<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 July 31, 2000

                                       OR

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

                              EXCHANGE ACT OF 1934

                 For the transition period from _____ to _____

                           (Commission File Number) 000-27071

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



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


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

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


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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required to file such  reports)  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 July 31,
2000 was 46,548,000.

--------------------------------------------------------------------------------
                                                                          Page 1
<PAGE>

                           AGILE SOFTWARE CORPORATION

                                      INDEX

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

Item 1.  Financial Statements (unaudited)

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

         Condensed Consolidated Statement of Operations for the Three months Ended July 31, 2000 and 1999        4

         Condensed Consolidated Statement of Cash Flows for the Three Months Ended July 31, 2000 and 1999        5

         Notes to Condensed Consolidated Financial Statements                                                    6

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations                   9

Item 3.  Quantitative and Qualitative Disclosure about Market Risk                                              27

Part II. Other Information

Item 1.  Legal Proceedings                                                                                      28

Item 2.  Changes in Securities and Use of Proceeds                                                              28

Item 3.  Defaults Upon Senior Securities                                                                        28

Item 4.  Submission of Matters to a Vote of Security Holders                                                    28

Item 5.  Other Information                                                                                      28

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

Signature                                                                                                       29

Exhibit Index                                                                                                   30
</TABLE>

--------------------------------------------------------------------------------
                                                                          Page 2
<PAGE>

Part 1 - Financial Information

Item 1.  Financial Statements

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

<TABLE>
<CAPTION>
                                                         July 31,          April 30,
                                                           2000              2000
                                                    ----------------  ----------------
<S>                                                 <C>               <C>
ASSETS
Current assets
    Cash and cash equivalents                            $ 129,760         $ 142,721
    Short-term investments                                 172,456           157,154
    Accounts receivable, net                                10,918             6,537
    Other current assets                                     6,645             4,979
                                                      ------------      ------------
        Total current assets                               319,779           311,391

Long-term investments                                       14,253            19,550
Property and equipment, net                                  8,132             6,519
Intangible assets, net                                      83,992            92,965
Other assets                                                   428               376
                                                      ------------      ------------

                                                         $ 426,584         $ 430,801
                                                      ============      ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

    Accounts payable                                       $ 1,471           $ 1,434
    Accrued expenses and other liabilities                   8,222             6,391
    Deferred revenue                                        12,032             8,634
    Current portion of capital lease obligations               600               681
                                                      ------------      ------------
        Total current liabilities                           22,325            17,140

Capital lease obligations, noncurrent                          404               518
Notes payable, noncurrent                                       39                39
Other liabilities                                              333               458
                                                      ------------      ------------
                                                            23,101            18,155
                                                      ------------      ------------

Stockholders' equity:
    Convertible Preferred Stock                                  -                 -
    Common Stock                                                47                46
    Additional paid-in capital                             505,354           500,155
    Notes receivable from stockholders                      (1,059)           (1,461)
    Unearned stock compensation                            (23,889)          (23,838)
    Accumulated other comprehensive loss                      (297)             (530)
    Accumulated deficit                                    (76,673)          (61,726)
                                                      ------------      ------------
        Total stockholders' equity                         403,483           412,646
                                                      ------------      ------------

                                                         $ 426,584         $ 430,801
                                                      ============      ============
</TABLE>

 See accompanying notes to these condensed consolidated financial statements.

--------------------------------------------------------------------------------
                                                                          Page 3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                               Three Months Ended
                                                                                      July 31,
                                                                             ---------------------
                                                                                2000        1999
                                                                             --------    ---------
<S>                                                                          <C>         <C>
Revenues:
    License                                                                   $ 11,450    $  3,654
    Professional services                                                        2,036       1,159
    Maintenance                                                                  2,282       1,077
                                                                             ---------   ---------
        Total revenues                                                          15,768       5,890
                                                                             ---------   ---------

Cost of revenues:
    License                                                                        557         223
    Professional services                                                        1,597         921
    Maintenance                                                                    888         482
                                                                             --------    ---------
        Total cost of revenues                                                   3,042       1,626
                                                                             ---------   ---------

Gross profit                                                                    12,726       4,264
                                                                             ---------   ---------

Operating expenses:
    Sales and marketing                                                         12,936       4,546
    Research and development                                                     4,801       1,486
    General and administrative                                                   1,425         753
    Amortization of stock compensation                                           4,416       1,428
    Amortization of intangible assets                                            9,067          --
                                                                             ---------   ---------
        Total operating expenses                                                32,645       8,213
                                                                             ---------   ---------

Loss from operations                                                           (19,919)     (3,949)

Interest and other income                                                        5,026          90
Interest expense                                                                   (54)       (217)
                                                                             ---------   ---------

Net loss                                                                      $(14,947)   $ (4,076)
                                                                             =========   =========

Net loss per share:
    Basic and diluted                                                         $   (.33)   $   (.61)
                                                                             =========   =========
    Weighted average shares                                                     44,894       6,648
                                                                             =========   =========
</TABLE>



See accompanying notes to these condensed consolidated financial statements.

-------------------------------------------------------------------------------
                                                                          Page 4
<PAGE>

                          AGILE SOFTWARE CORPORATION
                CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                (in thousands)
                                  (unaudited)


<TABLE>
<CAPTION>
                                                                              Three Months Ended July 31,
                                                                            -----------------------------
                                                                                  2000           1999
                                                                            ------------   --------------
<S>                                                                         <C>            <C>
Cash flows from operating activities:
    Net loss                                                                   (14,947)        $  (4,076)
    Adjustments to reconcile net loss to net cash
      provided by (used in) operating activities:
        Provision for doubtful accounts                                             20                38
        Depreciation and amortization                                           10,018               357
        Amortization of stock compensation                                       4,416             1,428
        Warrant expense                                                             --                21
        Changes in operating assets and liabilities
             Accounts receivable                                                (4,401)            1,811
             Other assets, current and non-current                              (1,718)              (13)
             Accounts payable                                                       37               792
             Accrued expenses and other liabilities                              1,831                35
             Deferred revenue                                                    3,398               246
                                                                            ----------        ----------
               Net cash used provide by (used in) operating activities          (1,346)              639
                                                                            ----------        ----------

Cash flows from investing activities:
    Purchases of investments                                                   (32,552)               --
    Proceeds from maturities of investments                                     22,560                --
    Acquisition of property and equipment, net                                  (2,563)             (888)
                                                                            ----------        ----------
               Net cash used in investing activities                           (12,555)             (888)
                                                                            ----------        ----------

Cash flows from financing activities:
    Repayment of capital lease obligations                                        (195)             (193)
    Proceeds from issuance of Common Stock, net of repurchase                      720                64
    Repayment of notes receivable from stockholders                                415                14
                                                                            ----------        ----------
               Net cash provided by (used in) financing activities                 940              (115)
                                                                            ----------        ----------

Net decrease in cash and cash equivalents                                      (12,961)             (364)

Cash and cash equivalents at beginning of year                                 142,721            10,003
                                                                            ----------        ----------
Cash and cash equivalents at end of year                                     $ 129,760         $   9,639
                                                                            ==========        ==========
Supplemental disclosure:
    Cash paid for interest                                                   $      48         $     114
                                                                            ==========        ==========

Non-cash investing and financing activities:
    Common stock issued in exchange for notes receivable                     $      --         $     967
                                                                            ==========        ==========

    Property and equipment acquired under capital lease                      $      --         $     164
                                                                            ==========        ==========
</TABLE>


 See accompanying notes to these condensed consolidated financial statements.

--------------------------------------------------------------------------------
                                                                          Page 5
<PAGE>

AGILE SOFTWARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.   Basis of Presentation

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

2.   Revenue Recognition

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

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

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

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

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

3.   Net Loss Per Share

     Basic net loss per share is computed by dividing the net loss available to
holders of Common Stock for the period by the weighted average number of shares
of Common

________________________________________________________________________________

                                                                          Page 6
<PAGE>

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

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

                                           Three Months Ended July 31,
                                          -----------------------------
                                               2000           1999
                                          -------------  --------------

Numerator:
    Net loss                              $    (14,947)  $      (4,076)
                                          =============  ==============

Denominator:
    Weighted average shares                     46,482           8,794
    Weighted average unvested shares of
      Common Stock subject to repurchase        (1,588)         (2,146)
                                          -------------  --------------
    Denominator for basic and diluted
      calculation                               44,894           6,648
                                          =============  ==============

Net loss per share:
    Basic and diluted                     $       (.33)  $        (.61)
                                          =============  ==============

     At July 31, 2000, approximately 10,949,000 potential shares of Common Stock
are excluded from the determination of diluted net loss per share as the effect
of such shares is antidilutive.

4.   Comprehensive Loss

     Comprehensive loss includes all changes in equity (net assets) during a
period from non-owner sources. During the three months ended July 31, 2000, the
Company incurred $233,000 in unrealized gains 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 months
ended July 31, 2000 and 1999, the Company operated in a single business segment,
primarily in the United States. Through July 31, 2000, foreign operations were
not significant in either revenue or investment in long-lived assets.

6.   Unearned stock compensation

In connection with certain stock options granted to employees and consultants,
the Company recorded aggregate unearned stock-based compensation of $43.3
million representing the difference between the option exercise price and the
deemed fair value of the Company's common stock on the date of grant. Such
amount is presented as a reduction of stockholders' equity and amortized over
the vesting period of the applicable option. Stock compensation expense for
employees and consultants was $4.4 million and $1.4 million for the three months
ended July 31, 2000 and July 31, 1999, respectively.

Stock compensation expense related to stock options granted to consultants is
recognized as earned, using the multiple option method as prescribed by
Statement of Financial Accounting Standards,("SFAS") No. 123. At each reporting
date, we re-value the unearned stock compensation using the Black-Scholes option
pricing model. As a


________________________________________________________________________________

                                                                          Page 7
<PAGE>

result, the stock-based compensation expense will fluctuate as the fair market
value of our common stock fluctuates.

7.   Intangible Assets

In connection with our acquisition of Digital Markets, Inc. in December 1999, we
recorded goodwill and other intangible assets of approximately $109.3 million,
of which $1.3 million was immediately expensed as acquired in-process research
and development. Intangible assets are presented at cost, net of accumulated
amortization. Amortization is computed using the straight-line method over the
estimated useful life of the assets, which is generally three years.
Amortization of goodwill and intangibles for the three months ended July 31,
2000 was $9.1 million. At each balance sheet date, the Company assesses the
value of recorded intangible assets for possible impairment based upon a number
of factors including turnover of the acquired workforce and the undiscounted
value of expected future operating cash flows. Since inception, the Company has
not recorded any provisions for possible impairment of intangible assets.

8.   Borrowings

     As of July 31, 2000, the Company had a line-of-credit agreement with a bank
that provides for borrowings of up to $5,000,000, including $500,000 available
for the issuance of letters of credit and foreign currency exchange activity.
Borrowings under the line-of-credit agreement bear interest at an annual rate of
8.5%, subject to adjustment by the bank. Borrowings under the line of credit are
secured by the assets of the Company. As of July 31, 2000, there were no
borrowings outstanding under the line-of-credit. The line-of-credit agreement
expires in August 2000.

________________________________________________________________________________

                                                                          Page 8
<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 our Annual Report on Form 10-K filed on July 24, 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 collaborative manufacturing commerce solutions that
speed the "build" and "buy" process across the virtual manufacturing network. We
believe that our products improve time to volume, customer responsiveness and
cost of goods sold. Our solutions manage product content and critical
communication, collaboration and commerce transactions among original equipment
manufacturers, electronic manufacturing services providers, customers and
suppliers. We were founded in March 1995 and in June 1996 we began selling our
first products and delivering related services. We currently license our
products in the United States through our direct sales force, and in Europe and
Asia through our direct sales force and distributors. To date, revenues from
international sales have not been material. We have derived our revenues
principally from the licenses of our products, the delivery of professional
services and from maintenance contracts.

     Customers who license our software products receive a license for our
application servers, one or more user licenses, and third-party provided
adapters to connect with the customer's other existing enterprise systems. Our
customers generally purchase a limited number of user licenses at the time of
the initial license of the software products and may purchase additional user
licenses as needed. Customers may purchase implementation services from us.
These professional services are generally provided on a fixed-price basis and
are often provided by third-party consulting organizations. We also offer fee-
based training services to our customers. As of July 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 95% of our customers had renewed their maintenance contracts. We may
not be able to maintain or continue these rates of purchases or renewals of
maintenance agreements.

We recognize revenue under Statement of Position, or SOP, 97-2, "Software
Revenue Recognition," and SOP 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, with Respect to Certain Transactions". When contracts contain
multiple elements and vendor-specific objective evidence exists for all
undelivered elements, we account for the delivered elements in accordance with
the "Residual Method" prescribed by SOP 98-9. Software licenses sold to new
customers are recognized upon installation and acceptance by the customer.
Software licenses sold to existing customers, or add-on sales, do not include
acceptance provisions and are recognized upon shipment of the software product.
In the event we grant our customers the right to specified upgrades, license
revenue is deferred until delivery of the specified upgrade. If vendor-specific
objective evidence of fair value exists for the specified upgrade, then an
amount equal to this fair value is deferred. If vendor-specific objective
evidence of fair value does not exist, then the entire license fee is deferred
until the delivery of the specified upgrade. Our professional services revenues
consist of implementation services which are recognized upon customer acceptance
and training revenues which are recognized as the services are

________________________________________________________________________________

                                                                          Page 9
<PAGE>

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 and amortization of intangible assets described below.

     In connection with the grant of stock options to employees and non-employee
directors, we recorded aggregate unearned compensation of $43.3 million
representing the difference between the deemed fair value of our common stock at
the date of grant and the exercise price of such options. Such amount is
presented as a reduction of stockholders' equity and amortized over the vesting
period of the applicable option.

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

     In connection with our acquisition of Digital Markets, Inc. in December
1999, we recorded goodwill and other intangible assets of approximately $109.3
million, of which $1.3 million was charged to expense as acquired in-process
technology in fiscal 2000. Goodwill and intangible assets are presented at cost,
net of accumulated amortization. Amortization is computed using the straight-
line method over the estimated useful life of the assets, which is generally
three years. At each balance sheet date, the Company assesses the value of
recorded intangible assets for possible impairment based upon a number of
factors including turnover of the acquired workforce and the undiscounted value
of expected future operating cash flows. Since inception, the Company has not
recorded any provisions for possible impairment of intangible assets.

     Although our total revenues have increased from year to year, we have
incurred significant costs to develop our products and to recruit and train
personnel for our

________________________________________________________________________________

                                                                         Page 10
<PAGE>

sales, marketing, engineering, professional services and administration
departments. As a result, we have incurred significant losses since inception,
and as of July 31, 2000, had an accumulated deficit of $76.7 million.

     We intend to continue to incur significant sales and marketing, research
and development and general and administrative expenses. For example, we had 356
full-time employees at July 31, 2000, compared to 170 at July 31, 1999. 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 be
sure that we will ever attain or maintain profitability. The continued expansion
of our business will also place significant demands on our management and
operational resources. To manage this rapid growth and increased demands, we
must improve existing and implement new operational and financial systems,
procedures and controls. We must also hire, train, manage, retain and motivate
qualified personnel. We expect future expansion to continue to challenge our
ability to hire, train, manage, retain and motivate our employees.

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

________________________________________________________________________________

                                                                         Page 11
<PAGE>

Results of Operations

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


                                     Three Months Ended July 31,
                                     ---------------------------
                                         2000           1999
                                     ------------   ------------
Revenues:
  License                                  73%            62%
  Professional services                    13             20
  Maintenance                              14             18
                                     ------------   ------------
     Total revenues                       100            100
                                     ------------   ------------

Cost of revenues:
  License                                   4              4
  Professional services                     9             16
  Maintenance                               6              8
                                     ------------   ------------
   Total cost of revenues                  19             28
                                     ------------   ------------

Gross profit                               81             72
                                     ------------   ------------

Operating expenses:
  Sales and marketing                      82             77
  Research and development                 30             25
  General and administrative                9             13
  Amortization of stock compensation       28             24
  Amortization of intangible assets        58             --
                                     ------------   ------------
    Total operating expenses              207            139
                                     ------------   ------------

Loss from operations                     (126)           (69)
Interest income (expense), net             31             (2)
                                     ------------   ------------
Net loss                                  (95%)          (69%)
                                     ============   ============


Three months Ended July 31, 2000 and 1999

Revenues

Our total revenues in the quarter ended July 31, 2000 were $15.8 million,
representing an increase of $9.9 million, or 168%, from the revenues of $5.9
million in the quarter ended July 31, 1999. We had no customers that accounted
for more than 10% of our total revenues in the quarters ended July 31, 2000 or
July 31, 1999.

License Revenues. Our license revenues in the quarter ended July 31, 2000 were
$11.5 million, representing an increase of $7.8 million, or 213%, from the
license revenues of $3.7 million in the quarter ended July 31, 1999. License
revenues as a percentage of total revenues were 73% in the three months ended
July 31, 2000 and 62% in the three months ended July 31, 1999. The increase in
our license revenues from the prior year period was due to increased market
acceptance of our suite of products, including new versions of our products.

Professional Services Revenues. Our professional services revenues in the
quarter ended July 31, 2000 were $2.0 million, representing an increase of
$877,000, or 76%, from the professional services revenues of $1.2 million in the
quarter ended July

________________________________________________________________________________

                                                                         Page 12
<PAGE>

31, 1999. Professional services revenues as a percentage of total revenues were
13% in the quarter ended July 31, 2000 and 20% in the quarter ended July 31,
1999. The increase in professional services revenues in absolute dollars was due
to increased license revenues and an increased range of services, consisting of
additional data migration and integration services. 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 in the quarter ended July 31,
2000 were $2.3 million, representing an increase of $1.2 million, or 112%, from
the maintenance revenues of $1.1 million in the quarter ended July 31, 1999.
Maintenance revenues as a percentage of total revenues were 14% in the quarter
ended July 31, 2000 and 18% in the quarter ended July 31, 1999. The increase in
absolute dollars from the prior year period was attributable to increased
licenses for our products. The decrease in maintenance revenues as a percentage
of total revenues from the prior year period was due to a higher proportion of
license revenues to total revenues resulting from increase market acceptance of
our product.

Cost of Revenues

Cost of License Revenues. Cost of license revenues in the quarter ended July 31,
2000 was $557,000, representing an increase of $334,000, or 150%, from the cost
of license revenues of $223,000 in the quarter ended July 31, 1999. Cost of
license revenues as a percentage of license revenues was 5% in the quarter ended
July 31, 2000 and 6% in the quarter ended July 31, 1999. The increase in the
cost of license revenue in absolute dollars in the three months ended July 31,
2000 reflects increased expenses associated with the sub-licensing of third-
party software used in our products. Cost of license revenues as a percentage of
total license revenues has decreased as add-on licenses, which have a higher
gross margin than initial customer licenses, have increased as a percentage of
total license revenues.

Cost of Professional Services Revenues. Cost of professional services revenues
in the quarter ended July 31, 2000 were $1.6 million, representing an increase
of $676,000, or 73%, from the cost of professional services revenues of $921,000
in the quarter ended July 31, 1999. Cost of professional services revenues as a
percentage of professional services revenues was 78% in the quarter ended July
31, 2000 and 79% in the quarter ended July 31, 1999. The increase in cost of
professional services revenues in the three months ended July 31, 2000 was due
to increased professional services personnel and costs of additional third
parties contracted to provide additional implementation services to support the
increased customer base. In certain periods in the past, and potentially in the
future, our cost of professional services revenues exceeded our professional
services revenues, primarily because the actual cost of providing the services,
whether provided internally or through third parties, exceeded the fixed price
payment received from some of our customers. 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 in the quarter ended
July 31, 2000 were $888,000, representing an increase of $406,000, or 84%, from
the cost of maintenance revenues of $482,000 in the quarter ended July 31, 1999.
Cost of maintenance revenues as a percentage of maintenance revenues were 39% in
the quarter ended July 31, 2000 and 45% in the quarter ended July 31, 1999. The
decrease in cost of maintenance revenues as a percentage of maintenance revenues
in the comparable period 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 in the quarter ended July 31,
2000 were $12.9 million, representing an increase of $8.4 million, or 185%, from
the sales and marketing expenses of $4.5 million in the quarter ended July 31,
1999. The increase in sales and marketing expenses in the quarter ended July 31,
2000 compared to the corresponding period 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

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                                                                         Page 13
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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 in the quarter ended
July 31, 2000 were $4.8 million, representing an increase of $3.3 million, or
223%, from the research and development expenses of $1.5 million in the quarter
ended July 31, 1999. The absolute dollar increase in research and development
expenses in the quarter ended July 31, 2000 compared to the corresponding period
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 in the quarter
ended July 31, 2000 were $1.4 million, representing an increase of $672,000, or
89%, from the general and administrative expenses of $753,000 in the quarter
ended July 31, 1999. The absolute dollar increase in general and administrative
expenses in the quarter ended July 31, 2000 compared to the corresponding period
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 $4.4 million in the quarter ended July 31, 2000
compared to $1.4 million in the quarter ended July 31, 1999.

Amortization of Goodwill and Purchased Intangible Assets. Of the $102.5 million
purchase price paid for Digital Market, Inc. in December 1999, $103.8 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 in the three months ended July 31, 2000 was $9.1
million.

Interest and Other Income (Expense), Net. Interest and other income, net was
$5.0 million in the quarter ended July 31, 2000 compared to $(127,000) in the
quarter ended July 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 in fiscal 2000.

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

Liquidity and Capital Resources

We have historically satisfied our cash requirements primarily through issuances
of equity securities and lease and debt financing. In August 1999, we completed
our initial public offering and concurrent private placement of our common
stock; which resulted in net proceeds of approximately $80.4 million before
offering expenses. 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, which resulted in net proceeds, before offering expenses, of $272.6
million. Prior to the offerings we had financed our operations through private
sales of preferred stock, with net proceeds of $26.2 million, and through bank
loans and equipment leases.

We 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 July
31, 2000, no balance was outstanding under this line of credit. Accounts
receivable and certain other assets of ours secure this line of credit. Capital
lease obligations, including both short-term and long-term portions, were $1.0
million at July 31,

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                                                                         Page 14
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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 July 31, 2000.

As of July 31, 2000, we had cash, cash equivalents and short-term investments of
$302.2 million, an increase from $300.0 million of cash, cash equivalents and
short-term investments held as of April 30, 2000. Our working capital at July
31, 2000 was $297.4 million.

Operating activities used cash of $1.3 million in the quarter ended July 31,
2000 and provided cash of $639,000 in the quarter ended July 31, 1999. Net cash
used in operating activities in the quarter ended July 31, 2000 was due
primarily to our net loss, an increase in accounts receivable and other assets,
partially offset by increases in accrued expenses, deferred revenue, and
depreciation and amortization expense. Net cash provided by operating activities
in the quarter ended July 31, 1999 was due primarily to a decrease in accounts
receivable and increases in accounts payable and deferred revenue, partially
offset by net loss excluding depreciation and amortization.

Investing activities used cash of $12.6 million in the quarter ended July 31,
2000 and used cash of $888,000 in the quarter ended July 31, 1999. Net cash used
in investing activities in the quarter ended July 31, 2000 consisted of
purchases of marketable securities and purchases of property and equipment.
Purchases of property and equipment were approximately $2.6 million in the
quarter ended July 31, 2000 and  $888,000 million in the quarter ended July
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.

Financing activities provided cash of $940,000 in the quarter ended July 31,
2000 and used cash of $115,000 in the quarter ended July 31, 1999. Net cash
provided in the quarter ended July 31, 2000 was due primarily from the sale of
common stock under employee stock option plans. Net cash used in financing
activities in the quarter ended July 31, 2000 consisted primarily of repayment
of capital lease obligations.

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

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

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                                                                         Page 15
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     suite, and will need to successfully introduce new products such as Agile
     Buyer, released as a result of our acquisition of Digital Market, and
     enhance existing products to this suite;

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

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

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

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

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

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

   As of July 31, 2000, we had an accumulated deficit of approximately $76.7
million. We expect to continue to incur significant sales and marketing,
research and development and general and administrative expenses. We have
incurred and expect to continue to incur substantial non-cash costs relating to
the amortization of intangible assets and stock compensation which will
contribute to our net losses. We expect to incur losses for the foreseeable
future. We will need to generate significant increases in revenues to achieve
and maintain profitability, and we may not be able to do so. Even if we do
achieve profitability, we may not be able to sustain or increase profitability
on a quarterly or annual basis in the future.

Our Quarterly Operating Results Fluctuate and Are Difficult to Predict and, if
Our Future Results Are Below the Expectations of Public Market Analysts or
Investors, the Price of Our Common Stock May Decline

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

  .  our success with the Agile Buyer product;

  .  fluctuations in demand for Internet collaborative manufacturing commerce
     software;

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

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

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

  .  changes in our sales force incentives;

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

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

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                                                                         Page 16
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   .  delays in our customers' orders due to their priorities;

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

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

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

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

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

   If, in response to market pressures or other demands, we introduce new
pricing structures for our existing products, we could experience customer
dissatisfaction and loss of sales. In addition, we could introduce products that
are sold in a manner different from how we currently market our products, or we
could recognize revenue differently than under our current accounting policies.
Depending on the manner in which we sell existing or future products, this could
have the effect of extending the length of time over which we recognize
revenues. Furthermore, our quarterly revenues could be significantly affected
based on how applicable accounting standards are amended or interpreted over
time.

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

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

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

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

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

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                                                                         Page 17
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   We acquired Digital Market in November 1999. We may encounter risks to our
business during our integration of acquisitions such as Digital Market,
including:

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

   .  unanticipated costs associated with the acquisition;

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

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

   .  inability to retain employees of acquisitions we make.

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

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

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

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

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

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

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

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

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

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

   We rely heavily on our relationships with consulting and integration partners
to implement our software, provide customer support services and endorse our
products during the evaluation stage of the sales cycle. Currently, a limited
number of companies provide implementation services for our products. We expect
to increasingly rely on these types of partners in the future. These companies
are not contractually obligated to continue to provide implementation services
for us or to otherwise promote our products. Although we seek to develop and
maintain relationships with these types of service providers, they may have
similar or more established relationships with our competitors. If these service
providers do not increase this segment of their business, or reduce or
discontinue their relationships with us or their support of our products, our
business could be harmed. We will need to develop new third party relationships
if sales of our products increase and our current partners cannot fulfill the
need for implementation and customer support services. Without these third
parties we would have to expand our services organization to increase the
consulting and professional services that we provide to our customers and divert
resources from other areas of our business. If we are required to expand our
professional services capabilities, we may not be able to do so on a timely
basis.

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

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

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

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

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dissatisfaction and find it more difficult to obtain new customers or to sell
additional products to our existing customers.


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

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

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

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

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

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

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

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

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

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

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

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

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

   The market for products that enable companies to interactively manage and
share information relating to the manufacture and supply of products is new,
highly fragmented, rapidly changing and increasingly competitive. We expect
competition to intensify, which could result in price reductions for our
products, reduced gross margins and loss of market share. Competitors vary in
size and in the scope and breadth of the products and services offered. We face
potential competition from in-house development efforts by potential customers
or partners, vendors of software designed for management of engineering
information, and developers of general purpose groupware software addressing
only limited technology components involved in managing data generated by
changes to the engineering process. We also face potential competition from
providers of enterprise resource planning software and supply-chain software.

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

   .  longer operating histories;

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

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

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

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

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

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

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

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

   We must continually modify and enhance our products to keep pace with changes
in computer hardware and software and database technology, as well as emerging
technical standards in the software industry. For example, we have designed our
products to work with databases such as Oracle. Any changes to these platforms
could require us to modify our products, and could cause us to delay releasing a
product until the updated version of that platform has been released.
Furthermore, third parties develop adapters to integrate our products with other
design, manufacture, finance and supply chain systems used by our customers. We
rely on these third parties to update the adapters to reflect changes to our
products as well as to the targeted platform in order to maintain the
functionality provided by our products. As a result, uncertainties related to
the timing and nature of new product announcements, introductions or
modifications by vendors of operating systems, back-office applications and
browsers and other Internet-related applications could hurt our business, as
customers may not be certain as to how our product will operate with their
existing systems.

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

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

   We believe that expansion of our international operations will be necessary
for our future success, and a key aspect to our business strategy has been and
is to

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

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

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

   .  need to develop our software in multiple foreign languages;

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

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

   .  political and economic instability, particularly in Asia;

   .  difficulties in enforcing agreements through foreign legal systems; or

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

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

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

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

 Defects in Our Software Products Could Diminish Demand For Our Products

   Our software products are complex and may contain errors, including year 2000
related errors, that may be detected at any point in the life of the product. We
have in the past discovered software errors in certain of our products and as a

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<PAGE>

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 170 employees at July 31, 1999 to 356 employees at July 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;

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

   .  enter into relationships with strategic partners.

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

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

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

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                                                                         Page 24
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more difficult to monitor the use of our products if we increase our
international presence.

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

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

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

 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 other systems, to continue
testing our software products, and to audit the year 2000 compliance status of
our suppliers and business partners.

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

   We will rely on third parties to manage system and network environments
running the Agile Anywhere and Agile Buyer solutions and related solutions for
customers requiring hosting. Services provided by these third parties will
include managing the hosted servers, maintaining communications lines and
managing network data centers, which are the locations where the Agile solutions
reside. Since the hosting of the Agile solutions for certain customers will
depend on these third parties, it is possible that these third parties may not
be able to meet our and our customer's service level requirements. In the event
that we choose to use alternative hosting sources, this may result in a
temporary degradation of the service level for hosting services that may be
unacceptable to our customers.

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

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

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

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

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

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

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

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

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

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

   .  slow development of enabling technologies and complementary products;
      and

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

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

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

   As Internet commerce continues to evolve, we expect that federal, state and
foreign governments will adopt laws and regulations covering issues such as user
privacy, taxation of goods and services provided over the Internet, pricing,
content and quality of products and services. It is possible that legislation
could expose

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companies involved in electronic commerce to liability, taxation or other
increased costs, any of which could limit the growth of electronic commerce
generally. Legislation could dampen the growth in Internet usage and decrease
its acceptance as a communications and commercial medium. If enacted, these laws
and regulations could limit the market for our products.

Risks Related to Control

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

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

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

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

   .  variations in our quarterly operating results;

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

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

   .  changes in market valuations of similar companies;

   .  sales of large blocks of our common stock;

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

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

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Risk

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

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Interest Rate Risk

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

Other Investments

          We invest in equity instruments of privately-held companies for
business and strategic purposes. These investments are included in other long-
term assets and are accounted for under the cost method when ownership is less
than 20% and we do not have the ability to exercise significant influence over
operations. For these investments in privately-held companies, our policy is to
regularly review the assumptions underlying the operating performance and cash
flow forecasts in assessing the carrying values. We identify and record
impairment losses when events and circumstances indicate that such assets might
be impaired. To date, no such impairment has been recorded.

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings.

None

Item 2.  Changes in Securities and Use of Proceeds.

None

Item 3.  Defaults Upon Senior Securities.

None.

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

None.

Item 5.  Other Information.

None.

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

(a)      Exhibits.

         27.1    Financial Data Schedule (EDGAR filed version only).

(b)      Reports on Form 8-K

         None

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<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

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

                                               Date: SEPTEMBER 6, 2000

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                                                                         Page 29
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EXHIBIT INDEX

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

27.1    Financial Data Schedule (filed only with the electronic submission of
        Form 10-Q in accordance with the Edgar requirements)

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