<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, 2000

                                       OR

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

                              EXCHANGE ACT OF 1934

                 For the transition period from _____ to _____


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


<TABLE>
<S>                                          <C>                                 <C>
         Delaware                               000-27071                          77-0397905
         --------                               ---------                          ----------
(State or other jurisdiction                   (Commission                        (IRS Employer
     of incorporation)                         File Number)                   Identification Number)

</TABLE>


                 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) Yes  X  No ___, 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, 2000 was 23,082,907.
<PAGE>

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                           AGILE SOFTWARE CORPORATION

INDEX

<TABLE>
<CAPTION>
                                                                             Page No.
                                                                             -------
<S>      <C>                                                                <C>
Part I.  Financial Information

Item 1.  Financial Statements (unaudited)

         Consolidated Balance Sheet at January 31, 2000
         and April 30, 1999                                                     3

         Condensed Consolidated Statement of Operations for the
         Three and Nine Months Ended January 31, 2000 and 1999                  5

         Condensed Consolidated Statement of Cash Flows for the
         Nine Months Ended January 31, 2000 and 1999                            6

         Notes to Condensed Consolidated Financial Statements                   8

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

Item 3.  Quantitative and Qualitative Disclosure about Market Risk             34

Part II. Other Information

Item 1.  Legal Proceedings                                                     35

Item 2.  Changes in Securities and Use of Proceeds                             35

Item 3.  Defaults Upon Senior Securities                                       36

Item 4.  Submission of Matters to a Vote of Security Holders                   36

Item 5.  Other Information                                                     36

Item 6.  Exhibits and Reports on Form 8-K                                      37

Signature                                                                      38

Exhibit Index                                                                  39
</TABLE>
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                                                                        Page 2
<PAGE>

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Part 1 - Financial Information

Item 1.  Financial Statements

                           AGILE SOFTWARE CORPORATION

                      CONDENSED CONSOLIDATED BALANCE SHEET
                    (in thousands, except per share amounts)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                             January 31,                        April 30,
                                                                                2000                              1999
                                                                       -----------------------        -----------------------
ASSETS
<S>                                                                   <C>                            <C>
Current assets:
   Cash and cash equivalents                                           $               230,596        $                10,003
   Short-term investments                                                               79,873                              -
   Accounts receivable, net                                                              6,350                          4,980
   Other current assets                                                                    873                            624
                                                                       -----------------------        -----------------------
     Total current assets                                                              317,692                         15,607

Property and equipment, net                                                              4,766                          1,973
   Long-term investments                                                                15,697                              -
   Intangible assets                                                                   101,412                              -
   Other assets                                                                            317                            368
                                                                       -----------------------        -----------------------
                                                                       $               439,884        $                17,948
                                                                       =======================        =======================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                    $                 1,839         $                1,287
   Accrued expenses and other liabilities                                                6,138                          3,618
   Deferred revenue                                                                      7,600                          5,107
   Current portion of lease obligations                                                    750                            735
   Current portion of notes payable                                                          -                            686
                                                                       -----------------------        -----------------------
      Total current liabilities                                                         16,327                         11,433

   Capital lease obligations, noncurrent                                                   661                            871
   Notes payable, noncurrent                                                                39                          2,353
                                                                      ------------------------        -----------------------
      Total liabilities                                                                 17,027                         14,657
                                                                      ------------------------        -----------------------

Stockholders' equity :
   Convertible Preferred Stock, $0.001 par value;
     31,176 shares authorized; no shares and 11,874 shares
     issued and outstanding                                                                  -                             12
   Common Stock, $0.001 par value; 100,000 shares authorized;
     23,083 and 4,200 shares issued and outstanding                                         23                              4
   Additional paid-in capital                                                          502,122                         35,503
   Other comprehensive loss                                                               (322)                             -
   Notes receivable from stockholders                                                   (1,426)                          (748)

</TABLE>
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                                                                        Page 3
<PAGE>

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

<TABLE>

<S>                                                                    <C>                         <C>
   Unearned stock compensation                                                       (29,716)                        (4,947)
   Accumulated deficit                                                               (47,824)                       (26,533)
                                                                      -----------------------        -----------------------
     Total stockholders' equity                                                      422,857                          3,291
                                                                      -----------------------        -----------------------
                                                                      $              439,884         $               17,948
                                                                      =======================        =======================
</TABLE>

 See accompanying notes to these condensed consolidated financial statements.

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                                                                          Page 4
<PAGE>

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<TABLE>
<CAPTION>
                                                      AGILE SOFTWARE CORPORATION

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

                                                           Three Months Ended                             Nine Months Ended
                                                              January 31,                                    January 31,
                                             ------------------------------------------     --------------------------------------
<S>                                             <C>                    <C>                     <C>                    <C>
                                                    2000                    1999                   2000                   1999
                                             ------------------     -------------------     ------------------     ---------------
Revenues:
  License                                    $            5,814      $            2,898     $           14,153     $          7,654
  Professional services                                   1,277                     976                  3,442                2,447
  Maintenance                                             1,472                     718                  3,793                1,544
                                             -------------------     ------------------     ------------------     ----------------
    Total revenues                                        8,563                   4,592                 21,388               11,645
                                             ------------------      ------------------     ------------------     ----------------

Cost of revenues:
  License                                                   448                     211                    976                  617
  Professional services                                   1,020                   1,165                  2,746                2,711
  Maintenance                                               603                     371                  1,527                  914
                                             ------------------     -------------------     ------------------     ----------------
     Total cost of revenues                               2,071                   1,747                  5,249                4,242
                                             ------------------     -------------------     ------------------     ----------------
Gross profit                                              6,492                   2,845                 16,139                7,403
                                             ------------------     -------------------     ------------------     ----------------

Operating expenses:
  Sales and marketing                                     7,248                   3,339                 17,261                9,329
  Research and development                                2,836                   1,294                  6,030                3,510
  General and administrative                                864                     492                  2,369                1,362
  Amortization of stock compensation                      3,957                     622                  7,615                1,567
  Amortization of intangible assets                       5,965                       -                  5,965                    -
  Acquired in-process technology                          1,300                       -                  1,300                    -
                                             ------------------     -------------------     ------------------     ----------------
     Total operating expenses                            22,170                   5,747                 40,540               15,768
                                             ------------------     -------------------     ------------------     ----------------

Loss from operations                                    (15,678)                 (2,902)               (24,401)              (8,365)

Interest and other income                                 2,853                     104                  3,786                  347
Interest expense                                           (107)                    (40)                  (676)                (133)
                                             ------------------     -------------------     ------------------     ----------------
Net loss                                     $          (12,932)    $            (2,838)    $          (21,291)    $         (8,151)
                                             ==================     ===================     ==================     ================

Net loss per share:
  Basic and diluted                          $            (0.61)    $             (0.94)    $            (1.61)    $          (2.84)
                                             ==================     ===================     ==================     ================

Weighted average shares                                  21,079                   3,017                 13,202                2,870
                                             ==================     ===================     ==================     ================
</TABLE>

 See accompanying notes to these condensed consolidated financial statements.

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                                                                        Page 5
<PAGE>

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

                          AGILE SOFTWARE CORPORATION

                CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                (in thousands)
                                  (unaudited)


<TABLE>
<CAPTION>
                                                                                 Nine Months Ended
                                                                                    January 31,
                                                                  -------------------------------------------
<S>                                                               <C>                      <C>
                                                                         2000                       1999
                                                                  --------------------     ------------------
Cash flows from operating activities:
  Net loss                                                        $            (21,291)    $           (8,151)

  Adjustments to reconcile net loss to net cash
    used in operating activities:
    Acquired in-process technology                                               1,300                      -
    Provision for doubtful accounts                                                108                    119
    Depreciation and amortization                                                7,257                    748
    Amortization of stock compensation                                           7,615                  1,567
    Warrant expense                                                                253                      -
    Changes in assets and liabilities, net of acquisition:
     Accounts receivable                                                        (1,303)                  (499)
     Other assets, current and non-current                                        (443)                   (61)
     Accounts payable                                                              545                   (144)
     Accrued expenses and other liabilities                                     (3,059)                 1,724
     Deferred revenue                                                            2,390                    693
                                                                  --------------------     ------------------
          Net cash used in operating activities                                 (6,628)                (4,004)
                                                                  --------------------     ------------------
Cash flows from investing activities:
   Purchases of investments                                                   (102,330)                     -
   Proceeds from sale of investments                                             6,438                      -
   Cash paid in business combination, net                                      (22,362)                     -
   Acquisition of property and equipment                                        (3,097)                  (359)
                                                                  --------------------     ------------------
          Net cash used in investing activities
                                                                              (121,351)                  (359)
                                                                  --------------------     ------------------
Cash flows from financing activities:
   Proceeds from bank line of credit                                                 -                    900
   Repayment of bank line of credit                                                  -                 (1,900)
   Repayment of capital lease obligations                                         (611)                  (438)
   Repayment of notes payable                                                   (3,078)                     -
  -----------------------------------------------------------------------------------------------------------
                                                                                                       Page 6
</TABLE>
<PAGE>

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

<TABLE>

 <S>                                                                  <C>                     <C>
   Proceeds from issuance of Common Stock, net                                 351,730                     19
   Repayment of notes receivable from stockholders                                 531                     12
   Proceeds from issuance of Convertible Preferred Stock, net                        -                 11,972
                                                                  --------------------     ------------------
          Net cash provided by financing activities                            348,572                 10,565
                                                                  --------------------     ------------------

Net increase in cash and cash equivalents                                      220,593                  6,202

Cash and cash equivalents at beginning of period                                10,003                  2,160
                                                                  --------------------     ------------------
Cash and cash equivalents at end of period                        $            230,596     $            8,362
                                                                  ====================     ==================
</TABLE>

 See accompanying notes to these condensed consolidated financial statements.

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                                                                          Page 7
<PAGE>

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AGILE SOFTWARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.   Basis of Presentation

     The accompanying condensed consolidated financial statements as of January
31, 2000 and for the three and nine months ended January 31, 2000 and 1999 are
unaudited and reflect all normal recurring adjustments which are, in the opinion
of management, necessary for their fair presentation. These condensed
consolidated financial statements should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto for the
fiscal year ended April 30, 1999, included in the Company's Registration
Statement on Form S-1 declared effective on August 19, 1999 and the Company's
Registration Statement on Form S-1 declared effective on December 13, 1999. The
results of operations for the three and nine months ended January 31, 2000 are
not necessarily indicative of results to be expected for the full year or for
any other period.

2.   Revenue Recognition

     The Company recognizes revenues in accordance with Statement of Position
("SOP") 97-2, "Software Revenue Recognition," and SOP 98-9, "Modifications 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. 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 for the upgrade 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 on fixed-price professional services contracts is
recognized in the period in which the loss becomes known. Maintenance contracts
include the right to unspecified upgrades on a when-and-if available basis, and
ongoing support.  Maintenance revenues are recognized ratably over the term of
the maintenance contract, which is generally twelve months.

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 and incremental shares of Common Stock issuable upon the exercise
of stock options and warrants.

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                                                                        Page 8
<PAGE>

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

   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,
                                                ---------------------------------------      ---------------------------------------
<S>                                             <C>                   <C>                    <C>                   <C>
                                                     2000                  1999                   2000                  1999
                                                -----------------     -----------------      -----------------     ----------------
                                                                                      (unaudited)
Numerator
  Net loss                                      $         (12,932)    $         (2,838)      $         (21,291)    $         (8,151)
                                                =================     =================      =================     ================

Denominator
  Weighted average shares                                  22,072                4,176                  14,265                4,105
  Weighted average unvested shares of
      Common Stock subject to repurchase                     (993)              (1,159)                 (1,063)              (1,235)

                                                -----------------     -----------------      -----------------     ----------------
Denominator for basic and diluted calculation              21,079                3,017                  13,202                2,870
                                                =================     =================      =================     ================
Net loss per share:
  Basic and diluted                             $           (0.61)     $         (0.94)      $           (1.61)    $          (2.84)
                                                =================     =================      =================     =================

</TABLE>


     At January 31, 2000, approximately 3,557,526 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

     Comprehensive loss includes all changes in equity (net assets) during a
period from non-owner sources. During the three and nine months ended January
31, 2000, the Company incurred $322,000 in unrealized losses on short-term and
long-term investments that are reported in comprehensive loss.

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, 2000 and 1999, the Company operated in a single
business segment, primarily in the United States. Through January 31, 2000,
foreign operations were not significant in either revenue or investment in long-
lived assets.

6.   Initial Public Offering and Follow-On Stock Offering

     In August 1999, the Company completed its initial public offering of
3,450,000 shares of Common Stock (including the exercise of the underwriters'
overallotment option) at $21.00 per share. Net proceeds to the Company, before
offering expenses, were $67.4 million or $19.53 per share. Offering expenses
were $1.2 million. Simultaneous with the closing of the initial public offering,
the Company sold an aggregate of 665,641 shares of Common Stock at $19.53 per
share in private placements to Dell Computer Corporation, Flextronics
International Ltd., and Marshall Industries.  Upon the closing of the initial
public offering, the 11,873,273 outstanding shares of Preferred Stock were
converted to shares of Common Stock and a warrant to purchase 60,000 shares of
Common Stock at $6.75 per share was exercised.

     In December 1999, the Company completed its follow-on public offering of
2,645,000 shares of Common Stock (including the exercise of the underwriters'
overallotment option) at $174.00 per share. The Company sold 1,645,000 in this
offering and selling stockholders sold 1,000,000 shares.  Net proceeds to the
Company, before offering expenses were $272.6 million. Offering expenses to date
are approximately $900,000.  Upon the closing of the follow-on public offering,
warrants to purchase 57,190 shares of Common Stock at prices ranging from $1.16
to $2.964 per share were exercised.

  ----------------------------------------------------------------------------
                                                                        Page 9
<PAGE>

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

7.   Stock Option Grants

     During the period from May 1, 1999 to January 31, 2000, the Company granted
options to employees and consultants to purchase an aggregate of 2,100,961
shares of Common Stock at exercise prices ranging from $5.00 to $201.00 per
share. The Company has recorded unearned stock compensation with respect to
stock options granted at less than fair value to employees of approximately
$31.1 million.  Included within the 2,100,961 options are 65,000 options granted
to consultants. The Company will account for the options granted to consultants
under variable plan accounting and has calculated the fair value of these
options as of January 31, 2000 of  $9.3 million using the Black-Scholes option
pricing model as prescribed by Statement of Financial Accounting Standards,
("SFAS") No. 123 with the following underlying assumptions: expected volatility
of 85%, risk-free interest rate of 5.5% and option terms of ten years. The
Company will adjust the fair value of the options granted to consultants through
earnings each quarter over the five-year vesting period of the options.

8.   Borrowings

     The Company used a portion of the proceeds from its initial public offering
to repay subordinated notes payable in their entirety on August 31, 1999.   As a
result of the repayment of the subordinated notes payable, the Company
recognized $253,000 of unamortized note discount as interest expense in the
quarter ended October 31, 1999.

     In July 1999, the Company renewed its existing line of credit through
August 2000 and increased the amount available for borrowing to $5,000,000,
including $500,000 available for the issuance of letters of credit and foreign
currency exchange activity. Borrowings under the credit agreement bear interest
at an annual rate of 8.5%, subject to adjustment by the bank, and are secured by
the assets of the Company. As of January 31, 2000, no amount was outstanding
under the line. In connection with this line of credit, the Company is required
to meet certain monthly financial covenants, including a minimum tangible net
worth and a minimum quick ratio. At January 31, 2000, the Company was in
compliance with all financial covenants.

9.   Business acquisition

     On November 23, 1999, the Company acquired Digital Market, Inc. ("DMI") in
a transaction accounted for as a purchase business combination. The Company paid
$20.0 million in cash and issued 601,009 shares of its Common Stock valued at
$75.7 million or $125.89 per share based upon the average price of the Company's
Common Stock two days before, day of and two days after the transaction
measurement date. In addition, the Company also assumed all unvested outstanding
stock options granted by DMI. The estimated fair value of the assumed options is
$5.6 million, and was included as a component of the purchase price. The Company
also incurred $3.0 million in acquisition expenses, including financial advisory
and legal fees and other direct transaction costs, for an aggregate purchase
price of $104.3 million.

     The total acquisition price of $104.3 million was allocated to the assets
acquired, including tangible and intangible assets, and liabilities assumed
based upon the fair value of such assets and liabilities on the date of the
acquisition. The total purchase cost of the acquisition has been allocated to
assets and liabilities based on management's estimates of their fair value and
an independent appraisal of certain intangible assets with the excess costs over
the net assets acquired allocated to goodwill. The aggregate purchase price was
allocated as follows (in thousands):


   Net tangible liabilities.............   $ (4,409)
   In-process technology................      1,300
   Existing technology..................      1,850
   Trademark ...........................        150
   Workforce in place...................      2,100

 -------------------------------------------------------------------------------
                                                                         Page 10
<PAGE>

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

   Goodwill.............................  103,262
                                         --------
                                         $104,253
                                         ========

   The net tangible liabilities consist primarily of cash and cash equivalents,
accounts receivable, property and equipment, accounts payable and other
liabilities and notes payable. Because the in-process technology had not reached
the stage of technological feasibility at the acquisition date and had no
alternative future use, the amount was immediately charged to operations. The
amount allocated to existing technology, trademarks and workforce in place are
being amortized over the estimated useful lives of three years. The purchase
price in excess of identified tangible and intangible assets is allocated as
goodwill. As a result of the rapid  technological changes occurring in the
software and Internet industries, goodwill is being amortized over the estimated
useful life of three years. The valuation for the intangible assets has been
determined using management's assumptions and a report from an independent
appraiser.

    The following unaudited pro forma condensed consolidated results of
operations of the Company for the year ended April 30, 1999 and the nine months
ended January 31, 2000, combined with the results of operations of DMI for the
year ended March 31, 1999 and the period from April 1, 1999 through the date of
its acquisition by the company (November 23, 1999). The unaudited pro forma
condensed consolidated results of operations gives effect to this acquisition as
if it had occurred at the beginning of each period (in thousands, except per
share amounts):

<TABLE>
<CAPTION>

                                     Nine Months Ended                   Year  Ended
                                     January 31, 2000                  April 30, 1999
                                     -----------------                   --------------
<S>                                 <C>                                <C>
Pro forma net revenue                $      21,872                      $    18,293
Pro forma net loss                         (50,326)                         (52,463)
Pro forma net loss per share         $       (3.69)                     $    (14.77)

Pro forma shares outstanding                13,653                            3,553

</TABLE>

     These results are presented for illustrative purposes only and are not
necessarily indicative of the actual operating results or financial position
that would have occurred if the transaction had been consummated at the
beginning of each period.


10.  Subsequent event-Stock split

     In February 2000, the Company's board of directors authorized a Common
Stock split on a two-for-one basis to be effected in the form of a 100% stock
dividend. The Company's stockholders of record at the close of business on March
3, 2000 will receive one additional share of Common Stock, $0.001 par value per
share, for each share that they own on such date.  The Company's transfer agent
will issue new shares on March 16, 2000, and the Company's Common Stock will
begin trading on Nasdaq on a split-adjusted basis beginning on March 17, 2000.

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                                                                       Page 11
<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. 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 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 the our Rule 424(b)(4) prospectus dated December 13, 2000, as filed
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 product content management software for the use within
and among companies in a manufacturing supply chain over the Internet. Our suite
of software products is designed to improve the ability of all members of the
supply chain to communicate and collaborate with one another about new or
changing information concerning the manufacture, source or supply of products or
components. 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
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, 2000, 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 90% of our customers had renewed their maintenance contracts.
We cannot assure that we will continue to experience these rates of purchases of
maintenance agreements or renewals.

  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 does not exist, then the entire license fee is deferred
until the delivery of the specified upgrade. During fiscal 1997, our first full
year of operations, substantially all of our license revenues were generated
from new customers. License revenues generated from new customers represented
79% of license revenues in fiscal 1998, 66% in fiscal 1999, and 49% for the nine
months ended  January 31, 2000, with the remaining license revenues in each
period attributable to existing

                                                                         Page 12
<PAGE>

customers. 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, 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 described below.

On November 23, 1999, we acquired Digital Market, Inc. ("DMI") in a transaction
accounted for as a purchase business combination. We paid $20.0 million in cash
and issued 601,009 shares of our common stock valued at $75.7 million or $125.89
per share based upon the average price of our common stock two days before, day
of and two days after the transaction measurement date. In addition, we also
assumed all unvested outstanding stock options granted by DMI. The estimated
fair value of the assumed options is $5.6 million, and was included as a
component of the purchase price. We also incurred $3.0 million in acquisition
expenses, including financial advisory and legal fees and other direct
transaction costs, for an aggregate purchase price of $104.3 million.

The total acquisition price of $104.3 million was allocated to the assets
acquired, including tangible and intangible assets, and liabilities assumed
based upon the fair value of such assets and liabilities on the date of the
acquisition. The total purchase cost of the acquisition has been allocated to
assets and liabilities based on management's estimates of their fair value and
an independent appraisal of certain intangible assets with the excess costs over
the net assets acquired allocated to goodwill. The aggregate purchase price was
allocated as follows (in thousands):

   Net tangible liabilities....................................   $ (4,409)
   In-process technology.......................................      1,300
   Existing technology.........................................      1,850
   Trademark ..................................................        150
   Workforce in place..........................................      2,100
   Goodwill....................................................    103,262

                                                                         Page 13
<PAGE>

                                    -------
                                   $104,253
                                    =======

The net tangible liabilities consist primarily of cash and cash equivalents,
accounts receivable, property and equipment, accounts payable and other
liabilities and notes payable. Because the in-process technology had not reached
the stage of technological feasibility at the acquisition date and had no
alternative future use, the amount was immediately charged to operations. The
amount allocated to existing technology, trademarks and workforce in place are
being amortized over the estimated useful lives of three years. The purchase
price in excess of identified tangible and intangible assets is allocated as
goodwill. As a result of the rapid  technological changes occurring in the
software and Internet industries, goodwill is being amortized over the estimated
useful life of three years.  The valuation for the intangible assets has been
determined using management's assumptions and a report from an independent
appraiser.

We granted options below market price to purchase 134,572 shares of our Common
Stock to certain DMI employees who have remained our employees after the
acquisition.  We recorded additional deferred stock compensation of
approximately $11.7 million associated with these stock option grants, which
will be amortized over their expected term of 18 months.

In connection with the granting of stock options to our employees (including the
DMI employees who remained employees of the Company after the acquisition) and
non-employee consultants, we have recorded unearned stock compensation totaling
approximately $40.4 million through January 31, 2000, of which $29.7 million
remains to be amortized.  This amount is included as a component of
stockholders' equity and is being amortized by charges to operations over the
expected term of the options, consistent with the method described in Financial
Accounting Standards Board, or FASB, Interpretation No. 28. We recognized
amortization of unearned stock compensation of  $7.6 million for the nine months
ended January 31, 2000 and $1.6 million for the nine months ended January 31,
1999. The amortization of the remaining unearned stock compensation at January
31, 2000 will result in additional charges to operations through fiscal 2005. We
calculated the minimum fair value of options to purchase 65,000 shares of our
common stock granted to non-employee consultants which totals $9.3 million as of
January 31, 2000 using the Black-Scholes option pricing model as prescribed by
SFAS No. 123 with the following underlying assumptions: expected volatility of
85%, risk-free interest rate of 5.5% and option terms of ten years. We are
accounting for these options under variable plan accounting and therefore the
expense associated with these options may fluctuate significantly from quarter
to quarter through fiscal 2005. The amortization of stock compensation is
classified as a separate component of operating expenses in our consolidated
statement of operations.

Although our total revenues have increased from quarter to quarter, we have
incurred significant costs to develop our products and to recruit and train
personnel for our engineering, sales, marketing, professional services and
administration departments. As a result, we have incurred significant losses
since inception, and, as of January 31, 2000, had an accumulated deficit of
$47.8 million.

We intend to continue to incur significant sales and marketing, research and
development and general and administrative expenses. For example, we had 250
full-time employees at January 31, 2000, compared to 156 at April 30, 1999, 103
at April 30, 1998 and 65 at April 30, 1997.  We will seek to hire additional
employees in the future. 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 assure you that we will ever
attain or maintain profitability. Our expansion 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

                                                                         Page 14
<PAGE>

not be relied upon as indications of future performance. Our historic revenue
growth rates are not necessarily sustainable sustainable or indicative of our
future growth.

                                                                         Page 15
<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,
                                                          ---------------------------------   ------------------------------
                                                              2000             1999               2000            1999
                                                            ---------        --------           --------        --------
                                                                                        (unaudited)
<S>                                                            <C>              <C>                <C>            <C>
Revenues:
  License                                                      68%               63%                66%            66%
  Professional services                                        15                21                 16             21
  Maintenance                                                  17                16                 18             13
                                                            ---------        --------           --------        --------
     Total revenues                                           100               100                100            100
                                                            ---------        --------           --------        --------

Cost of revenues:
  License                                                       5                 5                  4              6
  Professional services                                        12                25                 13             23
  Maintenance                                                   7                 8                  7              8
                                                            ---------        --------           --------        --------
   Total cost of revenues                                      24                38                 24             37
                                                            ---------        --------           --------        --------

Gross profit                                                   76                62                 76             63
                                                            ---------        --------           --------        --------
Operating expenses:
  Sales and marketing                                          85                73                 81             80
  Research and development                                     33                28                 28             30
  General and administrative                                   10                11                 11             12
  Amortization of stock compensation                           46                13                 36             13
  Amortization of intangible assets                            70                 -                 28              -
  Acquired in-process technology                               15                 -                  6              -
                                                            ---------        --------           --------        --------
    Total operating expenses                                  259               125                190            135
                                                            ---------        --------           --------        --------
Loss from operations                                         (183)              (63)              (114)           (72)

Interest and other income                                      33                 2                 18              3
Interest expense                                               (1)               (1)                (4)            (1)
                                                            ---------        --------           --------        --------
Net loss                                                     (151%)             (62%)             (100%)          (70%)
                                                            =========        ========           ========        ========
</TABLE>

                                                                         Page 16
<PAGE>

Three and Nine Months Ended January 31, 2000 and 1999

Revenues

Our total revenues for the third quarter ended January 31, 2000 were $8.6
million, representing an increase of  $4.0 million, or 86%, from the revenues of
$4.6 million for the quarter ended January 31, 1999.  Our total revenues for the
nine months ended January 31, 2000 were $21.4 million, representing an increase
of $9.8 million, or 84%, from the revenues of $11.6 million for the nine months
ended January 31, 1999. We had no customer that accounted for more than 10% of
our total revenues for the three and nine months ended January 31, 2000 or 1999.

License Revenues. Our license revenues for the third quarter ended January 31,
2000 were $5.8 million, representing an increase of $2.9 million, or 101%, from
the license revenues of $2.9 million for the quarter ended January 31, 1999. Our
license revenues for the nine months ended January 31, 2000 were $14.2 million,
representing an increase of $6.5 million, or 85%, from the revenues of $7.7
million for the nine months ended January 31, 1999. License revenues as a
percentage of total revenues were 68% and 66% for the three and nine months
ended January 31, 2000 and 63% and 66% for the three and nine months ended
January 31, 1999. The increase in our license revenues from the prior year
periods was due to increased market acceptance of our suite of products,
including new versions of our products.

Professional Services Revenues. Our professional services revenues for the third
quarter ended January 31, 2000 were $1.3 million, representing an increase of
$301,000, or 31%, from the professional services revenues of $976,000 for the
quarter ended January 31, 1999.   Our professional services revenues for the
nine months ended January 31, 2000 were $3.4 million, representing an increase
of $995,000, or 41%, from the revenues of $2.4 million for the nine months ended
January 31, 1999. Professional services revenues as a percentage of total
revenues were 15% and 16% for the three and nine months ended January 31, 2000
and 21% for both the three and nine months ended January 31, 1999. The increase
in professional services revenues in absolute dollars for both comparable
periods was due to increased license revenues and an increased range of
services, consisting of additional data migration and integration services.  In
the future, we anticipate that an increasing percentage of professional services
will be provided by third parties who will invoice the customer directly. As a
result, we anticipate that professional services revenues will decline as a
percentage of total revenues.

Maintenance Revenues. Our maintenance revenues for the third quarter ended
January 31, 2000 were $1.5 million, representing an increase of  $754,000, or
105%, from the maintenance revenues of $718,000 for the quarter ended January
31, 1999.  Our maintenance revenues were $3.8 million for the nine months ended
January 31, 2000, representing an increase of $2.2 million, or 146%, from the
maintenance revenues of $1.5 million for the nine months ended January 31, 1999.
Maintenance revenues as a percentage of total revenues were 17% and 18% for the
three and nine months ended January 31, 2000 and 16% and 13% for the three and
nine months ended January 31, 1999. The increase in maintenance revenues and
maintenance revenues as a percentage of total revenues for both comparable
periods was attributable to increased licenses for our products.

Cost of Revenues

Cost of License Revenues. Cost of license revenues for the third quarter ended
January 31, 2000 were $448,000, representing an increase of  $237,000, or 112%,
from the cost of license revenues of  $211,000 for the quarter ended January 31,
1999. Cost of license revenues were $976,000 for the nine months ended January
31, 2000, representing an increase of $359,000, or 58%, from the cost of license
revenues of $617,000 for the nine months ended January 31, 1999. The increased
expenses for both comparable periods were primarily due to the sub-licensing of
third-party software used in our products. Cost of license revenues as a
percentage of total license revenues has remained consistent at 8% and 7% for
the three and nine months ended January 31, 2000 and 7% and 8% for the three
months and nine months ended January 31, 1999.

                                                                         Page 17
<PAGE>

Cost of Professional Services Revenues. Cost of professional services revenues
for the third quarter ended January 31, 2000 were $1.0 million, representing a
decrease of $145,000, or 12%, from the cost of professional services revenues of
$1.2 million in the quarter ended January 31, 1999. Cost of professional
services revenues were $2.7 million for the nine months ended January 31, 2000,
representing an increase of $35,000, or 1%, from the cost of professional
services revenues of $2.7 million for the nine months ended January 31, 1999.
The decrease in cost of our professional services revenues for the three months
ended January 31, 2000 was primarily to the decreased amount of professional
services outsourced to third parties. 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. In
addition, as we increase the size of our professional services staff, costs are
incurred for new personnel before they become fully productive.

Cost of Maintenance Revenues. Cost of maintenance revenues for the third quarter
ended January 31, 2000 were $603,000, representing an increase of  $232,000, or
63%, from the cost of maintenance revenues of $371,000 in the quarter ended
January 31, 1999.  Cost of maintenance revenues were $1.5 million for the nine
months ended January 31, 2000, representing an increase of $613,000 or 67%, from
the cost of maintenance revenues of $914,000 for the nine months ended January
31, 1999.  Cost of maintenance revenues as a percentage of total revenues were
41% and 40% for the three and nine months ended January 31, 2000 and 52% and 59%
for the three and nine months ended January 31, 1999.  The decrease in cost of
maintenance revenues as a percentage of maintenance revenues for both comparable
periods was due to economies of scale realized as a result of increased
management personnel and experienced maintenance personnel.

Operating Expenses

Sales and Marketing. Sales and marketing expenses for the third quarter ended
January 31, 2000 were $7.2 million, representing an increase of  $3.9 million,
or 117%, from the sales and marketing expenses of $3.3 million in the quarter
ended January 31, 1999. Sales and marketing expenses were $17.3 million for the
nine months ended January 31, 2000, representing an increase of $7.9 million, or
85%, from the sales and marketing expenses of $9.3 for the nine months ended
January 31, 1999.  The increase in sales and marketing expenses for the three
and nine months ended January 31, 2000 compared to the corresponding periods in
the prior fiscal year reflect significant 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 expand our
domestic and international sales force.

Research and Development. Research and development expenses for the third
quarter ended January 31, 2000 were $2.8 million, representing an increase of
$1.5 million, or 119%, from the research and development expenses of $1.3
million in the quarter ended January 31, 1999. Research and development expenses
were $6.0 million for the nine months ended January 31, 2000, representing an
increase of $2.5 million, or 72%, from the research and development expenses of
$3.5 million for the nine months ended January 31, 1999.  The absolute dollar
increase in research and development expenses for the three and nine months
ended January 31, 2000 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 to support our product development,
documentation, internationalization 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 third
quarter ended January 31, 2000 were $864,000, representing an increase of
$372,000, or 76%, from the general and administrative expenses of $492,000 in
the quarter ended January 31, 1999. General and administrative expenses were
$2.4 million for the nine months ended January 31, 2000, representing an
increase of $1.0 million or 74%, from the general and administrative expenses of
$1.4 million for the nine months ended January 31, 1999.  The absolute dollar
increase in general and administrative expenses for the three and nine months
ended January 31, 2000

                                                                         Page 18
<PAGE>

compared to the corresponding periods in the prior fiscal year was due to hiring
additional finance, executive 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 $4.0 million and $7.6 million for the three and
nine months ended January 31, 2000 compared to $622,000 and $1.6 million for the
three and nine months ended January 31, 1999.

Purchased In-process Research and Development.   Of the $104.3 million purchase
price for Digital Market, Inc., $1.3 million was allocated to in-process
research and development, which was expensed in full upon completion of the
acquisition in November 1999.

Amortization of Goodwill and Purchased Intangible Assets.  Of the $104.3 million
purchase price for Digital Market, Inc., $103.3 million was allocated to
goodwill and $4.1 million was allocated to intangible assets, both of which are
being amortized over a period of 3 years. Amortization of goodwill and
intangibles for the three and nine months ended January 31, 2000 was $6.0
million.

Interest and Other Income (Expense), Net.  Interest and other income, net was
$2.7 million and $3.1 million for the three and nine months ended January 31,
2000 compared to $64,000 and $214,000 for the three and nine months ended
January 31, 1999. This increase was due primarily to higher interest income
generated from the increase in cash and cash equivalents and investments as a
result of our initial public and follow-on public offerings. At April 30, 1999
we had an unamortized note discount of $253,000 related to warrants issued in
connection with subordinated notes payable. We used a portion of the proceeds
from our initial public offering to repay these subordinated notes payable in
their entirety on August 31, 1999. As a result, the unamortized note discount
was recognized as interest expense in the nine months ended January 31, 2000.

Provision for Income Taxes. Our  operating losses are generated domestically,
and amounts attributable to its 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.

Liquidity and Capital Resources

Since our inception, prior to our initial public offering, we raised $26.2
million of equity capital from the sale of preferred stock, net of issuance
costs, which was the primary source of financing for our operations.

In August 1999, we completed our initial public offering of 3,450,000 shares of
our Common Stock, including the exercise of the underwriters' overallotment
option, at $21.00 per share. Net proceeds to us, before offering expenses, were
$67.4 million, or $19.53 per share.  Offering expenses were $1.2 million.
Simultaneous with the closing of the initial public offering, we sold an
aggregate of 665,641 shares of our common stock at $19.53 per share in a private
placement to Dell Computer Corporation, Flextronics International Ltd. and
Marshall Industries (now owned by Avnet, Inc.). Net proceeds from sales of
common stock in the private placement were $13.0 million. We used $20.0 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 of 2,645,000 shares
of Common Stock (including the exercise of the underwriters' overallotment
option) at $174.00 per share. The Company sold 1,645,000 in this offering and
selling stockholders sold 1,000,000 shares.  Net proceeds to the Company, before
offering expenses, were $272.6 million. Offering expenses to date are
approximately $900,000.  Upon the closing of the follow-on public offering,
warrants to purchase 57,190 shares of Common Stock at prices ranging from $1.16
to $2.964 per share were exercised.

As of January 31, 2000, we had cash and cash equivalents of $230.6 million, an
increase from $10.0 million of cash and cash equivalents held as of April 30,
2000. Our working capital at January 31, 2000 was $301.4 million.

                                                                         Page 19
<PAGE>

We have a $5.0 million senior line of credit facility with a bank, borrowings
thereunder bearing interest at 8.5%, which expires on August 31, 2000. At
January 31, 2000, no balance was outstanding under this line of credit. This
line of credit is secured by accounts receivable and certain other assets of
ours. Capital lease obligations, including both short-term and long-term
portions, were $1.4 million at January 31, 2000, and are payable through fiscal
2003. Our senior line of credit requires us to maintain certain monthly
financial covenants, including a minimum tangible net worth and a minimum quick
ratio. We were in compliance with all of our financial covenants at January 31,
2000.

We also have noncancelable operating leases for office space of approximately
$7.1 million at January 31, 2000 including lease commitments entered into in
February, 2000, which are payable through fiscal 2005.

Our operating activities resulted in net cash outflows of $6.6 million for the
nine months ended January 31, 2000 and $4.0 million for the nine months ended
January 31, 1999.

Purchases of property and equipment were approximately $3.1 million for the nine
months ended January 31, 2000 and $359,000 for the nine months ended January 31,
1999. These 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. Cash of $22.4 million was used as a portion of the consideration
paid for the acquisition of Digital Market, Inc. including cash borrowed to DMI
under a loan agreement that was forgiven subsequent to the completion of the
acquisition.  We made cash investments in marketable securities, net of proceeds
from maturity, of $95.9 million.

Financing activities provided cash of  $348.6 million for the nine months ended
January 31, 2000 and $10.6 million for the nine months ended January 31, 1999.
Cash was provided for in these periods from the issuance of preferred stock and
in the nine months ended January 31, 2000, from our initial public offering and
follow-on stock offering, offset by repayments of our debt obligations.

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

     . enter new markets for our products;
     . increase research and development spending;
     . increase our sales and marketing activities; and
     . enhance our operational and financial systems.

We currently anticipate that our current cash, cash equivalents and available
credit facilities, will be sufficient to meet our anticipated cash needs for
working capital and capital expenditures for at least the next 12 months.
However, we may need to raise additional funds in future periods through public
or private financings, or other sources, to fund our operations and potential
acquisitions, if any, until we achieve profitability, if ever. We may not be
able to obtain adequate or favorable financing at that time. Failure to raise
capital when needed could harm our business. If we raise additional funds
through the issuance of equity securities, the percentage of ownership of our
stockholders would be reduced. Furthermore, these equity securities might have
rights, preferences or privileges senior to our common stock.

Year 2000 Readiness Disclosure

Many currently installed computer systems are not capable of distinguishing 21st
century dates from 20th century dates or have been programmed with default dates
ending in 99, the common two-digit reference for 2000. As a result, as we
transition from the 20th century to the 21st century, computer systems and
software used by many companies and organizations in a wide variety of
industries will produce erroneous results or fail unless they have been modified
or upgraded to process date information correctly. Significant uncertainty
exists in the software industry and other industries concerning the scope and
magnitude of problems associated with the year 2000 issue.

                                                                         Page 20
<PAGE>

State of Readiness. We have completed our initial assessment of the potential
overall impact of the impending century change on our business. Based on our
current assessment, we believe the current versions of our software products are
year 2000 compliant, although prior versions may not be year 2000 compliant. By
year 2000 compliant, we mean that our software products, when used with accurate
date data and in accordance with their associated documentation, are capable of
properly processing date data from, into and between the 20th and 21st
centuries, including the years 2000, 2000 and leap years, provided that all
other products, e.g., hardware, software and firmware, used with our products
properly exchange date data with them. However, our products are generally
integrated into enterprise systems involving sophisticated hardware and complex
software products that we cannot adequately evaluate for year 2000 compliance.
We may face claims based on year 2000 problems in other companies' products, or
issues arising from the integration of multiple products within an overall
system even if our products are otherwise year 2000 compliant. Although we have
not been a party to any litigation or arbitration proceeding involving our
products or services related to year 2000 compliance issues, we may in the
future be required to defend our products or services in these proceedings, or
to negotiate resolutions of claims based on year 2000 issues. The costs of
defending and resolving year 2000-related disputes, regardless of the merits of
these disputes, and any liability we have for year 2000-related damages,
including consequential damages, could substantially harm our business.

Costs. To date, we have not incurred any material costs directly associated with
our year 2000 compliance efforts, except for compensation expenses associated
with our salaried employees who have devoted some of their time to our year 2000
assessment and remediation efforts. We do not expect the total cost of year 2000
problems to be material to our business.  Despite our current assessment, we may
not identify and correct all significant year 2000 problems on a timely basis.
Year 2000 compliance efforts may involve significant time and expense and
unremediated problems could substantially harm our business. We currently have
no contingency plans to address the risks associated with unremediated year 2000
problems.

Risks. We are not currently aware of any year 2000 readiness problems relating
to our internally-developed proprietary systems that would substantially harm
our business. We may discover year 2000 readiness problems in these systems that
will require substantial revision. In addition, third-party software, hardware
or services incorporated into our material systems may need to be revised or
replaced, all of which could be time-consuming and expensive. Our failure to fix
or replace our internally developed proprietary software or third-party
software, hardware or services on a timely basis could result in lost revenues,
increased operating costs, the loss of customers and other business
interruptions, any of which could substantially harm our business. Moreover, our
failure to adequately address year 2000 readiness issues in our internally
developed proprietary software could result in claims of mismanagement,
misrepresentation or breach of contract and related litigation, which could be
costly and time-consuming to defend.

Recent Accounting Pronouncements

In March 1999, the American Institute of Certified Public Accountants, or AICPA,
issued Statement of Position, or SOP, 98-1, Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use. SOP 98-1 will be effective for
our fiscal year ending April 30, 2000. SOP 98-1 provides guidance on accounting
for computer software developed or obtained for internal use including the
requirement to capitalize and amortize specified costs. We do not expect the
adoption of this standard to have a material impact on our results of
operations, financial position or cash flows.

In June 1998, the FASB issued Statement of Financial Accounting Standard, or
SFAS, 133, Accounting for Derivative Instruments and Hedging Activities. This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities.  In July 1999, the FASB issued SFAS 137,
accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement 133.  SFAS 137 amends SFAS 133 to be effective
all fiscal quarters of all fiscal years beginning after June 15, 2000.  We will
adopt SFAS 133 in our quarter ended July 31, 2001. The adoption of SFAS is not
expected to have a material impact on our results of operations, financial
position or cash flows in the foreseeable future.

                                                                         Page 21
<PAGE>

Other Factors Affecting Operating Results

Risks Related to Our Operations

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 and enhance
     existing products to this suite, including Agile Anywhere, a new version
     which has been available only since July 1999;

     . we need to integrate our acquisition of Digital Market and successfully
     market its Digital 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

We incurred net losses of approximately $4.8 million for fiscal 1997, $8.9
million for fiscal 1998, $11.4 million for fiscal 1999 and $21.3 million for the
nine months ended January 31, 2000. As of January 31, 2000, we had an
accumulated deficit of approximately $47.8 million. Moreover, 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 deferred
compensation  and acquisition related goodwill 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
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:

                                                                         Page 22
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     . our successful integration of Digital Market, its Digital Buyer product,
     technologies, computer systems and employees;

     . fluctuations in demand for Internet product content management 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 year 2000 priorities;

     . variability in the mix of our license and professional service 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.

License revenues in any quarter can be difficult to forecast because they depend
on orders shipped or installed in that quarter.  Moreover, we typically
recognize a substantial percentage of revenues in the last month of each
quarter; for example, in fiscal 1999 as well as the first three quarters of
fiscal 2000, revenues generated each quarter that were recognized in the last
month of the quarter ranged from approximately 35% to 51%. This increase in
revenues earned in the last month of each quarter is driven primarily by
quarter-end commissions payable and the time required to implement software
installations. 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, if we 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 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 65,000 shares of common
stock granted to consultants subsequent to April 30, 1999 under variable plan
accounting, and have calculated the fair value of these options as of January
31, 2000 of $9.3 million which will be recognized as an expense over the vesting
period

                                                                         Page 23
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of the options. This 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. During the three months ended January 31, 2000, the
expense associated with these options totaled $507,000.

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 Our New Release, Agile Anywhere, or Any Upgrades or Enhancements
to Our Products, Is Unsuccessful

Our future financial performance will depend on the successful introduction and
customer acceptance of Agile Anywhere and any upgrades or enhancements that we
may make to our products in the future, including our introduction of the
Digital Buyer product formerly offered by Digital Market. We have generated
substantially all of our revenues from licenses and services related to current
and prior versions of our product suite. Agile Anywhere, the latest version of
our product suite, has only been available since July 1999. 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 on November 23, 1999. We may encounter risks to
   our business during our integration of 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 or Digital
     Market's customers; and

   . inability to retain employees of Digital Market.

  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 the same risks to our business posed by our
acquisition of Digital Market described above. 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. Our
acquisition of Digital Market, and 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 As a Result of
Our Acquisition of Digital Market

With the acquisition of Digital Market, we will seek to extend the functionality
of Agile Anywhere with Digital Market's direct materials sourcing, quoting and
ordering applications. If we are unable to successfully

                                                                         Page 24
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market our products with the Digital Buyer product offered by Digital Market, or
create new or enhanced products combining the functionality provided by both, 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 to date. If we fail to achieve the
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. In addition, if any significant number of
the Digital Market employees fail to remain employed with us, we may experience
delays in the production and shipment of the Digital Buyer product, or fail to
achieve the expected benefits of the acquisition.

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 product content management, 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, only four
companies provide implementation services for our products in North America. 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 implementation and customer support services. Without these
third parties we would have to expand our services organization to increase the
consulting and

                                                                         Page 25
<PAGE>

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 the customer. 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 Lengthy and 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 product content management
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, resulting in a sales cycle that has
historically ranged from approximately four to seven months. 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
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.

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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 employment 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 other technology- based
industries such as the electronics and medical device manufacturing 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 this product content management process 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 Result 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 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

                                                                         Page 27
<PAGE>

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 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 than Java, 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 Major 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 and servers such as Oracle and Microsoft SQL
Server. Any changes to these platforms could require us to modify our products,
and could cause us to delay releasing a product 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

                                                                         Page 28
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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, although portions of our products are based upon the Java
programming language, the Java language 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, 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 is to expand our
sales and support organizations internationally. Therefore, we believe that we
will need to commit significant resources to expand our international
operations. We employ sales professionals in Europe and are in the early stages
of expanding into the Asia Pacific market. If we are unable to successfully
enter into and expand 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

If successful in our international expansion, we will be subject 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 in collecting accounts receivable from customers
     located abroad;

     . political and economic instability, particularly in Asia;

     . difficulties in enforcing agreements through foreign legal systems; and

     . 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.

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

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<PAGE>

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 65 employees at April 30, 1997 to 250 employees at January 31, 2000. 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 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;

                                                                         Page 30
<PAGE>

     . 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 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 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.

Year 2000 Compliance Costs and Risks Are Difficult to Assess and Could Result in
Delay or Loss of Revenue, Diversion of Development Resources, Damage to Our
Reputation or Increased Service, Warranty or Litigation Costs

Our products are generally integrated into computer systems involving
sophisticated hardware and complex software products, which may not be year 2000
compliant. The failure of our customers' systems to be year  2000 compliant
could impede the success of applications that we have developed for them.
Accordingly, known or unknown defects that affect the operation of our software,
including any defects or errors in applications that include our products, could
result in delay or loss of revenue, diversion of development resources, damage
to our reputation or increased service, warranty or litigation costs, any of
which could harm our business.

In addition, earlier versions of our products may not be year 2000 compliant,
and we do not intend to make them year 2000 compliant. We also need to ensure
year 2000 compliance of our own internal computer and

                                                                         Page 31
<PAGE>

other systems, to continue testing our software products, and to audit the year
2000 compliance status of our suppliers and business partners. We have not
completed our year 2000 investigation and overall compliance initiative, and the
total cost of our year 2000 compliance may be substantial and may harm our
business.

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

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 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 of exchanging
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 commerce and reducing the demand for our
     products; or

     . concerns over the secure transmission of confidential information over
     public networks inhibit the growth of the Internet as a means of conducting
     commercial transactions.

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;

     . 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.

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<PAGE>

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.

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;

     . the termination 91 days after the date of the follow-on offering with
     regard to our principal and selling stockholders, directors and officers,
     and

     . the termination on February 16, 2000 with regard to some of our other
     stockholders and the shareholders of Digital Market, of the lock-up period
     during which these stockholders are not permitted to sell our common stock
     acquired before our initial public offering; and

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

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.

                                                                         Page 33
<PAGE>

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 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, a strengthening of
the dollar could make our products less competitive in foreign markets. 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.

                                                                         Page 34
<PAGE>

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings.

In December 1999, we agreed to settle the complaint filed by Facilities
Management International, a Southern California based systems integration
company against us in the Superior Court for the State of California, County of
Orange, on February 19, 1999, alleging interference with prospective economic
advantage and unfair business practices in connection with our quote for
services to one of our customers, for the sum of $21,500.

Digital Market is a party to two related lawsuits in federal court with PolyDyne
Development Corporation:

PolyDyne originally filed a Bill of Discovery on January 2, 1999, and filed a
formal complaint on July 13, 1999, in the District Court of Travis County,
Texas, which was removed to the United States District Court for the Western
District of Texas on August 13, 1999. In its complaint, PolyDyne has alleged
that Digital Market introduced its Digital Buyer software, a product that it
alleges competes with PolyDyne's QuoteWin and SupplyWin software, under
circumstances that it claims constituted trade secrets misappropriation, theft
of trade secrets and conversion. Digital Market has responded by denying all
allegations, and intends to defend itself vigorously.

Related to this lawsuit, Digital Market filed suit on July 26, 1999 in the
Federal District Court for the Northern District of California, alleging that
PolyDyne made false, misleading and deceptive statements about Digital Market,
involving accusations that Digital Market infringed PolyDyne's copyrights and
trade secrets, resulting in commercial disparagement, trade libel, defamation
and interference with Digital Market's prospective business relations. Digital
Market seeks damages and declaratory relief. PolyDyne has answered the pleadings
and brought counterclaims alleging theft of trade secrets, conversion and common
law misappropriation.

Due to the inherently uncertain nature of litigation, we cannot determine the
possible loss, if any, that we may ultimately incur either in the context of a
trial or as a result of a negotiated settlement. Our defense of this litigation,
regardless of its outcome, could result in the expenditure of significant
financial and managerial resources.

Following mediation, the parties have agreed to a settlement in principle of
these related matters. If a settlement agreement can be concluded based on this
settlement in principle, the parties will dismiss both actions with prejudice.


Item 2.  Changes in Securities and Use of Proceeds.

The effective date of the Registration Statement for the Company's initial
public offering, filed on Form S-1 under the Securities Act of 1933 (File No.
333-81387), was August 19, 1999 The class of securities registered was Common
Stock. The offering commenced and completed on August 20, 1999.

Pursuant to the Registration Statement, the Company registered and sold
3,450,000 shares of its Common Stock to an underwriting syndicate at an initial
public offering price of $21.00 per share for aggregate gross proceeds of
approximately $72.5 million. The managing underwriters for the offering were
Morgan Stanley Dean Witter, Deutsche Banc Alex. Brown, and Hambrecht & Quist.
The Company incurred expenses of approximately $6.6 million, of which
approximately $5.1 million represented underwriting discounts and commissions
and approximately $1.2 million represented other expenses related to the
offering. The net proceeds to the Company after total expenses was approximately
$66.2 million. Simultaneous with the closing of the initial public offering, the
Company sold an aggregate of 665,641 shares of common stock at $19.53 per share
in a private placement to Dell Computer Corporation, Flextronics International
Ltd., and Marshall Industries.

                                                                         Page 35
<PAGE>

The effective date of the Registration Statement for the Company's follow-on
public offering, filed on Form S-1 under the Securities Act of 1933 (File No.
333-81387), was December 13, 1999. The class of securities registered was
Common Stock. The offering commenced and completed on December 13, 1999 after
2,645,000 shares of common stock registered under the registration statement
were sold, including 1,645,000 shares sold on behalf of the Company (including
145,000 shares in connection with the underwriters' partial exercise of the
over-allotment option), and 1,000,000 shares sold on behalf of certain selling
stockholders.

The public offering price was $174.00 per share for aggregate gross proceeds of
approximately $286.2 million. The managing underwriters for the offering were
Morgan Stanley Dean Witter, Deutsche Banc Alex. Brown, and Hambrecht & Quist.
The Company incurred expenses of approximately $14.4 million, of which
approximately $13.6 million represented underwriting discounts and commissions
and approximately $900,000 represented other expenses related to the offering.
The net proceeds to the Company after total expenses was approximately $271.7
million.  None of the costs and expenses related to the offering were paid
directly or indirectly to any director, officer, general partner of the company
or their associated, to persons owning 10% or more of any class of equity
securities of the Company or an affiliate of the Company.

We have used, and continue to expect to use, the proceeds from the sale of stock
for general corporate purposes, including working capital. A portion of the
proceeds may also be used or the acquisition of businesses that are
complimentary to ours. Pending such uses, we have invested the net proceeds from
the sale of stock in investment grade, interest-bearing securities.




Item 3.  Defaults Upon Senior Securities.

None.

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

None.

Item 5.  Other Information.

None.

                                                                         Page 36
<PAGE>

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

(a)      Exhibits.

Exhibit
-------
No.
---
                                  Description
                                  -----------
2.1     Agreement and Plan of Merger dated as of August 17, 1999 by and between
        Agile Software Corporation and Delaware Agile Software Corporation (1)
2.2     Agreement and Plan of Reorganization dated as of October 10, 1999, by
        and between Agile Software Corporation, Alaska Acquisition Corporation
        and Digital Market, Inc. (2)
3.1     Certificate of Incorporation of Agile Software Corporation, as amended
        to date. (1)
3.2     Certificate of Elimination and Certificate of Amendment. (1)
3.3     Bylaws of Agile Software Corporation. (1)
10.1    Amended and Restated 1995 Stock Option Plan (1)
10.2    1999 Employee Stock Purchase Plan (1)
10.3    Form of Indemnity Agreement between Agile Software Corporation and its
        directors and officers (1)
10.6    Revolving Credit Loan and Security Agreement (Accounts and Inventory)
        dated December 11, 1996 between Comerica Bank--California and Agile
        Software Corporation, as modified through July 19, 1999. (1)
10.15   Ninth Amended and Restated Investor Rights Agreement dated as of August
        16, 1999 by and among Agile Software Corporation and the investors
        listed on Schedule A thereto. (1)
10.16   Common Stock Purchase Agreement dated August 2, 1999 between Agile
        Software Corporation, Dell U.S.A. L.P., a Texas Limited Partnership, and
        Flextronics International Ltd. (1)
10.17   Common Stock Purchase Agreement dated August 16, 1999 between Agile
        Software Corporation and Marshall Industries. (1)
27.1    Financial Data Schedule (filed only with the electronic submission of
        Form 10-Q in accordance with the Edgar requirements)
-------------------------------------------------------------------------------
(1)     Incorporated herein by reference to the exhibit of the same number in
        the Registrant's Registration Statement on Form S-1 (File No. 333-81387)
        declared effective on August 19, 1999

   (2)  Incorporated herein by reference to the exhibit of the same number in
        the Registrant's Registration Statement on Form S-1 (File No. 333-91243)
        declared effective on December 13, 1999

(b) Reports on Form 8-K

A Current Report on Form 8-K was filed by the Company on December 8, 1999.

                                                                         Page 37
<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 16, 2000


                    /s/ Thomas P. Shanahan
                    ________________________________________________________
                    By: Thomas P. Shanahan
                        Executive Vice President and Chief Financial Officer

                                                                         Page 38
<PAGE>

                                 EXHIBIT INDEX

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

2.1     Agreement and Plan of Merger dated as of August 17, 1999 by and between
        Agile Software Corporation and Delaware Agile Software Corporation (1)
2.2     Agreement and Plan of Reorganization dated as of October 10, 1999, by
        and between Agile Software Corporation, Alaska Acquisition Corporation
        and Digital Market, Inc. (2)
3.1     Certificate of Incorporation of Agile Software Corporation, as amended
        to date. (1)
3.2     Certificate of Elimination and Certificate of Amendment. (1)
3.3     Bylaws of Agile Software Corporation. (1)
10.1    Amended and Restated 1995 Stock Option Plan (1)
10.2    1999 Employee Stock Purchase Plan (1)
10.3    Form of Indemnity Agreement between Agile Software Corporation and its
        directors and officers (1)
10.6    Revolving Credit Loan and Security Agreement (Accounts and Inventory)
        dated December 11, 1996 between Comerica Bank--California and Agile
        Software Corporation, as modified through July 19, 1999. (1)
10.15   Ninth Amended and Restated Investor Rights Agreement dated as of August
        16, 1999 by and among Agile Software Corporation and the investors
        listed on Schedule A thereto. (1)
10.16   Common Stock Purchase Agreement dated August 2, 1999 between Agile
        Software Corporation, Dell U.S.A. L.P., a Texas Limited Partnership, and
        Flextronics International Ltd. (1)
10.17   Common Stock Purchase Agreement dated August 16, 1999 between Agile
        Software Corporation and Marshall Industries. (1)
27.1    Financial Data Schedule (filed only with the electronic submission of
        Form 10-Q in accordance with the Edgar requirements)
-------------------------------------------------------------------------------
(1)     Incorporated herein by reference to the exhibit of the same number in
        the Registrant's Registration Statement on Form S-1 (File No. 333-81387)
        declared effective on August 19, 1999

(2)     Incorporated herein by reference to the exhibit of the same number in
        the Registrant's Registration Statement on Form S-1 (File No. 333-91243)
        declared effective on December 13, 1999

                                                                         Page 39