<PAGE>   1

                                  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 SEPTEMBER 30, 2000

                                       OR

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


                        Commission File Number 000-26881


                                 E.PIPHANY, INC.
               ---------------------------------------------------
               (Exact Name as Registrant specified in its charter)


           DELAWARE                                     77-0443392
-------------------------------          ---------------------------------------
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation or organization)


                      1900 SOUTH NORFOLK STREET, SUITE 310
                           SAN MATEO, CALIFORNIA 94403
                    ----------------------------------------
                    (Address of principal executive offices)


                                 (650) 356-3800
              ----------------------------------------------------
              (Registrant's telephone number, including area code)


        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 past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  YES [X]  NO [ ]


        The number of shares outstanding of the registrant's common stock, par
value $.0001 per share, as of September 30, 2000, was 45,354,636.

<PAGE>   2

                                 E.PIPHANY, INC.

                          QUARTERLY REPORT ON FORM 10-Q
                        QUARTER ENDED SEPTEMBER 30, 2000

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                          PAGE NO.
----------------------------------------------------------------------------------
<S>                                                                       <C>
PART I  FINANCIAL INFORMATION

Item 1. Financial Statements

        Condensed Consolidated Balance Sheets --                             3
            As of December 31, 1999 and September 30, 2000

        Condensed Consolidated Statements of Operations --                   4
            Three and nine months ended September 30, 1999 and 2000

        Condensed Consolidated Statements of Cash Flows --                   5
            Nine months ended September 30, 1999 and 2000

        Notes to Condensed Consolidated Financial Statements                 6

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk          30


--------------------------------------------------------------------------------
PART II OTHER INFORMATION

Item 1. Legal Proceedings                                                   31

Item 2. Changes in Securities and Use of Proceeds                           31

Item 3. Defaults Upon Senior Securities                                     31

Item 4. Submission of Matters to a Vote of Securities Holders               31

Item 5. Other Information                                                   31

Item 6. Exhibits and reports on Form 8-K                                    31


--------------------------------------------------------------------------------
SIGNATURES                                                                  32
--------------------------------------------------------------------------------
</TABLE>

<PAGE>   3

                                 E.PIPHANY, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              DECEMBER 31,       SEPTEMBER 30,
                                                                 1999                2000
                                                              -----------        ------------
                                                                                  (UNAUDITED)
<S>                                                           <C>                <C>
ASSETS
Current assets:
  Cash and cash equivalents ..........................         $  58,084          $   313,257
  Short-term investments .............................            22,926               99,872
  Accounts receivable, net ...........................             5,502               21,693
  Prepaid expenses and other assets ..................             2,959                6,924
                                                               ---------          -----------
     Total current assets ............................            89,471              441,746
Property and equipment, net ..........................             3,932               15,718
Goodwill and purchased intangibles ...................                --            2,810,864
Other assets .........................................               183                  848
                                                               ---------          -----------
     Total assets ....................................         $  93,586          $ 3,269,176
                                                               =========          ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of capital lease obligations .......         $     237          $       693
  Current portion of notes payable ...................               894                   --
  Trade accounts payable .............................               650                2,737
  Accrued merger costs ...............................                --                7,671
  Accrued compensation ...............................             3,504               12,749
  Accrued other ......................................             2,192               15,831
  Deferred revenue ...................................             3,643               18,304
                                                               ---------          -----------
     Total current liabilities .......................            11,120               57,985
Capital lease obligations, net of current portion ....               399                  765
Notes payable, net of current portion ................             7,425                   --
                                                               ---------          -----------
     Total liabilities ...............................            18,944               58,750
                                                               ---------          -----------
Stockholders' equity:
  Common stock .......................................                 5                    6
  Additional paid-in capital .........................           113,636            3,742,435
  Warrants to purchase preferred stock ...............               143                   --
  Notes receivable ...................................              (640)              (2,758)
  Accumulated and other comprehensive income .........               (31)                (240)
  Deferred compensation ..............................            (2,602)              (1,355)
  Accumulated deficit ................................           (35,869)            (527,662)
                                                               ---------          -----------
     Total stockholders' equity ......................            74,642            3,210,426
                                                               ---------          -----------
     Total liabilities and stockholders' equity ......         $  93,586          $ 3,269,176
                                                               =========          ===========
</TABLE>

The accompanying notes are an integral part of the condensed consolidated
financial statements.



                                       3
<PAGE>   4

                                 E.PIPHANY, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED             NINE MONTHS ENDED
                                                                    SEPTEMBER 30,                  SEPTEMBER 30,
                                                               ------------------------       ------------------------
                                                                 1999           2000            1999           2000
                                                               --------       ---------       --------       ---------
<S>                                                            <C>            <C>             <C>            <C>
Revenues:
  Product license .......................................      $  2,704       $  21,382       $  5,633       $  43,943
  Services ..............................................         2,640          17,758          4,835          34,131
                                                               --------       ---------       --------       ---------
     Total revenues .....................................         5,344          39,140         10,468          78,074
                                                               --------       ---------       --------       ---------
Cost of revenues:
  Product license .......................................            58             342             83             766
  Services ..............................................         2,957          17,307          5,445          32,703
                                                               --------       ---------       --------       ---------
     Total cost of revenues .............................         3,015          17,649          5,528          33,469
                                                               --------       ---------       --------       ---------
     Gross profit .......................................         2,329          21,491          4,940          44,605
                                                               --------       ---------       --------       ---------
Operating expenses:
  Research and development ..............................         1,857           8,533          4,722          17,699
  Sales and marketing ...................................         5,225          19,872         11,576          46,989
  General and administrative ............................         1,262           6,207          2,546          12,503
  In-process research and development charge ............            --              --             --          47,000
  Amortization of goodwill and purchased intangibles ....            --         269,904             --         427,162
  Stock-based compensation ..............................           742             332          2,314           1,993
                                                               --------       ---------       --------       ---------
     Total operating expenses ...........................         9,086         304,848         21,158         553,346
                                                               --------       ---------       --------       ---------
     Loss from operations ...............................        (6,757)       (283,357)       (16,218)       (508,741)
Other income (expense), net .............................           (32)          6,088             83          16,948
                                                               --------       ---------       --------       ---------
     Net loss ...........................................      $ (6,789)      $(277,269)      $(16,135)      $(491,793)
                                                               ========       =========       ========       =========
Basic and diluted net loss per share ....................      $  (0.91)      $   (6.52)      $  (2.90)      $  (13.91)
                                                               ========       =========       ========       =========
Shares used in computing basic and diluted net
    loss per share ......................................         7,446          42,542          5,563          35,348
                                                               ========       =========       ========       =========
Pro forma basic and diluted net loss per share ..........      $  (0.38)      $   (6.52)      $  (1.00)      $  (13.91)
                                                               ========       =========       ========       =========
Shares used in computing pro forma basic and diluted
    net loss per share ..................................        18,002          42,542         16,197          35,348
                                                               ========       =========       ========       =========
</TABLE>

The accompanying notes are an integral part of the condensed consolidated
financial statements.



                                       4
<PAGE>   5

                                 E.PIPHANY, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                 NINE MONTHS ENDED
                                                                                   SEPTEMBER 30,
                                                                             ------------------------
                                                                               1999            2000
                                                                             --------       ---------
                                                                                   (UNAUDITED)
<S>                                                                          <C>           <C>
Cash flows from operating activities:
  Net loss ............................................................      $(16,135)      $(491,795)
  Adjustments to reconcile net loss to net cash used for
     operating activities:
     Depreciation and amortization ....................................           549           2,045
     Allowance for doubtful accounts ..................................            50           1,450
     Noncash compensation expense .....................................         2,314           1,993
     Noncash interest expense .........................................            47              --
     In-process research and development charge .......................            --          47,000
     Amortization of goodwill and purchased intangibles ...............            --         427,162
     Changes in operating assets and liabilities, net of effect of
       acquisitions:
       Accounts receivable ............................................        (2,000)        (13,677)
       Prepaid expenses and other assets ..............................        (1,763)         (3,030)
       Trade accounts payable .........................................           572           1,220
       Accrued liabilities ............................................         3,414           1,033
       Deferred revenue ...............................................         2,157          12,503
                                                                             --------       ---------
          Net cash used in operating activities .......................       (10,795)        (14,126)
                                                                             --------       ---------
Cash flows from investing activities:
  Purchases of property and equipment .................................        (1,594)         (8,583)
  Cash acquired in acquisitions .......................................            --          24,282
  Direct costs of purchase transactions ...............................            --         (21,330)
  Purchases and sales of investments, net .............................            --         (76,918)
                                                                             --------       ---------
          Net cash (used in) investing activities .....................        (1,594)        (82,549)
                                                                             --------       ---------
Cash flows from financing activities:
  Borrowings on line of credit ........................................         8,000              --
  Repayments on line of credit ........................................          (135)         (8,319)
  Principal payments on capital lease obligations .....................           (44)           (405)
  Proceeds from secondary offering, net ...............................        69,866         356,108
  Repayments on notes receivable ......................................            --             246
  Proceeds from sale of convertible preferred stock, net ..............         5,970              --
  Proceeds from sale of common stock, net of repurchases ..............         4,838           4,455
                                                                             --------       ---------
          Net cash provided by financing activities ...................        88,495         352,085
                                                                             --------       ---------
Effect of foreign exchange rates on cash and cash equivalents .........            --            (237)
                                                                             --------       ---------
Net increase in cash and cash equivalents .............................        76,106         255,173
Cash and cash equivalents at beginning of period ......................        13,595          58,084
                                                                             --------       ---------
Cash and cash equivalents at end of period ............................      $ 89,701       $ 313,257
                                                                             ========       =========
</TABLE>

The accompanying notes are an integral part of the condensed consolidated
financial statements.



                                       5
<PAGE>   6

                                 E.PIPHANY, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1. BASIS OF PRESENTATION

        The condensed consolidated financial statements included herein have
been prepared by E.piphany, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, E.piphany believes that the
disclosures are adequate to make the information presented not misleading. These
condensed consolidated financial statements should be read in conjunction with
the financial statements and notes thereto included in E.piphany's Annual Report
on Form 10-K for the fiscal year ended December 31, 1999.

        The unaudited condensed consolidated financial statements included
herein reflect all adjustments (which include only normal, recurring
adjustments) which are, in the opinion of management, necessary to state fairly
the results for the three and nine months ended September 30, 2000. The results
for the three and nine months ended September 30, 2000 are not necessarily
indicative of the results expected for the full fiscal year.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

        The accompanying condensed consolidated financial statements include the
accounts of E.piphany and its wholly owned subsidiaries. All intercompany
accounts and transactions have been eliminated.

FOREIGN CURRENCY TRANSLATION

        The functional currency of E.piphany's subsidiaries is the local
currency. Accordingly, all assets and liabilities are translated into U.S.
dollars at the current exchange rate as of the applicable balance sheet date.
Revenues and expenses are translated at the average exchange rate prevailing
during the period. Gains and losses resulting from the translation of the
financial statements are reported as a separate component of stockholders'
equity, which through September 30, 2000 have not been material. Foreign
currency transaction gains and losses are included in other income (expense) and
as of September 30, 2000 these transactions have not been material.

3. COMPREHENSIVE INCOME (LOSS)

        In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which E.piphany adopted beginning on January 1, 1998. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. The objective
of SFAS No. 130 is to report a measure of all changes in equity of an enterprise
that results from transactions and other economic events of the period other
than transactions with stockholders ("comprehensive income"). Comprehensive
income is the total of net income and all other non-owner changes in equity. For
the three and nine months ended September 30, 1999, and the three and nine
months ended September 30, 2000, E.piphany's comprehensive income (loss) did not
differ materially from reported net loss.

4. COMPUTATION OF BASIC AND DILUTED NET LOSS PER SHARE AND PRO FORMA BASIC AND
DILUTED NET LOSS PER SHARE

        Basic and diluted net loss per common share are presented in conformity
with SFAS No. 128, "Earnings Per Share," for all periods presented. In
accordance with SFAS No. 128, basic net loss per common share has been computed
using the weighted average number of shares of common stock outstanding during
the period, less shares subject to repurchase. Basic and diluted pro forma net
loss per common share, as presented in the statements of



                                       6
<PAGE>   7

operations, has been computed as described above and also gives effect to the
conversion of the convertible preferred stock (using the as if-converted to
common stock method) from the original date of issuance.

        The following table presents the calculation of basic and pro forma
basic net loss per share (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED            NINE MONTHS ENDED
                                                            SEPTEMBER 30,                 SEPTEMBER 30,
                                                      ------------------------       ------------------------
                                                        1999            2000           1999            2000
                                                      --------       ---------       --------       ---------
<S>                                                   <C>            <C>             <C>            <C>
Net loss .......................................      $ (6,789)      $(277,269)      $(16,135)      $(491,793)
                                                      ========       =========       ========       =========
Basic and diluted:
Weighted average shares of common stock
outstanding ....................................        11,448          45,268          9,913          37,988
Less: Weighted average shares subject to
repurchase .....................................        (4,002)         (2,726)        (4,350)         (2,640)
                                                      --------       ---------       --------       ---------
Weighted average shares used in computing
basic and diluted net loss per common share ....         7,446          42,542          5,563          35,348
                                                      ========       =========       ========       =========
Basic and diluted net loss per common share ....      $  (0.91)      $   (6.52)      $  (2.90)      $  (13.91)
                                                      ========       =========       ========       =========

Net loss .......................................      $ (6,789)      $(277,269)      $(16,135)      $(491,793)
                                                      ========       =========       ========       =========

Shares used above ..............................         7,446          42,542          5,563          35,348
Pro forma adjustment to reflect weighted
effect of assumed conversion of
convertible preferred stock ....................        10,556              --         10,634              --
                                                      --------       ---------       --------       ---------
Shares used in computing pro forma basic and
diluted net loss per common share ..............        18,002          42,542         16,197          35,348
                                                      ========       =========       ========       =========
Pro forma basic and diluted net loss per
common share ...................................      $  (0.38)      $   (6.52)      $  (1.00)      $  (13.91)
                                                      ========       =========       ========       =========
</TABLE>


        E.piphany has excluded all convertible preferred stock, warrants for
convertible preferred stock, outstanding stock options, and shares subject to
repurchase from the calculation of diluted net loss per common share because all
such securities are antidilutive for all periods presented. The total number of
shares excluded from the calculations of basic and diluted net loss per share
were 17,968,795 and 7,295,102 for the three months ended September 30, 1999 and
September 30, 2000, respectively. The total number of shares excluded from the
calculations of basic and diluted net loss per share were 18,503,754 and
7,227,565 for the nine months ended September 30, 1999 and September 30, 2000,
respectively.

5. RECENT ACCOUNTING PRONOUNCEMENTS

        In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires companies to record
derivative financial instruments on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. The key criterion for hedge
accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value or cash flows. In June 1999, the FASB
issued SFAS No. 137, "Accounting For Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133," which
amends SFAS No. 133 to be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000 (or January 1, 2001 for E.piphany). This statement
will not have a material impact on the financial condition or results of
operations of E.piphany.

        In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying generally accepted accounting
principle to revenue recognition issues in financial statements. We will adopt
SAB 101 as required in



                                       7
<PAGE>   8

the fourth quarter of 2000. We do not expect the adoption of SAB 101 to have a
material impact on our consolidated results of operations and financial
position.

6. ACQUISITIONS

The Octane Acquisition

        On May 31, 2000, E.piphany acquired Octane Software, Inc. ("Octane") in
a merger transaction. Octane is a next-generation provider of multi-channel
customer interaction applications and infrastructure software for sales, service
and support. Under the terms of the Octane Merger Agreement, stockholders of
Octane received approximately 0.5097 shares of E.piphany common stock for each
share of Octane common stock they owned at the time the merger was consummated.
In addition, options and warrants to acquire Octane common stock were converted
as a result of the merger into equivalent options and warrants for E.piphany
common stock, based upon the exchange ratio. The total purchase price was
approximately $2.7 billion, of which $25.0 million was allocated to in-process
research and development and expensed upon closing of the acquisition as it had
not reached technological feasibility and, in management's opinion, had no
alternative future use. The total purchase price is subject to adjustments based
upon finalization of management's integration plans, which may include
elimination of duplicate facilities and fixed assets as well as employee
severance. Purchased intangibles, representing purchase price in excess of
identified tangible and intangible assets, of approximately $2.7 billion were
recorded and are being amortized on a straight-line basis over a useful life of
three years. Accumulated amortization was approximately $297.9 million at
September 30, 2000.

        The value assigned to acquired in-process research and development was
determined by identifying research projects in areas for which technological
feasibility had not been established. The value was determined by estimating the
costs to develop the acquired in-process technology into commercially viable
products, estimating the resulting net cash flows from such projects, and
discounting the net cash flows back to their present values. The discount rate
includes a factor that takes into account the uncertainty surrounding the
successful development of the acquired in-process technology. There can be no
assurance that the value of the other purchased intangible assets may not become
impaired prior to its amortization.

        In connection with the acquisition of Octane, net assets acquired were
as follows (in thousands):

<TABLE>
<S>                                                                 <C>
Cash, receivables and other current assets ...................      $    24,828
Property, plant and equipment and other noncurrent assets ....            4,518
Note receivable from stockholder .............................            1,179
Purchased intangibles, including in-process technology .......        2,705,946
Current liabilities assumed ..................................          (26,078)
                                                                    -----------
          Net assets acquired ................................      $ 2,710,393
                                                                    ===========
</TABLE>


The eClass Acquisition

        On May 31, 2000, E.piphany acquired eClass Direct, Inc. ("eClass") in a
merger transaction. eClass is an application service provider of
permission-based e-mail marketing services. Under the terms of the eClass Merger
Agreement, stockholders of eClass received approximately 0.1411 shares of
E.piphany common stock for each share of eClass common stock. In addition,
options to acquire eClass common stock were converted as a result of the merger
into equivalent options for E.piphany common stock, based upon the exchange
ratio. The total purchase price was approximately $50.3 million. The total
purchase price is subject to adjustments based upon finalization of management's
integration plans, which may include elimination of duplicate facilities and
fixed assets as well as employee severance. Purchased intangibles, representing
purchase price in excess of identified tangible and intangible assets, of
approximately $48.6 million were recorded and are being amortized on a
straight-line basis over a useful life of three years. Accumulated amortization
was approximately $5.4 million at September 30, 2000. There can be no assurance
that the value of the other purchased intangible assets may not become impaired
prior to its amortization.



                                       8
<PAGE>   9

        In connection with the acquisition, net assets acquired were as follows
(in thousands):

<TABLE>
<S>                                                  <C>
Cash, receivables and other current assets ....      $  1,571
Property, plant and equipment .................           250
Purchased intangibles .........................        48,620
Current liabilities assumed ...................          (127)
                                                     --------
          Net assets acquired .................      $ 50,314
                                                     ========
</TABLE>

The iLeverage Acquisition

        On May 1, 2000, E.piphany acquired iLeverage Corporation ("iLeverage")
in a merger transaction. iLeverage develops marketing solutions for digital
marketplaces. Under the terms of the iLeverage Merger Agreement, stockholders of
iLeverage received approximately 0.007 and 0.008097 shares of E.piphany common
stock for each share of iLeverage common stock and preferred stock,
respectively. In addition, options to acquire iLeverage common stock were
converted as a result of the merger into equivalent options for E.piphany common
stock, based upon the exchange ratio. The total purchase price was approximately
$29.0 million. The total purchase price is subject to adjustments based upon
finalization of management's integration plans, which may include elimination of
duplicate facilities and fixed assets as well as employee severance. Purchased
intangibles, representing purchase price in excess of identified tangible and
intangible assets, of approximately $29.1 million were recorded and are being
amortized on a straight-line basis over a useful life of three years.
Accumulated amortization was approximately $4.0 million at September 30, 2000.
There can be no assurance that the value of the other purchased intangible
assets may not become impaired prior to its amortization.

        In connection with the acquisition of iLeverage, net assets acquired
were as follows (in thousands):

<TABLE>
<S>                                                  <C>
Cash, receivables and other current assets ....      $    285
Purchased intangibles .........................        29,143
Current liabilities assumed ...................          (391)
                                                     --------
          Net assets acquired .................      $ 29,037
                                                     ========
</TABLE>

The RightPoint Acquisition

        On January 4, 2000, E.piphany acquired RightPoint Software, Inc.
("RightPoint") in a merger transaction. RightPoint develops and markets real
time marketing software solutions that enable companies to optimize and present
marketing offers, promotions, and communications while a customer is interacting
with a web site, call center agent or other point of customer interaction. Under
the terms of the RightPoint Merger Agreement, shareholders of RightPoint
received approximately 0.1185 shares of E.piphany common stock for each share of
RightPoint common stock they owned at the time the merger was consummated. In
addition, options and warrants to acquire RightPoint common stock were converted
as a result of the merger into equivalent options and warrants for E.piphany
common stock, based upon the exchange ratio. The total purchase price was
approximately $496.8 million, of which $22.0 million was allocated to in-process
research and development and expensed upon closing of the acquisition as it had
not reached technological feasibility and, in management's opinion, had no
alternative future use. The total purchase price is subject to adjustments based
upon finalization of management's integration plans, which may include
elimination of duplicate facilities and fixed assets as well as employee
severance. Purchased intangibles, representing purchase price in excess of
identified tangible and intangible assets, of approximately $479.3 million were
recorded and are being amortized on a straight-line basis over a useful life of
three years. Accumulated amortization was approximately $119.8 million at
September 30, 2000.

        The value assigned to acquired in-process research and development was
determined by identifying research projects in areas for which technological
feasibility had not been established. The value was determined by



                                       9
<PAGE>   10
estimating the costs to develop the acquired in-process technology into
commercially viable products, estimating the resulting net cash flows from such
projects, and discounting the net cash flows back to their present values. The
discount rate includes a factor that takes into account the uncertainty
surrounding the successful development of the acquired in-process technology.
There can be no assurance that the value of the other purchased intangible
assets may not become impaired prior to its amortization.

        In connection with the acquisition of RightPoint, net assets acquired
were as follows (in thousands):

<TABLE>
<S>                                                                 <C>
Cash, receivables and other current assets ...................      $   3,076
Property, plant and equipment and other noncurrent assets ....            817
Note receivable from stockholder .............................          1,185
Purchased intangibles, including in-process technology .......        501,318
Current liabilities assumed ..................................         (9,633)
                                                                    ---------
          Net assets acquired ................................      $ 496,763
                                                                    =========
</TABLE>

        The following table presents the unaudited pro forma results assuming
that E.piphany had merged with Octane, eClass, iLeverage and RightPoint at the
beginning of fiscal year 1999. Net income has been adjusted to exclude the
write-offs of acquired in-process research and development of approximately
$47.0 million and includes amortization of purchased intangibles of
approximately $809.5 million for the nine months ended September 30, 1999 and
2000. Net income also includes $2.3 million and $2.0 million of stock based
compensation for the nine months ended September 30, 1999 and 2000,
respectively, and $14.0 million of acquisition related costs for the nine months
ended September 30, 2000. This information may not necessarily be indicative of
the future combined results of operations of Epiphany (in thousands, except per
share amounts).

<TABLE>
<CAPTION>
                                       NINE MONTHS ENDED
                                         SEPTEMBER 30,
                                   -------------------------
                                     1999             2000
                                   ---------       ---------
<S>                                <C>             <C>
Revenues ....................      $  17,983       $  85,962
Net loss ....................      $(836,816)      $(860,933)
Basic net loss per share ....      $  (26.41)      $  (20.40)
</TABLE>

7. SUBSEQUENT EVENT

        On October 19, 2000, the Company announced a 3-for-2 stock split for
stockholders of record on October 30, 2000. The stock split will be effected
through a stock dividend that is payable on November 13, 2000. The Company has
not reflected the effects of this split in the accompanying financial
statements.



                                       10
<PAGE>   11

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

        The statements contained in this Quarterly Report on Form 10-Q (the
"Report") that are not historical are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), including statements regarding E.piphany's
expectations, beliefs, intentions or strategies regarding the future.
Forward-looking statements include, without limitation, statements regarding the
extent and timing of future revenues and expenses and customer demand,
statements regarding the deployment of E.piphany's products, and statements
regarding reliance on third parties. All forward-looking statements included in
this document are based on information available to E.piphany as of the date
hereof, and E.piphany assumes no obligation to update any such forward-looking
statement. It is important to note that E.piphany's actual results could differ
materially from those in such forward-looking statements. Factors that might
cause or contribute to such a discrepancy include, but are not limited to, those
discussed under the heading "Risk Factors" and the risks discussed in our other
Securities Exchange Commission ("SEC") filings.

OVERVIEW

        E.piphany develops, markets and sells E.piphany E.5, an integrated suite
of customer relationship management software solutions that provide capabilities
for the analysis of customer data, the creation of inbound and outbound
marketing campaigns, and the execution of sales and service customer
interactions. Companies can implement E.piphany E.5 to collect and analyze data
from their existing software systems, and from third party data providers, to
better understand and proactively and personally interact with their customers
across a variety of channels. Business users within these companies can use this
information to design and execute marketing campaigns as well as personalize
products, services and related interactions.

        E.piphany was founded in November 1996. From E.piphany's founding
through the end of 1997, E.piphany primarily engaged in research activities,
developing products and building business infrastructure. E.piphany began
shipping its first software product and first generated revenues from software
license fees, implementation and consulting fees, and maintenance fees in early
1998. During 1998, E.piphany introduced several other software products, and in
August 2000, E.piphany began shipping its E.piphany E.5 System software
solutions. Although E.piphany's revenues consistently increased from quarter to
quarter during 1998 and 1999, E.piphany incurred significant costs to develop
its technology and products, to continue the recruitment of research and
development personnel, to build a direct sales force and a professional services
organization, and to expand its general and administrative infrastructure.
E.piphany's total headcount has increased from 69 employees at December 31, 1998
to 849 employees at September 30, 2000.

ACQUISITIONS

THE OCTANE ACQUISITION

        On May 31, 2000, E.piphany acquired Octane Software, Inc., a
next-generation provider of multi-channel customer interaction applications and
infrastructure software for sales, service and support, in a merger transaction.
In connection with this transaction, E.piphany acquired all of the outstanding
shares of capital stock of Octane in exchange for 11,568,951 shares of
E.piphany's common stock. In addition, options and warrants of Octane were
converted into options and warrants to purchase approximately 1,224,559 shares
of E.piphany's common stock. E.piphany accounted for the acquisition under the
purchase method of accounting and the results of Octane's operations subsequent
to May 31, 2000 have been included in E.piphany's operating results for the
three and nine months ended September 30, 2000. Please see Note 6 in the Notes
to Condensed Consolidated Financial Statements for more detailed information.



                                       11
<PAGE>   12

THE eCLASS ACQUISITION

        On May 31, 2000, E.piphany acquired eClass Direct, Inc., an application
service provider of permission-based e-mail marketing services in a merger
transaction. In connection with this transaction, E.piphany acquired all of the
outstanding shares of capital stock of eClass in exchange for 722,687 shares of
E.piphany's common stock. In addition, options of eClass were converted into
options to purchase approximately 46,383 shares of E.piphany's common stock.
E.piphany accounted for the acquisition under the purchase method of accounting
and the results of eClass' operations subsequent to May 31, 2000 have been
included in E.piphany's operating results for the three and nine months ended
September 30, 2000. Please see Note 6 in the Notes to Condensed Consolidated
Financial Statements for more detailed information.

THE iLEVERAGE ACQUISITION

        On May 1, 2000, E.piphany acquired iLeverage Corporation, a start-up
company that develops marketing solutions for digital marketplaces. In
connection with this transaction, E.piphany acquired all of the outstanding
shares of capital stock of iLeverage in exchange for 118,097 shares of
E.piphany's common stock. In addition, options of iLeverage were converted into
options to purchase approximately 63,487 shares of E.piphany's common stock.
E.piphany accounted for the acquisition under the purchase method of accounting
and the results of iLeverage's operations subsequent to May 1, 2000 have been
included in E.piphany's operating results for the three and nine months ended
September 30, 2000. Please see Note 6 in the Notes to Condensed Consolidated
Financial Statements for more detailed information.

THE RIGHTPOINT ACQUISITION

        On January 4, 2000, E.piphany acquired RightPoint Software, Inc., a
provider of real time marketing software solutions that enable companies to
optimize and present marketing offers, promotions, and communications while a
customer is interacting with a web site, call center agent or other point of
customer interaction. In connection with this transaction, E.piphany acquired
all of the outstanding shares of capital stock of RightPoint in exchange for
3,076,661 shares of E.piphany's common stock. In addition, options and warrants
of RightPoint were converted into options and warrants to purchase approximately
530,000 shares of E.piphany's common stock. E.piphany accounted for the
acquisition under the purchase method of accounting and the results of
RightPoint's operations subsequent to January 4, 2000 have been included in
E.piphany's operating results for the three and nine months ended September 30,
2000. Please see Note 6 in the Notes to Condensed Consolidated Financial
Statements for more detailed information.

SOURCE OF REVENUES AND REVENUE RECOGNITION POLICY

        E.piphany generates revenues principally from licensing its software
products directly to customers and providing related professional services
including implementation, consulting, support and training. Through September
30, 2000, substantially all of E.piphany's revenues have been derived from sales
through E.piphany's direct sales force. During 2000, E.piphany expanded its
international sales efforts which accounted for 10% of revenues for the three
months ended September 30, 2000. E.piphany's license agreements generally
provide that customers pay a software license fee for one or more software
solutions for a specified number of users. The amount of the license fee varies
based on which software solution is purchased, the number of software solutions
purchased and the number of users licensed. Customers can subsequently pay
additional license fees to allow additional users to use previously purchased
software solutions or to purchase additional software solutions. Each software
solution included in the E.piphany E.5 System contains the same core technology,
allowing for easy integration of additional software solutions as they are
purchased from E.piphany. Customers that purchase software solutions receive the
software on compact disc or via Internet delivery.

        Customers generally require consulting and implementation services which
include evaluating their business needs, identifying the data sources necessary
to meet these needs and installing the software solution in a manner which
fulfills their needs. Customers have generally purchased these services directly
from E.piphany through E.piphany's internal professional services organization
on either a fixed fee or a time and expense basis. E.piphany has historically
supplemented the capacity of its internal professional services organization by
subcontracting some



                                       12
<PAGE>   13

of these services to consulting organizations, especially to those organizations
with which E.piphany has relationships such as KPMG and PricewaterhouseCoopers.
However, E.piphany intends to increasingly encourage customers to purchase
services directly from these consulting organizations. E.piphany believes that
this would increase the number of consultants who can provide consulting and
implementation services related to E.piphany's software products and that it
would increase E.piphany's overall gross margins by increasing E.piphany's
percentage of license revenue, which has substantially higher gross margins than
services revenue, as a percentage of total revenue. E.piphany also believes that
it will encourage these consulting organizations to generate sales leads within
their customer base.

        Customers also generally purchase maintenance contracts which provide
software upgrades and technical support over a stated term, generally twelve
months. Revenue on software upgrades and technical support is recognized ratably
over the term of the maintenance contract.

        E.piphany recognizes product license revenues in accordance with the
provisions of American Institute of Certified Public Accounts (AICPA) Statement
of Position (SOP) 97-2, "Software Revenue Recognition." Pursuant to the
requirements of SOP 97-2, E.piphany recognizes product license revenues when all
of the following conditions are met:

        -       E.piphany has signed a noncancellable agreement with the
                customer,

        -       E.piphany has delivered the software product to the customer,

        -       the amount of fees to be paid by the customer is fixed or
                determinable, and

        -       E.piphany believes that collection of these fees is probable.

        To date, when E.piphany manages the implementation process for its
customers, the implementation services have been considered essential to the
functionality of the software products. Accordingly, both the product license
revenues and services revenues are recognized in accordance with the provisions
of SOP 81-1, "Accounting for Performance of Construction Type and Certain
Production Type Contracts." Prior to 1999, E.piphany recognized substantially
all of its revenues using the completed contract method as estimates of costs
and efforts necessary to complete the implementation were generally not reliable
given E.piphany's lack of history with implementing its products. In 2000 and
future years, E.piphany expects to recognize most of its revenues using the
percentage of completion method, and therefore both product license and services
revenues are recognized as work progresses. While E.piphany's software solutions
can generally be implemented in less than sixteen weeks, implementation can take
longer depending on the solution which has been licensed, the number of software
solutions licensed, the complexity of the customer's information technology
environment and the resources directed by customers to the implementation
projects. To date, E.piphany has managed the implementation of E.piphany's
solutions for the substantial majority of its customers. When E.piphany
subcontracts services to consulting organizations, E.piphany is responsible for
managing the implementation. To the extent that customers contract directly with
consulting organizations to provide implementation services and E.piphany does
not manage the implementation, license revenues are recognized when the relevant
conditions of SOP 97-2 are met. Some of E.piphany's contracts provide for the
delivery of unspecified future products over a period of time. Accordingly,
payments received from E.piphany's customers upon the signing of these
agreements are deferred and the revenues are recognized ratably over the
contract period. Revenue allocated to training and other services is recognized
as the services are performed.

COST OF REVENUES AND OPERATING EXPENSES

        E.piphany's cost of license revenues primarily consists of license fees
due to third parties for integrated technology. E.piphany's cost of services
revenues include salaries and related expenses for E.piphany's implementation,
consulting support and training organizations, costs of subcontracting to
consulting organizations to provide consulting services to customers and an
allocation of facilities, communications and depreciation expenses. E.piphany's
operating expenses are classified into three general categories: sales and
marketing, research and development, and general and administrative. E.piphany
classifies all charges to these operating expense categories based on the nature
of the expenditures. E.piphany allocates the costs for overhead and facilities
to each of the



                                       13
<PAGE>   14

functional areas that use the overhead and facilities services based on their
headcount. These allocated charges include facility rent for corporate offices,
communication charges and depreciation expenses for office furniture and
equipment.

        Software development costs incurred prior to the establishment of
technological feasibility are included in research and development costs as
incurred. Since license revenues from E.piphany's software solutions are not
recognized until after technological feasibility has been established, software
development costs are not generally expensed in the same period in which license
revenues for the developed products are recognized.

RESULTS OF OPERATIONS

REVENUES

        Total revenues increased to $39.1 million for the three months ended
September 30, 2000, from $5.3 million for the three months ended September 30,
1999. Total revenues increased to $78.1 million for the nine months ended
September 30, 2000, from $10.5 million for the nine months ended September 30,
1999.

        Product license revenues increased to $21.4 million, or 55% of total
revenue, for the three months ended September 30, 2000 from $2.7 million, or 51%
of total revenue, for the three months ended September 30, 1999. Product license
revenues increased to $43.9 million, or 56% of total revenue, for the nine
months ended September 30, 2000 from $5.6 million, or 54% of total revenue, for
the nine months ended September 30, 1999. The increase in dollar amount of
product license revenues was due to both an increase in the number of licenses
sold and the average size of the licenses, and resulted primarily from the
growth of E.piphany's direct sales force and the introduction and shipment of
new products.

        Services revenues increased to $17.8 million, or 45% of total revenues,
for the three months ended September 30, 2000 from $2.6 million, or 49% of
revenues, for the three months ended September 30, 1999. Services revenues
increased to $34.1 million, or 44% of total revenues, for the nine months ended
September 30, 2000 from $4.8 million, or 46% of revenues, for the nine months
ended September 30, 1999. The increase in dollar amount of services revenues was
primarily attributable to increased implementation and consulting services
performed in connection with increased license sales and to maintenance
contracts sold to E.piphany's new customers.

        The relative amount of services revenues as compared to license revenues
has varied based on the volume of license fees for software solutions compared
to the volume of product license fees for additional users, which generally do
not require services. In addition, the amount of services E.piphany provides for
a software solution can vary greatly depending on the solution which has been
licensed, the complexity of the customers' information technology environment,
the resources directed by customers to their implementation projects, the number
of users licensed and the extent to which consulting organizations provide
services directly to customers. Services revenues have substantially lower
margins relative to product license revenues. This is especially true when
E.piphany is required to subcontract with consulting organizations to supplement
its internal professional services organization. It generally costs E.piphany
more to subcontract with consulting organizations to provide these services than
to provide these services itself. To offset the effect that providing services
itself or through subcontractors has on E.piphany's gross margins, E.piphany
intends to further encourage customers to contract directly with consulting
organizations for implementation and consulting services. Encouraging direct
contracts between E.piphany's customers and consulting organizations may also
increase the overall amount of services available to customers and generate
sales leads. E.piphany does not receive any services revenues when customers
contract directly with consulting organizations for implementation and
consulting services. To the extent that services revenues become a greater
percentage of our total revenues and services margins do not increase,
E.piphany's overall gross margins will decline.

COST OF REVENUES

        Total cost of revenues increased to $17.6 million for the three months
ended September 30, 2000 from $3.0 million for the three months ended September
30, 1999. Total cost of revenues increased to $32.7 million for the nine months
ended September 30, 2000 from $5.5 million for the nine months ended September
30, 1999. Cost of product license revenues consists primarily of license fees
paid to third parties under technology license



                                       14
<PAGE>   15

arrangements and have not been significant to date. Cost of services revenues
consists primarily of the costs of consulting and customer service and support.
Cost of services revenues increased to $17.3 million, or 97% of services
revenues, for the three months ended September 30, 2000 from $3.0 million, or
112% of services revenues, for the three months ended September 30, 1999. Cost
of services revenues increased to $32.7 million, or 96% of services revenues,
for the nine months ended September 30, 2000 from $5.4 million, or 113% of
services revenues, for the nine months ended September 30, 1999. The increase in
cost of services revenues in absolute dollars resulted primarily from the hiring
of additional employees and the subcontracting of consulting services to
consulting organizations to support increased customer demand for consulting
services. Cost of services revenues has almost exceeded service revenues during
the three months and nine months ended September 30, 2000, and during the three
months and nine months ended September 30, 1999 exceeded services revenues, due
to the rapid growth of E.piphany's services organization and E.piphany's
investment in experienced management in anticipation of future revenue growth.

OPERATING EXPENSES

        Research and Development

        Research and development expenses consist primarily of personnel and
related costs associated with E.piphany's product development efforts. Research
and development expenses increased to $8.5 million for the three months ended
September 30, 2000 from $1.9 million for the three months ended September 30,
1999. Research and development expenses increased to $17.7 million for the nine
months ended September 30, 2000 from $4.7 million for the nine months ended
September 30, 1999. The increase in absolute dollars was primarily due to an
increase in the number of employees engaged in research and development from our
internal growth and acquisitions. Research and development expenses as a
percentage of total revenues decreased from 35% for the three months ended
September 30, 1999 to 22% for the three months ended September 30, 2000.
Research and development expenses as a percentage of total revenues decreased
from 45% for the nine months ended September 30, 1999 to 23% for the nine months
ended September 30, 2000. Research and development expenses as a percentage of
total revenues decreased primarily due to growth in E.piphany's revenues.
E.piphany believes that investments in product development are essential to its
future success and expects that the absolute dollar amount of research and
development expenses will increase in future periods.

        Sales and Marketing

        Sales and marketing expenses consist primarily of employee salaries,
benefits and commissions, and the costs of trade shows, seminars, promotional
materials and other sales and marketing programs. Sales and marketing expenses
increased to $19.9 million for the three months ended September 30, 2000 from
$5.2 million for the three months ended September 30, 1999. Sales and marketing
expenses increased to $47.0 million for the nine months ended September 30, 2000
from $11.6 million for the nine months ended September 30, 1999. Sales and
marketing expenses as a percentage of total revenues decreased from 98% for the
three months ended September 30, 1999 to 51% for the three months ended
September 30, 2000. Sales and marketing expenses as a percentage of total
revenues decreased from 111% for the nine months ended September 30, 1999 to 60%
for the nine months ended September 30, 2000. The increase in sales and
marketing expenses in absolute dollars was primarily attributable to an increase
in the number of sales and marketing employees from internal growth and
acquisitions. Sales and marketing expenses as a percentage of total revenues
decreased primarily due to growth in E.piphany's revenues. E.piphany expects
that the absolute dollar amount of sales and marketing expenses will continue to
increase due to the planned growth of its sales force, including the
establishment of sales offices in additional domestic and international
locations including Europe and Asia, and due to expected additional increases in
advertising and marketing programs and other promotional activities.

        General and Administrative

        General and administrative expenses consist primarily of employee
salaries and related expenses for executive, finance and administrative
personnel. General and administrative expenses increased to $6.2 million for the
three months ended September 30, 2000 from $1.3 million for the three months
ended September 30, 1999. General and administrative expenses increased to $12.5
million for the nine months ended September 30, 2000 from $2.5 million



                                       15
<PAGE>   16

for the nine months ended September 30, 1999. The increase in general and
administrative expenses in absolute dollars was primarily attributable to an
increase in the number of executive, finance and administrative employees from
our internal growth and acquisitions necessary to support our expanding
operations. General and administrative expenses as a percentage of total
revenues decreased from 24% for the three months ended September 30, 1999 to 16%
for the three months ended September 30, 2000. General and administrative
expenses as a percentage of total revenues decreased from 24% for the nine
months ended September 30, 1999 to 16% for the nine months ended September 30,
2000. General and administrative expenses as a percentage of total revenues
decreased primarily due to growth in E.piphany's revenues. E.piphany expects
general and administrative expenses to increase in absolute dollars in future
periods.

        Amortization of Goodwill and Purchased Intangibles

        Goodwill and purchased intangibles represent the purchase price of
Octane, RightPoint, eClass and iLeverage in excess of identified tangible
assets. During the first nine months of 2000, E.piphany recorded approximately
$3.2 billion of goodwill and purchased intangibles, which are being amortized on
a straight-line basis over three years. The total purchase price is subject to
adjustments based upon finalization of management's integration plans, which may
include elimination of duplicate facilities and fixed assets as well as employee
severance. E.piphany recorded amortization expense of $269.9 million and $427.2
million for the three months and the nine months ended September 30, 2000,
respectively. There can be no assurance that the value of the goodwill and
purchased intangible assets may not become impaired prior to its amortization.

        In-Process Research and Development Charge

        In connection with the Octane acquisition we recorded a charge of $25.0
million in the quarter ended June 30, 2000. In connection with the RightPoint
acquisition we recorded a charge of $22.0 million in the quarter ended March 31,
2000. Please see Note 6 in the Notes to Condensed Consolidated Financial
Statements for more detailed information.



                                       16
<PAGE>   17

        Stock-Based Compensation

        Stock-based compensation consists of amortization of deferred
compensation in connection with stock option grants and sales of stock to
employees at exercise or sales prices below the deemed fair market value of
E.piphany's common stock and compensation related to equity instruments issued
to non-employees for services rendered. E.piphany has recorded aggregate
deferred compensation of $5.9 million related to stock-based compensation to
employees. As of September 30, 2000, deferred compensation remaining to be
amortized totaled $1.4 million. This amount is being amortized over the
respective vesting periods of these equity instruments in a manner consistent
with Financial Accounting Standards Board Interpretation No. 28. Total
stock-based compensation was $332,000 and $1,993,000 for the three and nine
months ended September 30, 2000, respectively. E.piphany expects amortization of
approximately $296,000 in the fourth quarter of 2000 and $774,000, $306,000, and
$25,000 for the years ended December 31, 2001, 2002, and the first six months of
2003, respectively.

INTEREST INCOME, NET

        Interest income increased to $6.1 million for the three months ended
September 30, 2000 from a $32,000 expense for the three months ended September
30, 1999. Interest income increased to $16.9 million for the nine months ended
September 30, 2000 from $0.1 million for the nine months ended September 30,
1999. The increase in interest income, net of interest expense, for the three
and nine months ended September 30, 2000 when compared to the same periods in
the prior year was due to increased cash balances as a result of the completion
of E.piphany's initial public offering in September 1999 and its follow-on
public offering in January 2000.

LIQUIDITY AND CAPITAL RESOURCES

        Net cash used in operating activities totaled $14.1 million and $10.8
million for the nine months ended September 30, 2000 and 1999, respectively.
Cash used in operating activities for each period resulted from net losses in
those periods. For the period ended September 30, 2000, cash used in operating
activities also resulted from an increase in accounts receivable and prepaid
expenses and other assets. These uses of cash were partially offset by an
increase in deferred revenue.

        Net cash used in investing activities totaled $82.5 million for the nine
months ended September 30, 2000 compared to $1.6 million used in investing
activities for the nine months ended September 30, 1999. The increase resulted
from the purchase of investments during the first nine months of 2000.

        Net cash provided by financing activities totaled $352.1 million and
$88.5 million for the nine months ended September 30, 2000 and 1999,
respectively. The increase was due primarily to the receipt of proceeds from
E.piphany's secondary offering completed during the first quarter of 2000.

        At September 30, 2000, E.piphany had $313.3 million in cash and cash
equivalents and $99.9 million in short-term investments. E.piphany had a $3.0
million term loan under a senior credit facility which was paid in full during
January 2000.

        On January 20, 2000, E.piphany completed a follow-on public offering.
E.piphany issued 1,993,864 shares of common stock in exchange for net proceeds
of approximately $338.4 million, after deduction of the underwriters' discount
and expenses. In connection with the follow-on offering on February 15, 2000,
the underwriters' exercised an option to purchase from E.piphany an additional
104,342 shares of common stock, resulting in additional net proceeds of
approximately $17.7 million, after the underwriters' discount and expenses. The
aggregate number of shares of E.piphany common stock issued in the follow-on
offering was 2,098,206, resulting in aggregate net proceeds of approximately
$356.1 million, after the underwriters' discount and expenses.

        In addition, E.piphany had a subordinated debt facility with Comdisco,
Inc. under which E.piphany was entitled to borrow up to $10.0 million over 42
months beginning June 1999 at a fixed interest rate of 10.0%. The outstanding
balance as of December 31, 1999 of $5.0 million from this loan was paid in full
during January 2000. E.piphany also has a $2.0 million equipment lease line with
Comdisco. Under the equipment lease line, E.piphany is entitled to lease
equipment with payment terms extending over 42 months. The ability to lease new
equipment expired on May 31, 2000 and borrowings bear interest at 8.5% for the
first six months of the lease, and 8.0% thereafter.



                                       18
<PAGE>   18

        As of September 30, 2000, E.piphany's principal sources of liquidity
included $313.3 million of cash and cash equivalents and $99.9 million in
short-term investments. E.piphany anticipates a substantial increase in its
capital expenditures consistent with anticipated growth in operations,
infrastructure and personnel. E.piphany believes that its current cash and cash
equivalents and short-term investments will be sufficient to meet its
anticipated liquidity needs for working capital and capital expenditures for at
least the next twelve months. If E.piphany requires additional capital resources
to grow its business internally or to acquire complementary technologies and
businesses at any time in the future, E.piphany may seek to sell additional
equity or debt securities or secure an additional bank line of credit. The sale
of additional equity or convertible debt securities could result in additional
dilution to E.piphany's stockholders. E.piphany cannot assure you that any
financing arrangements will be available in amounts or on terms acceptable to it
in the future.

RISK FACTORS

        An investment in our common stock is very risky. You should carefully
consider the risks described below, together with all of the other information
in this quarterly report, before making an investment decision. If any of the
following risks actually occur, our business, financial condition or results of
operations could be materially adversely affected, the trading price of our
common stock could decline, and you may lose all or part of your investment.

        This quarterly report also contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of various
factors, including the risks faced by us described below and elsewhere in this
quarterly report.


E.PIPHANY HAS A HISTORY OF LOSSES, EXPECTS LOSSES IN THE FUTURE AND MAY NOT EVER
BECOME PROFITABLE.

        We incurred net losses of $491.8 million for the nine months ended
September 30, 2000, $22.4 million in the year ended December 31, 1999, $10.3
million in the year ended December 31, 1998 and $3.1 million in the year ended
December 31, 1997. We had an accumulated deficit of $527.7 million as of
September 30, 2000, and $35.9 million as of December 31, 1999. We expect to
continue to incur losses before amortization charges for the foreseeable future.
In addition, in connection with the acquisitions of Octane, RightPoint, eClass,
and iLeverage, we will incur significant accounting charges for the amortization
of intangible assets over the three years following these mergers. These losses
will be substantial, and we may not ever become profitable. In addition, we
expect to significantly increase our expenses in the near term, especially
research and development and sales and marketing expenses. Therefore, our
operating results will be harmed if our revenue does not keep pace with our
expected increase in expenses or is not sufficient for us to achieve
profitability. If we do achieve profitability in any period, it cannot be
certain that we will sustain or increase profitability on a quarterly or annual
basis.


OUR LIMITED OPERATING HISTORY AND THE LIMITED OPERATING HISTORY OF THE COMPANIES
WE ACQUIRED MAKES FINANCIAL FORECASTING AND EVALUATION OF OUR BUSINESS
DIFFICULT.

        Our limited operating history and the limited operating history of the
companies that we acquired makes it difficult to forecast E.piphany's future
operating results. E.piphany was founded in November 1996 and began developing
products in 1997. Our revenue and income potential is unproven. We received our
first revenues from licensing our software and performing related services in
early 1998. Since neither we nor the companies we acquired have a long history
upon which to base forecasts of future operating results, any predictions about
our future revenues and expenses may not be as accurate as they would be if
E.piphany and the other companies we acquired had a longer business history.


VARIATIONS IN QUARTERLY OPERATING RESULTS DUE TO SUCH FACTORS AS CHANGES IN
DEMAND FOR OUR PRODUCTS AND CHANGES IN OUR MIX OF REVENUES MAY CAUSE OUR STOCK
PRICE TO DECLINE.

        We expect our quarterly operating results to fluctuate. We therefore
believe that quarter-to-quarter comparisons of our operating results may not be
a good indication of our future performance, and you should not rely on them to
predict our future performance or the future performance of our stock price. Our
short-term expense levels are



                                       19
<PAGE>   19

relatively fixed and are based on our expectations of future revenues. As a
result, a reduction in revenues in a quarter may harm our operating results for
that quarter. Our quarterly revenues, expenses and operating results could vary
significantly from quarter-to-quarter. If our operating results in future
quarters fall below the expectations of market analysts and investors, the
trading price of our common stock will fall. Factors that may cause our
operating results to fluctuate on a quarterly basis are:

        -       varying size, timing and contractual terms of orders for our
                products,

        -       our ability to timely complete our service obligations related
                to product sales,

        -       changes in the mix of revenue attributable to higher-margin
                product license revenue as opposed to substantially lower-margin
                service revenue,

        -       customers' decisions to defer orders or implementations,
                particularly large orders or implementations, from one quarter
                to the next,

        -       changes in demand for our software or for enterprise software
                and real time marketing solutions generally,

        -       announcements or introductions of new products by our
                competitors,

        -       software defects and other product quality problems,

        -       our ability to integrate acquisitions,

        -       any increase in our need to supplement our professional services
                organization by subcontracting to more expensive consulting
                organizations to help provide implementation, support and
                training services when our own capacity is constrained, and

        -       our ability to hire, train and retain sufficient engineering,
                consulting, training and sales staff.

THE LOSS OF KEY PERSONNEL, OR ANY INABILITY TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL, COULD AFFECT OUR ABILITY TO SUCCESSFULLY GROW OUR BUSINESS.

        Our future success will depend in large part on our ability to hire and
retain a sufficient number of qualified personnel, particularly in sales,
marketing, research and development, service and support. If we are unable to do
so, this inability could affect our ability to grow our business. Competition
for qualified personnel in high technology is intense, particularly in the
Silicon Valley region of Northern California where our principal offices are
located. Our future success also depends upon the continued service of our
executive officers and other key sales, engineering and technical staff. The
loss of the services of our executive officers and other key personnel would
harm our operations. None of our officers or key personnel are bound by an
employment agreement and we do not maintain key person insurance on any of our
employees. We would also be harmed if one or more of our officers or key
employees decided to join a competitor or otherwise compete with us.

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


IF CUSTOMERS DO NOT CONTRACT DIRECTLY WITH CONSULTING ORGANIZATIONS TO IMPLEMENT
AND SUPPORT OUR PRODUCTS, OUR REVENUES, PROFITABILITY AND MARGINS MAY BE HARMED.

        Our principal focus is providing software solutions rather than
services. As a result, we encourage our customers to purchase consulting,
implementation, maintenance and training services directly from consulting
organizations instead of purchasing these services from us. While we do not
receive any fees directly from these consulting organizations when they contract
directly with our customers, we believe that these consulting organizations
increase market awareness and acceptance of our software solutions and allow us
to focus on software development



                                       20
<PAGE>   20

and licensing. If consulting organizations are unwilling or unable to provide a
sufficient level and quality of services directly to our customers or if
customers are unwilling to contract directly with these consulting
organizations, we may not realize these benefits and our revenues and
profitability may be harmed.


        Further, to the extent that consulting organizations do not provide
consulting, implementation, maintenance and training services directly to our
customers, we need to provide these services to our customers. We provide these
services to our customers either directly through our internal professional
services organization or indirectly through subcontractors we hire to perform
the services on our behalf. Because our margins on service revenues are less
than our margins on license revenues, our overall margins decline when we
provide these services to customers. This is particularly true if we hire
subcontractors to perform these services because it costs us more to hire
subcontractors to perform these services than to provide the services ourselves.


IF OUR INTERNAL PROFESSIONAL SERVICES ORGANIZATION DOES NOT PROVIDE
IMPLEMENTATION SERVICES EFFECTIVELY AND ACCORDING TO SCHEDULE, OUR REVENUES AND
PROFITABILITY WOULD BE HARMED.

        Customers that license our products typically require consulting,
implementation, maintenance and training services and obtain them from our
internal professional services, customer support and training organizations,
which employed a staff of 282 as of September 30, 2000, or from outside
consulting organizations. When we provide these services, we generally recognize
revenue from the licensing of our software products as the implementation
services are performed. If our internal professional services organization does
not effectively implement and support our products or if we are unable to expand
our internal professional services organization as needed to meet our customers'
needs, our ability to sell software, and accordingly our revenues, will be
harmed.

        In addition, when we sell licenses together with professional services
for implementation, we generally recognize the revenue from both the license and
the services as we perform the implementation services. Therefore, delays in
providing implementation services will delay our recognition of revenue. If we
are unable to expand our internal professional services organization to keep
pace with sales, we will be required to increase our use of subcontractors to
help meet our implementation and service obligations, which will result in lower
gross margins. In addition, we may be unable to negotiate agreements with
subcontractors to provide a sufficient level and quality of services. If we fail
to retain sufficient subcontractors, our ability to sell software for which
these services are required will be harmed and our revenues will suffer.


OUR SERVICE REVENUES HAVE A SUBSTANTIALLY LOWER MARGIN THAN OUR PRODUCT
REVENUES, AND AN INCREASE IN SERVICE REVENUES RELATIVE TO LICENSE REVENUES COULD
HARM OUR GROSS MARGINS.

        Our service revenues, which includes fees for consulting,
implementation, maintenance and training, were 44% of our revenues for the nine
months ended September 30, 2000, 47% of our revenues for the year ended December
31, 1999 and 34% of our revenues for the year ended December 31, 1998. Our
service revenues have substantially lower gross margins than license revenues.
Our cost of service revenues for the nine months ended September 30, 2000 and
the year ended December 31,1999 was 96% and 102%, respectively, of our service
revenues. An increase in the percentage of total revenues represented by
services revenues could adversely affect our overall gross margins.

        Service revenues as a percentage of total revenues and cost of service
revenues as a percentage of total revenues have varied significantly from
quarter to quarter due to our relatively early stage of development. The
relative amount of service revenues as compared to license revenues has varied
based on the volume of software solution orders compared to the volume of
additional user orders. In addition, the amount and profitability of services
can depend in large part on:

        -       the software solution which has been licensed,

        -       the complexity of the customers' information technology
                environment,

        -       the resources directed by customers to their implementation
                projects,



                                       21
<PAGE>   21

        -       the number of users licensed, and

        -       the extent to which outside consulting organizations provide
                services directly to customers.

NEW PRODUCT INTRODUCTIONS AND PRICING STRATEGIES BY OUR COMPETITORS COULD
ADVERSELY AFFECT OUR ABILITY TO SELL OUR PRODUCTS AND COULD RESULT IN PRESSURE
TO PRICE OUR PRODUCTS IN A MANNER THAT REDUCES OUR MARGINS.

        Competitive pressures could prevent us from growing, reduce our market
share or require us to reduce prices on our products and services, any of which
could harm our business.

        We compete principally with vendors of:

        -       enterprise application software, such as Oracle, PeopleSoft, SAP
                and Siebel Systems,

        -       data management and data analysis software tools, such as
                Broadbase, Business Objects, Informatica, and Microstrategy,

        -       marketing campaign management software tools, such as Exchange
                Applications, Prime Response, and Recognition Systems,

        -       software that recommends products to customers in real-time such
                as Net Perceptions, and

        -       electronic customer relationship management software, such as
                Kana Communications, eGain, and Primus Knowledge Solutions.


        Many of these companies have significantly greater financial, technical,
marketing, service and other resources than we do. Many of these companies also
have a larger installed base of users, have been in business longer or have
greater name recognition than we do. In addition, some large companies may
attempt to build capabilities into their products that are similar to the
capabilities of our products. Some of our competitors' products may be more
effective than our products at performing particular functions or be more
customized for particular needs. Even if these functions are more limited than
those provided by our products, our competitors' software products could
discourage potential customers from purchasing our products. For example, our
competitors' software products may incorporate other capabilities, such as
recording accounting transactions, customer orders or inventory management data.
A software product that performs these functions, as well as some of the
functions of our software solutions, may be appealing to some customers because
it would reduce the number of different types of software necessary to
effectively run their business. Further, our competitors may be able to respond
more quickly than we can to changes in customer requirements.

        In addition, our products must integrate with software solutions
provided by a number of our existing or potential competitors. These competitors
could alter their products so that our products no longer integrate well with
them, or they could deny or delay access by us to advance software releases that
allow us to timely adapt our products to integrate with their products.

        Our competitors have made and may also continue to make strategic
acquisitions or establish cooperative relationships among themselves or with
other software vendors. This may increase the ability of their products to
address the need for software solutions such as ours, which provide both the
ability to collect data from multiple sources and analyze that data to profile
customer characteristics and preferences. Our competitors may also establish or
strengthen cooperative relationships with our current or future distributors or
other parties with whom we have relationships, thereby limiting our ability to
sell through these channels, reducing promotion of our products and limiting the
number of consultants available to implement our software.


OUR REVENUES MIGHT BE HARMED BY RESISTANCE TO ADOPTION OF E.PIPHANY'S SOFTWARE
BY INFORMATION TECHNOLOGY DEPARTMENTS.

        Some businesses may have already made a substantial investment in other
third party or internally developed software designed to integrate data from
disparate sources and analyze this data or manage marketing campaigns.



                                       22
<PAGE>   22

These companies may be reluctant to abandon these investments in favor of our
software. In addition, information technology departments of potential customers
may resist purchasing our software solutions for a variety of other reasons,
particularly the potential displacement of their historical role in creating and
running software and concerns that packaged software products are not
sufficiently customizable for their enterprises. If the market for our products
does not grow for any of these reasons, our revenues will be harmed.


IF THE MARKET IN WHICH WE SELL OUR PRODUCTS AND SERVICES DOES NOT GROW AS WE
ANTICIPATE, OUR REVENUES WILL BE REDUCED.

        If the market for software that enables companies to establish, manage,
maintain and continually improve customer relationships by collecting and
analyzing data to design and manage marketing campaigns and customize products
and services and providing timely, consistent, multichannel customer interaction
does not grow as quickly or become as large as we anticipate, our revenues will
be reduced. Our market is still emerging, and our success depends on its growth.
Our potential customers may:

        -       not understand or see the benefits of using these products,

        -       not achieve favorable results using these products,

        -       experience technical difficulty in implementing or using these
                products, or

        -       use alternative methods to solve the same business problems.


        In addition, because our products can be used in connection with
Internet commerce and we are currently developing additional Internet commerce
solutions, if the Internet commerce market does not grow as quickly as we
anticipate, we may experience sales which are lower than our expectations.


IF WE FAIL TO DEVELOP NEW PRODUCTS OR IMPROVE OUR EXISTING PRODUCTS TO MEET OR
ADAPT TO THE CHANGING NEEDS AND STANDARDS OF OUR INDUSTRY, SALES OF OUR PRODUCTS
MAY DECLINE.

        Our future success depends on our ability to address the rapidly
changing needs of our customers and potential customers. We must maintain and
improve our E.piphany E.5 System and develop new products that include new
technological developments, keep pace with products of our competitors and
satisfy the changing requirements of our customers. If we do not, we may not
achieve market acceptance and we may be unable to attract new customers.
E.piphany may also lose existing customers, to whom we seek to sell additional
software solutions and professional services.

        To achieve increased market acceptance of our products, we must, among
other things, continue to:

        -       improve and introduce new software solutions for reporting and
                analysis, distributed database marketing and e-commerce,

        -       improve the effectiveness of our software, particularly in
                implementations involving very large databases and large numbers
                of simultaneous users,

        -       enhance our software's ease of administration,

        -       improve our software's ability to extract data from existing
                software systems, and

        -       adapt to rapidly changing computer operating system and database
                standards and Internet technology.


        We may not be successful in developing and marketing these or other new
or improved products. If we are not successful, we may lose sales to
competitors.

        In addition, we have entered into customer contracts, which contain
specific performance goals relating to new product releases or enhancements, and
if we are not able to meet these goals, we may be required to, among other
things, return fees, pay damages and offer discounts.



                                       23
<PAGE>   23

IF OUR PRODUCTS DO NOT STAY COMPATIBLE WITH CURRENTLY POPULAR SOFTWARE PROGRAMS,
WE MAY LOSE SALES AND REVENUES.

        The E.piphany E.5 System must work with commercially available software
programs that are currently popular. If these software programs do not remain
popular, or we do not update our software to be compatible with newer versions
of these programs, we may lose customers.

        In order to operate the E.piphany E.5 System, the system must be
installed on both a computer server running the Microsoft Windows NT or Windows
2000 computer operating systems and a computer server running database software
from Microsoft or Oracle. E.piphany is currently modifying its respective
software to also operate on UNIX operating systems and IBM DB2 databases. If we
fail to successfully complete these modifications in a timely manner, we may
lose sales and revenues. In addition, users access the E.piphany E.5 System
through standard Internet browsers such as Microsoft Internet Explorer. If we
fail to obtain access to developer versions of these software products, we may
be unable to build and enhance our products on schedule.

        After installation, the E.piphany E.5 System collects and analyzes data
to profile customers' characteristics and preferences. This data may be stored
in a variety of our customers' existing software systems, including leading
systems from Oracle, PeopleSoft, Siebel Systems, SAP and Vantive, running on a
variety of computer operating systems. If we fail to enhance our software to
collect data from new versions of these products, we may lose potential
customers. If we lose customers, our revenues and profitability may be harmed.


IF DATABASE ACCESS BECOMES STANDARDIZED, DEMAND FOR OUR PRODUCTS WILL BE
REDUCED.

        Our products are useful for integrating data from a variety of disparate
data sources. Adoption of uniform, industry-wide standards across various
database and analytic software programs could minimize the importance of the
data integration capabilities of our products. This, in turn, could adversely
affect the competitiveness and market acceptance of our products. Also, a single
competitor in the market for database and analytic software programs or Internet
relationship management may become dominant, even if there is no formal
industry-wide standard. If large numbers of our customers adopt a single
standard, this would similarly reduce demand for our product. If E.piphany loses
customers because of the adoption of standards, we may have lower revenues and
profitability.


OUR PRODUCTS HAVE LONG SALES CYCLES WHICH MAKES IT DIFFICULT TO PLAN EXPENSES
AND FORECAST RESULTS.

        It takes us between three and six months to complete the majority of our
sales and it can take us up to one year or longer. It is therefore difficult to
predict the quarter in which a particular sale will occur and to plan
expenditures accordingly. The period between initial contact with a potential
customer and their purchase of products and services is relatively long due to
several factors, including:

        -       the complex nature of our products,

        -       our need to educate potential customers about the uses and
                benefits of our products,

        -       the purchase of our products requires a significant investment
                of resources by a customer,

        -       our customers have budget cycles which affect the timing of
                purchases,

        -       many of our customers require competitive evaluation and
                internal approval before purchasing our products,

        -       potential customers may delay purchases due to announcements or
                planned introductions of new products by E.piphany or its
                competitors, and

        -       many of our customers are large organizations, which may require
                a long time to make decisions.



                                       24
<PAGE>   24

        The delay or failure to complete sales in a particular quarter could
reduce our revenues in that quarter, as well as subsequent quarters over which
revenues for the sale would likely be recognized. If our sales cycle
unexpectedly lengthens in general or for one or more large orders, it would
adversely affect the timing of our revenues. If we were to experience a delay of
several weeks on a large order, it could harm our ability to meet our forecasts
for a given quarter.

IF WE FAIL TO ESTABLISH, MAINTAIN OR EXPAND OUR RELATIONSHIPS WITH THIRD
PARTIES, OUR ABILITY TO GROW REVENUES COULD BE HARMED.

        In order to grow our business, we must generate, retain and strengthen
relationships with third parties. To date, we have established relationships
with several companies, including consulting organizations and system
integrators that implement our software, including Deloitte & Touche, KPMG and
PricewaterhouseCoopers; resellers, including Acxiom, Harte-Hanks and Pivotal;
and application service providers that provide access to our software to their
customers over the Internet, including Corio and Interrelate. If the third
parties with whom we have relationships do not provide sufficient, high-quality
service or integrate and support our software correctly, our revenues may be
harmed. In addition, the third parties with whom we have relationships may offer
products of other companies, including products that compete with our products.
We typically enter into contracts with third parties that generally set out the
nature of our relationships. However, our contracts do not require these third
parties to devote resources to promoting, selling and supporting our products.
Therefore we have little control over these third parties. We cannot assure you
that we can generate and maintain relationships that offset the significant time
and effort that are necessary to develop these relationships.

IF WE FAIL TO EXPAND OUR DIRECT AND INDIRECT SALES CHANNELS, WE WILL NOT BE ABLE
TO INCREASE REVENUES.

        In order to grow our business, we need to increase market awareness and
sales of our products and services. To achieve this goal, we need to increase
both our direct and indirect sales channels. If we fail to do so, this failure
could harm our ability to increase revenues. We currently receive substantially
all of our revenues from direct sales, but we intend to increase sales through
indirect sales channels in the future. We also need to expand our direct sales
force by hiring additional salespersons and sales management.

        We intend to derive revenues from indirect sales channels by selling our
software through value added resellers. These resellers offer our software
products to their customers together with consulting and implementation services
or integrate our software solutions with other software. We also intend to
increasingly offer our software through application service providers, who
install our software on their own computer servers and charge their customers
for access to that software. We need to expand our indirect sales channels by
entering into additional relationships with these third parties.

        We expect as part of our strategy to increase international sales
principally through the use of indirect sales channels. We will be even more
dependent on indirect sales channels in the future due to our international
strategy. We also plan to use international direct sales personnel and therefore
must hire additional sales personnel outside the United States. Our ability to
develop and maintain these channels will significantly affect our ability to
penetrate international markets.


WE HAVE GROWN VERY QUICKLY AND IF WE FAIL TO MANAGE OUR GROWTH, OUR ABILITY TO
GENERATE NEW REVENUES AND ACHIEVE PROFITABILITY WOULD BE HARMED.

        We have grown significantly since our inception and will need to grow
quickly in the future. Any failure to manage this growth could impede our
ability to increase revenues and achieve profitability. We have increased our
number of employees from 21 at December 31, 1997 to 849 as of September 30,
2000. Our future expansion could be expensive and strain our management and
other resources. In order to manage growth effectively, we must:

        -       hire, train and integrate new personnel,



                                       25
<PAGE>   25

        -       integrate people and technologies from acquired companies,

        -       continue to augment our financial and accounting systems,

        -       manage our sales operations, which are in several locations,

        -       expand our facilities, and

        -       if we do not manage our growth effectively, our business could
                suffer.


IF WE ACQUIRE ADDITIONAL COMPANIES OR TECHNOLOGIES IN THE FUTURE, THEY COULD
PROVE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS, DILUTE STOCKHOLDER VALUE OR
ADVERSELY AFFECT OUR OPERATING RESULTS.

        In addition to the acquisitions that we have already completed, we may
acquire or make investments in other complementary companies, services and
technologies in the future. If we fail to properly evaluate and execute
acquisitions and investments, they may seriously harm our business and
prospects. To successfully complete an acquisition, we must:

        -       properly evaluate the business, personnel and technology of the
                company to be acquired,

        -       accurately forecast the financial impact of the transaction,
                including accounting charges and transaction expenses,

        -       integrate and retain personnel,

        -       combine potentially different corporate cultures,

        -       effectively integrate products and research and development,
                sales, marketing and support operations, and

        -       maintain focused on our day-to-day operations.

        Further, the financial consequences of our acquisitions and investments
may include potentially dilutive issuances of equity securities, one-time
write-offs, amortization expenses related to goodwill and other intangible
assets and the incidence of contingent liabilities.


IF OTHERS CLAIM THAT WE ARE INFRINGING THEIR INTELLECTUAL PROPERTY, WE COULD
INCUR SIGNIFICANT EXPENSES OR BE PREVENTED FROM SELLING OUR PRODUCTS.

        We cannot assure you that others will not claim that we are infringing
their intellectual property rights or that we do not in fact infringe those
intellectual property rights. We have not conducted a search for existing
intellectual property registrations and we may be unaware of intellectual
property rights of others that may cover some of our technology.

        We have been contacted by a company which has asked us to evaluate the
need for a license of several patents that the company holds directed to data
extraction technology. This company has filed litigation alleging infringement
of its patents against several of our competitors. We cannot assure you that the
holder of the patents will not file litigation against us or that we would
prevail in the case of such litigation. In addition, the patent holder has
informed us that it has applications pending in numerous foreign countries. The
patent holder may also have applications on file in the United States covering
related subject matter which are confidential until the patent or patents, if
any, is issued.

        Any litigation regarding intellectual property rights could be costly
and time-consuming and divert the attention of our management and key personnel
from our business operations. The complexity of the technology involved and the
uncertainty of intellectual property litigation increase these risks. Claims of
intellectual property infringement might also require us to enter into costly
royalty or license agreements.



                                       26
<PAGE>   26

        However, we may not be able to obtain royalty or license agreements on
terms acceptable to us, or at all. We also may be subject to significant damages
or an injunction against use of our products. A successful claim of patent or
other intellectual property infringement against us would have an immediate
material adverse effect on our business and financial condition.


IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, THIS INABILITY
COULD WEAKEN OUR COMPETITIVE POSITION, REDUCE OUR REVENUES AND INCREASE OUR
COSTS.

        Our success depends in large part on our proprietary technology. We rely
on a combination of patent, copyright, trademark and trade secrets,
confidentiality procedures and licensing arrangements to establish and protect
our proprietary rights. We may be required to spend significant resources to
monitor and police our intellectual property rights. If we fail to successfully
enforce our intellectual property rights, our competitive position may be
harmed.

        Our pending patent and trademark registration applications may not be
allowed or competitors may successfully challenge the validity or scope of these
registrations. In addition, our patents may not provide a significant
competitive advantage.

        Other software providers could copy or otherwise obtain and use our
products or technology without authorization. They also could develop similar
technology independently which may infringe our proprietary rights. We may not
be able to detect infringement and may lose a competitive position in the market
before we do so. In addition, competitors may design around our technology or
develop competing technologies. The laws of some foreign countries do not
protect proprietary rights to the same extent as do the laws of the United
States.

        In addition, one of the ways in which we charge for our software is
based on the number of users at a particular site that will be permitted to use
the software. Organizations that have a site license for a fixed number of users
for our products could allow unauthorized use of our software by unlicensed
users. Unauthorized use is difficult to detect and, to the extent that our
software is used without authorization, we may lose potential license fees.


PRIVACY AND SECURITY CONCERNS, PARTICULARLY RELATED TO THE USE OF OUR SOFTWARE
ON THE INTERNET, MAY LIMIT THE EFFECTIVENESS OF AND REDUCE THE DEMAND FOR OUR
PRODUCTS.

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

        In addition, due to privacy concerns, some Internet commentators,
consumer advocates, and governmental or legislative bodies have suggested
legislation to limit the use of customer profiling technologies. The European
Union and some European countries have already adopted some restrictions on the
use of customer profiling data. In addition, Internet users can, if they choose,
configure their web browsers to limit the collection of user data for customer
profiling. Should many Internet users choose to limit the use of customer
profiling technologies, or if major countries or regions adopt legislation or
other restrictions on the use of customer profiling data, E.piphany's software
would be less useful to customers, and E.piphany's sales and profits could
decrease.


OUR PRODUCTS ARE NEW, AND IF THEY CONTAIN DEFECTS, OR OUR SERVICES ARE NOT
PERCEIVED AS HIGH QUALITY, WE COULD LOSE POTENTIAL CUSTOMERS OR BE SUBJECT TO
DAMAGES.

        We began shipping our first products in early 1998. These products are
complex and may contain currently unknown errors, defects or failures,
particularly since they are new and recently released. In the past we have
discovered software errors in some of our products after introduction. We may
not be able to detect and correct errors before releasing our products
commercially. If our commercial products contain errors, we may be required to:



                                       27
<PAGE>   27

        -       expend significant resources to locate and correct the error,

        -       delay introduction of new products or commercial shipment of
                products, or

        -       experience reduced sales and harm to our reputation from
                dissatisfied customers.


        Our customers also may encounter system configuration problems which
require us to spend additional consulting or support resources to resolve these
problems.

        In addition, our customers generally store their data across computer
networks, which are often connected to the Internet. Our software operates
across our customers' computer networks and can, at the customer's option, be
accessed through an Internet connection. Our software contains technology
designed to prevent theft or loss of data. Nevertheless, customers may encounter
security issues with their existing databases installed across networks,
particularly the Internet, or with our software. A security breach involving our
software, or a widely publicized security breach involving the Internet
generally, could harm our sales. A security breach involving our software could
also expose us to claims for damages.

        Because our software products are used for important decision-making
processes and enable our customers to interact with their customers, product
defects may also give rise to product liability claims. Although our license
agreements with customers typically contain provisions designed to limit our
exposure, some courts may not enforce all or part of these limitations. Although
we have not experienced any product liability claims to date, we may encounter
these claims in the future. Product liability claims, whether or not successful,
could:

        -       divert the attention of our management and key personnel from
                our business,

        -       be expensive to defend, and

        -       result in large damage awards.


        Our product liability insurance may not be adequate to cover all of the
expenses resulting from a claim. In addition, if our customers do not find our
services to be of high quality, they may elect to use other training, consulting
and product integration firms rather than contract for our services. If
customers are dissatisfied with our services, we may lose revenues.


WE INTEND TO EXPAND OUR INTERNATIONAL SALES EFFORTS BUT WE DO NOT HAVE
SUBSTANTIAL EXPERIENCE IN INTERNATIONAL MARKETS.

        We intend to expand our international sales efforts in the future. We
have limited experience in marketing, selling and supporting our products and
services abroad. If we are unable to grow our international operations
successfully and in a timely manner, our business and operating results could be
seriously harmed. In addition, doing business internationally involves greater
expense and many additional risks, particularly:

        -       unexpected changes in regulatory requirements, taxes, trade laws
                and tariffs,

        -       differing intellectual property rights,

        -       differing labor regulations,

        -       unexpected changes in regulatory requirements,

        -       changes in a specific country's or region's political or
                economic conditions,

        -       greater difficulty in establishing, staffing and managing
                foreign operations, and

        -       fluctuating exchange rates.


        We plan to expand our international operations in the near future, and
this will require a significant amount of attention from our management and
substantial financial resources. We have begun efforts at international
expansion in Europe and, as of September 30, 2000, had 51 sales and marketing
professionals located in the United Kingdom,



                                       28
<PAGE>   28

Australia, Germany, Canada, Japan, The Netherlands and France. We are also
exploring other regions for future expansion.


SEASONAL TRENDS IN SALES OF BUSINESS SOFTWARE MAY AFFECT OUR QUARTERLY REVENUES.

        The market for business software has experienced seasonal fluctuations
in demand. The first and third quarters of the year have been typically
characterized by lower levels of revenue growth. We believe that these
fluctuations are caused in part by customer buying patterns, which are
influenced by year-end budgetary pressures and by sales force commission
structures. As our revenues grow, we may experience seasonal fluctuations in our
revenues.


PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY DELAY OR PREVENT AN
ACQUISITION OF E.PIPHANY.

        Our certificate of incorporation and bylaws contain provisions which
could make it harder for a third party to acquire us without the consent of our
board of directors. For example, if a potential acquiror were to make a hostile
bid for us, the acquiror would not be able to call a special meeting of
stockholders to remove our board of directors or act by written consent without
a meeting. In addition, our board of directors have staggered terms, which makes
it difficult to remove them all at once. The acquiror would also be required to
provide advance notice of its proposal to remove directors at an annual meeting.
The acquiror also will not be able to cumulate votes at a meeting, which will
require the acquiror to hold more shares to gain representation on our board of
directors than if cumulative voting were permitted.

        Our board of directors also has the ability to issue preferred stock
which would significantly dilute the ownership of a hostile acquiror. In
addition, Section 203 of the Delaware General Corporation Law limits business
combination transactions with 15% stockholders that have not been approved by
the board of directors. These provisions and other similar provisions make it
more difficult for a third party to acquire us without negotiation. These
provisions may apply even if the offer may be considered beneficial by some
stockholders.

        Our board of directors could choose not to negotiate with an acquiror
that it did not feel was in the strategic interests of our company. If the
acquiror was discouraged from offering to acquire us, or prevented from
successfully completing a hostile acquisition by the antitakeover measures, you
could lose the opportunity to sell your shares at a favorable price.



                                       29
<PAGE>   29

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK

        The following discusses our exposure to market risk related to changes
in interest rates, equity prices and foreign currency exchange rates. This
discussion contains forward-looking statements that are subject to risks and
uncertainties. Actual results could vary materially as a result of a number of
factors including those set forth in the risk factors section of this Quarterly
Report on Form 10-Q.

Foreign Currency Exchange Rate Risk

        To date, substantially all of our recognized revenues have been
denominated in U.S. dollars and primarily from customers in the United States,
and our exposure to foreign currency exchange rate changes has been immaterial.
We expect, however, that future product license and services revenues may also
be derived from international markets and may be denominated in the currency of
the applicable market. As a result, our operating results may become subject to
significant fluctuations based upon changes in the exchange rates of certain
currencies in relation to the U.S. dollar. Furthermore, to the extent that we
engage in international sales 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 international markets. Although we will continue to monitor
our exposure to currency fluctuations, and when appropriate, may use financial
hedging techniques to minimize the effect of these fluctuations, we cannot
assure you that exchange rate fluctuations will not adversely affect our
financial results in the future.

Interest Rate Risk

        As of September 30, 2000, we had cash and cash equivalents of $313.3
million which consisted of cash and highly liquid short-term investments.
Declines of interest rates over time would reduce our interest income from our
short-term investments. Based upon our balance of cash and cash equivalents, a
decrease in interest rates of 0.5% would cause a corresponding decrease in our
annual interest income by approximately $1.6 million. As of September 30, 2000,
we did not have any short-term or long-term debt outstanding.



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                                 E.PIPHANY, INC.

                          FORM 10-Q, SEPTEMBER 30, 2000

                           PART II: OTHER INFORMATION


Item 1. Legal Proceedings

        As of the date hereof, there is no material litigation pending against
E.piphany. From time to time, E.piphany may be a party to litigation and claims
incident to the ordinary course of our business. Although the results of
litigation and claims cannot be predicted with certainty, we believe that the
final outcome of such matters will not have a material adverse effect on the
results of operations, financial condition or prospects of E.piphany.

Item 2. Changes in Securities and Use of Proceeds

        (a)     None.

        (b)     None.

        (c)     None.

        (d)     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.

        (b)     Reports on Form 8-K

                None.



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<PAGE>   31

                                 E.PIPHANY, INC.

                          FORM 10-Q, SEPTEMBER 30, 2000

                                   SIGNATURES


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

                                 E.piphany, Inc.


DATE:  November 14, 2000               SIGNATURE:  /s/ Roger S. Siboni
       -----------------                           -----------------------------
                                                   Roger S. Siboni
                                                   President, Chief Executive
                                                   Officer and Director



DATE:  November 14, 2000               SIGNATURE:  /s/ Kevin J. Yeaman
       -----------------                           -----------------------------
                                                   Kevin J. Yeaman
                                                   Chief Financial Officer



                                       32
<PAGE>   32
                                 EXHIBIT INDEX




Exhibit #              Description
---------              -----------
   27.1                Financial Data Schedule