarter. Accordingly, the
consolidated financial statements for the year and quarter ended December 31,
2000 have been restated. As a result of the restatement of the fourth quarter of
2000, support and service revenues were reduced by $74,000 in the first quarter
of 2001 and bad debt expense was reduced by $384,000 in the first quarter of
2001, which consequently improved reported earnings by $310,000. The
consolidated financial statements for the six months ended June 30, 2001 include
the restated financial results for the three months ended March 31, 2001. For
further information, refer to the restated audited consolidated financial
statements for the year ended December 31, 2000 included in the Company's Form
10-K/A filed with the Securities and Exchange Commission, or SEC, on August 17,
2001 and the restated consolidated financial statements for the three months
ended March 31, 2001 in the Company's Form 10-Q/A filed with the SEC on August
17, 2001.

     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 SEC. In our
opinion, the financial 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 the Company's restated audited consolidated financial
statements for the year ended December 31, 2000, included in the Company's Form
10-K/A filed with the SEC on August 17, 2001. The Company's 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

     The Company recognizes revenue in accordance with accounting standards for
software companies, including the American Institute of Certified Public
Accountants, or AICPA's, Statement of Position 97-2, Software Revenue
Recognition, or SOP 97-2, as amended by SOP 98-4, SOP 98-9, and related
interpretations including Technical Practice Aids.

     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
Application Service Providers, or ASPs, and indirectly through sublicense fees
from value-added resellers, or VARs 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.

                                       6
<PAGE>

                           ONYX SOFTWARE CORPORATION

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

     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 the undelivered 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 not change before market introduction.
Elements included in multiple-element arrangements could consist of software
products, maintenance (which includes customer support services and upgrades),
or consulting services. If a nonstandard 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, ASPs and VARs 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 impacted by the services. 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.

Concentration of Credit Risk and Major Customers

     Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of accounts receivable. The
Company's customer base is dispersed across many different geographic areas
throughout North America, Europe, Asia/Pacific and Latin America and consists of
companies in a variety of industries. The Company generally does not require
collateral or other security to support credit sales, but provides an allowance
for bad debts based on historical experience and specifically identified risks.
As of and for the three and six months ended June 30, 2001, no single customer
accounted for more than 10% of total revenues or accounts receivable.

Foreign Currency Translation

     The functional currency of the Company's foreign subsidiaries is the local
currency in the country in which the subsidiary is located. Assets and
liabilities denominated in foreign currencies are translated to U.S. dollars at
the exchange rate in effect on the balance sheet date. Revenues and expenses are
translated at the average monthly rates of exchange prevailing throughout the
year. The translation adjustment resulting from this process is shown within
accumulated other comprehensive income (loss) as a component of shareholders'
equity. Gains and losses on foreign currency transactions are included in the
consolidated statement of operations as incurred.

Reclassifications

     Certain prior period amounts have been reclassified to conform with the
current period presentation. Such reclassifications had no impact on the results
of operations or shareholders' equity for any period presented.

3.  Stock-Based Compensation

     Stock-based compensation includes stock-based charges resulting from
option-related deferred compensation recorded at the Company's initial public
offering and certain compensation arrangements with third-party consultants, as
well as the portion of acquisition-related consideration conditioned on the
continued tenure of key employees of certain acquired businesses, which must be
classified as compensation expense rather than as a component of purchase price
under accounting principles generally accepted in the United States. Stock-based
compensation was $146,000 and $226,000 for the three months ended June 30, 2000
and 2001, respectively, and $352,000 and $536,000 for the six months ended June
30, 2000 and 2001, respectively.

     The increase in stock-based compensation during the three and six months
ended June 30, 2001 resulted from the vesting and corresponding amortization of
deferred stock-based compensation by employees associated with the acquisition
of RevenueLab in January 2001, which had the effect of increasing stock-based
compensation in comparison with the same periods in the prior year.

                                       7
<PAGE>

                           ONYX SOFTWARE CORPORATION

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

     The following table shows the amounts of stock-based compensation that
would have been recorded under the following income statement categories had
stock-based compensation not been separately stated in the consolidated
statements of operations (in thousands):

<TABLE>
<CAPTION>
                                                                          Three Months Ended  Six Months Ended
                                                                               June 30,           June 30,
                                                                          ------------------  ----------------
                                                                              2000      2001     2000     2001
                                                                             -----     -----    -----    -----
                                                                             (Unaudited)        (Unaudited)
<S>                                                                       <C>       <C>       <C>      <C>
 Support and service cost of sales......................................     $  33     $  44    $  66    $ 167
 Sales and marketing....................................................        53       149      165      300
 Research and development...............................................        18        10       37       21
 General and administrative.............................................        42        24       84       48
                                                                             -----     -----    -----    -----
   Total amortization of stock-based compensation.......................     $ 146     $ 226    $ 352    $ 536
                                                                             =====     =====    =====    =====
</TABLE>

4.  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.


<TABLE>
<CAPTION>
                                                                      Three Months Ended        Six Months Ended
                                                                           June 30,                 June 30,
                                                                    -----------------------  -----------------------
                                                                         2000         2001        2000         2001
                                                                      -------     --------     -------     --------
                                                                    (in thousands, except    (in thousands, except
                                                                       per share data)          per share data)
<S>                                                                 <C>         <C>          <C>         <C>
Net income (loss) (A).............................................    $  (738)    $(13,688)    $(1,225)    $(29,428)
                                                                      =======     ========     =======     ========

Weighted average number of common shares (1)(B)...................     34,720       39,213      34,487       35,505
                                                                      -------     --------     -------     --------
  Effect of stock options:
  Stock options...................................................          *            *           *            *
                                                                      -------     --------     -------     --------

Adjusted weighted average shares and assumed conversions (C)......     34,720       39,213      34,487       35,505
                                                                      =======     ========     =======     ========
Loss per share:
  Basic (A)/(B)...................................................    $ (0.02)    $  (0.35)    $ (0.04)    $  (0.76)
  Diluted (A)/(C).................................................    $ (0.02)    $  (0.35)    $ (0.04)    $  (0.76)
</TABLE>

----------------
(1)  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 a promissory note to the
     Company are only considered in calculating diluted earnings per share. The
     number of restricted shares outstanding during the three and six months
     ended June 30, 2000 was 1,600,000. The outstanding promissory note was paid
     in full during the second quarter of 2001. As a result, the shares
     associated with the promissory note were included in the weighted average
     number of common shares outstanding on a weighted basis from the date of
     repayment, which totaled 53,000 shares for the three months ended June 30,
     2001 and 27,000 shares for the six months ended June 30, 2001. Included in
     the weighted average number of common shares outstanding for the three
     months ended June 30, 2001 is 2,500,000 shares of common stock from our
     public offering completed on February 12, 2001. Included in the weighted
     average number of common shares outstanding for the six months ended June
     30, 2001 is 1,906,000 shares of common stock from our public offering
     completed on February 12, 2001.

*    Excluded from the computation of diluted earnings per share because the
     effects are antidilutive. Options to purchase 7,429,533 shares of common
     stock with exercise prices of $0.06 to $38.09 per share were outstanding as
     of June 30, 2000 and options to purchase 12,748,164 shares of common stock
     with exercise prices of $0.10 to $38.09 per share were outstanding as of
     June 30, 2001.

                                       8
<PAGE>

                           ONYX SOFTWARE CORPORATION

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

5.  Accumulated Other Comprehensive Income (Loss)

    Ending accumulated balances for each item in accumulated other comprehensive
income (loss) are as follows:

<TABLE>
<CAPTION>
                                                          December 31,     June 30,
                                                              2000           2001
                                                             -----         -------
                                                                (in thousands)
<S>                                                       <C>              <C>
Unrealized currency loss..............................       $(277)        $(1,061)
Unrealized loss on marketable securities..............         (27)            (43)
                                                             -----         -------
 Total accumulated other comprehensive loss...........       $(304)        $(1,104)
                                                             =====         =======
</TABLE>

6.  Line of Credit

     In November 2000, the Company entered into a loan and security agreement
with Silicon Valley Bank and Comerica Bank California, which contains a $25.0
million working capital revolving line of credit that is secured by the
Company's accounts receivable, property and equipment, and intellectual
property. This facility allows the Company to borrow up to the lesser of 80% of
its eligible accounts receivable or $25.0 million and bears interest at the
bank's prime rate, which was 6.75% as of June 30, 2001. The facility expires in
August 2001. As of June 30, 2001, the Company had no outstanding borrowings
under the working capital facility; however, there was approximately $10.0
million in standby letters of credit outstanding in connection with its
facilities, of which $7.4 million represents a security deposit for tenant
improvements and rent associated with additional facilities in Bellevue,
Washington. In July 2001, the Company entered into an equipment lease requiring
a $1.0 million standby letter of credit. In obtaining the letter of credit, the
Company was required to restrict $1.0 million in cash deposits.

     The loan and security agreement with Silicon Valley Bank and Comerica
Bank California required the Company to maintain certain financial covenants.
The Company was not in compliance with these covenants at March 31, 2001 or June
30, 2001 and, as a result, the banks have the right to restrict the Company's
cash deposits in the amount of the standby letters of credit. To date, other
than the $1.0 million in cash deposits restricted in connection with the
Company's equipment lease letter of credit executed in July 2001, the banks have
not restricted any cash deposits. The Company is in the process of seeking
approval of a new facility with revised financial covenants, preferably
including both Silicon Valley Bank and Comerica Bank California. Silicon Valley
Bank has approved the renewal of this facility for up to $15.0 million, and the
Company is awaiting the approval of Comerica Bank California's participation to
increase the size of the facility to $25.0 million. The Company expects to
confirm Comerica Bank California's participation in the facility by the end of
August 2001. Upon execution of an amended loan and security agreement, the $1.0
million in cash deposits pledged by the Company to secure the standby letter of
credit for the Company's equipment lease will be released.

7.  Long-Term Debt, Commitments and Contingencies

     In June 2001, the Company entered into a five-year operating lease
associated with furniture for its new Bellevue facility. The minimum lease
payments associated with this lease total $2.1 million. In July 2001, the
Company entered into a three-year operating lease associated with equipment for
its new Bellevue facility. The minimum lease payments associated with this lease
total $2.2 million. In connection with the equipment lease, the Company posted a
standby letter of credit for $1.0 million as security.

                                       9
<PAGE>

                           ONYX SOFTWARE CORPORATION

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

7.  International Operations

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

<TABLE>
<CAPTION>
                                                                           North     Rest of
                                                                          America     World      Total
                                                                         ---------  ---------  ----------
<S>                                                                      <C>        <C>        <C>
Quarter ended June 30, 2000 (unaudited):
 Revenues..............................................................  $ 21,365   $  6,270    $ 27,635
 Operating income (loss) (including acquisition-related amortization)..     3,439     (4,164)       (725)
 Interest income, net..................................................       292         (1)        291
 Depreciation and amortization.........................................     1,332        966       2,298
 Purchases of property and equipment...................................     3,811        176       3,987
 Long-lived assets.....................................................    18,459     14,697      33,156
 Total assets..........................................................  $ 67,445   $ 19,211    $ 86,656

Quarter ended June 30, 2001 (unaudited):
 Revenues..............................................................  $ 20,550   $  8,347    $ 28,897
 Operating income (loss) (including acquisition-related amortization)..    (6,391)    (7,297)    (13,688)
 Interest income, net..................................................       151         --         151
 Depreciation and amortization.........................................     1,647      1,651       3,298
 Purchases of property and equipment...................................     5,808         24       5,832
 Long-lived assets.....................................................    32,170     21,168      53,338
 Total assets..........................................................  $ 79,154   $ 32,965    $112,119

Six months ended June 30, 2000 (unaudited):
 Revenues..............................................................  $ 38,735   $ 12,085    $ 50,820
 Operating income (loss) (including acquisition-related amortization)..     5,574     (6,633)     (1,059)
 Interest income, net..................................................       493        (10)        483
 Depreciation and amortization.........................................     2,217      1,692       3,909
 Purchases of property and equipment...................................     5,466        254       5,720
 Long-lived assets.....................................................    18,459     14,697      33,156
 Total assets..........................................................  $ 67,445   $ 19,211    $ 86,656

Six months ended June 30, 2001 (unaudited):
 Revenues..............................................................  $ 42,216   $ 14,996    $ 57,212
 Operating income (loss) (including acquisition-related amortization)..   (13,005)   (15,635)    (28,640)
 Interest income, net..................................................       441          1         442
 Depreciation and amortization.........................................     3,731      3,223       6,954
 Purchases of property and equipment...................................    10,415        585      11,000
 Long-lived assets.....................................................    32,170     21,168      53,338
 Total assets..........................................................  $ 79,154   $ 32,965    $112,119
</TABLE>

8.  Shareholders' Equity

Stock Split

     In March 2000, the Company completed a two-for-one stock split (effected 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.

Equity Financing Arrangement

     Although we have a potential $30 million equity financing arrangement with
Ramius Securities and Ramius Capital, the underwriting terms of this facility
were not approved by the National Association of Securities Dealers, or NASD. We
are in the process of renegotiating the terms of this facility with Ramius
Securities and Ramius Capital in order to obtain NASD approval. The fees and the
value of the warrants, approximating $1.6 million, have been recorded in other
current assets and other current liabilities.

                                       10
<PAGE>

                           ONYX SOFTWARE CORPORATION

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

2001 Nonofficer Employee Stock Compensation  Plan

     On April 27, 2001, the Board of Directors approved an amendment to the 2001
Nonofficer Employee Stock Compensation Plan increasing the total number of
shares reserved for issuance under the plan to 3,500,000.

1998 Employee Stock Purchase Plan Amendment

     In 1998, the board of directors and shareholders adopted the 1998 Employee
Stock Purchase Plan. The purpose of the purchase plan is to enhance long-term
shareholder value by assisting employees in acquiring stock ownership in the
Company and to encourage employees to remain in service. Before it was recently
amended, the purchase plan was implemented by a series of offerings that
commenced on January 1 and July 1 of each year and ended on the next June 30 and
December 31, respectively, occurring after that date, each referred to as an
offering period. Each offering period consisted of a single six-month purchase
period. Each purchase period commenced on January 1 and July 1 of each year and
ended on the next June 30 and December 31, respectively, occurring after that
date.

On April 6, 2001, the board of directors adopted an amendment to the purchase
plan which was approved by the shareholders on June 7, 2001. The amended
purchase plan will be implemented by a series of offerings that commence on
January 1 and July 1 of each year and end on the second December 31 and June 30,
respectively, occurring after such date, each referred to as an amended offering
period; provided, however, that the offering period that began on January 1,
2001 ended on June 30, 2001. Each amended offering period will consist of four
consecutive six-month purchase periods; provided, however, that the offering
period that began on January 1, 2001 consisted of one six-month purchase period.

9.  Equity Investment Losses and Impairment

     During 1999 and 2000, the Company invested $3.5 million in a small number
of private companies. The carrying value of these investments is included in
"other assets" on the accompanying consolidated balance sheets and totaled $3.0
million at December 31, 2000 and $1.0 million at June 30, 2001.

     One of these investments was accounted for using the equity method of
accounting due to the Company's ability to exercise significant influence, but
not control, over the investee. The entire balance of the $500,000 initial
investment in this company was reduced to zero during 2000 as the Company
recorded its proportionate share of the losses in the investee ($200,000 during
the three months ended June 30, 2000 and $437,000 during the six months ended
June 30, 2000.)

     The remaining private equity investments are accounted for on a cost basis
due to the fact that the Company does not have the ability to exercise
significant influence over the investee. Under the cost method of accounting,
investments in private companies are carried at cost and are adjusted only for
other-than-temporary declines in fair value, distributions of earnings and
additional investments. The Company periodically evaluates whether the declines
in fair value of its investments are other-than-temporary. This evaluation
consists of a review of qualitative and quantitative factors by members of
senior management, including a review of the investee's financial condition,
results of operations, operating trends and other financial ratios. The Company
further considers the implied value from any recent rounds of financing
completed by the investee, as well as market prices of comparable public
companies. The Company generally requires its private investees to deliver
monthly, quarterly and annual financial statements to assist in reviewing
relevant financial data and to assist in determining whether such data may
indicate other-than-temporary declines in fair value below the Company's
accounting basis. The Company generally considers a decline to be an other-than-
temporary impairment if the estimated value is less than its accounting basis
for two consecutive quarters, absent evidence to the contrary.

                                       11
<PAGE>

                           ONYX SOFTWARE CORPORATION

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

     The Company reported impairment losses, which totaled $500,000 during the
three month period ended June 30, 2001 and $1.5 million during the six month
period ended June 30, 2001, relating to other-than-temporary declines in three
of its cost basis equity investments based upon a recent review of qualitative
and quantitative factors surrounding the financial condition of the investees.
These other than temporary impairment losses were recorded to reflect each
investment at its estimated fair value. No other than temporary impairment-
related losses were incurred in 2000.

10.  Restructuring and Other Related Charges

     In April 2001, the company began its restructuring efforts to reduce
headcount, reduce infrastructure and eliminate excess and duplicate facilities.
For the three months ended June 30, 2001 the Company recorded approximately $3.6
million in restructuring and other related charges. Components of these charges
as of June 30, 2001 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                    Cash Payments         Balance at
                                 Initial Charge  and Asset Impairments   June 30, 2001
                                 --------------  ---------------------  --------------
        <S>                      <C>             <C>                    <C>
        Excess facilities                $1,187         $(1,187)             $ --
        Employee separation
        costs                             1,332          (1,023)              309
        Asset impairments                   749            (749)               --
        Other                               321            (205)              116
                                         ------         -------              ----
        Total                            $3,589         $(3,164)             $425
</TABLE>

Employee separation costs, which include severance, related taxes, outplacement
and other benefits, owed to approximately 116 terminated employees, totaled
approximately $1.3 million during the quarter ended June 30, 2001, of which
approximately $1.0 million has been paid. Employee groups impacted by the
restructuring include personnel in the sales, marketing, service, engineering,
and general and administrative functions. Remaining cash payments resulting from
the restructuring are approximately $425,000 and relate primarily to employee
separations costs for employees separated by June 30, 2001 and other
restructuring-related charges incurred during the second quarter.

     Excess facilities represent facilities costs incurred during the three-
month period for space which was unutilized as a result of the reduction in
force and restructuring. Asset impairments relate primarily to prepaid royalties
for certain third-party products that Onyx no longer plans to focus any
significant reselling effort on with its reduced workforce and realigned
operations. Other charges primarily include deposits and obligations for trade
shows which will be abandoned as a result of the restructuring. The Company is
continuing to align its operations and review its restructuring efforts. The
Company believes that it will approve a formal restructuring plan in the third
quarter of 2001 and record additional related excess facility and employee
separation expenses and accruals.

     The Company plans to have a formal analysis completed prior to the end of
2001 to formally allocate the fair value of the intangible assets among the
identified intangible assets and goodwill. Based upon the nature of the
identified intangible assets, which are primarily composed of assembled
workforce and customer contracts, the impact of the analysis on the estimated
useful lives of the $4.7 million in goodwill and other intangibles is not
expected to be material.

11.  Related-Party Transaction

     On April 11, 2001, one of the Company's executive officers borrowed $1.0
million as a bridge loan from a commercial bank with a maturity date of August
6, 2001. As part of the bridge loan transaction, the Company agreed to guarantee
the officer's obligations under the bridge loan. The bridge loan was repaid in
full by the officer in June 2001 and the Company's guaranty was removed.

                                       12
<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, which provide our current expectations or forecasts of future
events. Forward-looking statements include statements about our plans,
objectives, expectations and intentions and other statements that are not
historical facts. When used in this discussion, the words "believes,"
"anticipates" and "intends" and similar expressions may identify forward-looking
statements, but the absence of these words does not necessarily mean that a
statement is not forward-looking. Forward-looking statements are subject to
known and unknown risks and uncertainties and are based on potentially
inaccurate assumptions that could cause actual results to differ materially from
those expected or implied by the forward-looking statements. Our actual results
could differ materially from those anticipated in these forward-looking
statements for many reasons, including the factors described below under
"Important Factors That May Affect Our Business, Our Results of Operations and
Our Stock Price."

     Readers should not unduly rely on the forward-looking statements, which
speak only as of the date of this report. We undertake no obligation to publicly
revise any forward-looking statements to reflect events or circumstances after
the date of this report or to reflect the occurrence of unanticipated events.
Readers should, however, review the factors and risks we describe in reports we
file from time to time with the Securities and Exchange Commission, or SEC,
after the date of this report.

Overview

     Onyx is a leading provider of enterprise-wide, customer relationship
management, or CRM, solutions designed to promote strategic business improvement
and revenue growth by enhancing the way businesses market, sell and service
their products. Using the Internet in combination with traditional forms of
interaction, including phone, mail, fax and email, our solution helps
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 such as marketing, sales, customer service and
technical support. Our solution uses 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
solution is designed to be 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 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. In 2000, our
revenues grew to $119.3 million. We incurred a net loss totaling $4.7 million.

     As referenced in previous filings, it is particularly difficult to predict
the timing or amount of our license revenues, which have comprised the majority
of our total revenues, because:

     .  our sales cycles are lengthy and variable, typically ranging between two
        and twelve 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;

                                       13
<PAGE>

     .  a substantial portion of our sales are completed at the end of the
        quarter and, as a result, a substantial portion of our license revenues
        are recognized in the last month of a quarter, and often in the last
        weeks or days of a quarter;

     .  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; and

     .  delay of new product releases can result in a customer's decision to
        delay execution of a contract or, for contracts that include the new
        release as an element of the contract, will result in deferral of
        revenue recognition until such release.

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 if our
revenues are lower than expected. During the first six months of 2001, we saw a
shift in the buying behavior of our targeted new and existing customer base as a
result of economic conditions leading to a delay of their capital spending
initiatives, which we believe was the primary reason we experienced a
significant license revenue shortfall relative to our original 2001 operating
plan.

     In this economic environment, we continue to believe it will be difficult
to predict our license revenue as capital spending initiatives of our targeted
new and existing customer base are delayed. Due to the uncertainty of near-term
sales growth, it was determined that Onyx's infrastructure, which had resulted
in 97% revenue growth in the prior year, was no longer suitable. In April 2001,
we began our restructuring efforts to reduce headcount, reduce infrastructure
and eliminate excess and duplicate facilities to re-align our organization
toward profitable growth. For the three months ended June 30, 2001, Onyx
recorded approximately $3.6 million in restructuring and other related charges.
Employee separation costs owed to approximately 116 terminated employees, which
include severance, related taxes, outplacement and other benefits, totaled
approximately $1.3 million during the quarter ended June 30, 2001, of which
approximately $1.0 million has been paid. Employee groups impacted by the
restructuring include personnel in the sales, marketing, service, engineering,
and general and administrative functions. Remaining cash expenditures resulting
from the second quarter restructuring are estimated to be approximately $425,000
and relate primarily to employee separation costs and other restructuring-
related activities.

     We are continuing to align our operations and review our restructuring
efforts. We believe that we will approve a formal restructuring plan in the
third quarter of 2001 and record additional related expenses and accruals. The
restructuring charge will include severance, as well as a material charge for
reduction of excess facilities that we believe will be held for sublease, the
majority of which are in Bellevue, Washington. If we are unable to successfully
sublease or terminate our excess facilities at terms acceptable to us,
particularly in Bellevue, Washington, we will incur substantial facilities costs
for which we will receive no economic benefit. In the near-term, we believe our
costs and operating expenses, excluding restructuring-related charges, will
continue to decrease to a level that is closer to our expected revenues while
allowing us to continue to invest in accordance with our strategic priorities.
However, we may be unable to achieve these expense reductions without adversely
affecting our business and results of operations. We expect to continue to
experience losses and negative cash flows in the near term, even if sales of our
products and services continue to grow.

     As we gain visibility into our long-term growth opportunity, we believe
that we may need to significantly increase our sales and marketing, product
development and professional services efforts to expand our market position and
further increase acceptance of our products. We may not be able to increase our
revenues sufficiently to keep pace with these growing expenditures, if at all,
and as a result, may be unable to achieve profitability in the future.

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 six months ended June
30, 2000 and 2001 are not necessarily indicative of the results that may be
expected for the full year or any future period.

                                       14
<PAGE>

<TABLE>
<CAPTION>
                                                                       Thee Months Ended    Six Months Ended
                                                                           June 30,             June 30,
                                                                      -------------------  ------------------
                                                                         2000       2001      2000    2001/1/
                                                                        -----     ------     -----    -------
<S>                                                                   <C>       <C>        <C>       <C>
Revenues:
 License............................................................     60.1%      40.8%     60.9%     43.3%
 Support and service................................................     39.9       59.2      39.1      56.7
                                                                        -----     ------     -----    ------
  Total revenues....................................................    100.0      100.0     100.0     100.0
                                                                        -----     ------     -----    ------
Cost of revenues:
 License............................................................      3.0        2.0       2.9       2.6
 Acquisition-related amortization--technology.......................      0.7        0.7       0.8       0.7
 Support and service................................................     20.4       33.6      20.0      33.9
                                                                        -----     ------     -----    ------
  Total cost of revenues............................................     24.1       36.3      23.7      37.2
                                                                        -----     ------     -----    ------
Gross margin........................................................     75.9       63.7      76.3      62.8
Operating expenses:
 Sales and marketing................................................     48.6       56.1      48.8      61.8
 Research and development...........................................     17.3       20.2      16.8      22.9
 General and administrative.........................................      8.9       16.2       9.0      15.3
 Restructuring and other related charges............................        -       12.4         -       6.3
 Acquisition-related charges--other intangibles.....................      3.2        5.6       3.1       5.7
 Amortization of stock-based compensation...........................      0.5        0.8       0.7       0.9
                                                                        -----     ------     -----    ------
  Total operating expenses..........................................     78.5      111.3      78.4     112.9
                                                                        -----     ------     -----    ------
Loss from operations................................................     (2.6)     (47.6)     (2.1)    (50.1)
Interest income, net................................................      1.0        0.5       1.0       0.8
Equity investment losses and impairment.............................     (0.7)      (1.7)     (0.9)     (3.5)
                                                                        -----     ------     -----    ------
Loss before income taxes............................................     (2.3)     (48.8)     (2.0)    (52.8)
Income tax provision (benefit)......................................     (0.4)       0.0       0.4      (0.2)
Minority interest in loss of consolidated subsidiary................        -       (1.4)        -      (1.2)
                                                                        -----     ------     -----    ------
Net loss............................................................    (2.7)%    (47.4)%    (2.4)%   (51.4)%
                                                                        =====     ======     =====    ======
</TABLE>
----------------
/1/ Includes restated financial results for the three months ended March 31,
    2001.

  Revenues

     Total revenues, which consist of software license and service revenues,
increased 5% from $27.6 million in the second quarter of 2000 to $28.9 million
in the second quarter of 2001. Total revenues increased 13% from $50.8 million
in the first six months of 2000 to $57.2 million in the first six months of
2001. No single customer accounted for more than 10% of our revenues in any of
these periods.

     Our license revenues decreased 29%, from $16.6 million in the second
quarter of 2000 to $11.8 million in the second quarter of 2001. Our license
revenues decreased 20%, from $31.0 million in the first six months of 2000 to
$24.8 million during the same period of 2001. License revenues in the second
quarter and first six months of 2001 were primarily recognized upon delivery of
software, as all other revenue recognition criteria were met. We believe the
decrease in license revenues in the three and six months ended June 30, 2001
compared to the prior year was primarily due to a shift in the buying behavior
of our targeted new and existing customer base as a result of economic
conditions leading to a delay of their capital-spending initiatives.

     Our support and service revenues increased 55%, from $11.0 million in the
second quarter of 2000 to $17.1 million in the second quarter of 2001. Of the
increase, $4.3 million was due to increased consulting and training services and
$1.8 million was due to increased maintenance and support revenues. Support and
service revenues represented 40% of our total revenues in the second quarter of
2000 and 59% in the second quarter of 2001. Our support and service revenues
increased 63%, from $19.9 million in the first six months of 2000 to $32.4
million in the first six months of 2001. Of the increase, $9.0 million was due
to increased consulting and training services and $3.5 million was due to
increased maintenance and support revenues. Support and service revenues
represented 39% of our total revenues for the first six months of 2000 and 57%
in the first six months of 2001. We expect support and service revenues to
decrease in absolute dollars in the third quarter because of our strategic
decision to provide more opportunities for our partners to engage with our
customers and due to the reduction in demand for our consulting services
resulting from the decrease in our license revenues in recent quarters. 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, the degree to which
we provide opportunities for our partners to engage with our customers and the
ongoing renewals of customer support contracts, as well as our overall sales of
software licenses to new and existing customers.

     Revenues outside of North America increased 33%, from $6.3 million in the
second quarter of 2000 to $8.3 million in the second quarter of 2001. Revenues
outside of North America increased 23%, from $12.1 million in the first six
months of 2000 to $14.8 million in the same period of 2001. The increase in
international revenues was primarily due to an increase in service revenues in
Europe, Australia and Southeast Asia, as well as new license and service
revenues derived from our investments in our Japanese joint venture.

                                       15
<PAGE>

  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
decreased 29%, from $831,000 in the second quarter of 2000 to $588,000 in the
second quarter of 2001. Cost of license revenues as a percentage of related
license revenues was 5% in each of the second quarter of 2000 and of 2001. Cost
of license revenues were $1.5 million in each of the first six months of 2000
and of 2001. In the first six months of 2000, cost of license revenues as a
percentage of related license revenues was 5% compared to 6% in the same period
of 2001. The increase in cost of license revenues as a percentage of related
license revenues resulted primarily from a reserve against third-party product
inventory charged in the first quarter of 2001 associated with product not yet
sold.

     Acquisition-related amortization--technology

     Acquisition-related amortization--technology represents the amortization of
capitalized technology associated with our acquisitions of EnCyc in 1998 and
Versametrix and Market Solutions in 1999. Acquisition-related amortization--
technology was $205,000 in the second quarter of 2000 and $204,000 in the second
quarter of 2001. Acquisition-related amortization--technology was $410,000 in
the first six months of 2000 and $408,000 in the first six months of 2001.

     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 72%, from $5.6 million in the second quarter
of 2000 to $9.7 million in the second quarter of 2001. Cost of service revenues
increased 91%, from $10.1 million in the first six months of 2000 to $19.4
million in the same period of 2001. The increase in dollar amount resulted
primarily from hiring and training consulting, support and training personnel to
support our growing customer base, as well as an increase in the use of third-
party service providers which have a higher cost structure than our internal
resources. Our service employees increased 42% from June 30, 2000 to June 30,
2001. Cost of service revenues as a percentage of related service revenues was
51% in the second quarter of 2000 compared to 57% in the second quarter of 2001.
Cost of service revenues as a percentage of service revenues was 51% for the six
months ended June 30, 2000, compared to 60% for the six months ended June 30,
2001. The increase in cost of service revenues as a percentage of related
service revenues is due to a higher proportion of service revenues from
consulting and training services, which have a higher direct cost structure and
therefore contribute lower margins than our customer support services, coupled
with a higher percentage use of third-party service providers in our consulting
engagements, which contribute significantly lower margins than internal
resources. 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 direct 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 21%, from $13.4 million in the second quarter of
2000 to $16.2 million in the second quarter of 2001. Sales and marketing
expenses increased 43%, from $24.8 million in the first six months of 2000 to
$35.4 million for the same period of 2001. 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
8% from June 30, 2000 to June 30, 2001. The increase in dollar amount in the
second quarter of 2001 is also the result of expenses associated with our
worldwide customer conference, which occurred in April 2001. Sales and marketing
expenses represented 49% of our total revenues in the second quarter of 2000,
compared to 56% in the second quarter of 2001. Sales and marketing expenses
represented 49% of our total revenues in the first six months of 2000 compared
to 62% in the first six months of 2001. The increase in sales and marketing
expenses as a percentage of total revenues reflects the more rapid growth of
sales and marketing expenses in this period compared to the growth of revenues,
where we experienced an unexpected shortfall.

     We initiated reductions in our distribution infrastructure to re-align our
organization toward profitable growth and incurred a restructuring charge in the
second quarter of 2001 as a result of the restructuring. In the near-term, we
believe our sales and marketing expenses will decrease from the second quarter
of 2001 while allowing us to continue to invest in accordance with our strategic
priorities. As we gain visibility into our long-term sales growth opportunity,
we believe that we may need to significantly increase our sales and marketing
efforts to expand our market position and further increase acceptance of our
products.

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<PAGE>

     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 22%, from $4.8 million in the second quarter of
2000 to $5.8 million in the second quarter of 2001. Research and development
expenses increased 53%, from $8.5 million in the first six months of 2000 to
$13.1 million for the same period of 2001. 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 8%
from June 30, 2000 to June 30, 2001. Research and development costs represented
17% of our total revenues in the second quarter of 2000 compared to 20% in the
second quarter of 2001. Research and development expenses represented 17% of our
total revenues in the first six months of 2000 compared to 23% in the first six
months of 2001. The increase in research and development expenses as a
percentage of total revenues is largely related to investments we have made in
expanding our product line to the Unix/Oracle platform and an increase in the
use of outside contractors, along with the more rapid growth of research and
development expenses in this period compared to the growth of revenues, where we
experienced an unexpected shortfall.

     Although research and development expenses were affected by the
restructuring, those development projects that we believe to be most strategic
to our long-term growth were protected. We believe our research and development
investments are essential to our strategic priorities. Accordingly, we
anticipate our research and development expenses will increase in future
periods. As we gain visibility into our long-term sales growth opportunity, we
believe that we may need to significantly increase our research and development
investment to expand our market position and continue to expand our product
line.

     General and administrative

     General and administrative expenses consist primarily of salaries, benefits
and related costs for our executive, finance, human resource and administrative
personnel, professional services fees and allowances for bad debt. General and
administrative expenses increased 91%, from $2.5 million in the second quarter
of 2000 to $4.7 million in the second quarter of 2001. Included in general and
administrative expense in the second quarter of 2001 is $1.6 million in bad debt
expense. General and administrative expenses increased 91%, from $4.6 million in
the first six months of 2000 to $8.8 million for the same period of 2001.
Included in general and administrative expense in the six months ended June 30,
2001, is $2.5 million in bad debt expense. The increase was primarily due to the
addition of executive, finance, human resource and administrative personnel to
support the growth of our business, together with an increase in professional
fees and allowances for bad debt expense. General and administrative employees
increased 10% from June 30, 2000 to June 30, 2001. General and administrative
costs represented 9% of our total revenues in the second quarter of 2000
compared to 16% in the second quarter of 2001. General and administrative costs
represented 9% of our total revenues in the first six months of 2000, compared
to 15% in the first six months of 2001. The increase in general and
administrative expenses as a percentage of total revenues primarily reflects the
more rapid growth of general and administrative expenses in this period,
particularly in the areas of executive recruitment and allowances for bad debt,
compared to the growth of revenues where we experienced an unexpected shortfall.

     We took steps in the restructuring to reduce our near-term general and
administrative expenses. We recently added key executive personnel we believe to
be critical to our near-term and long-term growth strategies. The expenses
related to adding these personnel will offset, in large part, our reduction in
other general and administrative expense areas. As we gain visibility into our
long-term sales growth opportunity, we believe our general and administrative
expenses may increase as we expand our administrative staff, domestically and
internationally, and incur additional professional services fees.

     Restructuring and other related charges

     Restructuring and other related charges consist primarily of expenses
incurred for excess facilities and severance-related costs. We are continuing to
review our restructuring efforts and believe we will have a formal restructuring
plan implemented during the third quarter of 2001 which will include the exit
costs related to our facilities. As a result, we expect to incur additional
restructuring and other related charges including facilities related exit costs
during the third quarter of 2001, the amount of which has not been fully
quantified but may be material. Restructuring and other related charges was 12%
of total revenues in the second quarter of 2001 and 6% in the first six months
of 2001. Although we are implementing our restructuring initiatives and
anticipate lower payroll related costs for the remainder of 2001, we may not
realize cost savings from these restructuring efforts in future periods.

     Acquisition-related amortization - other intangibles

     Acquisition-related amortization - other intangibles consists of intangible
amortization associated with our acquisitions of EnCyc in 1998, Versametrix and
Market Solutions in 1999, CSN Computer Consulting in 2000 and RevenueLab in
2001. Acquisition-related amortization - other intangibles totaled $881,000 in
the second quarter of 2000 and $1.6 million in the second quarter of 2001. For
the first six months of 2000, acquisition-related amortization - other
intangibles totaled $1.6 million and $3.2

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<PAGE>

million in the first six months of 2001. The increase in acquisition-related
amortization over the prior year primarily results from the fact that we
completed our acquisition of CSN Computer Consulting in February 2000 and
RevenueLab in January 2001.

     Amortization of stock-based 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 recorded an additional $1.8
million in deferred compensation in connection with the options granted to new
employees in conjunction with the acquisition of RevenueLab in January 2001. We
amortized deferred compensation expense of $146,000 during the second quarter of
2000 compared to $226,000 in the second quarter of 2001. Amortization of stock-
based compensation totaled $352,000 for the first six months of 2000 and
$536,000 for the first six months of 2001. Deferred compensation is amortized
over the vesting periods of the options. Approximately $333,000 of deferred
compensation that was recorded in January 2001 in connection with options
granted to an employee of RevenueLab was reversed during the second quarter of
2001 upon the termination of the employee's employment.

  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 $291,000 in the second quarter of
2000 compared to $151,000 in the second quarter of 2001. Interest income, net
was $483,000 in the first six months of 2000 compared to $442,000 in the first
six months of 2001. The decrease in interest income, net over the prior year is
the result of a lower average cash and investment base during the current period
as compared to the same period of 2000.

  Equity Investment Losses and Impairment

     During the second quarter of 2000, we recorded a loss of $200,000 from an
equity-method investee representing our share of losses in this company. The
entire balance of the $500,000 initial investment in this company was reduced to
zero during 2000 as we recorded our proportionate share of the losses in the
investee. We reported impairment losses, which totaled $500,000 during the
second quarter of 2001 and $1.5 million during the first six months of 2001
relating to other-than-temporary declines in three of our cost-basis equity
investments based on a recent review of qualitative and quantitative factors
surrounding the financial condition of the investees. These impairment losses
were recorded to reflect each investment at its estimated fair value.

  Income Taxes

     We recorded an income tax provision of $104,000 in the second quarter of
2000 and a benefit of $8,000 in the second quarter of 2001. Our tax provision
for the first six months of 2000 totaled $212,000 compared to a benefit of
$102,000 recorded in the first six months of 2001. Our income tax provision
(benefit) recorded in all periods is the net result of income taxes in
connection with our foreign operations offset by the deferred tax benefit
associated with our international acquisitions of Market Solutions and CSN
Computer Consulting. We made no provision or benefit for federal or state income
taxes in any of these periods 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

     As of June 30, 2001, we had cash, cash equivalents and short-term
investments totaling $25.3 million. As of June 30, 2001, we had cash and cash
equivalents of $20.4 million, an increase of $8.9 million from cash and cash
equivalents held as of December 31, 2000. The increase in cash and cash
equivalents from year-end is primarily the result of the public offering we
completed in February 2001. We have invested our cash in excess of current
operating requirements in a portfolio of investment-grade securities. Short-term
investments totaled $4.9 million at June 30, 2001 compared to $5.5 million at
December 31, 2000. The investments have variable and fixed interest rates and
maturities of less than one year. Our working capital at June 30, 2001 was $25.8
million, compared to $25.2 million at December 31, 2000.

     We have a $25.0 million working capital revolving line of credit, shared
equally by Silicon Valley Bank and Comerica Bank California, which is secured by
our accounts receivable, property and equipment 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 6.75% as of June 30, 2001. The facility expires in August 2001. As of June
30, 2001, we had no outstanding borrowings under the working capital facility;
however, there was approximately $10.0 million in standby letters of credit
outstanding in connection with our facilities, of which $7.4 million represents
a security deposit for tenant improvements and rent associated with additional
facilities in Bellevue, Washington. In July 2001, we entered into an equipment
lease requiring a $1.0

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<PAGE>

million standby letter of credit. In obtaining the letter of credit, Onyx was
required to restrict $1.0 million in cash deposits.

     The loan and security agreement with Silicon Valley Bank and Comerica Bank
California required us to maintain certain financial covenants. Onyx was not
in compliance with these covenants at March 31, 2001 or June 30, 2001 and, as a
result, the banks have the right to restrict our cash deposits in the amount of
the standby letters of credit. To date, other than the $1.0 million in cash
deposits restricted in connection with our equipment lease letter of credit
executed in July 2001, the banks have not restricted any cash deposits. We are
in the process of seeking approval of a new facility with revised financial
covenants, preferably including both Silicon Valley Bank and Comerica Bank
California. Silicon Valley Bank has approved the renewal of this facility for up
to $15.0 million, and we are awaiting Comerica Bank California's participation
to increase the size of the facility to $25.0 million. We expect to confirm
Comerica Bank California's participation in the facility by the end of August
2001. Upon execution of an amended loan and security agreement, the $1.0 million
in cash deposits we pledged to secure the standby letter of credit for our
equipment lease will be released.

     Although we have a $30 million equity financing arrangement with Ramius
Securities and Ramius Capital, the underwriting terms of this facility were
not approved by NASD. We are in the process of renegotiating the terms of this
facility with Ramius Securities and Ramius Capital in order to obtain NASD
approval. As a result, no securities will be offered under the arrangement
unless and until we renegotiate the arrangement and obtain NASD approval, and we
may be unable to raise any funds under this facility.

     Our operating activities resulted in net cash inflows of $6.5 million in
the first six months of 2000 compared to net cash outflows of $12.4 million in
the first six months of 2001. Our operating cash inflows in the first six 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 other
assets. Our operating cash outflows in the first six months of 2001 were
primarily the result of our operating loss, decreases in accounts payable and
accrued liabilities, decreases in deferred revenues and increases in prepaid
expenses and other assets, offset in part by cash provided by collections on
accounts receivable.

     Investing activities provided cash of $2.5 million in the first six 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 $11.3 million in the first six
months of 2001, primarily for the purchase of capital equipment associated with
our new Bellevue, Washington facility.

     Financing activities provided cash of $1.3 million in the first six 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 $33.1
million in the first six months of 2001 primarily due to the proceeds from our
sale of common stock in February, proceeds from the exercise of stock options
and stock issued through our employee stock purchase plan, offset in part by
payments on our long-term obligations.

     Our growing expenditures, along with near-term restructuring costs, may
consume a material amount of our cash resources. It is also possible that we
will use a portion of our cash resources to acquire complementary technologies
or businesses; however, we currently have no commitments or agreements 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 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 additional financing on favorable terms, if at all. Any financing we
obtain may contain covenants that restrict our freedom to operate our business
or may have rights, preferences or privileges senior to our common stock and may
dilute our current shareholders' ownership interest in Onyx.

                                       19
<PAGE>

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 decrease in our stock price.

     Our operating results have varied widely in the past, and we expect that
they will continue to fluctuate in the future. If our operating results fall
below the expectations of securities analysts and investors, it could result in
a decrease in our stock price. Some of the factors that could affect the amount
and timing of our revenues and related expenses and cause our operating results
to fluctuate include:

     .  market acceptance of our solution;

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

     .  budget and spending decisions by our customers;

     .  customers' decisions to defer orders or implementations, particularly
        large orders or implementations, from one quarter to the next, or to
        proceed with smaller than forecasted orders or implementations;

     .  purchases by our existing customers, including additional license and
        maintenance revenues;

     .  our ability to compete in the highly competitive CRM market;

     .  the loss of any key technical, sales, customer support or management
        personnel and the timing of any new hires;

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

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

     .  variability in the mix of our license versus service revenues, the mix
        of our direct versus indirect license revenues and the mix of services
        that we perform versus those performed by third-party service providers;

     .  our ability to successfully expand our operations, and the amount and
        timing of expenditures related to this expansion; and

     .  the cost and financial accounting effects of any acquisitions of
        companies or complementary technologies that we may complete.

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 revenues because:

     .  our sales cycles are lengthy and variable, typically ranging between two
        and twelve 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;

     .  a substantial portion of our sales are completed at the end of the
        quarter and, as a result, a substantial portion of our license revenues
        are recognized 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; and

     .  delay of new product releases can result in a customer's decision to
        delay execution of a contract or, for contracts that include the new
        release as an element of the contract, will result in deferral of
        revenue recognition until such release.

     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 if our
revenues are lower than

                                       20
<PAGE>

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.

Economic conditions could adversely affect our revenue growth and ability to
forecast revenue.

     The revenue growth and potential for profitability of our business depends
on the overall demand for CRM software and services. Because our sales are
primarily to corporate customers, our business also depends on general economic
and business conditions. A softening of demand for computer software caused by
the weakening of the economy, both domestic and internationally, has affected
our sales and may continue to result in decreased revenues and growth rates. In
addition, as a result of the economic downturn, we have experienced and may
continue to experience difficulties in collecting outstanding receivables from
our customers.

     Our management team uses our proprietary software to identify, track and
forecast future revenues, backlog and trends in our business. Our sales force
monitors the status of all proposals, such as the date when they estimate that a
transaction will close and the potential dollar amount of such sale. We
aggregate these estimates regularly in order to generate a sales pipeline and
then evaluate the pipeline at various times to look for trends in our business.
While this pipeline analysis provides visibility to our potential customers and
the associated revenues for budgeting and planning purposes, these pipeline
estimates may not consistently correlate to revenues in a particular quarter or
over a longer period of time. The slowdown in the economy, domestically and
internationally, may continue to cause customer purchasing decisions to be
delayed, reduced in amount or cancelled, which could reduce the rate of
conversion of the pipeline into contracts during a particular period of time. A
variation in the pipeline or in the conversion of the pipeline into contracts
could cause us to plan or budget improperly and thereby could adversely affect
our business or results of operations. In addition, because a substantial
portion of our sales are completed at the end of the quarter, and often in the
last weeks or days of a quarter, we may not be able to adjust our cost structure
in response to a variation in the conversion of the pipeline into contracts in a
timely manner, which could adversely affect our business and results of
operations.

We have incurred losses in recent periods, and may not again achieve
profitability, which could cause a decrease in our stock price.

     If we do not return to profitability in future quarters, our stock price
could decrease. 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, in all four quarters of 2000 and in the first two quarters of
2001. As of June 30, 2001, we had an accumulated deficit of $42.2 million. Our
accumulated deficit and financial condition have caused some of our potential
customers to question our viability, which we believe has in turn hampered our
ability to sell some of our products. In the near-term, we believe our costs and
operating expenses, excluding restructuring-related charges, will continue to
decrease to a level that is closer to our expected revenues while allowing us to
continue to invest in accordance with our strategic priorities. We may not,
however, realize cost savings from these restructuring initiatives in future
periods. In particular, if we are unable to successfully sublease or terminate
our excess facilities, particularly in Bellevue, Washington, we will incur
continued substantial facilities costs for which we will receive no economic
benefit. In addition, we may be unable to achieve cost savings without adversely
affecting our business and results of operations. We expect to continue to
experience losses and negative cash flows in the near term, even if sales of our
products and services continue to grow.

     As we gain visibility into our long-term growth opportunity, we believe
that we may need to significantly increase our sales and marketing, product
development and professional services efforts to expand our market position and
further increase acceptance of our products. We may not be able to increase our
revenues sufficiently to keep pace with these growing expenditures, if at all,
and, as a result, may be unable to achieve profitability in the future.

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

     Support and service revenues represented 37% of our total revenues in 1999
and 38% of our total revenues in 2000. Due largely to the unexpected sequential
quarter decrease in license revenues, support and service revenues represented
57% of our total revenues in the first six months of 2001. 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, as we
experienced in the first six months of 2001, could have a detrimental impact on
our overall gross margins and thus on our operating results. We subcontract some
of our consulting, customer support and training services to third-party service
providers. Third-party contract revenues generally carry even 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, service 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.

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

     Our stock price may decrease 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 growth in the market for, and uncertain market acceptance of,
        our solution;

     .  reliance on one product family;

                                       21
<PAGE>

     .  the risk that competition, technological change or evolving customer
        preferences, such as preferences for different computing platforms,
        could adversely affect sales of our solution;

     .  the need to implement our sales, marketing and after-sales service
        initiatives, both domestically and internationally;

     .  the need to execute our product development activities;

     .  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 CRM market increases these risks and
uncertainties. Our limited operating history makes it difficult to predict how
our business will develop.

Our workforce reduction and financial performance may place additional strain on
our resources and may adversely affect the morale and performance of our
personnel and our ability to hire new personnel.

     In connection with our effort to streamline our operations, reduce costs
and bring our staffing and structure in line with our revenue base, we recently
restructured our organization in the second quarter of 2001 with reductions in
our workforce by approximately 116 employees. There have been and may continue
to be substantial costs associated with the workforce reduction related to
severance and other employee-related costs, as well as material charges for
reduction of excess facilities, and our restructuring plan may yield
unanticipated consequences, such as attrition beyond our planned reduction in
workforce. This workforce reduction has placed significant strain on our
administrative, operational and financial resources and resulted in increasing
responsibilities for each of our management

                                       22
<PAGE>

personnel. As a result, our ability to respond to unexpected challenges may be
impaired and we may be unable to take advantage of new opportunities. In
addition, many of the employees who were terminated possessed specific knowledge
or expertise, and that knowledge or expertise may prove to have been important
to our operations. In that case, their absence may create significant
difficulties. Further, the reduction in workforce may reduce employee morale and
may create concern among existing employees about job security, which may lead
to increased turnover. This headcount reduction may subject us to the risk of
litigation.

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

     Our solution targets the CRM market. This market is intensely competitive,
fragmented, rapidly changing and significantly affected by new product
introductions. We face competition in the CRM 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 CRM 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 Corporation.

     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.

We may be unable to obtain the funding necessary to support the expansion of our
business, and any funding we do obtain could dilute our shareholders' ownership
interest in Onyx.

     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 to obtain funds through additional
financing, we may have to reduce some or all of our development and sales and
marketing efforts and limit the expansion of our business. Although we have a
potential $30 million equity financing arrangement with Ramius Securities and
Ramius Capital, the underwriting terms of this facility were not approved by
NASD. We are in the process of renegotiating the terms of this facility with
Ramius Securities and Ramius Capital in order to obtain NASD approval. As a
result, no securities will be offered under the arrangement unless and until we
renegotiate the arrangement and obtain NASD approval, and we may be unable to
raise any funds under this facility.

     Our loan and security agreement with Silicon Valley Bank and Comerica Bank
California required us to maintain certain financial covenants. We were not in
compliance with these covenants at March 31, 2001 or June 30, 2001, and, as a
result, the banks have the right to restrict our cash deposits in the amount of
our standby letters of credit, currently up to $11.0 million. To date, the banks
have not restricted our cash deposits other than $1.0 million in cash deposits
restricted in connection with our equipment lease letter of credit executed in
July 2001. We are in the process of seeking approval and execution of a new
facility with revised financial covenants, preferably including both Silicon
Valley Bank and Comerica Bank California. Silicon Valley Bank has approved the
renewal of this facility for up to $15.0 million, and we are awaiting the
approval of Comerica Bank California's participation to increase the size of the
facility to $25.0 million. If we are unable to renew a facility with revised
financial covenants, and if the banks decide to restrict our cash deposits, our
liquidity will be further limited and our business, financial condition and
results of operations could be harmed.

     We completed a public offering of our common stock on February 12, 2001,
which resulted in net proceeds to us of approximately $31.3 million. We believe
that our existing cash and cash equivalents, investments and available bank
borrowings 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 contain covenants that restrict
our freedom to operate our business or may have rights, preferences or
privileges senior to our common stock and may dilute our current shareholders'
ownership interest in Onyx.

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

     The market for CRM systems is still emerging, and continued growth in
demand for and acceptance of CRM systems remains uncertain. Even if the market
for CRM 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 CRM systems and that they may never achieve market
acceptance. We have spent, and will continue to spend, considerable resources
educating potential customers not only about our solution but also about CRM
systems in general. However, even with these educational efforts, market
acceptance of our solution may not increase. We will not succeed unless we can
educate our target market about the benefits of CRM systems and about our
ability to provide them in a cost-effective and easy-to-use manner.

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

     License revenues from the Onyx product family have historically accounted
for nearly all of our license revenues. We expect product license revenues from
the Onyx 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 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 product family and to develop,
introduce and establish customer acceptance of new and enhanced versions of the
Onyx product family, our business will fail.

     We recently released version 3.0 of Onyx Employee Portal, the Web-based
version of our flagship product. This release represented a major software
architecture change to this product. In the event that prospects or customers do
not embrace this new product version, or that they are unable to successfully
deploy this product, our business will fail.

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

     We originally designed our products to operate exclusively on the Windows
NT and Microsoft BackOffice platforms. As a result, our primary market has
historically been to customers which have developed their enterprise computing
systems around these platforms, which limits our potential sales. In December
2000, we announced the platform release of a new product version designed to
operate on the Unix/Oracle platform. Due to the complexity of the development of
this new product version, we have delayed the expected date of general
availability until late 2001 or the first part of 2002. We can make no
assurances, however, as to whether such general release will occur within these
expected dates, if at all. If and when this new product version becomes
generally available, we cannot predict the degree to which it will achieve
market acceptance. If our new product version does not achieve market
acceptance, our revenue growth will be limited. Moreover, enabling our products
to run on multiple platforms could lengthen the development cycle, thus delaying
the release date of future product versions or new products, which could further
limit our revenue growth.

If we are not able to compete effectively in the Internet-based products and
services market, 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
develop products that compete effectively in the Internet-based products and
services market. 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 CRM systems. The use of the Internet is evolving
rapidly, and many companies are developing products and services that use the
Internet. The increased commercial use of the Internet could require substantial
modification of our products and the introduction of new products. We do not
know what forms of products and services may

                                       23
<PAGE>

emerge as alternatives to our existing products or to any future Internet-based
or electronic commerce features and services we may introduce.

     In addition, 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.

Privacy and security concerns, particularly related to the use of our software
on the Internet, may limit the effectiveness of and reduce the demand for our
products.

     The effectiveness of our software products relies on the storage and use of
customer data collected from various sources, including information derived from
customer registrations, billings, purchase transactions and surveys. Our
collection and use of such data for customer profiling may raise privacy and
security concerns. Our customers generally have implemented security measures to
protect customer data from disclosure or interception by third parties. However,
the security measures may not be effective against all potential security
threats. If a well-publicized breach of customer data security were to occur,
our software products may be perceived as less desirable, which could limit our
revenue growth.

     In addition, due to privacy concerns, some Internet commentators, consumer
advocates and governmental or legislative bodies have suggested legislation to
limit the use of customer profiling technologies. The European Union and some
European countries have already adopted some restrictions on the use of customer
profiling data. If major countries or regions adopt legislation or other
restrictions on the use of customer profiling data, our software would be less
useful to customers, and our sales could decrease.

We may be unable to efficiently restructure or expand our sales organization,
which could harm our ability to expand our business.

     To date, we have sold our solution primarily through our direct sales
force. As a result, our future revenue growth will depend in large part on
recruiting, training and retaining direct sales personnel and expanding our
indirect distribution channels, such as VARs, ASPs, original equipment
manufacturer, or OEM, partners and system integrators and consultants. We have
experienced and continue to experience difficulty in recruiting qualified direct
sales personnel and in establishing third-party relationships with VARs, ASPs,
OEM partners and systems integrators and consultants. Moreover, in April 2001,
we began restructuring our sales organization in an attempt to reduce expenses
and increase efficiency. These restructuring efforts and future efforts to
expand our sales force may not prove successful, which could reduce our sales or
limit our sales growth.

If our customers cannot timely and successfully implement our products, demand
for our products and services will be limited.

     The implementation of our products involves a significant commitment of
resources by prospective customers. Our customers frequently deploy our products
to large numbers of sales, marketing and customer service personnel. The
end-users may not accept our products. Our products are also used with a number
of third-party software applications and programming tools. This use may present
significant technical challenges, particularly as large numbers of personnel
attempt to use our product concurrently. If an implementation is not successful,
we may be required to deliver additional consulting services free of charge in
order to remedy the problem. If our customers have difficulty deploying our
software or for any other reason are not satisfied with our software, our
business operating results and financial condition may be harmed.

If we do not retain our key employees and management team, and integrate our new
senior management personnel, 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, sales, 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 and to retain our existing executive officers. The
competition for qualified personnel in the computer software and technology
markets is particularly intense. We have in the past experienced difficulty in
hiring qualified technical, sales, customer support 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.

     We have recently appointed Leslie J. Rechan as our President and Chief
Operating Officer and Brian C. Henry as our Executive Vice President and Chief
Financial Officer. In addition, we have recently hired three new vice presidents
responsible for our overall operations in Asia/Pacific, Japan and Europe. To
integrate into our company, these new senior personnel must spend a significant
amount of time learning our business model and management system, in addition to
performing their regular duties. Accordingly, until these individuals have
become familiar with our business model and systems, their integration may
result in some disruption to our ongoing operations.

     The market price of our common stock has fluctuated substantially since our
initial public offering in February 1999. Consequently, potential employees may
perceive our equity incentives such as stock options as less attractive and
current employees whose options are no longer priced below market value may
choose not to remain employed by us. In that case, our ability to attract or
retain employees will be adversely affected.

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.

                                       24
<PAGE>

     The CRM 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 CRM systems are sold or delivered. We may also
need to modify our products when third parties change software that we integrate
into our products. As a result, the life cycles of our products are difficult to
estimate.

     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, including most recently, the Oracle/Unix version of our product, 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 may be delayed as a result
of our recent operating expense reduction measures and general economic
conditions. If we do expand internationally, it 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. Even if we successfully
translate our software and develop new channels, we may not be able to maintain
or increase international market demand for the Onyx product family. We, or our
VARs or ASPs, 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;

     .  the need to comply with multiple, conflicting and changing laws and
        regulations;

     .  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. However, our operating results could be
materially harmed if we enter into license agreements providing for significant
amounts of foreign currencies with extended payment terms if the values of those
currencies fall in relation to the U.S. dollar over the payment period.

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 solution will be limited.

     We rely on our existing relationships with a number of key partners,
including management consulting firms, system integrators, VARs, ASPs and third-
party technology vendors, that are important to worldwide sales and marketing of
our solution. In addition, to be successful and to more effectively sell our
products to larger customers, we must develop successful new relationships with
prestigious key partners. Key partners often provide consulting, implementation
and customer support services, and endorse our solution during the competitive
evaluation stage of the sales cycle. Although we seek to maintain relationships
with our key partners, and to develop relationships with new partners, many of
these existing and potential key partners have similar, and often more
established, relationships with our competitors. These existing and potential
partners, many of which have significantly greater resources than we have, may
in the future market software products that compete with our solution or reduce
or discontinue their relationships with us or their support of our solution. In
addition, our sales will be limited if

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

                                       25
<PAGE>

     .  our existing and potential key partners endorse a product or technology
        other than our solution;

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

     .  our existing and potential key partners do not have or do not devote the
        resources necessary to implement our solution.

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

     We expect an important percentage of our revenues to be derived from our
relationships with domestic and international ASPs that market and sell our CRM
systems. If these ASPs do not successfully market our solution, 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 solution. 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 deliver and support 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 compete 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 a CRM system is discretionary,
involves a significant commitment of its resources and is influenced by its
budget cycles. To successfully sell our solution, we generally must educate our
potential customers regarding the use and benefit of our solution, which can
require significant time and resources. Consequently, the period between initial
contact and the purchase of our solution is often long and subject to delays
associated with the lengthy budgeting, approval and competitive evaluation
processes that typically accompany significant capital expenditures. Our sales
cycles are lengthy and variable, typically ranging between two and twelve months
from our initial contact with a potential customer to the signing of a license
agreement, although the amount of time varies substantially from customer to
customer and occasionally sales require substantially more time. When economic
conditions weaken, sales cycles for sales of software products tend to lengthen,
and as a result, we have experienced longer sales cycles in the first six months
of 2001. 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.

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
solutions.

     We incorporate into our products software that is licensed to us by third-
party software developers, including Cognos, Greyware Automation Products, Inso,
Scribe Software, and Sybase. 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 the functionality we derive from this licensed software and that we
could identify and incorporate alternative 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 sales until we can
find, license and integrate equivalent technology.



                                       26
<PAGE>


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, a 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 result in 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. 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. Infringement 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,
        which we might not be able to do at an acceptable price, in a timely
        fashion or at all.

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 past versions of our products until software
problems were corrected, and in some cases have provided product updates to
correct errors in released products. Our new products or releases, including any
new Oracle version of our product that may be generally released, 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.

     In addition, the operation of our products could be compromised as a result
of errors in the third-party software we incorporate into our software. It may
be difficult for us to correct errors in third-party software because that
software is not in our control.

The integration of RevenueLab and any future acquisitions may be difficult and
disruptive.

     In January 2001, we acquired RevenueLab, a provider of proprietary go-to-
market strategy and revenue acceleration programs. We are currently in the
process of integrating RevenueLab's business into our business. This integration
is subject to risks commonly encountered in making acquisitions, including

                                       27
<PAGE>

     .  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 in a timely manner.

We may not successfully overcome these or any other problems encountered in
connection with integrating RevenueLab. 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 July 31, 2001, our officers, directors and affiliated entities
together beneficially owned approximately 17.55% 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 year. As a result of
fluctuations in the price of our common stock, you may be unable to sell your
shares at or above the price at which you purchased them. 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;

     .  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 national or 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 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. Our common
stock reached a high of $40.00 and traded as low as $2.20 through August 13,
2001. In addition, we completed a public offering of our common stock in
February 2001 at a price of $13.50 per share. The last reported sales price of
our common stock on August 13, 2001 was $4.59.

                                       28
<PAGE>

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

     In October 1997, the American Institute of Certified Public Accountants
issued its Statement of Position 97-2, Software Revenue Recognition, and later
amended its position by its Statement of Position 98-4 and Statement of Position
98-9. Based on our interpretation of the AICPA's position, we believe our
current revenue recognition policies and practices are consistent with Statement
of Position 97-2, Statement of Position 98-4 and Statement of Position 98-9.
However, Technical Practice Aids for these standards continue to be issued by
the accounting standard setters. Any such Technical Practice Aids could lead to
unanticipated changes in our current revenue accounting practices, which could
materially adversely affect our business, financial condition and operating
results.

Our articles of incorporation and bylaws and Washington law contain provisions
that could discourage a takeover.

     Certain provisions of our articles of incorporation and bylaws, our
shareholder rights plan and Washington law could make it more difficult for a
third party to acquire us, even if doing so would be beneficial to our
shareholders. These provisions could discourage companies from presenting
acquisition proposals to us and could delay, deter or prevent a change of
control of us, which could reduce the market price of our common stock.

                                       29
<PAGE>

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 mainly 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 June 30, 2001.

Foreign Currency Risk

     The majority of our sales and 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
2001 and expect to continue to do so in the future, we do not anticipate that
foreign exchange gains or losses will be material to Onyx. Although we have not
engaged in foreign currency hedging to date, we may do so in the future.


                          PART II--OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Security Holders

     Onyx held its 2001 Annual Meeting of Shareholders on June 7, 2001 at the
Hyatt Regency in Bellevue, Washington. Proposals presented for shareholder vote
at the annual meeting were: (1) the election of two Class I directors to Onyx's
board of directors, each for a three-year term; and (2) the approval of an
amendment to Onyx's 1998 Employee Stock Purchase Plan to extend the length of
the purchase periods under the plan.

     Each of the incumbent Class I directors who stood for reelection was
elected with the following voting results:

Nominee                            Votes For                Votes Against
-------                            ---------                -------------
Teresa A. Dial                     37,608,687                   76,377
William B. Elmore                  37,612,087                   72,977

The directors whose terms continued through the meeting are H. Raymond Bingham,
Brent R. Frei, Lee D. Roberts and Daniel R. Santell.

The proposal to amend Onyx's 1998 Employee Stock Purchase Plan to extend the
length of offering periods under the plan was passed with the following voting
results:

Votes For          Votes Against       Abstentions       Broker Non-Votes
---------          -------------       -----------       ----------------
37,317,365            108,074            259,625                0

Item 6.  Exhibits and Reports on Form 8-K

       (a)  Exhibits

<TABLE>
<CAPTION>
Number                                      Description
------  -----------------------------------------------------------------------------------------------
<C>     <S>
  3.1   Amended and Restated Articles of Incorporation of the registrant
  3.2   Amended and Restated Bylaws of the registrant (exhibit 3.2)(a)
  4.1   Rights Agreement, dated as of October 25, 1999, between the registrant and ChaseMellon
        Shareholder Services, L.L.C. (exhibit 2.1)(b)
 10.1   Amended and Restated 1998 Employee Stock Purchase Plan
 10.2   Stock Option Letter Agreement dated April 4, 2001 between the registrant and Brian Henry
        (exhibit 10.2)(c)
 10.3   Stock Option Letter Agreement dated April 4, 2001 between the registrant and Brian Henry
        (exhibit 10.3)(c)
 10.4   Stock Option Letter Agreement dated April 4, 2001 between the registrant and Brian Henry
        (exhibit 10.4)(c)
 10.5   Revised Stock Option Agreement dated April 18, 2001 between the registrant and Leslie Rechan
        (exhibit 10.9)(a)
 10.6   Revised Stock Option Agreement dated April 18, 2001 between the registrant and Brian Henry
        (exhibit 10.13)(a)
 10.7   Loan Modification Agreement dated April 12, 2001 among the registrant, Silicon Valley Bank and
        Comerica Bank-California (exhibit 10.14)(a)
</TABLE>

(a)  Incorporated by reference to the designated exhibit to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.

(b)  Incorporated by reference to the designated exhibit to the registrant's
registration statement on Form 8-A (No. 0-25361) filed October 28, 1999.

(c)  Incorporated by reference to the designated exhibit to the registrant's
Current Report on Form 8-K (No. 0-25361) filed April 12, 2001.

       (b)  Reports on Form 8-K

(1)  On April 12, 2001, we filed a current report on Form 8-K announcing that we
     had named Brian C. Henry as our Executive Vice President and Chief
     Financial Officer.

(2)  On April 17, 2001, we filed a current report on Form 8-K regarding our
     announcement of financial results for the quarter ended March 31, 2001 and
     that we planned to reduce our workforce by approximately 17%.

                                       30
<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)

Date: August 16, 2001                  By:   /s/ Brent R. Frei
                                           -------------------------------------
                                             Brent R. Frei
                                             Chief Executive Officer and
                                             Chairman of the Board

Date: August 16, 2001                  By:   /s/ Brian C. Henry
                                           -------------------------------------
                                             Brian C. Henry
                                             Executive Vice President and
                                             Chief Financial Officer
                                             (Principal financial officer)

Date: August 16, 2001                  By:   /s/ Amy E. Kelleran
                                           -------------------------------------
                                             Amy E. Kelleran
                                             Vice President Finance,
                                             Corporate Controller
                                             and Assistant Secretary
                                             (Principal accounting officer)

                                       31
<PAGE>

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Number                                      Description
------  -----------------------------------------------------------------------------------------------
<C>     <S>
  3.1   Amended and Restated Articles of Incorporation of the registrant
  3.2   Amended and Restated Bylaws of the registrant (exhibit 3.2)(a)
  4.1   Rights Agreement, dated as of October 25, 1999, between the registrant and ChaseMellon
        Shareholder Services, L.L.C. (exhibit 2.1)(b)
 10.1   Amended and Restated 1998 Employee Stock Purchase Plan
 10.2   Stock Option Letter Agreement dated April 4, 2001 between the registrant and Brian Henry
        (exhibit 10.2)(c)
 10.3   Stock Option Letter Agreement dated April 4, 2001 between the registrant and Brian Henry
        (exhibit 10.3)(c)
 10.4   Stock Option Letter Agreement dated April 4, 2001 between the registrant and Brian Henry
        (exhibit 10.4)(c)
 10.5   Revised Stock Option Agreement dated April 18, 2001 between the registrant and Leslie Rechan
        (exhibit 10.9)(a)
 10.6   Revised Stock Option Agreement dated April 18, 2001 between the registrant and Brian Henry
        (exhibit 10.13)(a)
 10.7   Loan Modification Agreement dated April 12, 2001 among the registrant, Silicon Valley Bank and
        Comerica Bank-California (exhibit 10.14)(a)
</TABLE>

(a)  Incorporated by reference to the designated exhibit to the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.

(b)  Incorporated by reference to the designated exhibit to the registrant's
registration statement on Form 8-A (No. 0-25361) filed October 28, 1999.

(c)  Incorporated by reference to the designated exhibit to the registrant's
Current Report on Form 8-K (No. 0-25361) filed April 12, 2001.

                                       32