VANTIVE CORP, 10-Q, 1999-05-14

VANTIVE CORP
10-Q, 1999-05-14
PREPACKAGED SOFTWARE

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<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 March 31, 1999

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

Commission file number 0-26592

THE VANTIVE CORPORATION
(Exact name of registrant as specified in its charter)

Delaware 77-0266662
(State of incorporation) (IRS Employer Identification Number)

2455 Augustine Drive
Santa Clara, California 95054
(408) 982-5700

(Address and telephone number of principal executive offices)

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

Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, (or for such 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 [ ]

26,684,862 shares of the registrant's common stock, $0.001 par value, were
outstanding as of May 11, 1999.

<PAGE> 2
THE VANTIVE CORPORATION
FORM 10-Q

CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets:
March 31, 1999 and December 31, 1998.............................................................3

Condensed Consolidated Statements of Operations:
Three months ended March 31, 1999 and 1998.......................................................4

Condensed Consolidated Statements of Cash Flows:
Three months ended March 31, 1999 and 1998.......................................................5

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

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................................................15

PART II: OTHER INFORMATION

Item 1. Legal Proceedings...............................................................................31
Item 2. Changes in Securities...........................................................................31
Item 3. Defaults upon Senior Securities.................................................................31
Item 4. Submission of Matters to a Vote of Security Holders.............................................31
Item 5. Other Information...............................................................................31
Item 6. Exhibits and Reports on Form 8-K................................................................32

Signatures ................................................................................................34
</TABLE>

2
<PAGE> 3
PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

THE VANTIVE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

<TABLE>
<CAPTION>
ASSETS March 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents .................................... $ 56,586 $ 51,636
Short term investments ....................................... 40,131 43,174
Accounts receivable, net ..................................... 40,303 42,110
Prepaid expenses and other current assets .................... 18,535 18,433
------------ ------------
Total current assets ....................................... 155,555 155,353
------------ ------------
Property and equipment, net .................................. 23,672 23,736
Other assets ................................................. 4,890 5,179
------------ ------------
TOTAL ASSETS ..................................................... $ 184,117 $ 184,268
------------ ------------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable and accrued liabilities ..................... $ 28,564 $ 29,842
Deferred revenue ............................................. 17,859 16,089
------------ ------------
Total current liabilities .................................. 46,423 45,931
------------ ------------
Convertible debt ............................................. 69,000 69,000
Other long-term liabilities .................................. 724 299
------------ ------------
TOTAL LIABILITIES ................................................ $ 116,147 $ 115,230
============ ============
STOCKHOLDERS' EQUITY:
Preferred Stock: $.001 par value, 2,000,000 shares authorized:
no shares issued and outstanding at March 31, 1999.......... -- --
Common Stock: $.001 par value, 50,000,000 shares authorized:
26,481,508 shares at March 31, 1999 and 26,414,607 shares
at December 31, 1998 issued and outstanding ................ 27 27
Additional paid-in capital ................................... 72,027 71,896
Accumulated other comprehensive income (loss) ................ (1,114) 337
Accumulated deficit .......................................... (2,970) (3,222)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY ....................................... 67,970 69,038
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....................... $ 184,117 $ 184,268
============ ============
</TABLE>

See accompanying notes to condensed consolidated financial statements

3
<PAGE> 4
THE VANTIVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

<TABLE>
<CAPTION>
Three months ended March 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
(unaudited) (unaudited)
REVENUES:
License ........................... $ 22,156 $ 22,517
Service ........................... 22,644 13,763
------------ ------------
Total revenues .................. 44,800 36,280
------------ ------------
COST OF REVENUES:
License ........................... 573 204
Service ........................... 13,636 7,312
------------ ------------
Total cost of revenues .......... 14,209 7,516
------------ ------------
GROSS MARGIN .......................... 30,591 28,764
------------ ------------
OPERATING EXPENSES:
Sales and marketing ............... 19,209 14,126
Research and development .......... 8,447 5,944
General and administrative ........ 3,126 3,002
------------ ------------
Total operating expenses 30,782 23,072
------------ ------------
INCOME (LOSS) FROM OPERATIONS ......... (191) 5,692
OTHER INCOME .......................... 574 211
------------ ------------
INCOME BEFORE TAX PROVISION ........... 383 5,903
PROVISION FOR INCOME TAXES ............ 131 2,184
------------ ------------
NET INCOME ............................ $ 252 $ 3,719
============ ============

NET INCOME PER SHARE
Basic ............................. $ 0.01 $ 0.15
Diluted ........................... $ 0.01 $ 0.14

SHARES USED IN PER SHARE CALCULATION
Basic ............................. 26,452 25,384
Diluted ........................... 28,324 27,210
</TABLE>

See accompanying notes to condensed consolidated financial statements

4
<PAGE> 5
THE VANTIVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------------
1999 1998
--------------- -----------------
<S> <C> <C>
(unaudited) (unaudited)
Cash flows from operating activities:
Net income............................................................... $ 252 $ 3,719
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.......................................... 2,217 1,177
Provision for sales allowances and doubtful accounts................... - 696
Changes in operating assets and liabilities:
Accounts receivable................................................. 1,885 (1,278)
Prepaid expenses and other current assets........................... (178) (1,221)
Other assets........................................................ 161 109
Accounts payable/ accrued liabilities............................... (1,222) (2,323)
Other liabilities................................................... 454 (23)
Deferred revenue.................................................... 1,770 4,009
--------------- -----------------
Net cash provided by operating activities...................... 5,339 4,865
--------------- -----------------
Cash flows from investing activities:
(Purchase) sale of short-term investments................................ 3,043 (40,263)
Purchase of property and equipment....................................... (2,024) (2,522)
--------------- -----------------
Net cash provided by (used in) investing activities............ 1,019 (42,785)
--------------- -----------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net.............................. 133 1,125
Payments on capital lease obligations.................................... (85) (90)
--------------- -----------------
Net cash provided by financing activities...................... 48 1,035
--------------- -----------------
Net increase (decrease) in cash and cash equivalents........... 6,406 (36,885)
Effect of exchange rate changes on cash...................................... (1,456) 46
--------------- -----------------
Cash and cash equivalents, beginning of period............................... 51,636 77,583
--------------- -----------------
Cash and cash equivalents, end of period..................................... $ 56,586 $ 40,744
=============== =================
</TABLE>

See accompanying notes to condensed consolidated financial statements

5
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION:

The condensed consolidated financial statements included herein have been
prepared by the Company, 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 the rules and regulations. The Company believes the disclosures
included in the unaudited condensed consolidated financial statements, when read
in conjunction with the financial statements and the notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998
are adequate to make the information presented not misleading.

The unaudited condensed consolidated financial statements included herein
reflect all adjustments, which are in the opinion of the Company's management,
necessary for a fair presentation of the information for the periods presented.
These adjustments are of a normal, recurring nature. Operating results for the
three months ended March 31, 1999 are not necessarily indicative of the results
expected for any future periods.

2. SIGNIFICANT ACCOUNTING POLICIES:

Use of Estimates. The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period.

Estimates are used for, but not limited to, the accounting for doubtful
accounts, depreciation and amortization, taxes and contingencies. Actual results
could differ from those estimates.

Recent Accounting Pronouncements. In June 1998, the FASB issued Statement of
Financial Accounting Standards No. 133, (SFAS No. 133), "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 establishes new
standards of accounting and reporting for derivative instruments and hedging
activities. SFAS 133 requires that all derivatives be recognized at fair value
in the balance sheet, and that the corresponding gains or losses be reported
either in the statement of operations or as a component of comprehensive income,
depending on the type of hedging relationship that exists. SFAS 133 will be
effective for fiscal years beginning after June 15, 1999. The Company began
hedging activities during the second quarter of 1999 for the purposes of
limiting consolidated exposure to foreign currency fluctuations on certain
balance sheet positions denominated in local currencies. The Company is
currently assessing the impact of SFAS No. 133 on the financial statements.

Revenue Recognition. The Company generates revenues from licensing the rights to
use its software products directly to end-users and indirectly through
sublicense fees from resellers. The Company also generates revenues from sales
of consulting, customer support and training services performed for customers
that license its products.

Revenues from software license agreements are recognized upon shipment of the
software if collection is probable, payment is due within one year and the fee
is fixed or determinable. If an acceptance period is required, revenues are
recognized upon the earlier of customer acceptance or the expiration of the
acceptance period. If significant post-delivery obligations exist or if a
product is subject to customer acceptance, revenues are deferred until no
significant obligations remain or acceptance has occurred. Revenues from
services have to date consisted primarily of consulting revenues, customer
support revenues and, to a lesser extent, training revenues. The Company enters
into reseller arrangements that typically provide for sublicense fees payable to
the Company based on a percent of the Company's list price. Sublicense fees are
generally recognized as reported by the reseller in re-licensing the Company's
products to end-users. In certain circumstances, sublicense fees are recognized
upon the initial sale if all products subject to sublicensing are shipped in the
current period, no rights of return policy exists, collection is probable,
payment is due within one year and the fee is fixed or determinable. If these
conditions are not met, the

6
<PAGE> 7
Company does not recognize sublicense fees until reported by the reseller in
re-licensing the Company's products to end-users.

Revenues from customer support services are recognized ratably over the term of
the support period. If customer support services are included free or at a
discount in a license agreement, these amounts are allocated out of the license
fee at their fair market value based on the value established by independent
sale of the customer support services to customers. Consulting revenues are
primarily related to implementation services performed on a time and materials
basis under separate service arrangements related to the installation of the
Company's software products. Revenues from consulting and training services are
recognized as services are performed. If a transaction includes both license and
service elements, license fee revenue is recognized upon shipment of the
software, provided services do not include significant customization or
modification of the base product and the payment terms for licenses are not
subject to acceptance criteria. In cases where license fee payments are
contingent upon the acceptance of services, revenues from both the license and
the service elements are deferred until the acceptance criteria are met.

In December 1998, the Accounting Standards Executive Committee, released
Statement of Position 98-9 ("SOP 98-9"), "Software Revenue Recognition," with
respect to certain transactions. SOP 98-9 amends SOP 97-2 to require that an
entity recognize revenue by means of the "residual method" when (1) there is
vendor-specific objective evidence (VSOE) of the fair values of all undelivered
elements in a multiple-element arrangement that is not accounted for using
long-term contract accounting, (2) VSOE of fair value does not exist for one or
more of the delivered elements in the arrangement, and (3) all revenue
recognition criteria in SOP 97-2 other than the requirement for VSOE of the fair
value of each delivered element of the arrangement are satisfied. Under the
residual method, the arrangement fee is recognized as follows: (1) the total
fair value of the undelivered elements, as indicated by VSOE, is deferred and
subsequently recognized in accordance with the relevant sections of SOP 97-2 and
(2) the difference between the total arrangement fee and the amount deferred for
the undelivered elements is recognized as revenue related to the delivered
elements. The provisions of SOP 98-9 that extend the deferral of certain
paragraphs of SOP 97-2 and SOP 98-9 will be effective for transactions that are
entered into in fiscal years beginning after March 15, 1999 and prohibits any
retroactive application. The Company is evaluating the requirements of SOP 98-9
and the effects, if any, on our current revenue recognition policies.

3. ACQUISITIONS:

ICC. Innovative Computer Concepts, Inc. ("ICC") was acquired in the year ended
1997 in a transaction accounted for under the purchase method of accounting. The
Company acquired in-process research and development related to a
client/server-based spare parts, inventory and procurement application. At the
time of the acquisition, ICC was a development-stage company located in
Manchester, New Hampshire. ICC was founded in 1994 with the intent of designing
and marketing a client/server spare parts, inventory and procurement management
software system.

At the time of the acquisition, ICC's in-process research and development value
was comprised of several individual on-going projects which included a
client/server object-oriented application server architecture; a transaction
bus; an event logger; a transaction processor; a business rule engine; an
object/relational data layer; and productivity tools.

The remaining efforts necessary to develop the acquired in-process technology
into commercially viable products and services principally related to the
completion of all planning, designing, prototyping, scalability verification and
testing activities that were necessary to establish that the proposed
technologies would meet their design specifications including functional,
technical and economic performance requirements. The Company has successfully
developed the acquired in-process research and development and is currently
benefiting from the license sales of the Vantive Inventory and Procurement
applications.

The acquired in-process research and development was valued at $21.1 million by
an independent appraiser. This valuation was predicated on the determination
that the developmental projects at the time of the acquisition were not
technologically feasible and had no alternative future use. This conclusion was
attributable to the fact that ICC had not completed a working model that had
been tested and proven to work at performance levels which were expected

7
<PAGE> 8
to be commercially viable and that the technologies of the projects have no
alternative use other than as a software application. The value is attributable
solely to the development efforts completed as of the acquisition date. The
Company expensed $21.1 million of the acquired in-process research and
development.

The income approach was the primary technique utilized in calculating purchased
research and development. This approach included, but was not limited to, an
analysis of the market for ICC products; the completion costs for the projects;
the expected cash flows attributable to the in-process research and development
projects; and the risks associated with achieving such cash flows. The
assumptions underlying the cash flow projections were derived primarily from
investment banking reports, independent analyst reports, acquiring and target
company records and discussions with the management of both companies. Primary
assumptions such as revenue growth and profitability were compared to
indications of similar public companies as well as indications from industry
analyst reports, to determine the extent to which these assumptions were
supportable. The Company did not assume in its model any material change in its
profit margins as a result of the acquisition and did not assume any material
increases in selling, general and administrative ("SG&A") expenses as a result
of the acquisition. Because ICC was a development stage enterprise, the Company
did not anticipate any expense reductions/synergies as a result of the
acquisition. The basis of the acquisition was to enhance the Company's
competitive position by increasing the scope of its product offerings.

Cash flows from license and services revenue obtained from the combined
ICC-derived technology and Vantive products whose sales the Company believes
were dependent upon the Company being able to offer the ICC-derived technology
(together, the "Combined Revenues") were estimated to be approximately $360
million over five years assuming the successful completion and market acceptance
of the ICC technology in conjunction with the Vantive products. The Combined
Revenues were expected to peak in 1999 and then decline as other new products
and technologies are expected to enter into the market. The Company offers its
products both as a suite and as single applications, and derives concurrent user
fees which are not necessarily application specific. As a result, the Company
cannot determine precisely the breakdown of revenues attributable to specific
applications for customers who have purchased more than one application.
However, the Company believes that the Combined Revenues generated to date have
been below the assumptions used in the analysis due to the decline of the
overall growth rates assumed for the industry.

Growth rates assumed in the analysis for the Combined Revenues were based upon
external market expectations for growth in the overall front office market
segment at the time of the acquisition. For the year ended December 31, 1998,
and the three months ended March 31, 1999, the Company's overall revenue growth
was materially less than the growth assumed in the analysis and the Company
anticipates this trend to continue based upon the current market outlook. These
lowered market expectations are consistent with projections made by other
vendors in the ERP and front office automation markets. As a result of the
lower-than-anticipated overall growth, the Company is experiencing lower growth
in Combined Revenues and receiving less return on its investment than
anticipated in its analysis.

Because the Company does not account for expenses by product, it is not possible
to determine the actual expenses associated with the technology acquired from
ICC; however, the Company does maintain a dedicated facility in New Hampshire
and has numerous consulting and training resources dedicated to support the
Vantive Inventory and Procurement modules. Research and development spending
with respect to these offerings is expected to continue at a rate that is
consistent with the Company's overall research and development spending. The
Company does not believe that it achieved any material expense reductions or
synergies as a result of the acquisition.

The rates utilized to discount the net cash flows to their present value were
based on venture capital rates of return. Due to the nature of the forecast and
the risks associated with the projected growth, profitability and developmental
projects, a discount rate of 40% was deemed appropriate for the business
enterprise and for the in-process research and development. These discount rates
were consistent with ICC's stage of development; the uncertainties in the
economic estimates described above; the inherent uncertainty at the time of the
acquisition surrounding the successful development of the acquired in-process
technology; the useful life of such technology; the profitability levels of such
technology; and the inherent uncertainties of the technological advances that
were indeterminable at the time of the acquisition.

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<PAGE> 9
The forecast used in valuing the acquired in-process research and development
was based upon assumptions the Company believed to be reasonable but which were
inherently uncertain and unpredictable. For these reasons, actual results may
vary from projected results.

Currently, approximately 65% of the Company's FieldService specific sales
include the ICC-derived inventory and procurement modules. This is slightly
below the original expectations for the FieldService product. Sales of the
Company's HelpDesk and Sales Force Automation applications have been less
influenced by the availability of the ICC derived spare parts inventory and
procurement modules. The Company expects that the availability of the modules
derived from ICC technology will have a greater impact on sales of HelpDesk and
Sales over time as the Company has completed the integration of the inventory
and procurement components with HelpDesk and Sales Force Automation.

If sales of the Combined Revenues are below anticipated levels, profitability
may be adversely affected in future periods. Commercial results will also be
subject to uncertain market events and risks, which are beyond the Company's
control, such as trends in technology, government regulations, market size and
growth, product introduction or other actions by competitors and other factors
discussed herein (See "Quantitative and Qualitative Disclosures About Market
Risks").

Wayfarer. Wayfarer Communications Corp. ("Wayfarer") was acquired in the year
ended 1998 in a transaction accounted for under the purchase method of
accounting. The Company acquired in-process research and development related to
the creation of a web-browser front end which would be used in conjunction with
a new technology designed to distribute, leverage and make use of the knowledge,
resources and information that companies had stored in their ERP and front
office automation systems. At the time of the acquisition, Wayfarer was a
development-stage company located in Mountain View, California.

At the time of the acquisition, Wayfarer's in-process research and development
value was comprised of several individual on-going projects which related to the
technology associated with the development of a user interface; a monitor for
internal and external Web pages; an application for the construction of modules
that track information from internal corporate information sources and various
ERP systems; and a server based tool. These projects had not yet reached
technological feasibility at the time of the acquisition.

The remaining efforts necessary to develop the acquired in-process research and
development into commercially viable products and services principally related
to the completion of all planning, designing, prototyping, scalability
verification and testing activities that were necessary to establish that the
proposed technologies would meet their design specifications including
functional, technical and economic performance requirements.

The acquired in-process research and development was valued at $9.2 million by
an independent appraiser. This valuation was predicated on the determination
that the developmental projects at the time of the acquisition were not
technologically feasible and had no alternative future use. This conclusion was
attributable to the fact that Wayfarer had not completed a working model that
had been tested and proven to work at performance levels which were expected to
be commercially viable and that the technologies of the projects have no
alternative use. The value is attributable solely to the development efforts
completed as of the acquisition date. The Company expensed $9.2 million of the
acquired in-process research and development.

The remaining development efforts for these projects include various phases of
design, development and testing. Management believes that the anticipated
completion dates for the release of the functionality related to the projects
that were in existence at the time of the acquisition will occur over the next
twelve months, at which time the Company expects to begin generating the
economic benefits from the technologies. Funding for such projects is expected
to be obtained from working capital.

9
<PAGE> 10
associated with achieving such cash flows. The assumptions underlying the cash
flow projections were derived primarily from investment banking reports,
acquiring and target company records and discussions with the management of both
companies. Primary assumptions such as revenue growth and profitability were
compared to indications of similar companies as well as indications from
industry analyst reports, to determine the extent to which these assumptions
were supportable. The Company did not assume in its model any material change in
its profit margins as a result of the acquisition and did not assume any
material increases in SG&A expenses as a result of the acquisition. Because
Wayfarer was a development stage enterprise, the Company did not anticipate any
expense reductions/synergies as a result of the acquisition. The basis of the
acquisition was to enhance the Company's competitive position by increasing the
scope of its product offerings.

Cash flows from license and services revenue obtained from the combined Vantive
products and Wayfarer information distribution capabilities, the Web-enabled
architecture, and an innovative "dashboard environment" interface technology
(together, "Wayfarer Combined Revenues") were estimated to be approximately $140
million over five years after the initial release, assuming the successful
completion and market acceptance of the products incorporating Wayfarer
technology. The estimated revenues for the in-process projects were expected to
peak in 2004 and then decline as other new products and technologies are
expected to enter into the market.

Growth rates assumed in the analysis for the in-process technology were based
upon external market expectations for growth in the overall front office market
segment at the time of the acquisition. Since the time of the acquisition, the
market expectations have been lowered for the overall front office market
segment and as a consequence, the growth rates used in the analysis may not be
met. These lowered market expectations are consistent with projections made by
other vendors in the ERP and front office automation markets. As a result of the
lower-than-anticipated overall growth, the Company may experience lower growth
attributed to the in-process technology and receive less return on its
investment than anticipated in its analysis. However, the Company believes that
its investment in the in-process technology will contribute to its overall
revenues and earnings.

Expenses were estimated based on Wayfarer's internally generated projections, on
Vantive data, on discussions with management regarding anticipated margin trends
and by examining similar companies within the software industry. Expenses
(excluding research and development) utilized in the analysis average
approximately 67% of revenues through the forecasted time horizon. Research and
development expenditures were expected to approximate 15% of the revenues for
the forecasted time horizon.

The rates utilized to discount the net cash flows to their present value are
based on venture capital rates of return. Due to the nature of the forecast and
the risks associated with the projected growth, profitability and developmental
projects, a discount rate of approximately 27% was deemed appropriate for the
business enterprise and for the in-process research and development. These
discount rates are commensurate with Wayfarer's stage of development; the
uncertainties in the economic estimates described above; the inherent
uncertainty surrounding the successful development of the purchased in-process
technology; the useful life of such technology; the profitability levels of such
technology; and the uncertainty of technological advances that are
indeterminable at this time.

The forecast used in valuing the in-process research and development was based
upon assumptions the Company believed to be reasonable but which were inherently
uncertain and unpredictable. For these reasons, actual results may vary from
projected results.

The Company believes that the assumptions used in the forecasts were reasonable
at the time of the acquisition. No assurance can be given that the underlying
assumptions used to estimate expected project sales, development costs or
profitability, or the events associated with such projects, will transpire as
anticipated. The Company's assumptions may be incomplete or inaccurate, and
unanticipated events and circumstances are likely to occur. For these reasons,
actual results may vary from the projected results.

As of March 31, 1999, Wayfarer's results have not differed significantly from
the forecast assumptions. A portion of the original Wayfarer technology will be
incorporated in the Company's future product releases, but development plans for
a separate generation product based on the acquired technology have been
deferred at the time of this report. Wayfarer engineering personnel continue to
work toward the completion of the in-process projects.

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<PAGE> 11
A number of the projects are currently scheduled to be completed and included in
the Company's next major product release. The Company's research and development
expenditures since the Wayfarer acquisition have not differed materially from
expectations. As the acquired in-process research and development technologies
have not yet been released, revenues attributable to the in-process technologies
have not yet begun to materialize. The risks associated with these efforts are
still considered high and no assurance can be made that products derived from
the Wayfarer technology will meet market expectations. The research and
development expenses attributable to the Wayfarer technology for the three
months ended March 31, 1999 were approximately $1.3 million dollars.

If the Wayfarer Combined Revenues are lower than anticipated, the profitability
may be adversely affected in future periods. Commercial results will also be
subject to uncertain market events and risks, which are beyond the Company's
control, such as trends in technology, government regulations, market size and
growth, and product introduction or other actions by competitors and other
factors discussed herein.

4. EARNINGS PER SHARE:

Earnings (Loss) Per Share. Statement of Financial Accounting Standards No. 128
(SFAS 128), "Earnings per Share," requires companies to compute net income per
share under two different methods, basic and diluted per share data, for all
periods for which an income statement is presented. Basic earnings per share is
computed by dividing net income by the weighted average number of common shares
outstanding for all periods. Diluted earnings per share reflects the potential
dilution that could occur if the income were divided by the weighted-average
number of common and common stock equivalent shares outstanding during the
period. Diluted earnings per share is computed by dividing net income by the
weighted average number of common shares and common stock equivalents from
outstanding stock options. Common stock equivalents are calculated using the
treasury stock method and represent incremental shares issuable upon exercise of
the Company's outstanding options.

Options to purchase approximately 388,000 shares and 900,000 shares of common
stock were outstanding at March 31, 1999 and 1998, respectively, but were not
included in the computation of diluted earnings per share as a result of their
anti-dilutive effect.

The following table provides a reconciliation of the numerators and denominators
used in calculating basic and diluted earnings per share for the quarters ended
March 31, 1999 and 1998 (In thousands, except per share data):

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<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
(unaudited) (unaudited)

Net income ....................... $ 252 $ 3,719
Basic Earnings Per Share:
Income available to common
stockholders ................ 252 3,719
Weighted average common shares
outstanding .................. 26,452 25,384
------------ ------------
Basic earnings per share ......... $ 0.01 $ 0.15
============ ============
Diluted Earnings Per Share:
Income available to common
stockholders ................. $ 252 $ 3,719
Weighted average common shares
outstanding .................. 26,452 25,384
Common stock equivalents (unless
anti-dilutive) ............... 1,872 1,826
------------ ------------
Total weighted average common
shares and equivalents ....... 28,324 27,210
------------ ------------
Diluted earnings per share ....... $ 0.01 $ 0.14
============ ============
</TABLE>

5. COMPREHENSIVE INCOME:

In 1998, the Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," (SFAS No. 130). This requires companies
to report all changes in equity during a period, except those resulting from
investment by owners and distribution to owners, in a financial statement for
the period in which they are recognized. The following table reconciles net
income as reported to comprehensive income (loss) under the provisions of SFAS
130 for the three months ended March 31, 1999 and 1998 (In thousands):

<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
(unaudited) (unaudited)
Comprehensive income (loss):
Net income .................................. $ 252 $ 3,719
Other comprehensive income (loss), net of tax
Unrealized exchange gain (loss) ......... (958) 32
------------ ------------
Total comprehensive income (loss) ..... $ (706) $ 3,751
============ ============
</TABLE>

6. THE VANTIVE CORPORATION 401(k) PLAN:

During 1993, the Company adopted the Vantive Corporation 401(k) Plan (the
"401(k) Plan"). All employees who are 21 years of age or older are entitled to
participate on their first day of employment. Under the 401(k) Plan, eligible
employees are entitled to make tax-deferred contributions and the Company may,
at its discretion, make matching or discretionary contributions to the 401(k)
Plan. On January 1, 1999 the Company implemented a discretionary matching
benefit program. The plan for 1999 stipulates that the Company will match $0.25
per dollar contributed by an employee up to a cap of 6% of total salary
deferred. The matched portion vests at 25%, 50% and 100% upon completion of
first, second and third year of service, respectively.

12
<PAGE> 13
7. SEGMENT INFORMATION:

The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," during fiscal 1998. SFAS No. 131 established standards
for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in interim
financial reports issued to stockholders. It also established standards for
related disclosures about products and services and geographic areas. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision makers, or decision making group, in deciding how to allocate
resources and in assessing performance. The Company's chief operating decision
making group is the Executive Committee, which is comprised of the Chief
Executive Officer, the Chief Operating Officer and various Vice Presidents of
the Company.

The Company has identified three distinct reportable segments: license, customer
support and professional services. License revenues consist of fees for the
Company's products as well as fees from sublicensing third-party software
products. Customer support represents revenue from maintenance fees on software.
Professional service revenues consist of consulting and training services.
Consulting services are related to implementation services performed on a time
and materials basis under separate service arrangements related to installation
of the Company's software products. Consulting and training revenues generally
are recognized as services are performed. While the Executive Committee
evaluates results in a number of different ways, the line of business management
structure is the primary basis for which it assesses financial performance and
allocates resources.

The accounting policies of the line of business operating segments are the same
as those described in the summary of significant accounting policies. The
following table represents the Company's segment information for the three
months ended March 31, 1999 and 1998, respectively (in thousands):

<TABLE>
<CAPTION>
Three months ended March 31,
------------------------------
1999 1998
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
REVENUES FROM UNAFFILIATED CUSTOMERS:
Licenses ............................... $ 22,156 $ 22,517
Customer support ....................... 8,753 5,838
Professional services .................. 13,891 7,925
----------- -----------
$ 44,800 $ 36,280
=========== ===========
COST OF REVENUE:
Licenses ............................... $ 573 $ 204
Customer support ....................... 1,683 974
Professional services .................. 11,953 6,338
----------- -----------
$ 14,209 $ 7,516
=========== ===========
GROSS MARGIN:
Licenses ............................... $ 21,583 $ 22,313
Customer support ....................... 7,070 5,015
Professional services .................. 1,938 1,436
----------- -----------
$ 30,591 $ 28,764
=========== ===========
PROFIT RECONCILIATION:
Gross margin for reportable segments ... $ 30,591 $ 28,764
Operating expenses ..................... (30,782) (23,072)
Other income and expenses .............. 574 211
----------- -----------
Income before provision for income taxes $ 383 $ 5,903
=========== ===========
</TABLE>

13
<PAGE> 14
and 1998, respectively. The Company does not track assets by operating segments.
Consequently, it is not practicable to show assets by operating segments.

14
<PAGE> 15
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and Results of
Operations includes a number of forward-looking statements which reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and uncertainties,
including those discussed below that could cause actual results to differ
materially from historical results or those anticipated. In this report, the
words "anticipate," "believes," "expects," "future," "intends" and similar
expressions identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof.

OVERVIEW

The Company was founded in October 1990 to develop software to enable businesses
to improve their customer service. The Company's suite of products addresses the
front-office automation market and is called The Vantive Enterprise. The Vantive
Enterprise consists of the following applications: Vantive Sales, Vantive
Support, Vantive FieldService, Vantive Inventory, Vantive Procurement, Vantive
HelpDesk and Vantive Quality. The Company made available Version 8 of The
Vantive Enterprise in the second quarter of 1998, which contains significant
enhancements including the integration of Vantive Inventory and Vantive
Procurement with The Vantive Enterprise and the addition of the Partner Desktop
feature. License fees for the Company's software products consist of (i) a per
server fee based on the specific Vantive Enterprise application(s) licensed and
(ii) a fee based on the maximum number of concurrent, named or mobile users
allowed to access applications. The greatest percentage of the Company's license
revenues to date has resulted from non-recurring license fees based on sales of
concurrent user licenses. The remaining revenues are primarily attributable to
service revenues, which include consulting, customer support and training
revenue. Of these service revenues, only customer support revenues are expected
to be recurring. Customer support revenues accounted for 19.5% and 16.5% of
total revenues for the quarters ended March 31, 1999 and 1998, respectively.
Because concurrent user fees are not application-specific, the Company cannot
precisely determine the breakdown of revenues attributable to specific
applications for customers that have purchased more than one application.
However, the Company believes that most of its revenues have been derived from
fees associated with Vantive Support, Vantive Sales, Vantive Field Service and
Vantive HelpDesk. In any period, a significant portion of the Company's revenues
may be derived from large sales to a limited number of customers. However, no
customer accounted for over 10% of total revenues during the periods covered by
this report. As significant sales to a particular end user customer are
typically non-recurring, the Company does not believe its future results are
dependent on recurring revenues from any particular customer, however the
Company has derived and expects to continue to derive recurring revenues from
customers who use the Company's products to deliver software services to other
customers.

The Company's revenues are derived primarily from software license fees and fees
for its services. License revenues consist of license fees for the Company's
products as well as fees from sublicensing third-party software products. The
Company generally recognizes license fees upon shipment of software products if
it believes collection is probable, the license agreement requires payment
within one year and the fee is fixed or determinable. If significant
post-delivery obligations exist or if a product is subject to customer
acceptance, revenues are deferred until no significant obligations remain or
acceptance has occurred. Revenues from services have to date consisted primarily
of revenues from consulting services, customer support revenues and, to a lesser
extent, training revenues. Consulting and training revenues generally are
recognized as services are performed. Customer support revenues are recognized
ratably over the term of the support period, which is typically one year. If
customer support services are included free or at a discount in a license
agreement, such amounts are allocated out of the license fee at their fair
market value based on the value established by independent sale of such customer
support services to customers. If a transaction includes both license and
service elements, license fee revenue is recognized upon shipment of the
software, provided services do not include significant customization or
modification of the base product. In cases where license fee payments are
contingent upon the acceptance of services, revenues from both the license and
the service elements are deferred until the acceptance criteria are met.

15
<PAGE> 16
International revenues, or revenues derived from sales to customers in foreign
countries, primarily in Europe, accounted for approximately 32% and 29% of the
Company's revenue for the three months ended March 31, 1999 and 1998,
respectively. The Company believes that its continued growth and profitability
will require further expansion of its international operations. The majority of
the Company's revenues are denominated in the subsidiaries' functional currency
and as a result, the Company has no material unhedged monetary assets,
liabilities, or commitments denominated in currencies other than the operation's
functional currency. To successfully expand international sales, the Company
must establish additional foreign operations, hire additional personnel and
recruit additional international resellers. To the extent that the Company is
unable to do so in a timely manner, the Company's growth in international sales,
if any, will be limited and this could have a material, adverse effect on the
Company's business, results of operations and financial condition.

There are certain risks inherent in doing business on an international level,
such as unexpected changes in regulatory requirements, export restrictions,
tariffs and other trade barriers, difficulties in staffing and managing foreign
operations, longer payment cycles, problems in collecting accounts receivable,
political instability, changes in foreign economic conditions, fluctuations in
currency exchange rates, seasonal reductions in business activity during the
summer months in Europe and certain other parts of the world and potentially
adverse tax consequences, any of which could adversely impact the success of the
combined Company's international operations. As the Company continues to expand
its international operations, significant costs may be incurred before achieving
any additional international revenues, which could have an adverse effect on the
Company's business, results of operations and financial condition. In addition,
future increases in the value of the U.S. dollar could make the Company's
products less competitive in foreign markets.

The Company's foreign subsidiaries operate primarily in local currencies, and
their results are translated into U.S. dollars. If the value of the U.S. dollar
increases relative to foreign currencies, it could have a material adverse
effect on the Company's operating results.

The Company has not been significantly affected by the recent unfavorable
economic conditions in certain Asian, Pacific Rim and Latin American countries.
If the economic conditions in these markets do not improve, however, this may
have an adverse effect on the Company's business, results of operations and
financial condition.

The Company is also subject to risks associated with the change in century dates
from 1999 to 2000 -- the so-called "Year 2000" issue. The date change could
cause the potential disruption of the Company's internal operations, the
operations of the Company's suppliers or customers or potential issues related
to the Company's products or services. See the section entitled "Quantitative
and Qualitative Disclosures About Market Risks -- Year 2000 Readiness
Disclosure" for a discussion of this issue.

The Company is also subject to risks associated with the changes in Europe aimed
at forming a European economic and monetary union. One of the changes resulting
from this union required member countries to irrevocably fix their respective
currencies to a new currency, the Euro, on January 1, 1999, at which date the
Euro became a functional legal currency of these countries. See the section
entitled "Quantitative and Qualitative Disclosures About Market Risks --
Remediation of problems related to the European monetary conversion may involve
significant time and expense and may reduce our future sales " for a discussion
of this issue.

16
<PAGE> 17
RESULTS OF OPERATIONS

The following table sets forth, as a percentage of total revenues, certain
condensed consolidated statement of operations data for the periods indicated:

<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Revenues:
License .......................... 49.5% 62.1%
Service .......................... 50.5 37.9
---------- ----------
Total revenues ................. 100.0 100.0
---------- ----------

Cost of revenues:
License .......................... 1.3 0.5
Service .......................... 30.4 20.2
---------- ----------
Total cost of revenues ......... 31.7 20.7
---------- ----------

Gross margin ......................... 68.3 79.3
---------- ----------

Operating expenses:
Sales and marketing .............. 42.9 38.9
Research and development ......... 18.9 16.4
General and administrative ....... 7.0 8.3
---------- ----------
Total operating expenses ....... 68.8 63.6
---------- ----------

Income (loss) from operations ........ (0.5) 15.7
Other income, net .................... 1.3 0.6
---------- ----------
Income before income tax provision 0.8 16.3
---------- ----------
Provision for income taxes ........... 0.3 6.0
---------- ----------
Net income ....................... 0.5% 10.3%
========== ==========
</TABLE>

REVENUES

License. License revenues represent fees earned from licensing the rights to use
the Company's software products to customers. The Company's license revenue
decreased slightly for the three months ended March 31, 1999 to $22.2 million
compared to $22.5 million for the three months ended March 31, 1998. The Company
believes that the lack of growth in license revenues compared to the same period
last year can be attributed to lower demand for its products in North America.
The Company does not believe that the historical growth rates of license
revenues will necessarily be sustainable or are indicative of future results.

Service. Service revenues consist of consulting, customer support and, to a
lesser extent, training services. Service revenues increased by 64.5% to $22.6
million in the first quarter of 1999, from $13.8 million in the first quarter of
1998. The increase in service revenues was primarily due to the increased demand
for consulting, customer support and, to a lesser extent, training services
associated with a larger installed customer base when compared to March 31,
1998. As the Company implements its strategy of encouraging third-party
organizations, such as systems integrators, to become proficient in implementing
the Company's products, consulting revenues as a percentage of total revenues
may decrease, but demand for consulting services provided by the Company has
continued to grow even while the Company has pursued this strategy. The Company
does not believe that the historical growth rates of service revenues will
necessarily be sustainable or are indicative of future results.

17
<PAGE> 18
COST OF REVENUES

License. Cost of license revenues includes the cost of royalties due on embedded
third-party technology, cost of product media, product duplication and manuals.
Cost of license revenues increased by 180.8% to $573,000 or 2.5% of related
license revenues from $204,000 or 0.9% of related license revenues for the three
months ended March 31, 1999 and 1998, respectively. The increase in cost of
license revenues in both the absolute dollars and percentage of associated
revenue was primarily due to the royalty costs of embedded third-party software.

Service. Cost of service revenues is primarily comprised of employee-related
costs and fees for third-party consultants incurred in providing consulting,
customer support and training services. Cost of service revenues increased by
86.5% to $13.6 million, or 60.2% of the related service revenues from $7.3
million, or 53.1% of related service revenues for the three months ended March
31, 1999 and 1998, respectively. The increase in absolute dollars was primarily
due to increases in consulting, support and training personnel and third-party
service providers during these periods. The increase in cost of services as a
percentage of service revenues is primarily associated with an increased
utilization of third party consulting partners.

OPERATING EXPENSES

Operating expenses increased by $7.7 million to $30.8 million, or 68.7% of total
revenue, from $23.1 million, or 63.6% of total revenue for the three months
ended March 31, 1999 and 1998, respectively.

Sales and marketing. Sales and marketing expenses increased to $19.2 million, or
42.9% of revenues, in the first quarter of 1999, from $14.1 million, or 38.9% of
revenues, in the first quarter of 1998. The increase in absolute dollars was
primarily related to increases in payroll, recruiting and training expenses
associated with the Company's sales force and marketing activities. The Company
plans to continue to invest in expanding its sales and marketing activities.

Research and development. Research and development expenses increased to $8.4
million, or 18.9% of revenues, in the first quarter of 1999, from $5.9 million,
or 16.3% of revenues in the first quarter of 1998, representing a 42% increase.
Research and development expenses increased in absolute dollars between the
years primarily as a result of increases in personnel and outside contractors to
support the Company's product development activities. The Company expects
research and development expenses will increase in absolute dollars over the
coming years.

Research and development expenses are generally charged to operations as
incurred. In accordance with Statement of Financial Accounting Standards No. 86,
internally generated costs which were eligible for capitalization for these
periods were insignificant and the Company charged all software development
costs to research and development expense.

In March 1998, the American Institute of Certified Public Accountants, ("AICPA")
issued SOP No. 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP No. 98-1 requires entities to capitalize certain
costs related to internal-use software once certain criteria have been met.
Management expects that the adoption of SOP No. 98-1 will not have a material
impact on the Company's financial position or results of operations. The Company
will implement SOP No. 98-1 for fiscal year 1999.

General and administrative. General and administrative expenses increased
slightly in absolute dollars and decreased as a percentage of total revenue.
Expenses increased to $3.1 million, or 7.0% of revenues, in the first quarter of
1999, from $3.0 million, or 8.3% of revenues in the first quarter of 1998. The
Company expects general and administrative expenses will increase in absolute
dollars over the coming years.

Provision for income taxes. The Company's provision for federal, state and
foreign income taxes for the first quarter of 1999 was $131,000. The provision
represents an effective tax rate of 34%, compared to an effective tax rate of
37% used to calculate the provision for the first quarter of 1998.

18
<PAGE> 19
FINANCIAL CONDITION

Total assets as of March 31, 1999 decreased $151,000 from December 31, 1998. The
decrease was primarily due to reductions in goodwill and prepaid debt expenses
offset by increases in prepaid operating expenses. Net accounts receivable
decreased $1.8 million primarily due to collection efforts upon a large balance
stemming from increased fourth quarter 1998 sales combined with lower revenues
in the first quarter of 1999. Net property and equipment decreased $64,000. This
is attributable to smaller expenditures than the previous quarter coupled with
greater accumulated depreciation.

Current liabilities as of March 31, 1999 increased $492,000 from December 31,
1998. This was primarily due to increases in deferred revenue of approximately
$1.8 million and accounts payable of $818,000, partially offset by a decrease in
accrued liabilities of approximately$2.1 million. These results are consistent
with the effects of normal operating seasonality.

LIQUIDITY AND CAPITAL RESOURCES

Operating activities provided cash of $5.3 million in the three months ended
March 31, 1999. These funds were the result of collection efforts upon a large
accounts receivable balance stemming from fourth quarter 1998 sales coupled with
an increase in deferred revenue and partially offset by a decrease in other
accrued liabilities. Operating activities provided cash of $4.9 million in the
three months ended March 31, 1998. The primary source of those funds was income
from operations coupled with an increase in deferred revenue, while increases in
accounts receivable and prepaid expenses and a decrease in other accrued
liabilities offset the increase.

Investing activities provided cash of $1.0 million in the three months ended
March 31, 1999, primarily from the sale of short-term, interest-bearing,
investment-grade securities partially offset by purchases of capital equipment.
Investing activities used cash of $42.8 million in the three months ended March
31, 1998, primarily for the purchase of short-term, interest-bearing,
investment-grade securities and for the purchase of capital equipment. The
Company does not currently have any material commitments for capital equipment
acquisitions.

Financing activities provided cash of $48,000 in the first quarter of 1999. The
primary source of these funds were proceeds from the issuance of Common Stock
pursuant to the exercise of outstanding stock options offset by payments for
capital lease obligations. Financing activities provided cash of $1.0 million in
the first quarter of 1998. The primary source of these funds were proceeds from
the issuance of Common Stock pursuant to the exercise of outstanding stock
options offset by payments for capital lease obligations.

At March 31, 1999, the Company's principal sources of liquidity were its cash,
cash equivalents and short-term investments of $96.7 million. The Company
believes that existing cash and short-term investment balances and potential
cash flow from operations will be sufficient to meet its cash requirements for
at least the next twelve months. While operating activities may provide cash in
certain periods to the extent the Company experiences growth in the future,
operating and investing activities may use cash and consequently, such growth
may require the Company to obtain additional sources of financing.

19
<PAGE> 20
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

OUR FUTURE OPERATING RESULTS ARE UNCERTAIN.

Vantive's future operating results are uncertain and likely to fluctuate. Our
operating results have varied in the past, and we expect that they will continue
to fluctuate in the future. In addition, our operating results may not follow
any past trends. It is particularly difficult to predict the timing or amount of
our license revenues because:

o our sales cycles are lengthy and variable, typically ranging between six
and nine months from our initial contact with a potential customer to
the signing of a license agreement, although occasionally sales require
substantially more or less time and, in any event, vary from customer to
customer;

o the amount of unfulfilled orders for our products at the beginning of a
quarter is either zero or small because our products are typically
shipped shortly after orders are received;

o we recognize a substantial portion of our license revenues in the last
month of a quarter, and often in the last weeks or days of a quarter;
and

o revenue recognition accounting policies may require us to defer
recognition of license revenue for software products from the period in
which the agreement for the sale of such license is signed to subsequent
periods.

Nevertheless, we base our decisions regarding our operating expenses in part on
anticipated revenue trends. Because many of our expenses are relatively fixed in
the short term, a delay in recognizing revenue from a limited number of license
transactions could cause our operating results to vary significantly from
quarter to quarter and could result in operating losses. To the extent these
expenses are not followed by increased revenues that match our projections, this
could have a material, adverse effect on our business, financial condition and
operating results. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

OUR QUARTERLY RESULTS FLUCTUATE SIGNIFICANTLY AND CAN FALL SHORT OF ANTICIPATED
LEVELS.

Our quarterly operating results have varied significantly in the past and we
expect that they will vary significantly from quarter to quarter in the future.
These quarterly variations are caused by a number of factors, including:

o variations in demand for our products;

o delays in customer orders;

o timing of product deployments and achievement of milestones,
particularly for large orders;

o delays in recognition of revenue in accordance with applicable
accounting principles;

o the timing and mix of our license and services orders;

o our ability to attract and train qualified sales personnel;

o changes in the development of the market for our products and services;

o our ability to develop, introduce, ship and support new and enhanced
products that respond to changing technology trends in a timely manner
and our ability to manage product transitions;

o the amount and time of increases in expenses;

20
<PAGE> 21
o costs and complications relating to acquisitions and integration of new
technologies or businesses;

o our ability to expand our international operations;

o the utilization rate of our services personnel; and

o possible purchasing delays by customers as they divert resources to
address Year 2000 issues.

In addition, our stock price fluctuates based upon how our results measure
against investor expectations.

OUR MARKET IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE.

The software market in which we compete is characterized by rapid technological
change. Existing products may become obsolete and unmarketable when products
using new technologies are introduced and or when industry standards emerge. For
example, our customers have adopted a wide variety of hardware, software,
database, Internet-based and networking platforms, we must continue to support
and maintain our products on a variety of such platforms. As a result, the life
cycles of our products are difficult to estimate. To be successful, we must
continue to enhance our current product line and develop new products that
successfully respond to such developments. We have delayed enhancements or new
product release dates several times in the past and may not be able to introduce
enhancements or new products successfully or in a timely manner in the future.
We believe that such delays have not to date had a material adverse impact on
our financial condition or operating results. Our business, financial condition
and operating results could be materially harmed if we delay the release of our
products and product enhancements or if these products or product enhancements
fail to achieve market acceptance when released. In addition, customers may
defer or forego purchases of our products if we, our competitors or major
hardware, systems or software vendors introduce or announce new products or
product enhancements. Such events could have a material adverse effect on our
business, financial condition and operating results.

OUR BUSINESS DEPENDS ON THE SUCCESSFUL DEVELOPMENT OF NEW PRODUCTS.

Our product development requires substantial investment. There can be no
assurance that we will have sufficient resources to make the necessary
investments. We have in the past experienced development delays and it is
possible that we will experience such delays in the future. There is no
assurance that we will not experience difficulties that could delay or prevent
the successful development, introduction or marketing of new or enhanced
products in the future. In addition, there is no assurance that such products
will meet the requirements of the marketplace and achieve market acceptance. If
we are unable, for technological or any other reasons, to develop and introduce
new and enhanced products in a timely manner, it could have a material adverse
effect on our business.

OUR PRODUCTS MUST OPERATE PROPERLY.

Our software products are complex and may contain errors that may be detected at
any point in the products' life cycles. We have in the past discovered software
errors in certain of our products and as a result have experienced delays in
shipment of products during the period required to correct these errors.
Although we have not experienced any material adverse effects from any such
errors to date, there can be no assurance that, despite testing by us and by
current and potential customers, errors will not be found in new products or
releases after shipment, resulting in loss of revenue or delay in market
acceptance and sales, diversion of development resources, injury to our
reputation, or increased service and warranty costs, any of which could severely
harm our business. Our products are generally used in systems with other
vendors' products, and as a result, they must integrate successfully with
existing systems. System errors, whether caused by our products or those of
another vendor, could adversely affect the market acceptance of our products,
and any necessary revisions could cause us to incur significant expenses. The
occurrence of any such problems could have a material adverse effect on our
business.

Since our products are often used for mission critical applications such as
sales, marketing or field services, errors, defects or other performance
problems could result in financial or other damages to our customers. Although
our

21
<PAGE> 22
license agreements generally contain provisions designed to limit our exposure
to product liability claims, existing or future laws or unfavorable judicial
decisions could negate such limitation of liability provisions. Although no
product liability claim has been made against us to date, such a claim, even if
it were unsuccessful, would be time-consuming and costly to defend and could
have a material adverse effect on our business.

WE FACE RISKS FROM GLOBAL OPERATIONS AND EXPANSION OF INTERNATIONAL OPERATIONS.

International revenues, or revenues derived from sales to customers in foreign
countries, primarily in Europe, accounted for approximately 32% and 29% of the
Company's revenue for the quarters ended March 31, 1999 and 1998, respectively.
We intend to continue and substantially expand our international operations and
to enter new international markets. This expansion will require significant
management attention and financial resources to successfully translate and
localize our software products into various languages and to develop direct and
indirect international sales, consulting and support channels. We may not be
able to maintain or increase international market demand for our products. We,
or our distributors or resellers, may not be able to sustain or increase
international revenues from licenses or from consulting and customer support or
our relationships with our distributors may deteriorate. Additionally, recent
unfavorable economic and political conditions in the Asian markets have occurred
and we believe if such conditions continue over the foreseeable future they
could negatively impact our business. Moreover, our foreign subsidiaries operate
primarily in local currencies and their results are translated into U.S.
dollars. The Company began hedging activities in the second quarter of 1999 to
limit the exposure resulting from increases in the value of the U.S. dollar
relative to foreign currencies. Hedging activities do not guarantee complete
protection from exchange rate fluctuation risk and as such exposure resulting
from a fluctuation in the value of the U.S. dollar relative to foreign
currencies could still have a material adverse effect on our operating results.

WE DEPEND ON SERVICE REVENUES.

Support and service revenues represented 50.5% of our total revenues in the
first quarter 1999, and 37.9% of our total revenues in the first quarter 1998.
We anticipate that service revenues will continue to represent a significant
percentage of total revenues.

o Because service revenues have lower gross margins than license revenues,
a continued increase in the percentage of total revenues represented by
service revenues or an unexpected decrease in license revenues could
have a detrimental impact on overall gross margins and our operating
results.

o We subcontract certain consulting, customer support and training
services to third-party service providers. Third-party contract revenues
generally carry lower gross margins than our service business overall;
as a result, our service revenues and related margins may vary from
period to period, depending on the mix of these third-party contract
revenues.

o Service revenues depend in part on ongoing renewals of support contracts
by our customers, some of which may not renew their support contracts.

o In addition, consulting revenues as a percentage of our total revenues
could decline if customers select third-party service providers to
install and service our products more frequently than they have in the
past.

If service revenues are lower than anticipated, it could have a material,
adverse effect on our business, financial condition and operating results. Our
ability to increase service revenues will depend in large part on our ability to
increase the scale of our services organization, including our ability to
successfully recruit and train a sufficient number of qualified services
personnel. We may not be able to do so. See the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

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<PAGE> 23
WE DEPEND ON LICENSED TECHNOLOGY AND WE MAY INCREASE USE OF SOFTWARE LICENSED TO
US BY THIRD PARTIES.

We license technology on a non-exclusive basis from several businesses for use
with our products and anticipate that we will continue to do so in the future.
Our inability to continue to license these products or to license other
necessary products for use with our products or substantial increases in royalty
payments under third-party licenses could harm our business. In addition, the
effective implementation of our products depends upon the successful operation
of third-party licensed products in conjunction with our products, and therefore
any undetected errors in such licensed products may prevent the implementation
or impair the functionality of products, delay new product introductions and/or
injure our reputation.

Vantive currently markets products that allow customers to make modifications to
tailor our software to their business. While we believe, based on interactions
with our customers, and potential customers, that customers derive significant
competitive advantage from such modifications, we believe that competitive
pressures, technological changes demanded by customers, and significant advances
in the sophistication of third-party application development tools such as
Visual Basic for Applications will require us to make greater use of third-party
software in the future. Additionally, our commitment to adopt or interface with
best-of-breed software technology may require us to increase use of third-party
software. The greater use of third-party software could require us to invest
significant resources in rewriting some or all of our software applications
products utilizing third party software and/or to enter into license
arrangements with third parties which could result in higher royalty payments
and a loss of product differentiation. There can be no assurance that we would
be able to successfully rewrite our products or enter into commercially
reasonable licenses, and the costs of, or inability or delays in, doing so could
materially harm our business.

OUR MARKET IS HIGHLY COMPETITIVE.

The market for enterprise relationship management software and services is
intensely competitive, fragmented and rapidly changing. We face competition or
potential competition in the customer relationship management software market
and services primarily from the following types of companies:

o front-office software applications vendors such as (in alphabetical
order) Aurum Software, Inc. (a subsidiary of The Baan Company), Clarify,
Inc., Onyx Software Corporation, Pivotal Software and Siebel Systems,
Inc.;

o large enterprise hardware and software vendors such as Oracle
Corporation, PeopleSoft, Inc., SAP AG, IBM's CorePoint business unit and
JD Edwards & Company;

o system integrators;

o Internet start-ups such as Silknet Software, Inc. and Vignette
Corporation; and

o our potential customers' internal information technology departments,
which may seek to develop proprietary enterprise relationship management
systems.

In addition, as we develop new products, particularly applications focused on
particular industries, we may begin competing with companies with whom we have
not previously competed. It is also possible that new competitors will enter the
market or that our competitors will form alliances that may enable them to
rapidly increase their market share or that our current alliance partners may
now or in the future compete with us.

CONTINUED GROWTH MAY STRAIN OUR OPERATIONS.

We have recently experienced a period of growth and expansion. Our new employees
include a number of key managerial, marketing, planning, technical and
operations personnel who have not yet been fully integrated into our
organization.

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<PAGE> 24
We intend to continue to expand our operations internationally and domestically,
grow our customer base and pursue market opportunities through multiple growth
strategies. Our rapid growth and expansion places significant demands on our
managerial, administrative, operational, financial and other resources. To
accommodate continued anticipated growth and expansion, we will be required to:

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

o hire, train, manage, retain and motivate qualified personnel and enter
into relationships with strategic partners;

o integrate our new management team; and

o anticipate and respond to changing market conditions.

These measures may place a significant burden on our management and our internal
resources. If we are not able to install adequate control systems in an
efficient and timely manner, if our current or planned personnel systems,
procedures and controls are not adequate to support our future operations, or if
we are unable to otherwise manage growth effectively, such events could have a
material, adverse effect on our business.

WE DEPEND ON KEY PERSONNEL AND MUST ATTRACT AND RETAIN ADDITIONAL QUALIFIED
PERSONNEL.

Our success depends largely on the continued contributions of our key
management, engineering, sales and marketing and professional services
personnel, many of whom would be difficult to replace. Our success also depends
on our ability to attract and retain additional qualified engineering, sales and
marketing and professional services personnel. Competition for such personnel is
intense, especially in Silicon Valley, where our principal facilities are
located. If we are unable to retain our existing key personnel, or attract and
train additional qualified personnel, our business could be harmed.

In addition, companies in the software industry whose employees accept positions
with competitors frequently claim that such competitors have breached
non-competition agreements. Although no such claim has been made against us to
date, we may receive such claims in the future as we hire qualified personnel,
and if such a claim were to be made against us, it may result in material
litigation. We could incur substantial costs in defending ourselves against any
such claims, regardless of the merits of such claims.

WE ARE DEPENDENT ON EMERGING MARKETS FOR THE GROWTH OF FRONT-OFFICE AUTOMATION
SOFTWARE.

Vantive's future financial performance will depend in large part on the growth
in demand for individual front-office automation software as well as the number
of organizations adopting comprehensive front-office automation software
information systems for their client/server and Web computing environments. We
believe that an important competitive advantage for our products is their
ability to be integrated with one another and with other back office software
into a front-office automation information system. If the demand for integrated
suites of front-office automation applications fails to develop, or develops
more slowly than we currently anticipate, this could have a material adverse
effect on the demand for our products and on its business, results of operations
and financial condition.

OUR SUCCESS DEPENDS ON A LIMITED NUMBER OF PRODUCTS AND THE SUCCESSFUL
DEVELOPMENT OF NEW PRODUCTS.

To date, a significant portion of our license revenue is derived from the sale
of a limited number of individual products, and in particular, Vantive Support,
Vantive FieldService, Vantive Sales and Vantive HelpDesk. We expect license
revenues from these products and their enhanced versions to continue to account
for a significant portion of our future revenues. As a result, factors adversely
affecting the pricing of or demand for such products such as competition or
technological change could materially affect our business. Our future financial
performance will depend, in significant part, on the successful development,
introduction and customer acceptance of new and enhanced versions of these
products and other products. Additionally, we are investing in the field
service,

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<PAGE> 25
eCommerce and Web product markets. Should these markets fail to develop, not
accept our products, or cause the Company to lose new business and/or customers
in its traditional markets our business could be harmed.

WE NEED TO EXPAND AND LEVERAGE OUR DISTRIBUTION CHANNELS.

We have historically sold our products through our direct sales force. Our
ability to achieve significant revenue growth in the future will depend in large
part on our success in recruiting and training sufficient sales personnel and
establishing relationships with distributors, resellers and systems integrators.
We are currently investing, and plan to continue to invest, significant
resources to expand our domestic and international direct sales force and to
develop distribution relationships with certain third-party distributors,
resellers and systems integrators. There can be no assurance that we will be
able to attract a sufficient number of third-party distribution partners or that
such partners will recommend our products. The inability to establish successful
relationships with distributors, resellers or systems integrators could have a
material adverse effect on our business, operating results and financial
condition. In addition, there can be no assurance that we will be able to
successfully expand our direct sales force or other distributors. If we fail
expand our direct sales force or other distribution channels our business could
be harmed.

WE NEED TO SUCCESSFULLY LEVERAGE THIRD-PARTY RELATIONSHIPS.

Vantive relies heavily on our relationships with a number of organizations that
are important to worldwide sales and marketing of our products. If we fail to
maintain our existing relationships, or to establish new relationships, or if
our partners do not perform to our expectations, such events could have a
material, adverse effect on our business, financial condition and operating
results. We also rely on a number of systems consulting and integration firms to
implement our software, provide customer support services and endorse our
products during the competitive evaluation stage of the sales cycle. Although we
seek to maintain relationships with these service providers, many of them have
similar, and often more established, relationships with our competitors. These
third parties, many of which have significantly greater resources than we have,
may in the future market software products that compete with ours or reduce or
discontinue their relationships with us or their support of our products. In
addition, the following events could have a material adverse effect on our
business, financial condition and operating results:

o we are unable to develop and retain effective, long-term relationships
with systems integrators;

o we are unable to adequately train a sufficient number of systems
integrators;

o systems integrators do not have or do not devote the resources necessary
to facilitate implementation of our products; or

o systems integrators endorse a product or technology other than ours.

OUR STOCK PRICE MAY FLUCTUATE.

In the past, the price of our common stock has been volatile. The market price
of the common stock could substantially fluctuate due to future announcements
concerning Vantive or our competitors such as:

o quarterly variations in operating results

o announcements of technological innovations

o the introduction of new products or changes in product pricing policies
by Vantive or its competitors

o proprietary rights or other litigation

o changes in earnings estimates by analysts

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<PAGE> 26
In addition, stock prices for many technology companies fluctuate widely for
reasons that may be unrelated to operating results of such companies and could
result from many other factors. These fluctuations, as well as general economic,
market and political conditions such as recessions or military conflicts, may
materially and adversely affect the market price of our common stock, which
could in turn harm our business.

WE HAVE LIMITED PROTECTION OF OUR INTELLECTUAL PROPERTY.

Our success and ability to compete depend on our proprietary technology. We rely
primarily on copyright, trade secret and trademark law and, to a lesser extent,
patent law, to protect the source code for our proprietary software and other
proprietary information. We presently have only two patents and one patent
application pending. We also enter into agreements with our employees,
consultants and customers to control their access to and distribution of our
software, documentation and other proprietary information. Nevertheless, a third
party could copy or otherwise obtain our software or other proprietary
information without authorization, or could develop software competitive to
ours. In addition, effective trademark protection may not be available. Our
competitors may adopt names similar to our trade names, thereby impeding our
ability to build brand identity and possibly leading to customer confusion.

We may have to litigate to enforce our intellectual property rights, to protect
our trade secrets or know-how or to determine their scope and validity, or the
scope, validity or enforceability of the proprietary rights of other third
parties. Enforcing or defending our proprietary technology is expensive, could
cause the diversion of our resources, and may not prove successful. In addition,
the laws of other countries may not protect our products and intellectual
property rights to the same extent as the laws of the United States. Our
protective measures may be inadequate in these countries to protect our
proprietary rights. Any failure to enforce or protect our intellectual property
rights could cause us to lose a valuable asset and could harm our business.

WE MAY INFRINGE THE PROPRIETARY RIGHTS OF OTHERS.

Although we are not aware of any infringement by any of our products of the
patent, trademark, copyright or other proprietary rights of any third-party,
claims may be made against us in the future that allege violation of such
proprietary rights as a result of the use by us, our customers or other
third-parties of our products. Any such claim would be costly and time-consuming
to defend, would divert our management's attention, could cause product delays
and could otherwise harm our business. If we were to discover that our products
violate a third-party's proprietary rights, we could be required to enter into
royalty or licensing agreements in order to be able to sell our products. Such
arrangements may not be available to us, and even if they are available, they
might be prohibitively expensive.

OUR LIMITATION OF LIABILITY PROVISIONS MAY NOT BE EFFECTIVE.

Our license agreements with our customers typically contain provisions intended
to limit our exposure to potential product liability claims. It is possible that
the limitation of liability provisions contained in such agreements may not be
effective or may not be enforced in a particular jurisdiction. Although we have
not experienced any product liability claims to date, our sale and support of
such products and the acquisition of other businesses may entail the risk of
such claims. A successful product liability action brought against us could harm
our business.

YEAR 2000 READINESS DISCLOSURE.

As is true for most companies, the Year 2000 issue creates risks for Vantive. If
systems do not correctly recognize date information when the year changes to
2000, there could be an adverse impact on our operations. The Year 2000 issue
not only has an impact on Vantive at the end of the calendar year 1999, but
could also have an impact on us in the year 2000. Our risk exists primarily in
the following areas:

o systems used by Vantive to run its business including information
systems, equipment and facilities;

o systems used by Vantive's suppliers;

26
<PAGE> 27
o potential warranty or other claims from our customers with respect to
our products or services; and

o potential for reduced spending, or a moratorium on spending, by
potential customers due to Year 2000 remediation.

We are continuing to evaluate and mitigate our exposure in those areas where
appropriate and possible.

State of Readiness. In 1998 two groups were assigned to address Vantive's Year
2000 readiness efforts. The head of our engineering department is in charge of
the product readiness group. Our head of internal systems and technology is in
charge of the internal systems readiness group. These groups have been meeting
on a regular basis to review Vantive's Year 2000 readiness and to coordinate
company-wide efforts.

Internal Systems and Equipment and Facilities. Internal systems include those
used to run Vantive's business, such as finance, manufacturing, order processing
and distribution. Vantive has completed its evaluation of most of these
applications for Year 2000 compliance, and has begun remediation or replacement
of systems, where necessary. We expect to achieve remediation without
significant impact on the operational results of our business by September 1999,
with continued testing through the end of 1999. In the event that implementation
of replacement systems is delayed, or if significant new compliance issues are
identified, our ability to conduct our business or record transactions could be
disrupted which could harm our results of operations or financial condition.

Vantive is in the process of evaluating Year 2000 compliance of its equipment
and critical suppliers of goods and services. Critical equipment, such as
manufacturing equipment, has been identified, and Vantive is currently in the
process of contacting its suppliers to ascertain Year 2000 compliance. Vantive
has submitted questionnaires to those suppliers on its internal systems and has
received certification from suppliers on year 2000 readiness. We expect to
achieve remediation by September 1999 without significant impact on the
operational results of our business, with continued testing through the end of
1999. In the event that identification of non-compliant equipment and any
upgrade or replacement of equipment is delayed, our design, production and
shipping capabilities could be disrupted, which could harm our results of
operation or financial condition.

We are assessing Year 2000 readiness of our owned and leased facilities
worldwide. Priority is being placed on critical facilities that house large
numbers of employees or significant operations. We expect to complete
remediation by September 1999. The continued functioning of these facilities is
important to operations, and, as such, any delays in achieving Year 2000
compliance with respect to these facilities could harm Vantive's results of
operations or financial condition.

Vantive Products. Vantive has conducted evaluation of its currently available
products. We believe that our current products are materially Year 2000
compliant. We have not tested all previous releases or versions of all of our
products, nor have we tested all current products within all customers' systems
environments. To assist customers in evaluating Year 2000 readiness of Vantive's
products, we have developed information on the capability of our products. This
information is located on Vantive's website (www.Vantive.com) and is
periodically updated as assessment of additional products is completed. Certain
of our disclosures and announcements concerning our products and Year 2000
programs, including those in this report, are intended to constitute "Year 2000
Readiness Disclosures" as defined in the recently enacted Year 2000 Information
and Readiness Disclosure Act. The inability of any of our products to operate
properly in the Year 2000 could result in increased warranty costs, customer
satisfaction issues, litigation or other material costs and liabilities, which
could materially harm our results of operations or financial condition.
Additionally, because there is no uniform definition of Year 2000 "compliance"
and because all customer situations cannot be anticipated, particularly those
involving other vendors' products, Vantive may see a change in demand or an
increase in warranty and other claims as a result of the Year 2000 transition.
Such events, should they occur, could have a material adverse impact on future
results.

Key Suppliers of Technology for Resale by Vantive for Use With Vantive Products.
Vantive has contacted suppliers of products resold by Vantive to determine that
the suppliers' operations and the products and services they provide are Year
2000 compliant. We believe such suppliers' products are materially Year 2000
compliant and plan to work with all suppliers for assessment and remediation for
Year 2000 compliance. Because Vantive does not provide a

27
<PAGE> 28
warranty for such products, and because only a small percentage of our customers
have purchased such products from us, we believe our exposure to product
warranty claims is minimal. As needed, Vantive will identify alternative sources
of such products. If suppliers fail to adequately address the Year 2000 issue
for the products or services they provide to Vantive and which are resold by
Vantive, this could materially harm our results of operations or financial
condition.

Contingency Plans. Because we are still assessing our Year 2000 compliance in
all areas, contingency plans have not yet been determined. As the assessments
are completed, contingency plans will be developed as needed. For example,
contingency plans for production facilities could include shifting production
and distribution to other Vantive facilities or engaging subcontractors.

Costs to Address Year 2000 Issues. Based on our current assessment, it is
expected that the total cost of these programs could be between $750,000 and
$1.0 million . To date approximately $200,000 has been spent on these efforts.
All expected costs are based on our current evaluation of the Year 2000 programs
and are subject to change as the programs progress. It is anticipated that the
majority of the Year 2000 costs incurred will consist of consultant's fees and
internal hardware and software upgrades or replacements. We do not separately
track the internal labor costs associated with the Year 2000 project unless it
is an employee's principal job function. These internal labor costs, including
employee efforts involved in assessing our Year 2000 exposures, testing, and
remediating non-compliant Year 2000 systems, communicating with customers, and
various other employee-related tasks, have not been included in the total
estimated costs. Any costs associated with potential Year 2000 litigation
exposure are not currently ascertainable and are not included in the total cost
estimate above.

Future Sales Impact. Year 2000 compliance is an issue for virtually all
businesses whose computer systems and applications may require significant
hardware and software upgrades or modifications. Companies owning and operating
such systems may plan to devote a substantial portion of their information
technology spending to fund such upgrades and modifications and divert spending
away from projects such as customers relationship management or front office
software applications. We believe that some companies have instituted a
moratorium on new information technology projects until their Year 2000 issues
are satisfactorily addressed. Such changes in customers' spending patterns could
materially harm our sales, operating results or financial condition.

REMEDIATION OF PROBLEMS RELATED TO THE EUROPEAN MONETARY CONVERSION MAY INVOLVE
SIGNIFICANT TIME AND EXPENSE AND MAY REDUCE OUR FUTURE SALES.

Vantive is aware of the issues associated with the changes in Europe aimed at
forming a European economic and monetary union. One of the changes resulting
from this union required member countries to irrevocably fix their respective
currencies to a new currency, the Euro, on January 1, 1999, at which date the
Euro became a functional legal currency of these countries. During the next
three years, business in member countries will be conducted in both the existing
national currency, such as the French Franc or the Deutschemark, and the Euro.
As a result, companies operating in or conducting business in member countries
will need to ensure that their financial and other software systems are capable
of processing transactions and properly handling these currencies, including the
Euro.

We are still assessing the impact the conversion to the Euro will have on both
our internal systems and the products we sell. We will take appropriate
corrective actions based on the results of such assessment. We have not yet
determined the costs related to addressing this issue. This issue and its
related costs could harm our business.

ACQUISITION AND NEW VENTURES MAY PRESENT RISKS TO OUR BUSINESS.

As part of our business strategy, we may in the future make acquisitions of, or
investments in, companies, products or technologies that complement our current
products, augment our market coverage, enhance our technical capabilities or
that may otherwise offer growth opportunities. Future acquisitions may create
risks for us, including:

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

o unanticipated costs associated with the acquisition;

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<PAGE> 29
o diversion of management's attention from other business concerns;

o adverse effects on existing business relationships with suppliers and
customers;

o risks of entering markets where we have no or limited prior experience;

o potential loss of key employees of acquired organizations; and

o loss of customers that, as a result of an acquisition, become
competitors.

These risks and difficulties could disrupt our ongoing business, distract our
management and employees and increase our expenses. We may not be able to
successfully integrate any businesses, products, technologies or personnel that
we might acquire in the future and our failure to do so could harm our business.

In addition, in connection with any future acquisitions, we could:

o issue equity securities which would dilute current stockholders'
percentage ownership;

o incur substantial debt; or

o assume significant liabilities.

Such actions by us could have a material, adverse effect on our operating
results and/or the price of our common stock.

CHANGES IN ACCOUNTING STANDARDS COULD AFFECT THE CALCULATION OF OUR FUTURE
OPERATING RESULTS.

We recognize revenues from software license agreements upon delivery of our
software products if:

o persuasive evidence of an arrangement exists;

o collection is probable; and

o the fee is fixed or determinable.

We recognize customer support (maintenance) revenues ratably over the contract
term -- typically one-year -- and recognize revenues for consulting and training
services as such services are performed.

Statement of Position 97-2, "Software Revenue Recognition," was issued in
October 1997 by the American Institute of Certified Public Accountants and
amended by Statement of Position 98-4. We adopted Statement of Position 97-2
effective January 1, 1998. Based on our interpretation of Statement of Position
97-2 and Statement of Position 98-4, we believe our current revenue recognition
policies and practices are consistent with Statement of Position 97-2 and
Statement of Position 98-4.

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<PAGE> 30
and (2) the difference between the total arrangement fee and the amount
deferred for the undelivered elements is recognized as revenue related to the
delivered elements. The provisions of SOP 98-9 that extend the deferral of
certain paragraphs of SOP 97-2 and SOP 98-9 will be effective for transactions
that are entered into in fiscal years beginning after March 15, 1999 and
prohibits any retroactive application. The Company is evaluating the
requirements of SOP 98-9 and the effects, if any, on our current revenue
recognition policies.

YOU SHOULD NOT UNDULY RELY ON FORWARD-LOOKING STATEMENTS.

This report contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipate," "believes," "expects,"
"future" and "intends," and similar expressions, to identify forward-looking
statements. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this report. Our actual results
could differ materially from those anticipated in these forward-looking
statements for many reasons, including the risks described above and elsewhere
in this report.

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PART II: OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS:
Not Applicable.

ITEM 2: CHANGES IN SECURITIES:
Not Applicable.

ITEM 3: DEFAULTS UPON SENIOR SECURITIES:
Not Applicable.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
Not Applicable

ITEM 5: OTHER INFORMATION:
Not Applicable.

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ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

1. EXHIBITS:

*3.1 Form of Agreement and Plan of Merger between The Vantive
Corporation, a California corporation, and The Vantive
Corporation, a Delaware corporation.

*3.2 Bylaws.

=4.1 Declaration of Registration Rights made on August 31, 1997
by the Company for the benefit of the holders of Common
Stock of Innovative Computer Concepts, Inc.

x4.2 Rights Agreement between the Company and Harris Trust and
Savings Bank dated November 19, 1998.

*10.1 Form of Indemnity Agreement for officers and directors.

*10.2 1991 Stock Option Plan, as amended.

*10.3 1995 Outside Directors Stock Option Plan.

*10.4 1995 Employee Stock Purchase Plan.

*+10.8 Basicscript License Agreement dated October 4, 1994 by and
between Henneberry Hill Technologies Corporation doing
business as Summit Software Company and the Company.

*+10.9.1 International VAR Agreement dated June 28, 1996 between
Oracle Corporation and the Company, as amended.

*+10.10 Value Added Remarketer Agreement dated December 20, 1991
between Sybase, Inc. and the Company, as amended.

*+10.11 Compensation Letter dated May 10, 1995 between the Company
and John R. Luongo.

10.12 Lease Agreement dated January 13, 1995 between John
Arrillaga, Trustee, or his Successor Trustee, UTA dated July
20, 1977 (John Arrillaga Separate Property Trust) as
amended, and Richard T. Peery, Trustee, or his Successor
Trustee, UTA dated July 20, 1977 (Richard T. Peery Separate
Property Trust) as amended, and the Company.

#10.13 Lease Agreement dated September 4, 1996 between John
Arrillaga, Trustee, or his Successor Trustee, UTA dated July
20, 1977 (Arrillaga Family Trust) as amended, and Richard T.
Peery, Trustee, or his Successor Trustee, UTA dated July 20,
1977 (Richard T. Peery Separate Property Trust) as amended,
and the Company.

**10.14 Agreement and Plan of Merger dated August 13, 1997 by and
among The Vantive Corporation, Igloo Acquisition Corporation
and Innovative Computer Concepts, Inc. as amended.

##10.15 Agreement and Plan of Reorganization by and among the
Company, Revo Acquisition Corporation and Wayfarer
Communications, Inc. dated June 18, 1998.

++10.16 Lease Agreement dated June 22, 1998 between Augustine
Partners, LLC & Vantive.

++10.17 Offer Letter dated July 31, 1998 between Vantive and Leonard
LeBlanc.

***10.18 Offer Letter dated November 4, 1998 between the Company and
James Whittaker.

***10.19 Offer Letter dated November 25, 1998 between the Company and
Steven J. Sherman.

***10.20 Offer Letter dated January 27, 1999 between the Company and
Guy DuBois.

10.21 Offer Letter dated April 19, 1999 between the Company and
Thomas L. Thomas.

27.1 Financial Summary Table

* Previously filed in the Company's Registration Statement (No. 33-94244),
declared effective on August 14, 1995.

+ Confidential Treatment has been granted for portions of this exhibit.

x Previously filed in the Company's Report on Form 8-K filed on December
18, 1998.

## Previously filed in the Company's Report on Form 8-K filed on July 15,
1998.

# Previously filed in the Company's Report on Form 10-K filed on March 31,
1997.

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** Previously filed in the Company's Report on Form 8-K filed on September
26, 1997 and on Form 8-K/A filed on November 4, 1997.

= Incorporated by reference from the Company's Registration Statement (No.
333-36547), declared effective on November 4, 1997.

++ Previously filed in the Company's Report on Form 10-Q filed on August
14, 1998.

*** Previously filed in the Company's Report on Form 10-K filed on March 31,
1999.

2. REPORTS ON FORM 8-K:

No reports on form 8-K were filed during the three months ended March 31, 1999.

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<PAGE> 34
SIGNATURES

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

THE VANTIVE CORPORATION

Dated: May 11, 1999

/s/ LEONARD J. LEBLANC
--------------------------------------
Leonard J. LeBlanc
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

Dated: May 11, 1999

/s/ MICHAEL M. LOO
-------------------------------------
Michael M. Loo
Vice President, Finance
(Principal Accounting Officer)

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EXHIBIT INDEX

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

10.21 Offer Letter dated April 19, 1999 between the Company and
Thomas L. Thomas.

27.1 Financial Summary Table

<PAGE> 1
EXHIBIT 10.21

April 19, 1999

Thomas L. Thomas

Dear Tom:

We are pleased that you are considering joining us at The Vantive Corporation
(the Company). The purpose of this letter is to set forth the offer of
employment that we have discussed.

We propose that you begin employment with the Company as Chief Executive
Officer, reporting to the Board of Directors. The effective date of your
employment will be April 19, 1999.

Your base salary, before deductions, computed on an annual basis and beginning
on the date you become an employee of the Company, will be $400,000 per year.
Such base salary will be paid in installments in accordance with the Company's
payroll policy for services performed prior to the date of payment. You will
participate in a bonus program with target amounts and objectives to be
determined annually by the Board of Directors. For 1999, the target amount of
your bonus will be $300,000, and $75,000 of that amount will be immediately and
irrevocably payable to you five days following the effective date of your
employment.

Subject to the approval of the Board of Directors and your execution of the
Company's form of stock option agreement, you will be awarded stock options
pursuant to the Company's Stock Option Plan to purchase 500,000 shares of Common
Stock of the Company. These options will vest over a 48-month period at the rate
of 6/48 after the first six months of employment and 1/48 per month thereafter.
The price per share of these options will be the fair market value of a share of
Common Stock of the Company as of the close of the market on the effective date
of your employment.

In addition, subject to the approval of the Board of Directors, you will receive
a restricted grant of the Common Stock of the Company in the amount of 25,000
shares. You will vest in these restricted shares as to one half of the total
after one year following the effective date of your employment, if you are still
employed by the Company on such date, and as to the remaining one half of the
total two years following the effective date of your employment, if you are
still employed by the Company on such date.

You will also be entitled to participate in the Executive Severance and
Retention Plan adopted by the Company in November 1998.

This offer of employment is expressly subject to you executing the Company's
standard form of non-disclosure agreement in the form enclosed with this letter,
as well as your agreement to follow all other rules, guidelines and policies
that the Company has adopted and may adopt from time to time. The non-disclosure
agreement must be signed an returned to Vantive before the effective date of
your employment.

This offer of employment is not for any specific period of time and your
employment may be terminated with or without cause by yourself or by the Company
at any time and for any reason.

This offer of employment, along with the non-disclosure agreement, contains all
the terms and conditions of your employment with the Company and supersedes any
and all prior oral or written representations or agreements made by anyone
employed by, or associated with the Company.

You will be entitled to receive all other benefits of employment generally
available to the Company's other employees.

All amounts payable to you as taxable compensation will be subject to income tax
withholdings as required by federal, state and/or local authorities and any
other applicable withholding.

36
<PAGE> 2
We hope that you will accept this offer and look forward to you joining Vantive.
Please acknowledge your acceptance of this offer by signing and dating this
letter and returning it to us. Thank you.

Very truly yours,

/s/ Peter Roshko
- -------------------------
Peter Roshko

On behalf of the Board of Directors

I agree to the terms and conditions of employment set forth above:

/s/ Thomas L. Thomas
- -------------------------
Thomas L. Thomas

April 19, 1999

Date

<ARTICLE> 5

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0
0
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