<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

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

                                   Form 10-Q

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

                             EXCHANGE ACT OF 1934

                For the quarterly period ended January 31, 2001

                                      OR

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

                             EXCHANGE ACT OF 1934

                 For the transition period from _____ to _____

                      (Commission File Number) 000-27071

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


          Delaware                                  77-0397905
  (State of incorporation)                (IRS Employer Identification Number)


                One Almaden Boulevard, San Jose, Ca 95113-2253
         (Address of principal executive offices, including ZIP code)

                                (408) 975-3900
             (Registrant's telephone number, including area code)


                                     None
(Former name, former address and former fiscal year, if changed since last
report)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by 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 outstanding of the Registrant's Common Stock as of January
31, 2001 was 47,220,184.
<PAGE>

                          AGILE SOFTWARE CORPORATION

                                     INDEX


                                                                        Page No.
                                                                        --------
Part I.  Financial Information

Item 1.  Financial Statements (unaudited)

         Condensed Consolidated Balance Sheet at January 31, 2001
         and April 30, 2000                                                3

         Condensed Consolidated Statement of Operations for the
         Three and Nine Months Ended January 31, 2001 and 2000             4

         Condensed Consolidated Statement of Cash Flows for the
         Nine Months Ended January 31, 2001 and 2000                       5

         Notes to Condensed Consolidated Financial Statements              6

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                        11

Item 3.  Quantitative and Qualitative Disclosure about Market Risk        31

Part II. Other Information

Item 1.  Legal Proceedings                                                32

Item 2.  Changes in Securities and Use of Proceeds                        32

Item 3.  Defaults Upon Senior Securities                                  32

Item 4.  Submission of Matters to a Vote of Security Holders              32

Item 5.  Other Information                                                32

Item 6.  Exhibits and Reports on Form 8-K                                 32

Signature                                                                 34

Exhibit Index                                                             35

                                       2
<PAGE>

Part 1 - Financial Information

Item 1.  Financial Statements

                          AGILE SOFTWARE CORPORATION
                     CONDENSED CONSOLIDATED BALANCE SHEET
                                (in thousands)
                                  (unaudited)
<TABLE>
<CAPTION>
                                                                   January 31,         April 30,
                                                                       2001             2000 (1)
                                                                  --------------     --------------
<S>                                                               <C>                <C>
ASSETS
Current assets:
   Cash and cash equivalents                                         $ 136,827          $142,721
   Short-term investments                                              170,101           157,154
   Accounts receivable, net                                             18,271             6,537
   Other current assets                                                  8,921             4,979
                                                                  --------------     --------------
       Total current assets                                            334,120           311,391

Long-term investments                                                        -            12,550
Property and equipment, net                                             12,330             6,519
Intangible assets, net                                                  65,331            92,965
Other assets                                                            14,577             7,376
                                                                  --------------     --------------
                                                                     $ 426,358          $430,801
                                                                  --------------     --------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                  $   5,617          $  1,434
   Accrued expenses and other liabilities                               10,352             6,391
   Deferred revenue                                                     17,988             8,634
   Current portion of capital lease obligations                            469               681
                                                                  --------------     --------------
       Total current liabilities                                        34,426            17,140

Capital lease obligations, noncurrent                                      192               518
Notes payable, noncurrent                                                   39                39
Other liabilities                                                           83               458
                                                                  --------------     --------------
                                                                        34,740            18,155
                                                                  --------------     --------------

Stockholders' equity:
   Common Stock                                                             47                46
   Additional paid-in capital                                          512,047           500,155
   Notes receivable from stockholders                                     (617)           (1,460)
   Unearned stock compensation                                         (16,886)          (23,838)
   Accumulated other comprehensive income (loss)                           358              (530)
   Accumulated deficit                                                (103,331)          (61,727)
                                                                  --------------     --------------
       Total stockholders' equity                                      391,618           412,646
                                                                  --------------     --------------
                                                                     $ 426,358          $430,801
                                                                  --------------     --------------
</TABLE>

(1) The April 30, 2000 consolidated balance sheet information has been derived
from the audited financial statements at that date.

See accompanying notes to these condensed consolidated financial statements.

                                       3
<PAGE>

                          AGILE SOFTWARE CORPORATION
                CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                     (in thousands, except per share data)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                       Three Months Ended              Nine Months Ended
                                                                           January 31,                    January 31,
                                                                    ---------------------------    --------------------------
                                                                        2001           2000            2001          2000
                                                                    -----------    ------------    -----------    -----------
<S>                                                                 <C>            <C>             <C>            <C>
Revenues:
  License                                                            $  19,058      $   5,814       $  45,754      $  14,153
  Professional services                                                  2,291          1,277           6,556          3,442
  Maintenance                                                            3,676          1,472           8,729          3,793
                                                                    -----------    ------------    -----------    -----------
    Total revenues                                                      25,025          8,563          61,039         21,888
                                                                    -----------    ------------    -----------    -----------

Cost of revenues:
  License                                                                1,184            448           2,706            976
  Professional services (exclusive of stock compensation
    of $163 and $140 for the three months ended
    January 31, 2001 and 2000, and $511 and $276 for the
    nine months ended January 31, 2001 and 2000, respectively            1,526          1,020           4,731          2,746
  Maintenance (exclusive of stock compensation
    of $31 and $36 for the three months ended
    January 31, 2001 and 2000, and $99 and $71 for the
    nine months ended January 31, 2001 and 2000, respectively            1,545            603           3,490          1,527
                                                                    -----------    ------------    -----------    -----------
      Total cost of revenues                                             4,255          2,071          10,927          5,249
                                                                    -----------    ------------    -----------    -----------
Gross profit                                                            20,770          6,492          50,112         16,139
                                                                    -----------    ------------    -----------    -----------

Operating expenses:
  Sales and marketing (exclusive of stock compensation
    of $1,939 and $1,811 for the three months ended
    January 31, 2001 and 2000, and $5,960 and $3,580 for the
    nine months ended January 31, 2001 and 2000, respectively           16,602          7,248          44,919         17,261
  Research and development (exclusive of stock compensation
    of $893 and $1,020 for the three months ended
    January 31, 2001 and 2000, and $3,160 and $2,015 for the
    nine months ended January 31, 2001 and 2000, respectively            7,202          2,836          17,589          6,030
  General and administrative (exclusive of stock compensation
    of $712 and $950 for the three months ended
    January 31, 2001 and 2000, and $2,578 and $1,673 for the
    nine months ended January 31, 2001 and 2000, respectively            1,641            864           4,482          2,369
  Amortization of stock compensation                                     3,738          3,957          12,308          7,615
  Amortization of intangible assets                                      8,999          5,965          27,065          5,965
  Acquired in-process technology                                             -          1,300               -          1,300
                                                                    -----------    ------------    -----------    -----------
      Total operating expenses                                          38,182         22,170         106,363         40,540
                                                                    -----------    ------------    -----------    -----------

Loss from operations                                                   (17,412)       (15,678)        (56,251)       (24,401)

Interest and other income                                                4,993          2,853          15,027          3,786
Interest and other expense                                                (174)          (107)           (380)          (676)
                                                                    -----------    ------------    -----------    -----------
Net loss                                                             $ (12,593)     $ (12,932)      $ (41,604)     $ (21,291)
                                                                    ===========    ============    ===========    ===========
Net loss per share:
  Basic and diluted                                                  $    (.27)     $    (.31)      $    (.92)     $    (.81)
                                                                    ===========    ============    ===========    ===========
  Weighted average shares                                               46,014         42,158          45,464         26,404
                                                                    ===========    ============    ===========    ===========
</TABLE>

 See accompanying notes to these condensed consolidated financial statements.

                                       4
<PAGE>

                         AGILE SOFTWARE CORPORATION
               CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                               (in thousands)
                                 (unaudited)
<TABLE>
                                                                               Nine Months Ended January 31,
                                                                               ------------------------------
                                                                                    2001             2000
                                                                               -------------    -------------
<S>                                                                            <C>              <C>
Cash flows from operating activities:
  Net loss                                                                     $    (41,604)    $    (21,291)
  Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities:
      Acquired in-process technology                                                      -            1,300
      Depreciation and amortization                                                  30,943            7,257
      Amortization of stock compensation and warrants                                12,308            7,868
      Change in operating assets and liabilities
        Accounts receivable, net                                                    (11,734)          (1,195)
        Other assets, current and non-current                                        (4,793)            (443)
        Accounts payable                                                              4,183              545
        Accrued expenses and other liabilities                                        3,586           (3,059)
        Deferred revenue                                                              9,354            2,390
                                                                               -------------    -------------
          Net cash provided by (used in) operating activities                         2,243           (6,628)
                                                                               -------------    -------------
Cash flows from investing activities:
  Purchases of investments                                                         (117,703)        (102,330)
  Proceeds from maturities of investments                                           118,194            6,438
  Purchases of privately-held equity investments                                     (6,350)               -
  Cash paid in business combination                                                       -          (22,362)
  Acquisition of property and equipment, net of disposals                            (9,782)          (3,097)
                                                                               -------------    -------------
          Net cash used in investing activities                                     (15,641)        (121,351)
                                                                               -------------    -------------
Cash flows from financing activities:
  Repayment of capital lease obligations                                               (538)            (611)
  Repayment of notes payable                                                              -           (3,078)
  Proceeds from issuance of common stock, net of repurchases                          7,195          351,730
  Repayment of notes receivable from stockholders                                       847              531
                                                                               -------------    -------------
          Net cash provided by financing activities                                   7,504          348,572
                                                                               -------------    -------------
Net increase (decrease) in cash and cash equivalents                                 (5,894)         220,593

Cash and cash equivalents at beginning of period                                    142,721           10,003
                                                                               -------------    -------------
Cash and cash equivalents at end of period                                     $    136,827     $    230,596
                                                                               =============    =============
Supplemental disclosure:
  Cash paid for interest                                                       $        151     $        289
                                                                               =============    =============
Non-cash investing and financing activities:
  Common stock issued in exchange for notes receivable                         $          -     $      1,209
                                                                               =============    =============
  Property and equipment acquired under capital lease                          $          -     $        416
                                                                               =============    =============
  Additional deferred stock compensation                                       $      5,358     $     32,384
                                                                               =============    =============
  DMI escrow shares retained                                                   $        663     $          -
                                                                               =============    =============
</TABLE>

See accompanying notes to these condensed consolidated financial statements.

                                       5
<PAGE>

AGILE SOFTWARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.   Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Agile
Software Corporation and its subsidiaries ("Agile" or the "Company") have been
prepared by the Company and reflect all adjustments (all of which are normal and
recurring in nature) that, in the opinion of management, are necessary for a
fair presentation of the interim periods presented. The results of operations
for the interim periods presented are not necessarily indicative of the results
to be expected for any subsequent quarter or for the fiscal year ending April
30, 2001. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted in accordance with the Securities and
Exchange Commission's rules and regulations. These unaudited condensed
consolidated financial statements and notes included herein should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto for the fiscal year ended April 30, 2000, included in the
Company's Annual Report on Form 10-K filed on July 24, 2000 with the Securities
and Exchange Commission.

Certain reclassifications have been made to prior year balances in order to
conform to the current year presentation.

Recent Developments

On January 29, 2001, the Company signed a definitive agreement to merge with
Ariba,  Inc. in a stock-for-stock transaction. Under the terms of the definitive
merger agreement, Ariba will acquire all of the outstanding shares of common
stock and options to acquire common stock of the Company in exchange for 1.35
shares of common stock of Ariba for each share of the Company's common stock and
options to acquire commons stock. The merger, which is subject to the approval
of the Company's and Ariba's stockholders, has been unanimously approved by the
boards of directors of both companies. Pending stockholder approval, the merger
is expected to close before June 30, 2001.

2.   Revenue Recognition

The Company recognizes revenues in accordance with SOP 97-2, "Software Revenue
Recognition," and SOP 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, with Respect to Certain Transactions."

The Company derives revenues from the license of software products under
software license agreements and from the delivery of professional services and
maintenance services. When contracts contain multiple elements, and vendor-
specific objective evidence exists for all undelivered elements, the Company
accounts for the delivered elements in accordance with the "Residual Method"
prescribed by SOP 98-9.

License revenues are recognized when persuasive evidence of an arrangement
exists, the fee is fixed or determinable, collectibility is probable, and
delivery and customer acceptance, if required under the terms of the contract,
of the software products have occurred. In the event the Company grants its
customers the right to specified upgrades, license revenue is deferred until
delivery of the specified upgrade has taken place. If vendor-specific objective
evidence of fair value exists for the specified upgrade, then an amount equal to
the fair value is deferred. If vendor-specific objective evidence of fair value
does not exist, then the entire license fee is deferred until the delivery of
the specified upgrade. Allowances for estimated returns are provided upon
product delivery. In instances where vendor obligations remain, revenues are
deferred until the obligation has been satisfied.

Revenues from professional services consist of implementation and training
services. Training revenues are recognized as the services are performed.
Implementation services are typically performed under fixed-price contracts and
accordingly, revenues are recognized upon customer acceptance. A provision for
estimated losses

                                       6
<PAGE>

on fixed-price professional service contracts is recognized during the period in
which the loss becomes known.

Maintenance revenues are recognized ratably over the term of the maintenance
contract, which is generally twelve months. Maintenance contracts include the
right to unspecified upgrades, on a when-and-if available basis, and ongoing
support.

3.   Net Loss Per Share

Basic net loss per share is computed by dividing the net loss available to
holders of Common Stock for the period by the weighted average number of shares
of Common Stock outstanding during the period. Diluted net loss per share is the
same as basic net loss per share because the calculation of diluted net loss per
share excludes potential shares of Common Stock since their effect is
antidilutive. Potential shares of Common Stock consist of unvested restricted
Common Stock, incremental common shares issuable upon the exercise of stock
options and warrants and, for periods prior to our initial public offering,
shares issuable upon conversion of Convertible Preferred Stock.

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

<TABLE>
<CAPTION>
                                                                      Three Months Ended               Nine Months Ended
                                                                          January 31,                     January 31,
                                                                 ----------------------------    ----------------------------
                                                                     2001            2000            2001            2000
                                                                 ------------    ------------    ------------    ------------
<S>                                                                <C>             <C>             <C>             <C>
Numerator:
   Net loss                                                          $(12,593)       $(12,932)       $(41,604)       $(21,291)
                                                                 ------------    ------------    ------------    ------------

Denominator:
   Weighted average shares                                             47,109          44,144          46,797          28,530
   Weighted average unvested shares of
     Common Stock subject to repurchase                                (1,095)         (1,986)         (1,333)         (2,126)
                                                                 ------------    ------------    ------------    ------------
   Denominator for basic and diluted
     calculation                                                       46,014          42,158          45,464          26,404
                                                                 ------------    ------------    ------------    ------------
Net loss per share:
   Basic and diluted                                                 $   (.27)       $   (.31)       $   (.92)       $   (.81)
                                                                 ------------    ------------    ------------    ------------
</TABLE>

At January 31, 2001, approximately 12,851,000 potential shares of Common Stock
are excluded from the determination of diluted net loss per share as the effect
of such shares is antidilutive.

4.   Comprehensive Loss

"Other Comprehensive Loss" refers to revenues, expenses and gains and losses
that are not included in net loss but rather are recorded directly in
stockholders' equity. The components of comprehensive loss for the three and
nine months ended January 31, 2001 and 2000 were as follows (in thousands):

<TABLE>
<CAPTION>

                                                           Three Months Ended                   Nine Months Ended
                                                               January 31,                         January 31,
                                                   ------------------------------------     ---------------------------------------
                                                          2001               2000                  2001                  2000
                                                   ---------------     ----------------     -----------------     -----------------
<S>                                                      <C>                   <C>                   <C>                   <C>
Net loss                                                  $(12,593)            $(12,932)             $(41,604)             $(21,291)
Unrealized gain (loss) on securities                           403                 (322)                  888                  (322)
                                                   ---------------     ----------------     -----------------     -----------------
Comprehensive loss                                         (12,190)             (13,254)              (40,716)              (21,613)
                                                   ===============     =================     =================     =================

</TABLE>

                                      7
<PAGE>

5.   Segment Information

The Company identifies its operating segments based on business activities,
management responsibility and geographical location. During the three and nine
months ended January 31, 2001 and 2000, the Company operated in a single
business segment, or primarily in the United States. Through January 31, 2001,
foreign operations were not significant in either revenue or investment in long-
lived assets.

6.   Unearned stock compensation

In connection with certain stock options and warrants granted to employees and
consultants, the Company recorded unearned stock compensation of $5.4 million
for the nine months ended January 31, 2001 representing the difference between
the option exercise price and fair value of the Company's common stock on the
date of grant. Such amount is presented as a reduction of stockholders' equity
and amortized over the vesting period of the applicable option, generally four
years. Stock compensation expense for employees and consultants was $3.7 million
and $4.0 million for the three months ended January 31, 2001 and January 31,
2000, respectively, and $12.3 million and $7.6 million for the nine months ended
January 31, 2001 and January 31, 2000, respectively.

Stock compensation expense related to stock options granted to consultants is
recognized as earned, using the multiple option method as prescribed by FASB
Interpretation No. 28. At each reporting date, we re-value the unearned stock
compensation using the Black-Scholes option pricing model. As a result, the
stock compensation expense will fluctuate as the fair market value of our common
stock fluctuates.

In September 2000, in connection with a marketing alliance with a third party,
the Company issued a warrant to purchase 50,000 shares of its common stock at an
exercise price of $67.05 per share, the fair value of the Company's common stock
on the date of the agreement. The Company recorded a charge of $2.0 million
representing the fair value of the warrant, estimated using the Black-Scholes
option pricing model. Such amount is presented as a reduction of stockholders'
equity and is being amortized to stock compensation expense over the three-year
life of the marketing alliance.

Upon the Company's merger, consolidation with or sale or conveyance of all of
its assets to any other corporation or entity, to the extent that the warrant
has not been exercised in full by the effective date of such transaction, this
warrant shall terminate.

7.   Intangible Assets

In connection with the acquisition of Digital Markets, Inc. in November 1999,
the Company recorded goodwill and other intangible assets of approximately
$109.2 million, of which $1.3 million was immediately expensed as acquired in-
process technology. Goodwill and other intangible assets are presented at cost,
net of accumulated amortization. Amortization is computed using the straight-
line method over the estimated useful life of the assets, which is generally
three years. Amortization of goodwill and intangibles for the three months and
nine months ended January 31, 2001 was $9.0 million and $18.1 million,
respectively. At each balance sheet date, the Company assesses the value of
recorded intangible assets for possible impairment based upon a number of
factors including turnover of the acquired workforce and the undiscounted value
of expected future operating cash flows. Since inception, the Company has not
recorded any provisions for possible impairment of intangible assets.

8.   Borrowings

The Company had a line-of-credit agreement with a bank that provided for
borrowings of up to $5,000,000, including $500,000 available for the issuance of
letters of credit and foreign currency exchange activity. Borrowings under the
line-of-credit agreement bore interest at an annual rate of 8.5%, subject to
adjustment by the bank. Borrowings under the line of credit were collateralized
by the assets of the

                                       8
<PAGE>

Company. The line-of-credit agreement expired in August 2000 and was not renewed
by the Company.

9.   Investments

The Company's investments comprise U.S., state, and municipal government
obligations; corporate debt securities; and foreign debt securities. Investments
with maturities of less than one year are considered short-term and are carried
at fair value. All investments are primarily held in the Company's name and
custodied with one major financial institution. The specific identification
method is used to determine the cost of securities disposed. At January 31, 2001
and April 30, 2000, substantially all of the Company's investments were
classified as available for sale. Unrealized gains and losses on these
investments are included as a separate component of stockholders' equity.

The Company also has certain other minority investments in non-publicly traded
companies. These investments are included in other assets on the Company's
balance sheet and are generally carried at cost. The Company monitors these
investments for impairment and makes appropriate reductions in carrying values
when necessary. At January 31, 2001 and April 30, 2000, the Company had $13.4
million and $7.0 million invested in such companies, respectively.

10.  Payroll Taxes Associated with Stock Option Exercises

In October 2000, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board reached a consensus on Issue No. 00-16, "Recognition
and Measurement of Employer Payroll Taxes on Employee Stock-Based Compensation
("EITF 00-16") which requires that payroll taxes paid on the difference between
the exercise price and the fair value of acquired stock in association with an
employee's exercise of stock options be treated as operating expenses at the
date the payroll taxes are triggered. Payroll taxes on stock option exercises
were $209,000 and $478,000 for the three months and nine months ended January
31, 2001, respectively.

11.  Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 133, or SFAS 133, "Accounting
for Derivative Instruments and Hedging Activities." SFAS 133 establishes new
standards of accounting and reporting for derivative instruments and hedging
activities. SFAS 133 requires that all derivatives be recognized at fair value
in the statement of financial position, and that the corresponding gains or
losses be reported either in the statement of operations or as a component of
comprehensive loss, depending on the type of hedging relationship that exists.
In July 1999, the Financial Accounting Standard Boards issued SFAS No. 137, or
"SFAS 137," "Accounting for Derivative Instruments and Hedging Activities --
Deferral of the Effective Date of SFAS No. 133." SFAS 137 deferred the effective
date of SFAS 133 until the first fiscal year beginning after June 15, 2000. The
Company does not currently hold derivative instruments or engage in hedging
activities. The Company is currently evaluating the impact SFAS 133 will have on
its financial position and results of operations.

In December 1999, Staff Accounting Bulletin No. 101, or SAB 101, was issued to
summarize the Securities and Exchange Commission's (SEC) views in applying
generally accepted accounting principles to revenue recognition in financial
statements. On October 31, 2000, the SEC issued SAB 101, Revenue Recognition in
Financial Statement--Frequently Asked Questions (FAQ). SAB 101 becomes effective
in the Company's quarter ended April 30, 2001. The Company does not expect the
impact of the adoption of SAB 101 to have a material effect on its financial
condition or results of operations.

In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, or FIN 44, "Accounting for Certain Transactions Involving
Stock Compensation and Interpretation of APB 25," which clarifies the
application of Opinion 25 for (a) the definition of an employee for purposes of
applying Opinion 25, (b) the criteria for determining whether a plan qualifies
as a non-compensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000 but certain

                                       9
<PAGE>

conclusions cover specific events that occur after either December 15, 1998 or
January 12, 2000. The adoption of FIN 44 did not have a material effect on the
Company's financial position and results of operations.

                                      10
<PAGE>

Item 2.

                     MANAGEMENT'S DISCUSSION AND ANALYSIS
               OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information in this discussion contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
are based upon current expectations that involve risks and uncertainties. Any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. For example, words such as "may,"
"will," "should," "estimates," "predicts," "potential," "continue," "strategy,"
"believes," "anticipates," "plans," "expects," "intends," and similar
expressions are intended to identify forward-looking statements.  Our actual
results and the timing of certain events may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause or
contribute to such a discrepancy include, but are not limited to, those
discussed in "Other Factors Affecting Operating Results" and "Liquidity and
Capital Resources" below, as well as Risk Factors included in our Annual Report
on Form 10-K filed on July 24, 2000 with the Securities and Exchange Commission.
The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements and notes thereto appearing elsewhere in this
report.

Overview

We develop and market collaborative manufacturing commerce solutions that speed
the "build" and "buy" process across the virtual manufacturing network. We
believe that our products improve customer responsiveness and reduce cost of
goods sold. Our solutions manage product content and critical communication,
collaboration and commerce transactions among original equipment manufacturers,
electronic manufacturing services providers, customers and suppliers. We were
founded in March 1995 and in June 1996 we began selling our first products and
delivering related services. We currently license our products in the United
States through our direct sales force, and in Europe and Asia through our direct
sales force and distributors. To date, revenues from international sales have
not been material. We have derived our revenues principally from the licenses of
our products, the delivery of professional services and from maintenance
contracts.

Customers who license our software products receive a license for our
application servers, one or more user licenses, and third-party provided
adapters to connect with the customer's other existing enterprise systems. Our
customers generally purchase a limited number of user licenses at the time of
the initial license of the software products and may purchase additional user
licenses as needed. Customers may purchase implementation services from us.
These professional services are generally provided on a fixed-price basis and
are often provided by third-party consulting organizations. We also offer fee-
based training services to our customers. As of January 31, 2001, over 98% of
our customers who licensed our products had purchased maintenance contracts,
which provide unspecified software upgrades on a when-and-if available basis,
and technical support over a stated term, which is generally a twelve-month
period, and over 95% of our customers had renewed their maintenance contracts.
We may not be able to maintain or continue these rates of purchases or renewals
of maintenance agreements.

We recognize revenue under Statement of Position, or SOP, 97-2, "Software
Revenue Recognition," and SOP 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, with Respect to Certain Transactions".

When contracts contain multiple elements and vendor-specific objective evidence
exists for all undelivered elements, we account for the delivered elements in
accordance with the "Residual Method" prescribed by SOP 98-9. Software licenses
sold to new customers are recognized upon installation and acceptance by the
customer. Software licenses sold to existing customers, or add-on sales, do not
include acceptance provisions and are recognized upon shipment of the software
product. In the event we grant our customers the right to specified upgrades,
license revenue is deferred until delivery of the specified upgrade. If vendor-
specific objective evidence of fair value exists for the specified upgrade, then
an amount equal to this fair value is deferred. If vendor-specific objective
evidence of fair value

                                      11
<PAGE>

does not exist, then the entire license fee is deferred until the delivery of
the specified upgrade.

Our professional services revenues consist of implementation services which are
recognized upon customer acceptance and training revenues which are recognized
as the services are performed.

Our maintenance revenues are recognized ratably over the contract period,
generally twelve months.

Our cost of license revenues include royalties due to third parties for
integrated technology, the cost of manuals and product documentation, production
media used to deliver our products and packaging costs. Our cost of professional
services revenues include salaries and related expenses for the implementation
and training services organizations, costs of third parties contracted to
provide implementation services to customers and an allocation of our overhead
expenses. Our cost of maintenance revenues include salaries and related expenses
for the customer support organization and an allocation of our overhead
expenses. The cost of professional services can fluctuate depending upon whether
more or less of the professional services are provided to our customers by us
rather than by third-party service providers. We generally provide
implementation services to our customers on a fixed-price basis. If we have to
engage independent contractors or third parties to provide these services on our
behalf, it is generally at higher cost resulting in a lower gross margin than if
we had provided the services to our customers ourselves. Therefore, our gross
margin from professional services may fluctuate based on who performs the
services and the actual cost to provide these services. Although services
revenues may increase in absolute dollars if we increase the professional
services we provide, services revenues have lower gross margins than license
revenues. Our overall gross profit can therefore fluctuate based on the mix of
license revenues compared to professional services revenues and maintenance
revenues.

Our operating expenses are classified as sales and marketing, research and
development and general and administrative. We classify all charges to these
operating expense categories based on the nature of the expenditures. Although
each category includes expenses that are unique to the category type, there are
common recurring expenditures that are typically included in all operating
expenses categories, such as salaries, employee benefits, incentive
compensation, bonuses, stock compensation, travel costs, telephone,
communication, rent and allocated facilities costs and professional fees. The
sales and marketing category of operating expenses includes additional
expenditures specific to the marketing group, such as public relations and
advertising, trade shows, marketing collateral materials, and customer user
group meetings and expenditures specific to the sales group, such as
commissions. To date, all software development costs in research and development
have been expensed as incurred. Also included in our operating expenses is the
amortization of stock compensation and amortization of intangible assets
described below.

In connection with the grant of stock options and warrants to employees and
consultants, we recorded aggregate unearned stock compensation of $5.4 million
for the nine months ended January 31, 2001.  For employees, the amount charged
to deferred stock compensation represents the difference between the deemed fair
value of our common stock at the date of grant and the exercise price of such
options for employees. For consultants, the amount charged to deferred stock
compensation represents the fair value of the stock option using the Black-
Scholes option pricing model. Such amount is presented as a reduction of
stockholders' equity and is being amortized by charges to operations over the
vesting period of the applicable option for employees, generally four years, and
over the service period for consultants.

Stock compensation expense related to stock options granted to consultants is
recognized as earned, using the multiple option method as prescribed by FASB
Interpretation No. 28. At each reporting date, we re-value the unvested portion
of the option using the Black-Scholes option pricing model. As a result, stock
compensation will fluctuate in future periods as the fair market value of our
common stock fluctuates.

In September 2000, in connection with a marketing alliance with a third party,
the Company issued a warrant to purchase 50,000 shares of the Company's common
stock at

                                      12
<PAGE>

an exercise price of $67.05 per share, the fair value of the Company's common
stock on the date of the agreement. The Company recorded $2.0 million as a
reduction to equity representing the fair value of the warrant using the Black-
Scholes option pricing model. Such amount is being amortized to stock
compensation expense over the three-year life of the marketing alliance. Upon
the Company's merger, consolidation with or sale or conveyance of
all of its assets to any other corporation or entity, to the extent that the
warrant has not been exercised in full by the effective date of such
transaction, this warrant shall terminate.

In connection with our acquisition of Digital Markets, Inc. in November 1999, we
recorded goodwill and other intangible assets of approximately $109.2 million,
of which $1.3 million was charged to expense as acquired in-process technology
in fiscal 2000. Goodwill and intangible assets are presented at cost, net of
accumulated amortization. Amortization is computed using the straight-line
method over the estimated useful life of the assets, which is generally three
years. The Company periodically assesses its intangible assets for possible
impairment based upon a number of factors including turnover of the acquired
workforce and the undiscounted value of expected future operating cash flows.
Since inception, the Company has not recorded any provisions for possible
impairment of intangible assets.

Although our total revenues have increased from quarter to quarter and year to
year, we have incurred significant costs to develop our technology and our
products and to recruit and train personnel for our sales, marketing,
engineering, professional services and administration departments, as well as
for amortization of goodwill and intangible assets. As a result, we have
incurred significant losses since inception, and as of January 31, 2001, had an
accumulated deficit of $103.3 million.

We intend to continue to incur significant sales and marketing, research and
development and general and administrative expenses. For example, we had 436
full-time employees at January 31, 2001, compared to 250 at January 31, 2000. We
will seek to hire additional employees in the future. We will continue to have
expenses going forward related to the amortization of our goodwill and other
intangible assets, as well as non-cash expenses related to deferred stock
compensation.  We expect to continue to incur operating losses for the
foreseeable future. In order to achieve profitability, we will need to increase
our revenues significantly. Therefore, we cannot be sure that we will ever
attain or maintain profitability. The continued expansion of our business will
also place significant demands on our management and operational resources. To
manage this rapid growth and increased demands, we must improve existing and
implement new operational and financial systems, procedures and controls. We
must also hire, train, manage, retain and motivate qualified personnel. We
expect future expansion to continue to challenge our ability to hire, train,
manage, retain and motivate our employees.

In view of the rapidly changing nature of our market and our limited operating
history, we believe that period-to-period comparisons of our revenues and other
operating results are not necessarily meaningful and should not be relied upon
as indications of future performance. Our historic revenue growth rates are not
necessarily sustainable or indicative of our future growth.

Recent Developments

On January 29, 2001, the Company signed a definitive agreement to merge with
Ariba,  Inc. in a stock-for-stock transaction. Under the terms of the definitive
merger agreement, Ariba will acquire all of the outstanding shares of common
stock and options to acquire common stock of the Company in exchange for 1.35
shares of common stock of Ariba for each share of the Company's common stock and
options to acquire commons stock. The merger, which is subject to the approval
of the Company's and Ariba's stockholders, has been unanimously approved by the
boards of directors of both companies. Pending stockholder approval, the merger
is expected to close before June 30, 2001.

                                      13
<PAGE>

Results of Operations

The following table sets forth selected consolidated financial data for the
periods indicated, expressed as a percentage of total revenues:

<TABLE>
<CAPTION>
                                             Three Months Ended     Nine Months Ended
                                                 January 31,           January 31,
                                             ------------------     ------------------
                                               2001      2000         2001      2000
                                             --------  --------     --------  --------
<S>                                         <C>       <C>           <C>       <C>
Revenues:
  License                                       76%       68%          75%       66%
  Professional services                          9        15           11        16
  Maintenance                                   15        17           14        18
                                             --------  --------     --------  --------
    Total revenues                             100       100          100       100
                                             --------  --------     --------  --------
Cost of revenues:
  License                                        5         5            4         4
  Professional services                          6        12            8        13
  Maintenance                                    6         7            6         7
                                             --------  --------     --------  --------
    Total cost of revenues                      17        24           18        24
                                             --------  --------     --------  --------
Gross profit                                    83        76           82        76
                                             --------  --------     --------  --------
Operating expenses:
  Sales and marketing                           66        85           74        81
  Research and development                      29        33           29        28
  General and administrative                     7        10            7        11
  Amortization of stock compensation            15        46           20        36
  Amortization of intangible assets             36        70           44        28
  Acquired in-process technology                --        15           --         6
                                             --------  --------     --------  --------
    Total operating expenses                   153       259          174       190
                                             --------  --------     --------  --------
Loss from operations                           (70)     (183)         (92)     (114)
Interest income (expense), net                  20        32           24        14
                                             --------  --------     --------  --------
Net loss                                       (50%)    (151%)        (68%)    (100%)
                                             --------  --------     --------  --------
</TABLE>

Three and Nine Months Ended January 31, 2001 and 2000

Revenues

Our total revenues for the three months ended January 31, 2001 were $25.0
million, representing an increase of $16.5 million, or 192%, from the revenues
of $8.6 million in the quarter ended January 31, 2000. Our total revenues for
the nine months ended January 31, 2001 were $61.0 million, representing an
increase of $39.7 million, or 185%, from the revenues of $21.4 million for the
nine months ended January 31, 2000. We had no customers that accounted for more
than 10% of our total revenues in the three or nine months ended January 31,
2001 and 2000.

License Revenues. Our license revenues for the three months ended January 31,
2001 were $19.1 million, representing an increase of $13.2 million, or 228%,
from the license revenues of $5.8 million in the quarter ended January 31, 2000.
Our license revenues for the nine months ended January 31, 2001 were $45.8
million, representing an increase of $31.6 million, or 223%, from the revenues
of $14.2 million for the nine months ended January 31, 2000. License revenues as
a percentage of total revenues were 76% and 75% for the three and nine months
ended January 31, 2001, respectively, and 68% and 66% for the three and nine
months ended January 31, 2000, respectively. The increase in our license
revenues from the prior year periods was due to software licensed to new
customers and additional software licensed to existing customers. This increase
was primarily attributed to continued market acceptance of and demand for our
products.

Professional Services Revenues. Our professional services revenues for the three
months ended January 31, 2001 were $2.3 million, representing an increase of
$1.0

                                      14
<PAGE>

million, or 79%, from the professional services revenues of $1.3 million for the
three months ended January 31, 2000. Our professional services revenues for the
nine months ended January 31, 2001 were $6.6 million, representing an increase
of $3.1 million, or 90%, from the professional services revenues of $3.4 million
in the nine months ended January 31, 2000. Professional services revenues as a
percentage of total revenues were 9% and 11% for the three and nine months ended
January 31, 2001, respectively, and 15% and 16% for the three and nine months
ended January 31, 2000, respectively. The increase in professional services
revenues in absolute dollars was due to increased license revenues and an
increased range of services, consisting of additional data migration and
integration services. The decrease in professional services revenues as a
percentage of total revenues is due to the increased percentage of professional
services that were provided by third party implementers who invoiced the
customer directly. We anticipate that professional services revenues will
continue to decline as a percentage of total revenues.

Maintenance Revenues. Our maintenance revenues for the three months ended
January 31, 2001 were $3.7 million, representing an increase of $2.2 million, or
150%, from the maintenance revenues of $1.5 million for the three months ended
January 31, 2000. Our maintenance revenues for the nine months ended January 31,
2001 were $8.7 million, representing an increase of $4.9 million, or 130%, from
the maintenance revenues of $3.8 million for the nine months ended January 31,
2000. Maintenance revenues as a percentage of total revenues were 15% and 14%
for the three and nine months ended January 31, 2001, respectively, and 17% and
18% for the three and nine months ended January 31, 2000, respectively. The
increase in maintenance revenues in absolute dollars from the prior year periods
was directly attributable to increased licenses for our products since 98% of
our licenses also purchase maintenance contracts. The decrease in maintenance
revenues as a percentage of total revenues from the prior year periods was due
to a higher proportion of license revenues to total revenues resulting from
increased market acceptance of our products.

Cost of Revenues

Cost of License Revenues. Cost of license revenues for the three months ended
January 31, 2001 was $1.2 million, representing an increase of $736,000, or
164%, from the cost of license revenues of $448,000 for the three months ended
January 31, 2000. Cost of license revenues for the nine months ended January 31,
2001 was $2.7 million, representing an increase of $1.7 million, or 177%, from
the cost of license revenues of $976,000 for the nine months ended January 31,
2000. Cost of license revenues as a percentage of license revenues was 6% for
both the three and nine months ended January 31, 2001, and 8% and 7% for the
three and nine months ended January 31, 2000, respectively. The increase in the
cost of license revenues in absolute dollars in the three and nine months ended
January 31, 2001 reflects increased expenses associated with royalties due to
third-parties for software used in our products.

Cost of Professional Services Revenues. Cost of professional services revenues
for the three months ended January 31, 2001 were $1.5 million, representing an
increase of $506,000, or 50%, from the cost of professional services revenues of
$1.0 million for the three months ended January 31, 2000. Cost of professional
services revenues for the nine months ended January 31, 2001 were $4.7 million,
representing an increase of $2.0 million, or 72%, from the cost of professional
services revenues of $2.7 million for the nine months ended January 31, 2000.
Cost of professional services revenues as a percentage of professional services
revenues was 67% and 72% for the three and nine months ended January 31, 2001,
respectively, and 80% for both the three and nine months ended January 31, 2000.
The increase in cost of professional services revenues in absolute dollars from
the prior periods was due to increased professional services personnel necessary
to support our increased customer base. In certain periods in the past, and
potentially in the future, our cost of professional services revenues exceeded
our professional services revenues, primarily because the actual cost of
providing the services, whether provided internally or through third parties,
exceeded the fixed price payment received from some of our customers for such
services. In addition, as we increase the size of our professional services
staff, we will incur payroll, training and related costs for new personnel
before they become fully productive.

Cost of Maintenance Revenues. Cost of maintenance revenues for the three months
ended January 31, 2001 was $1.5 million, representing an increase of $942,000,
or

                                      15
<PAGE>

156%, from the cost of maintenance revenues of $603,000 for the three months
ended January 31, 2000. Cost of maintenance revenues for the nine months ended
January 31, 2001 was $3.5 million, representing an increase of $2.0 million, or
129%, from the cost of maintenance revenues of $1.5 million for the nine months
ended January 31, 2000. Cost of maintenance revenues as a percentage of
maintenance revenues was 42% and 40% for the three and nine months ended January
31, 2001, respectively, and 41% and 40% for the three and nine months ended
January 31, 2000, respectively. The increase in cost of maintenance revenues as
a percentage of revenue for the three months ended January 31, 2001 over the
prior year period was due to increased personnel-related expenses necessary to
support our increased installed base of customers.

Operating Expenses

Sales and Marketing. Sales and marketing expenses for the three months ended
January 31, 2001 were $16.6 million, representing an increase of $9.4 million,
or 129%, from the sales and marketing expenses of $7.2 million for the three
months ended January 31, 2000. Sales and marketing expenses were $44.9 million
for the nine months ended January 31, 2001, representing an increase of 160%, or
$27.7 million, from the sales and marketing expenses of $17.3 million for the
nine months ended January 31, 2000. The increase in sales and marketing expenses
for the three and nine months ended January 31, 2001, compared to the
corresponding periods in the prior fiscal year, reflect significant increased
personnel-related expenses such as salaries, benefits and commissions,
recruiting fees, travel expenses and related costs of hiring sales management,
sales representatives, sales engineers and marketing personnel. We anticipate
that our sales and marketing expenses will increase in absolute dollars for the
foreseeable future as we continue to expand our domestic and international sales
force.

Research and Development. Research and development expenses for the three months
ended January 31, 2001 were $7.2 million, representing an increase of $4.4
million, or 154%, from the research and development expenses of $2.8 million for
the three months ended January 31, 2000. Research and development expenses were
$17.6 million for the nine months ended January 31, 2001, representing an
increase of 192%, or $11.6 million, from the research and development expenses
of $6.0 million for the nine months ended January 31, 2000. The increase in
research and development expenses for the three and nine month period ended
January 31, 2001, compared to the corresponding periods in the prior fiscal year
was due to the increase in the number of our software developers, quality
assurance personnel and outside contractors needed to support our product
development, documentation and testing activities related to the development and
release of the latest versions of our products. We anticipate that research and
development expenses will continue to increase in absolute dollars for the
foreseeable future as we continue to add to our research and development staff.

General and Administrative. General and administrative expenses for the three
months ended January 31, 2001 were $1.6 million, representing an increase of
$777,000, or 90%, from the general and administrative expenses of $864,000 for
the three months ended January 31, 2000. General and administrative expenses
were $4.5 million for the nine months ended January 31, 2001, representing an
increase of 89%, or $2.1 million, from the general and administrative expenses
of $2.4 million for the nine months ended January 31, 2000. The increase in
general and administrative expenses in absolute dollars for the three and nine
months ended January 31, 2001, compared to the corresponding periods in the
prior fiscal year was due to hiring additional finance and administrative
personnel to support the growth of our business during that period. We expect
that general and administrative expenses will increase in absolute dollars for
the foreseeable future as we expand our operations and incur the normal costs of
a public company.

Amortization of Stock Compensation. We recognized amortization of stock
compensation of approximately $3.7 million and $12.3 million for the three and
nine months ended January 31, 2001, compared to $4.0 million and $7.6 million
for the three and nine months ended January 31, 2000.

Amortization of Goodwill and Purchased Intangible Assets. In connection with our
acquisition of Digital Market, Inc. in November 1999, $103.8 million was
allocated to goodwill and $4.1 million was allocated to other intangible assets,
all of which

                                      16
<PAGE>

are being amortized over a period of 3 years. Amortization of goodwill and
intangibles was $9.0 million and $27.1 million in the three and nine month ended
January 31, 2001, compared to $6.0 million for both the three and nine months
ended January 31, 2000.

Purchased In-process Technology. In connection with our acquisition of Digital
Market, Inc., $1.3 million of the purchase price was allocated to in-process
technology, which was expensed in full upon completion of the acquisition in
November 1999.

Interest income (expense) was $4.8 million and $14.6 million for the three and
nine months ended January 31, 2001 compared to $2.7 million and $3.1 million for
the three and nine months ended January 31, 2000. This increase was due
primarily to higher interest income generated from higher balances in cash and
cash equivalents and marketable investments as a result of our follow-on public
offering in December 1999.

Provision for Income Taxes. Our operating losses are generated domestically, and
amounts attributable to our foreign operations have been insignificant for all
periods presented. No provision for income taxes has been recorded since our
inception because we have incurred net losses in all periods. We have recorded a
valuation allowance for the full amount of our net deferred tax assets, as the
future realization of the tax benefit is not currently likely.

Liquidity and Capital Resources

We have historically satisfied our cash requirements primarily through issuances
of equity securities and lease and debt financing. In August 1999, we completed
our initial public offering and concurrent private placement of our common
stock, which resulted in net proceeds to the Company of approximately $80.4
million, before offering expenses. We used $22.4 million of the proceeds from
our initial public offering to pay the cash portion of the consideration payable
by us in our acquisition of Digital Market. In December 1999, we completed a
follow-on public offering, which resulted in net proceeds to the Company, before
offering expenses, of $272.6 million. Prior to the offerings we had financed our
operations through private sales of preferred stock, with net proceeds of $26.2
million, and through bank loans and equipment leases.

We had a $5.0 million senior line of credit facility with a bank, borrowings
thereunder bearing interest at 8.5%, which expired on August 31, 2000 and was
not renewed by the Company. At January 31, 2001, no balance was outstanding
under this line of credit. Accounts receivable and certain other assets secure
this line of credit. Capital lease obligations, including both short-term and
long-term portions, were $661,000 at January 31, 2001, and are payable through
fiscal 2003.

As of January 31, 2001, we had cash, cash equivalents and short-term investments
of $306.9 million, an increase of $7.1 million from the cash, cash equivalents
and short-term investments held as of April 30, 2000. Our working capital at
January 31, 2001 was $299.7 million.

Operating activities provided cash of $2.2 million for the nine months ended
January 31, 2001 and used $6.6 million for the nine months ended January 31,
2000. Net cash provided by operating activities in the nine months ended January
31, 2001 was due primarily to increases in deferred revenue, accounts payable
and accrued expenses, partially offset by increases in accounts receivable and
other assets. In addition, net losses offset by non-cash charges provided
approximately $1.6 million for the nine months ended January 31, 2001. Net cash
used in operating activities in the nine months ended January 31, 2000 was due
primarily to our net loss, an increase in accounts receivable and other assets
and a decrease in accrued expenses, partially offset by increases in deferred
revenue and accounts payable.

Investing activities used cash of $15.6 million for the nine months ended
January 31, 2000. Net cash used in investing activities in the nine months ended
January 31, 2001 consisted of purchases of privately-held equity investments and
purchases of property and equipment, and net purchases of marketable
investments. Net cash used in investing activities in the nine months ended
January 31, 2000 consisted of net purchases of marketable securities, cash paid
as the cash portion of the purchase

                                      17
<PAGE>

price of Digital Market and purchases of property and equipment. Purchases of
property and equipment were approximately $9.8 million in the nine months ended
January 31, 2001 and $3.1 million in the nine months ended January 31, 2000.
These capital expenditures were primarily for computer hardware and software and
furniture and fixtures. We expect that capital expenditures will continue to
increase to the extent we continue to increase our headcount or expand our
operations.

Financing activities provided cash of $7.5 million in the nine months ended
January 31, 2001 and provided cash of $348.6 million in the nine months ended
January 31, 2000. Net cash was provided in the nine months ended January 31,
2001 from the sale of common stock under employee stock option plans. Net cash
was provided in the nine months ended January 31, 2000 from our initial public
offering and follow-on public offering in fiscal 2000.

We expect to experience significant growth in our operating expenses,
particularly research and development and sales and marketing expenses, for the
foreseeable future in order to execute our business plan. As a result, we
anticipate that such operating expenses, as well as planned capital
expenditures, will constitute a material use of our cash resources. In addition,
we may utilize cash resources to fund acquisitions or investments in
complementary businesses, technologies or product lines. We believe that our
existing cash and cash equivalents and our anticipated cash flow from operations
will be sufficient to meet our working capital and operating resource
expenditure requirements for at least the next twelve months. Thereafter, we may
find it necessary to obtain additional equity or debt financing. In the event
additional financing is required, we may not be able to raise it on acceptable
terms or at all, and the issuance of any additional securities would result in
ownership dilution to our existing stockholders.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 133, or SFAS 133, "Accounting
for Derivative Instruments and Hedging Activities." SFAS 133 establishes new
standards of accounting and reporting for derivative instruments and hedging
activities. SFAS 133 requires that all derivatives be recognized at fair value
in the statement of financial position, and that the corresponding gains or
losses be reported either in the statement of operations or as a component of
comprehensive loss, depending on the type of hedging relationship that exists.
In July 1999, the Financial Accounting Standard Boards issued SFAS No. 137, or
"SFAS 137," "Accounting for Derivative Instruments and Hedging Activities --
Deferral of the Effective Date of SFAS No. 133." SFAS 137 deferred the effective
date of SFAS 133 until the first fiscal year beginning after June 15, 2000. The
Company does not currently hold derivative instruments or engage in hedging
activities. The Company is currently evaluating the impact SFAS 133 will have on
its financial position and results of operations.

In December 1999, Staff Accounting Bulletin No. 101, or SAB 101, was issued to
summarize the Securities and Exchange Commission's (SEC) views in applying
generally accepted accounting principles to revenue recognition in financial
statements. On October 31, 2000, the SEC issued SAB 101, Revenue Recognition in
Financial Statement--Frequently Asked Questions (FAQ). SAB 101 becomes effective
in the Company's quarter ended April 30, 2001. The Company does not expect the
adoption of SAB 101 to have a material effect on its financial position and
results of operations.

In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, or FIN 44, "Accounting for Certain Transactions Involving
Stock Compensation an Interpretation of APB 25," which clarifies the application
of Opinion 25 for (a) the definition of an employee for purposes of applying
Opinion 25, (b) the criteria for determining whether a plan qualifies as a non-
compensatory plan, (c) the accounting consequence of various modifications to
the terms of a previously fixed stock option or award, and (d) the accounting
for an exchange of stock compensation awards in a business combination. FIN 44
is effective July 1, 2000 but certain conclusions cover specific events that
occur after either December 15, 1998 or January 12, 2000. The adoption of FIN 44
did not have a material effect on our financial position and results of
operations.

Other Factors Affecting Operating Results

                                      18
<PAGE>

Risks Related to Our Operations

Our Recently announced merger with Ariba may subject our Stock Price to downward
  adjustments as a result of adverse developments in Ariba's Business

The Company announced on January 29, 2001 that it had entered into a merger
agreement with Ariba Inc., pursuant to which the Company's stockholders will
receive 1.35 shares of Ariba common stock for each outstanding share of the
Company's common stock. Since the Company may terminate the agreement only in
very limited circumstances and the exchange ratio is not subject to adjustment,
the Company's stock price will be affected by changes in the Ariba stock price.
Accordingly, the Company's stockholders are subject to the risk of downward
adjustments in the Company's stock price as a result of adverse developments in
Ariba's business. Moreover, if for any reason the Company is unable to complete
the merger with Ariba, the price of the Company's stock may be adversely
affected.

Because We Have a Limited Operating History, It Is Difficult to Evaluate Our
  Business and Prospects

We are still in the early stages of our development, so evaluating our business
operations and our prospects is difficult. We incorporated in 1995 and began
shipping our first product in June 1996. The revenues and income potential of
our business and market are unproven. We will encounter risks and difficulties
frequently encountered by early-stage companies in new and rapidly evolving
markets. These risks include the following:

  .  until our acquisition of Digital Market, we have had only one product
     suite, and will need to successfully introduce new products such as Agile
     Buyer, released as a result of our acquisition of Digital Market, and
     enhance existing products to this suite;

  .  we need to successfully market the Agile Buyer product which has only been
     sold to a limited number of customers;

  .  we need to increase sales to achieve profitability, requiring us to sell
     additional licenses and software products to our existing customers and
     expand our customer base outside of the electronics and medical device
     industries;

  .  we need to expand our sales and marketing, customer support and
     professional services organizations, build strategic relationships and
     expand our international operations in order to increase sales; and

  .  we need to effectively manage our anticipated growth which could lead to
     management distractions and increased operating expenses, and will require
     us to attract and retain key personnel.

Our business strategy may not be successful and we may not be able to
successfully address these risks. In addition, because of our limited operating
history, we have limited insight into trends that may emerge and affect our
business.

  We Have a History of Losses, We Expect to Incur Losses in the Future and We
  May Not Achieve or Maintain Profitability

As of January 31, 2001, we had an accumulated deficit of approximately $103.3
million. We expect to continue to incur significant sales and marketing,
research and development and general and administrative expenses. We have
incurred and expect to continue to incur substantial non-cash costs relating to
the amortization of intangible assets and stock compensation which will
contribute to our net losses. We expect to incur losses for the foreseeable
future. We will need to generate significant increases in revenues to achieve
and maintain profitability, and we may not be able to do so. Even if we do
achieve profitability, we may not be able to sustain or increase profitability
on a quarterly or annual basis in the future.

Our Quarterly Operating Results Fluctuate and Are Difficult to Predict and, if

                                      19
<PAGE>

Our Future Results Are Below the Expectations of Public Market Analysts or
Investors, the Price of Our Common Stock May Decline

Our quarterly operating results have varied significantly in the past and are
likely to vary significantly in the future, which makes it difficult for us to
predict our future operating results. This quarter-to-quarter fluctuation is due
to a number of factors, including the following:

  .  our success with the Agile Buyer product;

  .  fluctuations in demand for Internet collaborative manufacturing commerce
     software;

  .  size and timing of sales and installations of our products;

  .  entry of new competitors into our market, or the announcement of new
     products or product enhancements by competitors;

  .  our ability to successfully expand our direct sales force and our
     international sales organization;

  .  changes in our sales force incentives;

  .  unexpected delays in developing or introducing new and enhanced products;

  .  unexpected decline in purchases by our existing customers, including
     purchases of additional licenses and maintenance contracts;

  .  delays in our customers' orders due to their priorities;

  .  variability in the mix of our license and professional services revenues;

  .  our ability to accurately price fixed-priced professional services
     projects;

  .  variability in the mix of professional services that we perform versus
     those performed for our customers by others; and

  .  our ability to establish and maintain relationships with our third-party
     implementation partners.

Furthermore, customers may defer or reconsider purchasing products if they
experience a downturn in their business or if there is a downturn in the general
economy. We will continue to determine our investment and expense levels based
on expected future revenues. Significant portions of our expenses are not
variable in the short term, and we cannot reduce them quickly to respond to
decreases in revenues. Therefore, if revenues are below expectations, this
shortfall is likely to adversely and disproportionately affect our operating
results.

License revenues in any quarter can be difficult to forecast because they depend
on orders shipped or installed in that quarter. A high percentage of our
operating expenses are essentially fixed in the short term and we may be unable
to adjust spending to compensate for an unexpected shortfall in our revenues. In
addition, we expect our operating expenses to increase as we expand our
engineering and sales and marketing operations, broaden our customer support
capabilities, develop new distribution channels and strategic alliances, fund
increased levels of research and development and build our operational
infrastructure. As a result, if we experience delays in recognizing revenue, or
if our revenues do not grow faster than the increase in these expenses, we could
experience significant variations in operating results from quarter to quarter.

If, in response to market pressures or other demands, we introduce new pricing
structures for our existing products, we could experience customer
dissatisfaction and loss of sales. In addition, we could introduce products that
are sold in a manner different from how we currently market our products, or we
could recognize revenue differently than under our current accounting policies.
Depending on the manner in which we sell existing or future products, this could
have the effect of

                                      20
<PAGE>

extending the length of time over which we recognize revenues. Furthermore, our
quarterly revenues could be significantly affected based on how applicable
accounting standards are amended or interpreted over time.

In addition, we have accounted for options to purchase common stock granted to
consultants under variable plan accounting. The expense associated with these
options may fluctuate significantly from quarter to quarter through fiscal 2005
if the price of our stock fluctuates and could cause our operating results to
vary significantly from quarter to quarter.

Due to these and other factors, we believe that period-to-period comparisons of
our results of operations are not meaningful and should not be relied upon as
indicators of our future performance. It is possible that in some future periods
our results of operations may be below the expectations of public market
analysts and investors. If this occurs, the price of our common stock may
decline.

  We May Not Achieve Anticipated Revenues if the Introduction and Customer
  Acceptance of Agile Anywhere, Agile Buyer or Any Upgrades or Enhancements to
  Our Products Is Unsuccessful

Our future financial performance will depend on customer acceptance of Agile
Anywhere and Agile Buyer products and any upgrades or enhancements that we may
make to our products in the future. We have generated substantially all of our
revenues from licenses and services related to current and prior versions of our
product suite. We believe that revenues from Agile Anywhere, together with
revenues from maintenance and support contracts from Agile Anywhere and prior
versions of our suite, will account for a substantial portion of our revenues
for the foreseeable future. If we are unable to ship or implement any upgrades
or enhancements when planned, or if the introduction of upgrades or enhancements
causes customers to defer orders for our existing products, we may not achieve
anticipated revenues.

  Our Acquisition of Digital Market, and any Future Acquisitions, May Be
  Difficult to Integrate, Disrupt Our Business, Dilute Stockholder Value or
  Divert Management Attention

We acquired Digital Market in November 1999. We may encounter risks to our
business during our integration of acquisitions such as Digital Market,
including:

  .  difficulties in assimilation of acquired personnel, operations,
     technologies or products;

  .  unanticipated costs associated with the acquisition;

  .  diversion of management's attention from other business concerns;

  .  adverse effects on our existing business relationships with our customers
     or the customers of any acquisitions we make; and

  .  inability to retain employees of acquisitions we make.

As part of our business strategy, we may in the future seek to acquire or invest
in additional businesses, products or technologies that we believe could
complement or expand our business, augment our market coverage, enhance our
technical capabilities or that may otherwise offer growth opportunities. These
future acquisitions could pose risks to our business posed at the time by our
acquisition of Digital Market. In addition, with future acquisitions, we could
use substantial portions of our available cash, including the proceeds of this
offering, as all or a portion of the purchase price. We could also issue
additional securities as consideration for these acquisitions, which could cause
our stockholders to suffer significant dilution. Any future acquisitions may not
generate any additional revenue or provide any benefit to our business.

  We May Not Achieve Anticipated Additional Revenues or Benefits or Broaden our
  Product Offerings As a Result of Our Acquisition of Digital Market

With the acquisition of Digital Market, we extended the functionality of Agile
Anywhere with Digital Market's direct materials sourcing, quoting and ordering

                                      21
<PAGE>

applications to introduce the Agile Buyer solution. If we are unable to
successfully market our products with the Agile Buyer product, or create new or
enhanced products combining the functionality provided by both, or otherwise
broaden our product offerings, we may not achieve enhanced sales or other
anticipated benefits from our acquisition of Digital Market. This is
particularly difficult because Digital Market has had limited product sales as
of and subsequent to the date of acquisition. If we fail to achieve further
anticipated benefits from the acquisition, we may incur increased expenses,
experience a shortfall in our anticipated revenues and may not obtain a
satisfactory return on our investment.

  Implementation of Our Products By Large Customers May Be Complex and Customers
  Could Become Dissatisfied if Implementation of Our Products Proves Difficult,
  Costly or Time-Consuming

Our products must integrate with many existing computer systems and software
programs used by our customers. Integrating with many other computer systems and
software programs can be complex, time consuming and expensive and cause delays
in the deployment of our products. Because we are one of the first companies to
offer products designed for collaborative manufacturing commerce solutions, many
customers will be facing these integration issues for the first time in the
context of collaborating with supply chain partners. Customers could become
dissatisfied with our products if implementations prove to be difficult, costly
or time-consuming.

  We Currently Perform Most of Our Implementations on a Fixed-Price Basis, Which
  Could Cause Us to Incur More Costs Than We Expect

When we install our products or when we have a third party install them, we
typically charge customers a fixed fee for these services. At the time of a
product sale and prior to agreeing to an installation price, we estimate the
amount of work involved for a particular installation project. We have at times
in the past underestimated and may in the future underestimate the amount of
time or resources required to install our products. If we do not correctly
estimate the amount of time or resources required for a large number of
installations, our gross margins could decline.

  If We Do Not Sell Additional Licenses or Enhanced Versions or Upgrades of Our
  Products to Existing Customers, We May Not Achieve Revenue Growth

The size of a new customer's initial order is relatively small and may include a
limited number of user licenses. In later orders, customers often add user
licenses or additional products designed for specific functions, such as the AML
Server targeted at manufacturers. In order to grow revenues, we depend on sales
of additional user licenses to our existing customers as well as sales of new
licenses to new customers. Therefore, it is important that our customers are
satisfied with their initial product implementations and that they believe that
expanded use of the product they purchased will provide them with additional
benefits. Customers could choose not to purchase any new products or expand the
use of our products. If we do not increase sales to existing customers, we may
not be able to achieve revenue growth.

  If We Do Not Establish and Maintain Relationships With Key Partners, We May
  Encounter Difficulty in Providing Implementation and Customer Support of Our
  Products

We rely heavily on our relationships with consulting and integration partners to
implement our software, provide customer support services and endorse our
products during the evaluation stage of the sales cycle. Currently, a limited
number of companies provide implementation services for our products. We expect
to increasingly rely on these types of partners in the future. These companies
are not contractually obligated to continue to provide implementation services
for us or to otherwise promote our products. Although we seek to develop and
maintain relationships with these types of service providers, they may have
similar or more established relationships with our competitors. If these service
providers do not increase this segment of their business, or reduce or
discontinue their relationships with us or their support of our products, our
business could be harmed. We will need to develop new third party relationships
if sales of our products increase and our current partners cannot fulfill the
need for

                                      22
<PAGE>

implementation and customer support services. Without these third parties we
would have to expand our services organization to increase the consulting and
professional services that we provide to our customers and divert resources from
other areas of our business. If we are required to expand our professional
services capabilities, we may not be able to do so on a timely basis.

We are beginning to implement larger deployments of our products together with
third parties such as Andersen Consulting and Siemens. If we are not successful
with these joint deployments, we may incur increased costs and customer
dissatisfaction and may not achieve increased sales and market acceptance of our
products.

To meet customer demand, we might have to outsource services to more costly
independent contractors and other third parties. In addition, if our
implementation partners do not adequately perform implementation services, our
customers could become dissatisfied with our products. In order to avoid
dissatisfaction, we may need to provide supplemental implementation services at
no additional cost to customers. Although we could experience an increase in
services revenues if our service partners are not successful, services revenues
have lower gross margins than license revenues. We could also experience delays
in revenue recognition if customer implementation projects fall behind schedule.

  We May Experience Customer Dissatisfaction and Lost Sales if Our Products Do
  Not Scale to Accommodate Substantial Increases in the Number of Concurrent
  Users

Our strategy requires that our software be highly scalable, or able to
accommodate substantial increases in the number of users concurrently using the
product. To date, however, only a limited number of our customers have deployed
our software to manage the manufacturing process across their entire
organization. While we have performed product testing on the scalability of our
products, these products have not been tested in the context of a customer
implementation. If our customers cannot successfully implement large-scale
deployments, or if they determine that our products cannot accommodate large-
scale deployments, we could experience customer dissatisfaction and find it more
difficult to obtain new customers or to sell additional products to our existing
customers.

  We May Not Be Able to Increase Sales of Our Products if We Do Not Expand Our
  Direct Sales Organization

We sell our products primarily through our direct sales force. Our ability to
increase our sales will depend on our ability to recruit, train and retain top
quality sales people with the advanced sales skills and technical knowledge we
need. There is a shortage of the sales personnel we need, and competition for
qualified personnel is intense in our industry. In addition, it takes time for
our new sales personnel to become productive, particularly our senior sales and
services personnel, who could take up to nine months to become fully productive.
If we are unable to hire or retain qualified sales personnel, or if newly hired
personnel fail to develop the necessary skills or reach productivity more slowly
than anticipated, it would be more difficult for us to sell our products, and we
may experience a shortfall in revenues.

  Our Variable Sales Cycle Makes it Difficult For Us to Predict When or if Sales
  Will Be Made

Our products have an unpredictable sales cycle that contributes to the
uncertainty of our future operating results. Our collaborative manufacturing
commerce software is a new category of products, and customers often view the
purchase of our products as a significant and strategic decision. As a result,
customers may take time to evaluate our products. The sale of our products may
be subject to delays due to the lengthy internal budgeting, approval and
evaluation processes of our customers. We may expend significant sales and
marketing expenses during this evaluation period before the customer places an
order with us. Customers may initially purchase a smaller number of user
licenses before expanding the order to allow a greater number of users to
benefit from the application. Larger customers may purchase our products as part
of multiple simultaneous purchasing decisions, which may result in additional
unplanned administrative processing and other delays in our product sales. If
sales forecasted from a specific customer for a particular quarter are not

                                      23
<PAGE>

realized, we may experience an unplanned shortfall in revenues. As a result, we
have only a limited ability to forecast the timing and size of sales of our
products.

  The Success of Our Business Depends on Our Key Personnel, Whose Knowledge of
  Our Business and Technical Expertise Would Be Difficult to Replace

Our success depends largely on the continued contributions of our key senior
management, particularly Bryan D. Stolle, our Chief Executive Officer, who is
not bound by an employment agreement, as well as of our key engineering and
sales and marketing personnel. We do not have key-man life insurance on Mr.
Stolle. If one or more members of our senior management or any of our key
employees were to resign, the loss of personnel could result in delays to
product development, loss of sales, and diversion of management resources.

  Because of Competition For Additional Qualified Personnel, We May Not Be Able
  to Recruit or Retain Necessary Personnel, Which Could Impact Development or
  Sales of Our Products

Our success depends on our ability to attract and retain qualified, experienced
employees. There is substantial competition for experienced engineering, sales
and marketing personnel in our industry. The volatility and current market price
of our common stock may make it more difficult for us to recruit, hire and
retain qualified personnel, or cause us to incur higher salary costs. In
addition, there is currently a very low unemployment rate, particularly for
technical personnel, in the Silicon Valley where we are located, increasing our
difficulty in hiring and retaining personnel. If we are unable to retain our
existing key personnel, or attract and retain additional qualified personnel, we
may from time to time experience inadequate levels of staffing to perform
services for our customers. As a result, our growth could be limited due to our
lack of capacity to develop and market our products to our customers, or we
could experience deterioration in service levels or decreased customer
satisfaction.

  Our Efforts to Expand Sales of Our Products to Other Industries May Not
  Succeed

We have historically sold our products primarily to companies in the electronics
and medical device manufacturing industries. We intend to market products to
customers in additional industries. Although we have targeted enterprises in
other markets as potential customers, these potential customers may not be as
willing to purchase products like ours as have the electronics and medical
device industries.

  The Market For Our Products Is Newly Emerging and Customers May Not Accept Our
  Products

The market for software products that allow companies to collaborate with
suppliers on product information and change is newly emerging. Companies have
not traditionally automated collaborative manufacturing commerce solutions like
we offer throughout the supply chain. We cannot be certain that this market will
continue to develop and grow or that companies will elect to utilize our
products rather than attempt to develop applications internally or through other
sources. In addition, the use of the Internet, as well as corporate intranets,
has not been widely adopted for sharing product information as well as for
collaboration among supply chain participants. Companies that have already
invested substantial resources in other methods of sharing product information
during the manufacturing and supply process may be reluctant to adopt a new
approach that may replace, limit or compete with their existing systems or
methods. We expect that we will continue to need to pursue intensive marketing
and sales efforts to educate prospective customers about the uses and benefits
of our products. Therefore, demand for and market acceptance of our products
will be subject to a high level of uncertainty.

  Competition Among Providers of Software Enabling Collaboration in a
  Manufacturing Supply Chain May Increase, Which Could Cause Us to Reduce
  Prices, and Resulting in Reduced Gross Margins or Loss of Market Share

The market for products that enable companies to interactively manage and share
information relating to the manufacture and supply of products is new, highly
fragmented, rapidly changing and increasingly competitive. We expect competition
to intensify, which could result in price reductions for our products, reduced
gross

                                      24
<PAGE>

margins and loss of market share. Competitors vary in size and in the scope and
breadth of the products and services offered. We face potential competition from
in-house development efforts by potential customers or partners, vendors of
software designed for management of engineering information, and developers of
general purpose groupware software addressing only limited technology components
involved in managing data generated by changes to the engineering process. We
also face potential competition from providers of enterprise resource planning
software and supply-chain software.

Many of our actual or potential competitors have a number of significant
advantages over us, including:

  .  longer operating histories;

  .  significantly greater financial, technical, marketing and other resources;

  .  significantly greater name recognition and a larger installed base of
     customers; and

  .  well-established relationships with our actual and potential customers as
     well as with systems integrators and other vendors and service providers.

These competitors may also be able to respond more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of their products, than we can.
Some of our actual or potential competitors may also bundle their products in a
manner that may discourage potential customers from purchasing our products.
Accordingly, we may not be able to maintain or expand our sales if competition
increases and we are unable to respond effectively.

  We May Experience Difficulties in Introducing New Products and Upgrades Which
  Could Result in Negative Publicity, Loss of Sales, Delay in Market Acceptance
  or Customer Dissatisfaction

Our future financial performance depends on our successful and timely
development, introduction and market acceptance of new and enhanced products.
The life cycles of our products are difficult to predict because the market for
our products is new and emerging, and is characterized by rapid technological
change, changing customer needs and evolving industry standards. The
introduction of products or computer systems employing new technologies and
emerging industry standards could render our existing products obsolete and
unmarketable. For example, portions of our software are written in the Java
computer programming language. If a new software language becomes standard in
our industry or is considered more robust, we may need to rewrite portions of
our products in another computer language in order to remain competitive. The
introduction of enhancements to our suite of products may also cause customers
to defer orders for our existing products. We may experience difficulties that
could delay or prevent the successful development, introduction or marketing of
new or enhanced products in the future. In addition, those products may not meet
the requirements of the marketplace and achieve market acceptance.

We expect to add new products to our supply chain applications by acquisition or
internal development and by developing enhancements to our existing products. We
have in the past experienced delays in the planned release dates of our software
products and upgrades, and we have discovered software defects in new products
after their introduction. New products or upgrades may not be released according
to schedule, or may contain defects when released. Either situation could result
in negative publicity, loss of sales, delay in market acceptance of our products
or customer claims against us.

  Our Products Might Not Be Compatible With All Platforms, Which Could Inhibit
  Sales

We must continually modify and enhance our products to keep pace with changes in
computer hardware and software and database technology, as well as emerging
technical standards in the software industry. For example, we have designed our
products to work with databases such as Oracle. Any changes to these platforms
could require us to modify our products, and could cause us to delay releasing a
product

                                      25
<PAGE>

until the updated version of that platform has been released. Furthermore, third
parties develop adapters to integrate our products with other design,
manufacture, finance and supply chain systems used by our customers. We rely on
these third parties to update the adapters to reflect changes to our products as
well as to the targeted platform in order to maintain the functionality provided
by our products. As a result, uncertainties related to the timing and nature of
new product announcements, introductions or modifications by vendors of
operating systems, back-office applications and browsers and other Internet-
related applications could hurt our business, as customers may not be certain as
to how our product will operate with their existing systems.

In addition, portions of our products are based upon a programming language that
does not offer all of the features available in Windows. Accordingly, certain
features available to products that run on Windows may not be available in the
non-Windows version of our products, and this could result in reduced customer
demand. Furthermore, some of our products do not run on certain types of popular
server computers, such as those that utilize the UNIX operating system. If
another platform becomes more widely used or offers greater scalability, we
could be required to convert, or "port," our product to that platform. We may
not succeed in these efforts, and even if we do, potential customers may not
choose our product. As we extend the functionality of our products to run on
additional platforms, we may incur increased development costs.

  If We Are Unable to Timely Expand Our International Operations, We May Not
  Achieve Anticipated Revenue Growth

We believe that expansion of our international operations will be necessary for
our future success, and a key aspect to our business strategy has been and is to
expand our sales and support organizations internationally. Therefore, we
believe that we will need to commit additional significant resources to expand
our international operations. We employ sales professionals in Europe and the
Asia-Pacific market. If we are unable to successfully expand further in these
international markets on a timely basis, we may not be able to achieve
anticipated revenue growth. This expansion may be more difficult or take longer
than we anticipate, and we may not be able to successfully market, sell, deliver
and support our products internationally.

Our international expansion will subject us to a number of risks associated with
international business activities. These risks include:

  .  difficulty in providing customer support for our software in multiple time
     zones;

  .  need to develop our software in multiple foreign languages;

  .  longer sales cycles associated with educating foreign customers on the
     benefits of using our products;

  .  greater difficulty and longer time in collecting accounts receivable from
     customers located abroad;

  .  political and economic instability, particularly in Asia;

  .  difficulties in enforcing agreements through foreign legal systems; or

  .  unexpected changes in regulatory requirements that may limit our ability to
     export our software or sell into particular jurisdictions or impose
     multiple conflicting tax laws and regulations.

To date, most of our revenues have been denominated in United States dollars. If
we experience an increase in the portion of our revenues denominated in foreign
currencies, we may incur greater risks in currency fluctuations, particularly
since we translate our foreign currency revenues once at the end of each
quarter. In the future, our international revenues could be denominated in the
Euro, the currency of the European Union. The Euro is an untested currency and
may be subject to economic risks that are not currently contemplated. We
currently do not engage in foreign exchange hedging activities, and therefore
our international revenues and expenses are currently subject to the risks of
foreign currency fluctuations.

                                      26
<PAGE>

  We Depend on Licensed Technology and the Loss or Inability to Maintain These
  Technology Licenses Could Result in Increased Cost or Delays in Sales of Our
  Products

We license technology on a non-exclusive basis from several businesses for use
with our products, including licenses from RSA Data Security, Inc. for security
and encryption technology software, Actuate Corporation for reporting capability
and from Cimmetry Systems Inc. for our viewers. We anticipate that we will
continue to license technology from third parties in the future. Some of the
software we license from third parties would be difficult to replace. This
software may not continue to be available on commercially reasonable terms, if
at all. The loss or inability to maintain any of these technology licenses could
result in delays in the licensing of our products until equivalent technology,
if available, is identified, licensed and integrated. In addition, the effective
implementation of our products depends upon the successful operation of third-
party licensed products in conjunction with our products, and therefore any
undetected errors in these licensed products may prevent the implementation or
impair the functionality of products, delay new product introductions and/or
injure our reputation. The increased use of third-party software could require
us to enter into license agreements with third parties, which could result in
higher royalty payments and a loss of product differentiation.

  Defects in Our Software Products Could Diminish Demand For Our Products

Our software products are complex and may contain errors, including year 2000
related errors, that may be detected at any point in the life of the product. We
have in the past discovered software errors in certain of our products and as a
result have experienced delays in shipment of products during the period
required to correct these errors. We cannot assure you that, despite testing by
us, our implementation partners and our current and potential customers, errors
will not be found in new products or releases after shipment, resulting in loss
of revenue, delay in market acceptance and sales, diversion of development
resources, injury to our reputation or increased service and warranty costs.

Further, our products are generally used in systems with other vendors'
products, and as a result, our products must integrate successfully with these
existing systems. System errors, whether caused by our products or those of
another vendor, could adversely affect the market acceptance of our products,
and any necessary revisions could cause us to incur significant expenses.

  If We Become Subject to Product Liability Litigation, It Could Be Time
  Consuming and Costly to Defend

Since our products are used for mission critical applications in the supply
chain, errors, defects or other performance problems could result in financial
or other damages to our customers. For example, our products are designed to
communicate information relating to changes in product specifications during the
manufacturing process. If a supplier or other participant receives inaccurate or
erroneous data, it is possible that it could claim it incurred damages based on
its reliance on that data. Although our license agreements generally contain
provisions designed to limit our exposure to product liability litigation,
existing or future laws or unfavorable judicial decisions could negate such
limitation of liability provisions. Product liability litigation, even if
unsuccessful, would be time-consuming and costly to defend and could harm our
business.

  In Order to Manage Our Growth and Expansion, We Will Need to Improve and
  Implement New Systems, Procedures and Controls

We have recently experienced a period of rapid growth and expansion that has
placed a significant strain on our management information systems and our
administrative, operational and financial resources. For example, we have grown
from 250 employees at January 31, 2000 to 436 employees at January 31, 2001. If
we are unable to manage our growth and expansion in an efficient or timely
manner, our business will be seriously harmed. In addition, we have recently
hired a significant number of employees and plan to further increase our total
headcount. We also plan to expand the geographic scope of our operations. This
expansion has resulted and will

                                      27
<PAGE>

continue to result in substantial demands on our management resources. To
accommodate continued anticipated growth and expansion, we will be required to:

  .  improve existing and implement new operational and financial systems,
     procedures and controls;

  .  hire, train, manage, retain and motivate qualified personnel; and

  .  enter into relationships with strategic partners.

These measures may place additional burdens on our management and our internal
resources.

  If We Are Unable to Protect Our Intellectual Property We May Lose a Valuable
  Asset, Experience Reduced Market Share or Incur Costly Litigation to Protect
  Our Rights

Our success and ability to compete depend upon our proprietary technology,
including our brand and logo and the technology underlying our products. We rely
on patent, trademark, trade secret and copyright laws to protect our
intellectual property. Despite our efforts to protect our intellectual property,
a third party could copy or otherwise obtain our software or other proprietary
information without authorization, or could develop software competitive to
ours. Our means of protecting our proprietary rights may not be adequate and our
competitors may independently develop similar technology, duplicate our products
or design around patents that may be issued to us or our other intellectual
property. In addition, the laws of some foreign countries do not protect our
proprietary rights to as great an extent as do the laws of the United States,
and we expect that it will become more difficult to monitor the use of our
products if we increase our international presence.

We may have to resort to litigation to enforce our intellectual property rights,
to protect our patents, trade secrets or know-how or to determine their scope,
validity or enforceability. Enforcing or defending our proprietary technology is
expensive, could cause the diversion of our resources, and may not prove
successful. Our protective measures may prove inadequate to protect our
proprietary rights, and any failure to enforce or protect our rights could cause
us to lose a valuable asset.

  We May Be Subject to Intellectual Property Infringement Claims That, With or
  Without Merit, Could Be Costly to Defend or Settle

We may from time to time be subject to claims of infringement of other parties'
proprietary rights or claims that our own intellectual property rights are
invalid. There has been a substantial amount of litigation in the software and
Internet industries regarding intellectual property rights. It is possible that,
in the future, third parties may claim that we or our current or potential
future products infringe their intellectual property. We expect that software
product developers and providers of electronic commerce solutions will
increasingly be subject to infringement claims as the number of products and
competitors in our industry segment grows and the functionality of products in
industry segments overlaps. Any infringement claims made against us, with or
without merit, could be time-consuming, result in costly litigation, cause
product shipment delays or negative publicity. In addition, if our products were
found to infringe a third party's proprietary rights, we could be required to
enter into royalty or licensing agreements in order to continue to be able to
sell our products. Royalty or licensing agreements, if required, may not be
available on terms acceptable to us or at all.

  We Will Rely on Third Parties to Manage System and Network Environments for
  Hosted Customers.

We will rely on third parties to manage system and network environments running
the Agile Anywhere and Agile Buyer solutions and related solutions for customers
requiring hosting. Services provided by these third parties will include
managing the hosted servers, maintaining communications lines and managing
network data centers, which are the locations where the Agile solutions reside.
Since the hosting of the Agile solutions for certain customers will depend on
these third parties, it is possible that these third parties may not be able to
meet our and our customer's

                                      28
<PAGE>

service level requirements. In the event that we choose to use alternative
hosting sources, this may result in a temporary degradation of the service level
for hosting services that may be unacceptable to our customers.

  Provisions Contained in Our Charter Documents May Delay or Prevent a Change in
  Our Control

Provisions of our Delaware certificate of incorporation and bylaws and of
Delaware law could make it more difficult for a third party to acquire us, even
if a change in control would be beneficial to our stockholders. These provisions
also may prevent changes in our management.

  We Are Subject to Employer Payroll Taxes When Our Employees Exercise Their
  Stock Options That Could Adversely Affect Our Results of Operations

The employer payroll taxes are assessed on each employee's gain, which is the
difference between the price of our common stock on the date of exercise and the
exercise price. During a particular period, these payroll taxes could be
material. These employer payroll taxes would be recorded as an expense and are
assessed at tax rates that varies depending upon the employee's taxing
jurisdiction in the period such options are exercised based on actual gains
realized by employees. However, because we are unable to predict how many stock
options will be exercised, at what price and in which country during any
particular period, we cannot predict, the amount, if any, of employer payroll
expense will be recorded in a future period or the impact on our future
financial results.

Risks Related to the Internet on Our Business and Prospects

  If Use of the Internet Does Not Continue to Develop and Reliably Support the
  Demands Placed on It by Electronic Commerce, We May Experience Loss of Sales

Our success depends upon continued growth in the use of the Internet as a medium
of collaboration and commerce. Although the Internet is experiencing rapid
growth in the number of users, this growth is a recent phenomenon and may not
continue. Furthermore, despite this growth in usage, the use of the Internet for
commerce is relatively new. As a result, a sufficiently broad base of companies
and their supply chain partners may not adopt or continue to use the Internet as
a medium for collaboration for product content information. Our business would
be seriously harmed if:

  .  use of the Internet does not continue to increase or increases more slowly
     than expected;

  .  the infrastructure for the Internet does not effectively support
     enterprises and their supply chain partners;

  .  the Internet does not create a viable commercial marketplace, inhibiting
     the development of electronic collaborative manufacturing commerce and
     reducing the demand for our products;

  .  concerns over the secure transmission of confidential information over
     public networks and general disruption could inhibit the growth of the
     Internet as a means of conducting commercial transactions; or

  .  concerns about third parties using the Internet to create interference with
     the use of our products over the Internet.

  Capacity Restraints May Restrict the Use of the Internet as a Commercial
  Marketplace, Resulting in Decreased Demand For Our Products

The Internet infrastructure may not be able to support the demands placed on it
by increased usage or the limited capacity of networks to transmit large amounts
of data. Other risks associated with commercial use of the Internet could slow
its growth, including:

  .  outages and other delays resulting from the inadequate reliability of the
     network infrastructure;

                                      29
<PAGE>

  .  slow development of enabling technologies and complementary products; and

  .  limited availability of cost-effective, high-speed access.

Delays in the development or adoption of new equipment standards or protocols
required to handle increased levels of Internet activity, or increased
governmental regulation, could cause the Internet to lose its viability as a
means of communication between manufacturers and their supply chain partners. If
these or any other factors cause use of the Internet for commerce to slow or
decline, the Internet may not prove viable as a commercial marketplace,
resulting in decreased demand for our products.

  Increasing Governmental Regulation of the Internet Could Limit the Market for
  Our Products

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

Risks Related to Control

  Our Executive Officers, Directors and Major Stockholders Will Retain
  Significant Control, Which May Lead to Conflicts With Other Stockholders Over
  Corporate Governance Matters

Currently executive officers, directors and holders of 5% or more of our
outstanding common stock own, in the aggregate, approximately 36.2% of our
outstanding common stock. These stockholders would be able to significantly
influence all matters requiring approval by our stockholders, including the
election of directors and the approval of significant corporate transactions.
This concentration of ownership may also delay, deter or prevent a change in our
control and may make some transactions more difficult or impossible to complete
without the support of these stockholders.

  Our Stock Price Has Been and May Continue to Be Extremely Volatile, Which May
  Lead to Losses By Investors and to Securities Litigation

The stock market has experienced significant price and volume fluctuations and
the market prices of securities of technology companies, particularly Internet-
related companies including us, have been highly volatile. Investors may not be
able to resell their shares purchased in this offering at or above the offering
price. The market price of our common stock may decrease significantly in
response to a number of factors, some of which are beyond our control, including
the following:

  .  variations in our quarterly operating results;

  .  announcements that our revenues or income are below securities analysts'
     expectations;

  .  changes in securities analysts' estimates of our performance or industry
     performance;

  .  changes in market valuations of similar companies;

  .  sales of large blocks of our common stock;

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

                                      30
<PAGE>

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

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Risk

We develop products in the United States and market our products in North
America, and to a lesser extent in Europe and Asia. As a result, our financial
results could be affected by factors such as changes in foreign currency
exchange rates or weak economic conditions in foreign markets. Because nearly
all of our revenue is currently denominated in U.S. dollars, an increase in the
value of the U.S. dollar relative to foreign currencies could make our products
less competitive in foreign markets. Although we will continue to monitor our
exposure to currency fluctuations, and, where appropriate, may use financial
hedging techniques in the future to minimize the effect of these fluctuations,
we cannot assure you that exchange rate fluctuations will not harm our business
in the future.

Interest Rate Risk

Our interest income is sensitive to changes in the general level of U.S.
interest rates, particularly since the majority of our investments are in short-
term instruments. The primary objective of our investment activities is to
preserve principal while at the same time maximizing the income we receive from
our investments without significantly increasing risk. Some of the securities
that we have invested in may be subject to market risk. This means that a change
in prevailing interest rates may cause the principal amount of the investment to
fluctuate. For example, if we hold a security that was issued with a fixed
interest rate at the then-prevailing rate and the prevailing interest rate later
rises, the principal amount of our investment will probably decline. To minimize
this risk, we maintain the majority of our portfolio of cash in money market
funds and short-term investments classified as "available for sale". In general,
money market funds and short-term investments are not subject to market risk
because the interest paid on such funds fluctuates with the prevailing interest
rate. Because some of our debt arrangements are based on variable rates of
interest, our interest expense is sensitive to changes in the general level of
U.S. interest rates. Since these obligations represent a small percentage of our
total capitalization, we believe that there is not a material risk exposure.

The table below represents principal (or notional) amounts and related weighted-
average interest rates by year of maturity of the Company's investment
portfolio.

<TABLE>
<CAPTION>
(in thousands, except          Year Ended
interest rates)                 31-Jan-01      Thereafter        Total
                             --------------  --------------   -----------
<S>                          <C>             <C>              <C>
Cash equivalents               $  98,451           -           $  98,451
Average interest rate              5.93%           -               5.93%
Investments                    $ 170,101           -           $ 170,101
Average interest rate              6.44%           -               6.44%
Total investment securities    $ 268,571           -           $ 268,571
</TABLE>

Other Investments

We invest in equity instruments of privately-held companies for business and
strategic purposes. These investments are included in other long-term assets and
are accounted for under the cost method when ownership is less than 20% and we
do not have the ability to exercise significant influence over operations. As of
January 31, 2001, we had $13.3 million invested in privately-held companies,
some of which are business partners. For these investments, our policy is to
regularly review the assumptions underlying the operating performance and cash
flow forecasts in assessing the carrying values. We identify and record
impairment losses when events

                                     31
<PAGE>

and circumstances indicate that such assets might be impaired. To date, no such
impairment has been recorded.


PART II. OTHER INFORMATION

Item 1.  Legal Proceedings.

Not applicable.

Item 2.  Changes in Securities and Use of Proceeds.

(a) Modification of Constituent Instruments

Not applicable.

(b) Change in Rights

Not applicable.

(c) Issuances of Securities

In August 2000, we issued a warrant to purchase 50,000 shares of our common
stock in connection with the establishment of an alliance with an outside party.
The warrant to purchase our common stock became exercisable immediately. The
warrant expires upon the termination of the agreement. The offer and sale of the
warrants to purchase Common Stock was exempt from the registration requirements
of the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof. The
Company relied on the following criteria to make such exemption available: the
number of offerees, the size and manner of the offering, the sophistication of
the offerees and the availability of material information.

In September 2000, we issued an aggregate of 82,222 shares of our common stock
upon the exercise of an outstanding warrant to purchase our Common Stock on a
net issuance basis, at an exercise price of $74.92 per share. The offer and sale
of the warrant to purchase Common Stock and the Common Stock issuable upon
exercise thereof, was exempt from the registration requirements of the
Securities Act of 1933, as amended, pursuant to Section 4(2) thereof. The
Company relied on the following criteria to make such exemption available: the
number of offerees, the size and manner of the offering, the sophistication of
the offerees and the availability of material information.

During the quarter we issued an aggregate of 228,000 shares of our common stock
upon the exercise of outstanding options to purchase our common stock.  A
portion of those shares was issued pursuant to an exemption by reason of Rule
701 under the securities act of 1933.

Item 3.  Defaults Upon Senior Securities.

Not applicable.

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

Not applicable.

Item 5.  Other Information.

Not applicable.

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

(a)      Exhibits.

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<PAGE>

     10.20  Agreement and Plan of Reorganization among
            Ariba, Inc., Silver Merger Corporation and
            Agile Software Corporation dated January 29, 2001,
            (which is incorporated herein by reference to
            Appendix A of Ariba, Inc.'s Form S-4 as filed
            with the Securities and Exchange Commission on
            February 9, 2001 Registration No. 333-55332).

(b)   Reports on Form 8-K

        Not applicable.

                                      33
<PAGE>

                          AGILE SOFTWARE CORPORATION
                                   SIGNATURE

  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.


                                           AGILE SOFTWARE CORPORATION

Date: March 12, 2001                        /s/ Thomas P. Shanahan
                                           -----------------------------------
                                           By: Thomas P. Shanahan
                                           Executive Vice President
                                           and Chief Financial Officer
                                           (Principal Financial and Accounting
                                           Officer)

                                      34
<PAGE>

EXHIBIT INDEX

Exhibit No.                         Description
-----------                         -----------

10.20     Agreement and Plan of Reorganization among
          Ariba, Inc., Silver Merger Corporation and
          Agile Software Corporation dated January 29, 2001,
          (which is incorporated herein by reference to
          Appendix A of Ariba, Inc.'s Form S-4 as filed
          with the Securities and Exchange Commission on
          February 9, 2001 Registration No. 333-55332).

                                      35