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Form 10-QSB

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)



|[X] |  | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- |  | ---------------------------------------------------------------------------------

For the quarterly period ended: March 31, 2002



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

For the transition period from __________________ to __________________

Commission File Number 0-13022

INTELLICORP, INC.
(Exact name of small business issuer as specified in its charter)

|                                |  |                    
|------------------------------- |  | -------------------
|Delaware                        |  | 94-2756073         
|(State or other jurisdiction of |  | (I.R.S. Employer   
|incorporation or organization)  |  | Identification No.)

1975 El Camino Real West
Mountain View, California 94040-2216
(Address of principal executive offices)
(Zip Code)

(650) 965-5500
(Issuers telephone number, including area code)

Check whether the issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.

Yes [X]    No [   ]

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuers classes of
common equity, as of the latest practicable date.

|                              |  |                   |  | 
|----------------------------- |  | ----------------- |  | 
|                              |  | Outstanding as of
|Class                         |  | May 1, 2002      
|                              |  |                  
|Common stock,
$.001 par value |  | 62,565,581 shares

This document is comprised of 19 pages.





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TABLE OF CONTENTS



|                              |                                                                                               |                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | Item 1. Financial Statements                                                                 
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                              |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                              | Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|PART II. OTHER INFORMATION   
|                              | Item 1. Legal Proceedings                                                                    
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURE                    



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TABLE OF CONTENTS

|                                |  |                                                                                       |  |  |       |      |    | 
|------------------------------- |  | ------------------------------------------------------------------------------------- |  |  | ----- | ---- | -- | 
|                                |  |                                                                                       |  |  |       | Page
|                                |  |                                                                                       |  |  |       |     
|PART I.   FINANCIAL INFORMATION |  |                                                                                       |  |  |      
|Item 1                          |  | Financial Statements (unaudited)                                                      |  |  |       |     
|                                |  | Condensed Consolidated Balance Sheets                                                 |  |  | 3     |     
|                                |  | Condensed Consolidated Statements of Operations                                       |  |  | 4     |     
|                                |  | Condensed Consolidated Statements of Cash Flows                                       |  |  | 5     |     
|                                |  | Notes to Condensed Consolidated Financial Statements                                  |  |  | 6-9   |     
|Item 2                          |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  |  | 10-17 |     
|PART II.   OTHER INFORMATION    |  |                                                                                       |  |  |      
|Item 1                          |  | Legal Proceedings                                                                     |  |  | 18    |     
|Item 6                          |  | Exhibits and Reports on Form 8-K                                                      |  |  | 18    |     
|SIGNATURE                       |  |                                                                                       |  |  |       |      | 19 | 

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PART I. FINANCIAL INFORMATION







Item 1. Financial Statements

INTELLICORP, INC.CONDENSED CONSOLIDATED BALANCE SHEETS

|                                     |                            |      |             |         |          |   |         |       | 
|------------------------------------ | -------------------------- | ---- | ----------- | ------- | -------- | - | ------- | ----- | 
|                                     |                            |      | March 31,   |         | June 30,
|(In thousands)                       |                            | 2002 |             | 2001(1)
|                                     |                            |      |             |        
|                                     |                            |      | (unaudited) |         |          |   |        
|Assets                               |                            |      |             |         |          |   |         |      
|Current assets:                      |                            |      |             |         |          |   |         |      
|Cash and cash equivalents            |                            | $    | 326         |         |          | $ | 2,639   |      
|Accounts receivable, net             |                            |      | 1,942       |         |          |   | 5,966   |      
|Other current assets                 |                            |      | 677         |         |          |   | 671     |      
|                                     |                            |      |             |         |          |   |         |      
|                                     | Total current assets       |      |             | 2,945   |          |   |         | 9,276 | 
|Property and equipment, net          |                            |      | 324         |         |          |   | 603     |      
|Purchased intangibles, net           |                            |      | 1,082       |         |          |   | 1,472   |      
|Other assets                         |                            |      | 123         |         |          |   | 143     |      
|                                     |                            |      |             |         |          |   |         |      
|                                     |                            | $    | 4,474       |         |          | $ | 11,494  |      
|                                     |                            |      |             |         |          |   |         |      
|Liabilities and Stockholders Equity |                            |      |             |         |          |   |         |      
|                                     |                            |      |             |         |          |   |         |      
|Current liabilities:                 |                            |      |             |         |          |   |         |      
|Accounts payable                     |                            | $    | 1,361       |         |          | $ | 2,381   |      
|Accrued compensation                 |                            |      | 1,178       |         |          |   | 1,639   |      
|Accrued royalties                    |                            |      | 21          |         |          |   | 284     |      
|Other current liabilities            |                            |      | 1,342       |         |          |   | 1,702   |      
|Bank loan                            |                            |      | 242         |         |          |   | 1,640   |      
|Short term notes payable             |                            |      | 3,750       |         |          |   |        |      
|Deferred revenues                    |                            |      | 709         |         |          |   | 1,081   |      
|                                     |                            |      |             |         |          |   |         |      
|                                     | Total current liabilities  |      |             | 8,603   |          |   |         | 8,727 | 
|Stockholders equity:                |                            |      |             |         |          |   |         |      
|Preferred stock                      |                            |      | 1           |         |          |   | 1       |      
|Common stock                         |                            |      | 22          |         |          |   | 22      |      
|Additional paid  in capital         |                            |      | 75,738      |         |          |   | 73,369  |      
|Accumulated deficit                  |                            |      | (79,890     | )       |          |   | (70,625 | )    
|                                     |                            |      |             |         |          |   |         |      
|                                     | Total stockholders equity |      |             | (4,129  | )        |   |         | 2,767 | 
|                                     |                            |      |             |         |          |   |         |      
|                                     |                            | $    | 4,474       |         |          | $ | 11,494  |      
|                                     |                            |      |             |         |          |   |         |      



---

|(1) |  | The consolidated balance sheet at June 30, 2001, has been derived from
the audited consolidated financial statements at that date but does not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

See accompanying notes.

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INTELLICORP, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                     |                                        |                                               |                     |        |                    |       |                   |        |       |       |         |        |        |       |        |        |        |       | 
|-------------------------------------------------------------------- | -------------------------------------- | --------------------------------------------- | ------------------- | ------ | ------------------ | ----- | ----------------- | ------ | ----- | ----- | ------- | ------ | ------ | ----- | ------ | ------ | ------ | ----- | 
|                                                                     |                                        |                                               |                     |        | Three months ended |       | Nine months ended
|                                                                     |                                        |                                               |                     |        | March 31,          |       | March 31,        
|(In thousands, except                                                |                                        |                                               |                     |       
|per share amounts)                                                   |                                        | 2002                                          |                     | 2001   |                    | 2002  |                   | 2001  
|                                                                     |                                        |                                               |                     |        |                    |       |                   |       
|                                                                     |                                        |                                               |                     |        | (unaudited)        |       | (unaudited)      
|                                                                     | Revenues:                              |                                               |                     |        |                    |       |                   |        |       |       |         |        |        |       |        |        |       
|                                                                     |                                        | Consulting services                           |                     | $      | 1,759              |       |                   | $      | 5,784 |       |         | $      | 7,000  |       |        | $      | 13,851 |      
|                                                                     |                                        | Software license                              |                     |        | 444                |       |                   |        | 732   |       |         |        | 1,037  |       |        |        | 3,697  |      
|                                                                     |                                        | License support                               |                     |        | 372                |       |                   |        | 568   |       |         |        | 1,288  |       |        |        | 2,004  |      
|                                                                     |                                        |                                               |                     |        |                    |       |                   |        |       |       |         |        |        |       |        |       
|                                                                     |                                        | Total revenues                                |                     |        | 2,575              |       |                   |        | 7,084 |       |         |        | 9,325  |       |        |        | 19,552 |      
|                                                                     |                                        |                                               |                     |        |                    |       |                   |        |       |       |         |        |        |       |        |       
|                                                                     | Costs and expenses:                    |                                               |                     |        |                    |       |                   |        |       |       |         |        |        |       |        |        |       
|                                                                     |                                        | Cost of revenues:                             |                     |        |                    |       |                   |        |       |       |         |        |        |       |        |        |        |      
|                                                                     |                                        |                                               | Consulting services |        |                    | 1,876 |                   |        |       | 3,770 |         |        |        | 6,791 |        |        |        | 9,435 | 
|                                                                     |                                        |                                               | Software license    |        |                    | 150   |                   |        |       | 149   |         |        |        | 421   |        |        |        | 638   | 
|                                                                     |                                        |                                               | License support     |        |                    | 59    |                   |        |       | 92    |         |        |        | 230   |        |        |        | 277   | 
|                                                                     |                                        | Research and development                      |                     |        | 565                |       |                   |        | 850   |       |         |        | 1,891  |       |        |        | 2,110  |      
|                                                                     |                                        | Sales, marketing, general,
and administrative |                     |        | 2,279              |       |                   |        | 3,612 |       |         |        | 8,304  |       |        |        | 10,375 |      
|                                                                     |                                        |                                               |                     |        |                    |       |                   |        |       |       |         |        |        |       |        |       
|                                                                     |                                        | Total costs and expenses                      |                     |        | 4,929              |       |                   |        | 8,473 |       |         |        | 17,637 |       |        |        | 22,835 |      
|                                                                     |                                        |                                               |                     |        |                    |       |                   |        |       |       |         |        |        |       |        |       
|                                                                     | Loss from operations                   |                                               |                     | (2,354 | )                  |       |                   | (1,389 | )     |       |         | (8,312 | )      |       |        | (3,283 | )     
|                                                                     | Other income (expense), net            |                                               |                     | (166   | )                  |       |                   | 8      |       |       |         | (235   | )      |       |        | (154   | )     
|                                                                     |                                        |                                               |                     |        |                    |       |                   |        |       |       |         |        |        |       |        |       
|                                                                     | Loss before provision
for income taxes |                                               |                     | (2,520 | )                  |       |                   | (1,381 | )     |       |         | (8,547 | )      |       |        | (3,437 | )     
|                                                                     | Provision for income taxes             |                                               |                     | 6      |                    |       |                   | 6      |       |       |         | 29     |        |       |        | 6      |       
|                                                                     |                                        |                                               |                     |        |                    |       |                   |        |       |       |         |        |        |       |        |       
|Net loss                                                             |                                        | $                                             | (2,526              | )      |                    | $     | (1,387            | )      |       | $     | (8,576  | )      |        | $     | (3,443 | )     
|                                                                     |                                        |                                               |                     |        |                    |       |                   |        |       |       |         |        |        |       |        |       
|Series A, Series B and Series C
Preferred stock dividends            |                                        |                                               | (226                | )      |                    |       | (129              | )      |       |       | (689    | )      |        |       | (396   | )     
|Beneficial conversion dividend
Series C Preferred Stock              |                                        |                                               |                    |        |                    |       | (1,703            | )      |       |       | (1,259  | )      |        |       | (1,703 | )     
|                                                                     |                                        |                                               |                     |        |                    |       |                   |        |       |       |         |        |        |       |        |       
|Net loss applicable to
common shareholders                           |                                        | $                                             | (2,752              | )      |                    | $     | (3,219            | )      |       | $     | (10,524 | )      |        | $     | (5,542 | )     
|                                                                     |                                        |                                               |                     |        |                    |       |                   |        |       |       |         |        |        |       |        |       
|Basic and diluted net loss per
common share                          |                                        | $                                             | (0.12               | )      |                    | $     | (0.15             | )      |       | $     | (0.46   | )      |        | $     | (0.26  | )     
|                                                                     |                                        |                                               |                     |        |                    |       |                   |        |       |       |         |        |        |       |        |       
|Shares used in computing basic and
diluted net loss per common share |                                        |                                               | 23,115              |        |                    |       | 21,704            |        |       |       | 22,768  |        |        |       | 20,944 |       
|                                                                     |                                        |                                               |                     |        |                    |       |                   |        |       |       |         |        |        |       |        |       

See accompanying notes.

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INTELLICORP, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                 |                                                                                 |                           |        |                   |        |   |       |        |        |  
|------------------------------------------------ | ------------------------------------------------------------------------------- | ------------------------- | ------ | ----------------- | ------ | - | ----- | ------ | ------ | -
|                                                 |                                                                                 |                           |        | Nine months ended
|                                                 |                                                                                 |                           |        | March 31,        
|                                                 |                                                                                 |                           |        |                  
|(in thousands)                                   |                                                                                 | 2002                      |        | 2001             
|                                                 |                                                                                 |                           |        |                  
|                                                 |                                                                                 |                           |        | (unaudited)      
|Cash flows from operating activities:            |                                                                                 |                           |        |                   |        |   |       |       
|                                                 | Net loss                                                                        |                           | $      | (8,576            | )      |   | $     | (3,443 | )     
|                                                 | Adjustments to reconcile net loss to net
cash provided in operating activities: |                           |        |                   |        |   |       |        |       
|                                                 | Depreciation and amortization                                                   |                           |        | 653               |        |   |       | 725    |       
|                                                 | Loss on disposal of assets                                                      |                           |        | 63                |        |   |       | 6      |       
|                                                 | Abandoned software written-off                                                  |                           |        |                  |        |   |       | 247    |       
|                                                 | Changes in assets and liabilities:                                              |                           |        |                   |        |   |       |        |       
|                                                 |                                                                                 | Accounts receivable       |        |                   | 4,024  |   |       |        | (1,484 | )
|                                                 |                                                                                 | Other current assets      |        |                   | (6     | ) |       |        | 575    |  
|                                                 |                                                                                 | Other assets              |        |                   | 20     |   |       |        | (24    | )
|                                                 |                                                                                 | Accounts payable          |        |                   | (1,020 | ) |       |        | 384    |  
|                                                 |                                                                                 | Accrued compensation      |        |                   | (461   | ) |       |        | 192    |  
|                                                 |                                                                                 | Other current liabilities |        |                   | (623   | ) |       |        | 59     |  
|                                                 |                                                                                 | Deferred revenues         |        |                   | (372   | ) |       |        | (661   | )
|                                                 |                                                                                 |                           |        |                   |        |   |       |       
|                                                 | Net cash used in operating activities                                           |                           |        | (6,298            | )      |   |       | (3,424 | )     
|                                                 |                                                                                 |                           |        |                   |        |   |       |       
|Cash flows from investing activities:            |                                                                                 |                           |        |                   |        |   |       |       
|                                                 | Expenditures for property and equipment                                         |                           |        | (47               | )      |   |       | (202   | )     
|                                                 |                                                                                 |                           |        |                   |        |   |       |       
|Net cash used in investing activities            |                                                                                 |                           | (47    | )                 |        |   | (202  | )     
|                                                 |                                                                                 |                           |        |                   |        |   |       |       
|Cash flows from financing activities:            |                                                                                 |                           |        |                   |        |   |       |       
|                                                 | Net (repayments) borrowings under bank credit line                              |                           |        | (1,398            | )      |   |       | 1,317  |       
|                                                 | Cash received from issuance of short-term notes payable                         |                           |        | 3,750             |        |   |       |       |       
|                                                 | Payment of dividends                                                            |                           |        | (689              | )      |   |       | (396   | )     
|                                                 | Cash paid for issuance costs related to sales of preferred stock                |                           |        | (61               | )      |   |       | 4,880  |       
|                                                 | Cash received from sales of common stock                                        |                           |        | 2,430             |        |   |       | 1,455  |       
|                                                 |                                                                                 |                           |        |                   |        |   |       |       
|Net cash provided by financing activities        |                                                                                 |                           | 4,032  |                   |        |   | 7,256 |       
|                                                 |                                                                                 |                           |        |                   |        |   |       |       
|(Decrease)/Increase in cash and cash equivalents |                                                                                 |                           | (2,313 | )                 |        |   | 3,630 |       
|Cash and cash equivalents, beginning of period   |                                                                                 |                           | 2,639  |                   |        |   | 2,240 |       
|                                                 |                                                                                 |                           |        |                   |        |   |       |       
|Cash and cash equivalents, end of period         |                                                                                 | $                         | 326    |                   |        | $ | 5,870 |       
|                                                 |                                                                                 |                           |        |                   |        |   |       |       

See accompanying notes.

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IntelliCorp, Inc.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(unaudited)

1. Interim Financial Data (Unaudited).The unaudited condensed consolidated
financial statements for IntelliCorp, Inc. (the Company or IntelliCorp) as
of March 31, 2002 and for the three and nine months ended March 31, 2002 and
2001 have been prepared on the same basis as the Companys audited financial
statements and, in the opinion of management, include all material adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
of the financial position and results of operations in accordance with
generally accepted accounting principles. Although certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission, the Company believes the disclosures made are adequate to make the
information presented not misleading. The accompanying financial statements
should be read in conjunction with the Companys annual financial statements
contained in the Companys Annual Report on Form 10-KSB for the year ended June
30, 2001.

The Companys balance sheet as of
March 31, 2002 was derived from the Companys
audited financial statements, but does not include all disclosures necessary
for the presentation to be in accordance with generally accepted accounting
principles.

2. Significant Customers.A related party accounted for less than 1% ($9,000)
and 5% (472,000), respectively, of the total revenues for the three and nine
month periods ended March 31, 2002 and 10% ($730,000) and 14% ($2,677,000),
respectively, of the revenues for the three and nine month periods ended March
31, 2001. Two customers accounted for 30% ($760,000) and 19% ($482,000) of
total revenues for the three months ended March 31, 2002. Three customers
accounted for 22% ($2,022,000), 17% ($1,583,000) and 8% ($747,000) of total
revenues for the nine months ended March 31,2002, respectively. This compares
to one customer accounting for 18% ($1,257,000) and 19% ($3,722,000) of the
total revenues for the three and nine months ended March 31, 2001.

3. Income Taxes.The provision for income taxes of $6,000 and $29,000 for the
three and nine months ended March 31, 2002 is attributable to local taxes and
foreign withholding taxes. The provision for income taxes of $6,000 and $6,000
for the three and nine months ended March 31, 2001 is attributable to local
taxes.

4. Comprehensive Loss.For the three and nine months ended March 31, 2002 and
2001, respectively, comprehensive loss equaled net loss.

5. Bank Loan.In March 1999, the Company secured a credit facility from a
bank, bearing an annual interest at the banks prime rate plus 2% (6.75% and
10.3% as of March 31, 2002 and 2001, respectively). The credit line is an
asset-based facility, and as of March 31, 2002 the amount that can be borrowed
under the loan is the lesser of $2.0 million or 75% of the eligible accounts
receivable balances at any point in time. At March 31, 2002, the Company owed
$242,000 on this credit facility. The amounts collected from outstanding,
eligible accounts receivable balances are remitted to the bank as loan payments
when such amounts are received. The initial term of this facility was two
years, and it was renewed on July 31, 2001 for one additional year. The credit
facility is secured by essentially all of the assets of the Company.

6. Promissory Notes.In September 2001, November 2001 and January 2002, the
Company entered into agreements with two related parties under which the
Company can borrow up to $4.0 million, of which $4.0 million has been borrowed
through March 31, 2002. The notes bear interest at a rate equal to the
interest rate by the Senior Lender (currently defined as Silicon Valley
Bank), which bears annual interest at the banks prime rate plus 2%. The
principal and accrued interest are due on August 31, 2002. Prepayment of
principal, together with accrued interest, may be made at any time without
penalty. The notes are secured by the Companys accounts receivable, however
such notes are subordinate to that amount owed under the Senior Lender credit
facility. The notes may be repaid in cash or equity by mutual agreement of the
parties. In February 2002, 1,648,174 shares of common stock were issued for
repayment of $250,000 promissory note and accrued interest. (See Subsequent
Events, Note 12.)

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IntelliCorp, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)

7. Equity.In December 2001, the Company adjusted the conversion price of the
Series C convertible preferred stock and issued additional warrants as a result
of the reset provision stipulated in the Series C preferred stock purchase
agreement. The reset provision specifies that if the original conversion price
($1.125) is higher than the average closing bid price per share of the
Companys common stock for the five trading days immediately preceding the
six-month anniversary of the sale of the first share of Series C convertible
preferred stock (the average closing bid price), the original conversion
price would be reset.

The reset price is designated as the higher of $0.84 or the average closing bid
price per share of the Companys common stock for the five trading days
immediately preceding the six-month anniversary of the sale of the first share
of Series C convertible preferred stock, not to exceed $1.125. The six-month
anniversary date was September 5, 2001 and the five trading days preceding the
anniversary were August 28, 2001 thru August 31, 2001 and September 4, 2001.
The average closing bid price for the aforementioned period was $0.71.
Therefore, the conversion price was reset to $0.84 and resulted in the
potential issuance of an additional 1,471,747 shares of common stock upon
conversion and the issuance of an additional 367,936 warrants exercisable at
$2.00. Also, an additional 162,666 warrants exercisable at $2.00 were issued
as a result of filing the associated Registration Statement in a period longer
than stipulated in the preferred stock agreement. The reset provisions
resulted in an additional deemed dividend charge of $1.3 million, which was
recorded, in the second quarter of fiscal 2002.

In October 2001, the Company issued 383,203 stock options at an average
exercise price of $0.42 per share, based on the fair market value of the common
stock on the grant date, which expire in ten years, to various employees as a
bonus in lieu of a cash payment. In addition, in December 2001, the Company
issued 535,000 stock options at an average exercise price of $0.31 per share,
based on the fair market value of the common stock on the grant date, which
expire in ten years, to various employees.

8. Net Loss per Common Share.Net loss per common share is computed using the
weighted-average number of shares of common stock outstanding. Common stock
equivalent shares from outstanding stock options and warrants are not included
as their effect is antidilutive.

9. Reduction-In-Force.During the nine months ended March 2002, the Company
reduced its work force by 40% in order to align cash resources with projected
expenses for fiscal year 2002. Estimated revenues were impacted by a downturn
in the economy during 2001 calendar year. A total of 64 employees were
affected by the reduction in force, which consisted of 44 technical
professionals and 20 employees in marketing, general and administration. The
cost of the reduction-in-force was approximately $681,000, entirely for
severance pay. Of the $681,000, $422,000 was charged to cost of revenues,
$39,000 was charged to research and development expenses and $220,000 was
charged to marketing, general and administrative expenses.

10. Deemed Dividend.In March 2001, the Company consummated the sale of 4,880
shares of Series C convertible preferred stock from which the Company received
proceeds of $4.88 million. On the date the investors were legally committed
to purchase the shares, the purchase price per share of the equivalent common
stock was less than the fair market value of the Companys common stock on that
date. Accordingly, the difference between common stock equivalent price of
$1.125 (the conversion price) and the fair market value of the underlying
common shares or $1.3125 on the date the investors were legally committed to
purchase the shares, has resulted in a beneficial conversion feature that has
been recorded as a deemed dividend to the Series C preferred shareholders in
March 2001. In addition, in accordance with EITF 00-27, Application of Issue
No. 98-5 to Certain Convertible Instruments, the warrants attached to this
preferred stock financing were valued using the Black Scholes model using the
following assumptions: 0.85% volatility, 5% interest, and a term of 5 years.
The value of the warrants together with the difference in fair market value on
the commitment date together resulted in a deemed dividend of $1.7 million.
The reset provision contemplated in the preferred stock purchase agreement
required the Company to measure the value of the reset provision at the
commitment date, and to record the resultant
deemed dividend at the time the Company reset the conversion price. The
additional deemed dividend of $1.3 million was recorded in December 2001.

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IntelliCorp, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)

The Company recorded the deemed dividend at the date of issuance and at the
reset date by offsetting charges and credits to additional paid-in-capital,
without any effect on total shareholders equity. This charge was made against
additional paid in capital, as the Company did not have retained earnings from
which it could have deducted a deemed dividend. The preferred stock dividend
increases the net loss allocable to common shareholders in the calculation of
basic and diluted net loss per common share for the quarter ended March 31,
2001 and for the quarter ended December 31, 2001. The guidelines set forth in
the Emerging Issues Task Force Consensus No. 98-5 limit the amount of the
deemed dividend to the amount of the proceeds of the related financing.

11. Recent Accounting Pronouncements. In July 2001, the Financial Accounting
Standards Board issued SFAS 141, Business Combinations, and SFAS 142,
Goodwill and Other Intangible Assets.

SFAS 141 supercedes Accounting Principles Board Opinion No. 16, (Business
CombinationsAPB 16). The most significant changes made by SFAS 141 are:
(1) requiring that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, (2) establishing specific criteria
for the recognition of intangible assets separately from goodwill, and (3)
requiring unallocated negative goodwill to be written off immediately as an
extraordinary gain (instead of being deferred and amortized).

SFAS 142 supercedes APB 17, Intangible Assets. SFAS 142 primarily addresses
the accounting for goodwill and intangible assets subsequent to business
combinations (i.e., the post-acquisition accounting). The provisions of SFAS
142 will be effective for fiscal years beginning after December 15, 2001,
however, certain provisions of this new standard may also apply to any
acquisitions concluded subsequent to June 30, 2001. The most significant
changes made by SFAS 142 are: (1) goodwill and indefinite lived intangible
assets will no longer be amortized, (2) goodwill will be tested for impairment
at least annually at the reporting unit level, and (3) intangible assets deemed
to have an indefinite life will be tested for impairment at least annually.

The Company is required to adopt SFAS 141 and SFAS 142 on a prospective basis
as of July 1, 2002, however, certain provisions of these new standards may also
apply to any acquisitions concluded subsequent to June 30, 2001. As a result
of implementing these new standards, amortization of existing goodwill will
cease as of July 1, 2002 and during fiscal 2003, the Company will perform the
first of the required impairment tests of goodwill as of July 1, 2002. The
Company is currently reviewing the impact that the adoption of these standards
will have on its financial position and results of operations. As of March 31,
2002, the Company has a net carrying value of $544,000 in goodwill and no
assembled workforce.

In October 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets(FAS 144), which addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of,and the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of Operationsfor a
segment of a business. SFAS 144 retains many of the provisions of SFAS 121,
but significantly changes the criteria that would have to be met to classify an
asset as held for disposal such that long-lived assets to be disposed of other
than by sale are considered held and used until disposed of. In addition, SFAS
144 retains the basic provisions of APB 30 for presentation of discontinued
operations in the statement of operations but broadens that presentation to a
component of an entity. The Company will adopt FAS 144 as of July 1, 2002 and
it has not determined the effect, if any, the adoption of SFAS 144 will have on
the Companys financial position and results of operations.

12. Subsequent Events. On November 16, 2001, the Company received notice from
Nasdaq that they were reviewing the Companys eligibility for continued listing
on the Nasdaq SmallCap market. On February 7, 2002, the Company received a
Nasdaq Staff Determination indicating that it fails to comply with the net
tangible assets or the minimum stockholders equity requirements for continued
listing, and that its securities are, therefore, subject to delisting from the
Nasdaq SmallCap Market. The Company appeared at a hearing before the Nasdaq
Listing Qualifications Panel held on March 21, 2002 to review the Staff
Determination.

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IntelliCorp, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(continued)
(unaudited)

On April 11, 2002, the Company received notice from Nasdaq that its common
stock would be delisted from the Nasdaq Stock Market, effective with the open
of business on April 12, 2002. The delisting was a result of IntelliCorps
failure to meet Nasdaqs continued listing requirements. IntelliCorps common
stock is trading on the Over-the-Counter Bulletin Board (OTC).

On April 30, 2002, shareholders approved the repayment of the approximately
$3.75 million of notes along with $127,000 accrued interest and the $2.0
million equity transaction by issuance of common stock at a fixed price per
share of $0.154. This resulted in the issuance of 25,172,549 shares of common
stock for the repayment of $3,876,572 for the short-term notes and interest and
12,987,013 shares of common stock were issued for the $2.0 million equity
transaction.

Pro forma changes to Balance Sheet
(presuming Shareholder Approval had been received prior to March 31, 2002)

|                             |  |             |        |            |  |           |        |   |  |   |        | 
|---------------------------- |  | ----------- | ------ | ---------- |  | --------- | ------ | - |  | - | ------ | 
|                             |  | As Reported |        | Adjustment |  | Pro Forma
|                             |  |             |        |            |  |          
|Other current liabilities    |  | $           | 1,342  |            |  | $         | (127   | ) |  | $ | 1,215  | 
|Short term notes payable     |  |             | 3,750  |            |  |           | (3,750 | ) |  |   | 0      | 
|Additional paid  in capital |  |             | 75,738 |            |  |           | 5,877  |   |  |   | 81,615 | 
|Total stockholders equity   |  | $           | (4,129 | )          |  | $         | 5,877  |   |  | $ | 1,748  | 

In April 2002, the Company entered into an agreement with a related party under
which the Company can borrow up to $1.6 million, of which $1.1 million has been
borrowed through April 30, 2002. The notes bear interest at a rate equal to the
interest rate by the Senior Lender, which bears annual interest at the banks
prime rate plus 2%. The principal and accrued interest is due on April 30,
2003. Prepayment of principal, together with accrued interest, may be made at
any time without penalty. Interest hereon shall accrue at a rate equal to that
charged by the Senior Lender under the Borrowers receivable line with the
Senior Lender. If there is no Senior Lender, interest hereon shall accrue at a
rate equal to the prime rate, as published in the Wall Street Journal, plus 2
percent. The principal and any interest due and payable under this note shall
be secured by the Borrowers worldwide accounts receivable, however, only to
the extent that all obligations of the primary security holder, Senior Lender
are satisfied in full. The notes may be repaid in cash or equity by mutual
agreement of the parties.

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Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

We are an international technology services and solutions firm that provides
Global 2000 companies the business solutions required to fully leverage their
investments in information systems and business processes. We offer services
and solutions for evaluating and developing business strategy, refining,
designing and implementing business software architecture, and implementing and
integrating Customer Relationship Management (CRM) software.

We offer a combination of customized consulting services and solutions to help
our customers align disparate customer channels, including the Internet,
wireless, contact centers, and field sales with back-office processes such as
manufacturing, order fulfillment, order management, logistics, human resources,
distribution, and accounting.

The solutions that we design and implement enable our customers to increase
efficiency, accelerate business growth, and increase customer retention by
applying an end-to-end methodology to the customer relationship process. By
focusing primarily on the configuration of complex products and the
personalization of the customer experience, we help our customers conquer the
most difficult and complex aspects of the CRM process.

In the past year we changed our focus to solutions, which combine a mix of
software products and consulting services that help Global 2000 companies
rapidly enter the world of conducting electronic business (eBusiness) on the
Internet. These consulting solutions provide SAP, AG customers with an
eBusiness strategy that maximizes their enterprise resource planning (ERP)
investment and minimizes integration and data management issues associated with
implementing software packages that combine the best applications from many
different vendors to create the best product of its type (best-of-breed
software). Beginning fiscal year 2000, we began to explore other strategic
business opportunities, including entering into an agreement with SAP, AG to
assist them with the development of SAPs Internet Pricing and Configurator
(IPC) program. We also were selected to implement this program for three of
SAP AGs major customers due to our extensive knowledge of a variety of SAP
AGs software applications. From this experience and from analysis of the
growing market for consulting services attuned to the relationships of business
with our customers, we believe that the revenue stream in the implementation
services area would be more predictable in the near term than in the software
license products area. In addition, we determined that our unique
understanding of SAPs business planning system allowed us to expand beyond
providing implementation services for SAP AGs customer management applications
to providing those services to other vendors of software such as Siebel and
Cybrant directed at the business-customer relationship. As part of this
strategy, we found new opportunities to sell our business management tools and
applications to enable our business customers to consolidate and/or align our
business management systems with the newer customer management applications.

Based on our recent change to a combination of software license products,
consulting and combined solutions, our revenue mix in any short span of time
may prove volatile as we accommodate our customers specific and immediate
needs. The dynamic nature of the market, especially as ERP upgrades become
available and potential customers continue to delay the purchase and/or
implementation of CRM applications, may result in a dynamic situation whereby
the mix to services and products could vary significantly quarter-to-quarter.
The operating margins for software license products are substantially higher
than the operating margins for our consulting services. This disparity is
principally due to the low cost of materials, royalties, and other costs
associated with our software license products, as compared to the relatively
high personnel costs (including the higher cost of using outside consultants)
incurred in providing consulting services. Our operating margins have in the
past and may, in the future, vary significantly as a result of changes in the
proportion of revenues attributable to software license products and consulting
services. Should the proportion of licensing revenues increase relative to our
consulting services, our overall margins will increase accordingly. Our
overall operating margins may thus be higher than those for consulting services
companies that do not derive such a percentage of revenues from license product
sales.

Other than statements of historical fact, the statements made in this quarterly
report are hereby identified as forward-looking statements that involve risks
and uncertainties. The Companys actual results may

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differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in
Statement of Operations Data and Liquidity and Capital Resources below and
in Risk Factors in the Companys Annual Report on Form 10-KSB for the fiscal
year ended June 30, 2001.

In particular, it is important to note that achievement of revenue goals is
affected by numerous factors beyond the Companys control, including
competitors product introductions, market price competition and market
acceptance of the Companys consulting and software license products.
Historical results of the Company may not be indicative of future operating
results. As a result, or if our spending plans materially change, we may find
it necessary to seek to obtain additional sources of financing to support our
capital needs, but we cannot assure you that a financing will be available on
commercially reasonable terms, or at all.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 financial statements and the reported amounts of revenues
and expenses during the reporting period. Our estimates, judgements and
assumptions are continually evaluated based on available information and
experience, however actual amounts could differ from those estimates.

Revenue Recognition

Our revenues are derived from license fees for our software products and fees
for services complementary to our products, including software maintenance,
consulting and training. Fees for CRM services generally are charged separately
from the consulting fees related to our software products.

Effective for contracts entered into starting July 1, 1998, we recognize
revenue in accordance with the American Institute of Certified Public
Accountants (AICPA) Statement of Position (SOP) 97-2, Software Revenue
Recognition, and SOP 98-9 Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions. Based on our reading and
interpretation of these SOPs, we believe that our current sales contract terms
and business arrangements have been properly reported. However, the AICPA and
its Software Revenue Recognition Task Force continue to issue interpretations
and guidance for applying the relevant standards to a wide range of sales
contract terms and business arrangements that are prevalent in the software
industry. Also, the Securities and Exchange Commission (SEC) has issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements,
which provides guidance related to revenue recognition based on interpretations
and practices followed by the SEC. Future interpretations of existing
accounting standards or changes in our business practices could result in
future changes in our revenue accounting policies that could have a material
adverse effect on our business, financial condition and results of operations.

We recognize revenue from the sale of software licenses when persuasive
evidence of an arrangement exists, the product has been delivered, the fees are
fixed or determinable and collection of the resulting receivable is reasonably
assured. We recognize maintenance revenues from ongoing customer support and
product upgrades ratably over the term of the applicable maintenance agreement,
which is typically twelve months. Generally, we receive payments for
maintenance fees in advance and they are nonrefundable. We recognize revenues
for consulting and training generally when the services are performed.

For agreements with multiple elements, such as license, maintenance, training
and consulting services, we allocate revenue to each component of the
arrangement using the residual value method based on the fair value of the
undelivered elements. We defer revenue from the arrangement equivalent to the
fair value of the undelivered elements. Fair values for the ongoing maintenance
and support obligations are based on separate sales of these items to other
customers. Fair value of services, such as training and consulting, is based
upon separate sales of these services to other customers. Any remaining amount
is allocated to the delivered elements and recognized as revenue when the
conditions set forth above are met.

Allowance for Doubtful Accounts

Our management must make estimates of the uncollectability of our accounts
receivables. Management specifically analyzes accounts receivable and analyzes
historical bad debts, customer concentrations, customer credit-worthiness,
current economic trends, and age of the receivables balances when evaluating the
adequacy of the allowance for doubtful accounts.

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Goodwill and Intangible Assets.

We have significant intangible assets, including goodwill. The determination of
the estimate useful lives and weather or not these assets are impair involves
significant judgments. We periodically evaluate acquired goodwill and
intangible assets for potential impairment indicators. Our judgments regarding
the existence of impairment indicators are based on market conditions and
operational performances of the acquired assets. In assessing the recoverability
of these assets, we must make assumptions regarding estimated future cash flow
and other factors. If these estimates and related assumptions change in the
future, significant impairment charges may be recorded in-future periods.

Purchased Intangible Assets

On January 23, 1998, the Company purchased the rights to the Universal Portable
Interface (UPI) technology. This technology consisted of the intellectual
and proprietary property comprised of UPI and included all related copyrights,
processes, designs, formulas, inventions, trade secrets, know-how, technology,
methodologies, principles of operations flow charts, schematics, codes and
databases.

At the time of acquisition, revenues for developed and core technology were
estimated for the remainder of fiscal 1998 through fiscal 2004. As of the end
of the second quarter of fiscal 2002, the Company believes that total revenues
over the life of the product will not differ to such an extent as to require a
devaluation of the current carrying value of the intangible assets. It should
be noted that while revenues allocated to the developed and in-process
technologies are expected to individually phase down over time (consistent with
normal software product life cycles), the composite revenue attributed to all
applications integration products and technologies (including future follow-on
technologies) is planned to continue growing in the foreseeable future.

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QUARTERLY RESULTS

The following table presents the Companys financial results by quarter for the
last three quarters of fiscal 2001 and first three quarters of fiscal 2002.
These quarterly financial results are unaudited. In the opinion of management,
however, they have been prepared on the same basis as the audited financial
information and include all adjustments necessary for a fair presentation of
the information set forth therein. The operating results for any quarter are
not necessarily indicative of the results that may be expected for any future
period.

Quarter Ended
Statement of Operations Data
(in thousands, except Per share amounts)

|                                                                     |                     |                                               |                          |       |             |       |             |       |         |       |          |       |         |       |         |       |       |       |        |       |       |       |        |       |       |       | 
|-------------------------------------------------------------------- | ------------------- | --------------------------------------------- | ------------------------ | ----- | ----------- | ----- | ----------- | ----- | ------- | ----- | -------- | ----- | ------- | ----- | ------- | ----- | ----- | ----- | ------ | ----- | ----- | ----- | ------ | ----- | ----- | ----- | 
|                                                                     |                     |                                               |                          |       | Fiscal 2001 |       | Fiscal 2002
|                                                                     |                     |                                               |                          |       |             |       |            
|                                                                     |                     |                                               |                          |       | Dec. 31     |       | Mar. 31     |       | June 30 |       | Sept. 30 |       | Dec. 31 |       | Mar. 31
|                                                                     |                     |                                               |                          |       |             |       |             |       |         |       |          |       |         |       |        
|Revenues:                                                            |                     |                                               |                          |       |             |       |             |       |         |       |          |       |         |       |         |       |       |       |        |       |       |       |        |      
|                                                                     | Consulting services |                                               | $                        | 4,354 |             |       | $           | 5,784 |         |       | $        | 4,404 |         |       | $       | 2,814 |       |       | $      | 2,427 |       |       | $      | 1,759 |      
|                                                                     | Software license    |                                               |                          | 1,375 |             |       |             | 732   |         |       |          | 1,063 |         |       |         | 407   |       |       |        | 186   |       |       |        | 444   |      
|                                                                     | License support     |                                               |                          | 706   |             |       |             | 568   |         |       |          | 594   |         |       |         | 506   |       |       |        | 410   |       |       |        | 372   |      
|                                                                     |                     |                                               |                          |       |             |       |             |       |         |       |          |       |         |       |         |       |       |       |        |       |       |       |        |      
|                                                                     |                     |                                               | Total revenues           |       |             | 6,435 |             |       |         | 7,084 |          |       |         | 6,061 |         |       |       | 3,727 |        |       |       | 3,023 |        |       |       | 2,575 | 
|Cost and Expenses:                                                   |                     |                                               |                          |       |             |       |             |       |         |       |          |       |         |       |         |       |       |       |        |       |       |       |        |      
|                                                                     | Cost of revenues:   |                                               |                          |       |             |       |             |       |         |       |          |       |         |       |         |       |       |       |        |       |       |       |        |       |      
|                                                                     |                     | Consulting services                           |                          |       | 2,848       |       |             |       | 3,770   |       |          |       | 4,683   |       |         |       | 2,978 |       |        |       | 1,937 |       |        |       | 1,876 |      
|                                                                     |                     | Software license                              |                          |       | 297         |       |             |       | 149     |       |          |       | 288     |       |         |       | 137   |       |        |       | 134   |       |        |       | 150   |      
|                                                                     |                     | License support                               |                          |       | 86          |       |             |       | 92      |       |          |       | 95      |       |         |       | 97    |       |        |       | 74    |       |        |       | 59    |      
|                                                                     |                     | Research and development                      |                          |       | 621         |       |             |       | 850     |       |          |       | 787     |       |         |       | 771   |       |        |       | 555   |       |        |       | 565   |      
|                                                                     |                     | Sales, marketing, general,
and administrative |                          |       | 3,173       |       |             |       | 3,612   |       |          |       | 3,921   |       |         |       | 3,263 |       |        |       | 2,762 |       |        |       | 2,279 |      
|                                                                     |                     |                                               |                          |       |             |       |             |       |         |       |          |       |         |       |         |       |       |       |        |       |       |       |        |      
|                                                                     |                     |                                               | Total costs and expenses |       |             | 7,025 |             |       |         | 8,473 |          |       |         | 9,774 |         |       |       | 7,246 |        |       |       | 5,462 |        |       |       | 4,929 | 
|Loss from operations                                                 |                     |                                               | (590                     | )     |             |       | (1,389      | )     |         |       | (3,713   | )     |         |       | (3,519  | )     |       |       | (2,439 | )     |       |       | (2,354 | )    
|Other Income (expense), net                                          |                     |                                               | (127                     | )     |             |       | 8           |       |         |       | (9       | )     |         |       | 38      |       |       |       | (107   | )     |       |       | (166   | )    
|                                                                     |                     |                                               |                          |       |             |       |             |       |         |       |          |       |         |       |         |       |       |       |        |       |       |       |        |      
|Loss before provision
for income taxes                               |                     |                                               | (717                     | )     |             |       | (1,381      | )     |         |       | (3,812   | )     |         |       | (3,481  | )     |       |       | (2,546 | )     |       |       | (2,520 | )    
|Provision for income taxes                                           |                     |                                               |                         |       |             |       | 6           |       |         |       | (9       | )     |         |       | 8       |       |       |       | 15     |       |       |       | 6      |      
|                                                                     |                     |                                               |                          |       |             |       |             |       |         |       |          |       |         |       |         |       |       |       |        |       |       |       |        |      
|Net loss                                                             |                     | $                                             | (717                     | )     |             | $     | (1,387      | )     |         | $     | (3,803   | )     |         | $     | (3,489  | )     |       | $     | (2,561 | )     |       | $     | (2,526 | )    
|                                                                     |                     |                                               |                          |       |             |       |             |       |         |       |          |       |         |       |         |       |       |       |        |       |       |       |        |      
|Series A, Series B and Series C
Preferred stock dividends            |                     |                                               | (134                     | )     |             |       | (129        | )     |         |       | (253     | )     |         |       | (232    | )     |       |       | (231   | )     |       |       | (226   | )    
|Beneficial conversion dividend -
Series C preferred stock            |                     |                                               |                         |       |             |       | (1,703      | )     |         |       |         |       |         |       |        |       |       |       | (1,259 | )     |       |       |       |      
|                                                                     |                     |                                               |                          |       |             |       |             |       |         |       |          |       |         |       |         |       |       |       |        |       |       |       |        |      
|Net loss attributable to
common shareholders                         |                     | $                                             | (851                     | )     |             | $     | (3,219      | )     |         | $     | (4,056   | )     |         | $     | (3,721  | )     |       | $     | (4,051 | )     |       | $     | (2,752 | )    
|                                                                     |                     |                                               |                          |       |             |       |             |       |         |       |          |       |         |       |         |       |       |       |        |       |       |       |        |      
|Basic and diluted net loss per
common share                          |                     | $                                             | (0.04                    | )     |             | $     | (0.15       | )     |         | $     | (0.19    | )     |         | $     | (0.17   | )     |       | $     | (0.19  | )     |       | $     | (0.12  | )    
|                                                                     |                     |                                               |                          |       |             |       |             |       |         |       |          |       |         |       |         |       |       |       |        |       |       |       |        |      
|Shares used in computing basic and
diluted net loss per common share |                     |                                               | 21,101                   |       |             |       | 21,704      |       |         |       | 21,731   |       |         |       | 21,763  |       |       |       | 21,775 |       |       |       | 23,115 |      
|                                                                     |                     |                                               |                          |       |             |       |             |       |         |       |          |       |         |       |         |       |       |       |        |       |       |       |        |      

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The geographic breakdown of revenue is as follows:

|                          |               |      |                    |       |   |   |                   |       |   |      |     |      |    |        |       |       |  |   |        |        |  |  |     |     |   
|------------------------- | ------------- | ---- | ------------------ | ----- | - | - | ----------------- | ----- | - | ---- | --- | ---- | -- | ------ | ----- | ----- |  | - | ------ | ------ |  |  | --- | --- | --
|                          |               |      | Three months ended |       |   |   | Nine months ended |       |  
|                          |               |      | March 31,          |       |   |   | March 31,         |       |  
|                          |               |      |                    |       | % |   |                   |       | %
|(In thousands)            |               | 2002 |                    | 2001  |   |   | Change            |       |   | 2002 |     | 2001 |    | Change
|                          |               |      |                    |       |   |   |                   |       |   |      |     |     
|North America             |               | $    | 1,846              |       |   | $ | 5,337             |       |   |      | (65 | )%   |    | $      | 7,012 |       |  | $ | 14,212 |        |  |  | (51 | )% 
|United Kingdom            |               |      | 512                |       |   |   | 453               |       |   |      | 13  | %    |    |        | 1,314 |       |  |   | 2,333  |        |  |  | (44 | )% 
|Germany                   |               |      | 5                  |       |   |   | 463               |       |   |      | (99 | )%   |    |        | 349   |       |  |   | 854    |        |  |  | (59 | )% 
|France                    |               |      | 196                |       |   |   | 793               |       |   |      | (75 | )%   |    |        | 600   |       |  |   | 1,987  |        |  |  | (70 | )% 
|Pacific Rim/Latin America |               |      | 16                 |       |   |   | 38                |       |   |      | (58 | )%   |    |        | 50    |       |  |   | 166    |        |  |  | (70 | )% 
|                          |               |      |                    |       |   |   |                   |       |   |      |     |      |    |        |       |       |  |   |        |        |  |  |     |    
|                          | Total revenue |      | $                  | 2,575 |   |   |                   | 7,084 |   |      |     | (64  | )% |        |       | 9,325 |  |   | $      | 19,552 |  |  |     | (52 | )%

The geographic revenue as a percentage of revenue is as follows:

|                      |       |  |                    |     |                   |  |      |     |      |  |    |     |   |  |    |     |  
|--------------------- | ----- |  | ------------------ | --- | ----------------- |  | ---- | --- | ---- |  | -- | --- | - |  | -- | --- | -
|                      |       |  | Three months ended |     | Nine months ended
|                      |       |  | March 31,          |     | March 31,        
|                      |       |  |                    |     |                  
|                      |       |  | 2002               |     | 2001              |  | 2002 |     | 2001
|                      |       |  |                    |     |                   |  |      |     |     
|North America         |       |  | 72                 | %   |                   |  | 75   | %   |      |  | 75 | %   |   |  | 73 | %  
|United Kingdom        |       |  | 20                 | %   |                   |  | 6    | %   |      |  | 14 | %   |   |  | 12 | %  
|Germany               |       |  | 0                  | %   |                   |  | 7    | %   |      |  | 4  | %   |   |  | 4  | %  
|France                |       |  | 7                  | %   |                   |  | 11   | %   |      |  | 6  | %   |   |  | 10 | %  
|Pacific/Latin America |       |  | 1                  | %   |                   |  | 1    | %   |      |  | 1  | %   |   |  | 1  | %  
|                      |       |  |                    |     |                   |  |      |     |      |  |    |     |   |  |    |    
|                      | Total |  |                    | 100 | %                 |  |      | 100 | %    |  |    | 100 | % |  |    | 100 | %

COMPARISON OF THE THIRD QUARTER ENDED MARCH 31, 2002 AND 2001

Revenues:The Companys total revenue is derived from three sources all
related to providing a suite of consulting services and software license
products to the SAP community: consulting services, software license products,
and software license product support. Total revenues were $2,575,000 and
$7,084,000, for the three months ended March 31, 2002 and 2001, respectively.
This represents a 64% decrease in total revenue for the comparable quarters.
The revenue mix changed substantially in that consulting services decreased as
a percentage of total revenue to 68% from 82%. Software license as a
percentage of total revenue increased to 17% from 10%. License support
increased to 14% from 8% of total revenues in the same prior year period.

Consulting services revenues, which include training revenues, were $1,759,000
and $5,784,000 for the three month periods ended March 31, 2002 and 2001,
respectively, which is a decrease of 70% compared to the same period in the
prior year. The decrease is primarily due to overall economic conditions and
impact by the events of September 11, 2001. Additionally, due to economic
conditions in Europe a plan was put in place during the prior quarter to
curtail the European CRM consulting business. Also, two key customers limited
consulting services during an extended period in which a shareholders vote was
pending regarding their merger.

Software license product revenues were $444,000 and $732,000 for the three
month periods ended March 31, 2002 and 2001, respectively.This 39% decrease
in software license revenues is primarily attributable to customer project
postponements due to constraints on information technology spending resulting
from current economic conditions in the large manufacturing market segment and
increased price competition.

Software license product support revenues were $372,000 and $568,000 for the
three month periods ended March 31, 2002 and 2001, respectively, which is a
decrease of 35% compared to the same period in the prior year. The decrease is
primarily due to lower than expected past consumer support maintenance renewals
related to LiveInterface and LiveModel software products and lower overall
license sales in the quarter ended March 31, 2001.

Gross Margins:Gross margin, as a percentage of total revenues for the three
months ended March 31, 2002 was 19% compared to 43% in the same period in the
prior year. Consulting services margin was
(7%) for the three months ended March 31, 2002,
compared to 35% in the same
period in the prior year. The decrease is primarily due to declining overall
revenue per consulting headcount and severance expense of $100,000 incurred
during the quarter, which were not incurred in the same quarter last year. The
software license product gross margin was 66% for the three months ended March
31, 2002,

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compared to 80% for the same prior year period. The net decrease in
software license product margins is due to the decrease in software license
revenue and relatively higher costs of license for fixed intangible
amortization costs related to our acquisition of UPI technology which is offset
by a decrease in license sales without royalty costs compared to license sales
with royalty costs. Software license product support margin remained flat at 84%
for the three months ended March 31, 2002 compared to the same prior year
period.

Research and Development (R&D): R&D expenses decreased $285,000 during the
three months ended March 31, 2002 from the same prior year period. The
decrease is attributable to a reduction in head count and related expenses and
the Company transitioned most US software products development from in-house to
a third party contractor. R&D expenses, as a percentage of total revenues for
the three months ended March 31, 2002 was 22% compared to 12% in the same prior
year period primarily due to the lower revenue in the current fiscal quarter.

Sales, Marketing, General and Administrative:Sales, marketing, general and
administrative expenses decreased $1,333,000 during the three months ended
March 31, 2002 compared to the same prior year period. The decrease is
primarily due to decreased headcount in the sales and marketing departments
resulting from the Companys reorganization, decreased recruiting expenses and
commission expenses. Overall, as a percentage of revenues, sales, marketing, general
and administrative expenses was 89% for the three months ended March 31, 2002,
compared to 51% of revenues for the same period in the prior year. The
increase as a percentage of revenue is primarily due to the lower levels of
revenue in the current fiscal quarter.

Other Income and Expense: Other income and expense, net, which includes
interest income and expense, increased $174,000 for the three months ended
March 31, 2002 compared with the same period in the prior year. The increase
is primarily due to increased losses related to foreign currency exchanges,
increased interest expense from short term notes payable, decreased interest
expense from bank borrowings and decreased interest income.

Provision for Income Taxes: The provision for income taxes was $6,000 and
$6,000 for the three months ended March 31, 2002 and 2001, respectively. The
taxes are primarily related to foreign withholding taxes and state and local
taxes.

COMPARISON OF NINE MONTHS ENDED MARCH 31, 2002 AND 2001

Revenues:The Companys total revenue is derived from three sources:
consulting services, software license products, and software license product
support. Total revenues were $9,325,000 and $19,552,000, for the nine months
ended March 31, 2002 and 2001, respectively. This represents a 52% decrease
for the nine months period ended March 31, 2002 compared to the same prior year
period. The revenue mix changed substantially in that consulting services
increased as a percentage of total revenue to 75% from 71%. Software license
as a percentage of total revenue decreased to 11% from 19%. License support
increased to 14% from 10% of total revenues in the same prior year period.

Consulting services revenues, which include training revenues, were $7,000,000
and $13,851,000 for the nine month periods ended March 31, 2002 and 2001,
respectively, which is a decrease of 49% compared to the same period in the
prior year. The decrease is primarily due to overall economic conditions and
the impact of the events of September 11, 2001. Additionally, due to economic
conditions in Europe, a plan was put in place during the current period to
curtail the European CRM consulting business. Also, two key customers limited
consulting services during an extended period in which a
shareholders vote was
pending regarding their merger.

Software license product revenues were $1,1037,000 and $3,697,000 for the nine
month periods ended March 31, 2002 and 2001. This 72% decrease in software
license revenues is primarily attributable to customer project postponements
and increased price competition.

Software license product support revenues were $1,288,000 and $2,004,000 for
the nine month periods ended March 31, 2002 and 2001, respectively, which is a
decrease of 36% compared to the same period in the prior year. The decrease is
primarily due to fewer overall license sales and lower than expected past
consumer support maintenance renewals.

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Gross Margins:Gross margin, as a percentage of total revenues for the nine
months ended March 31, 2002 was 20% compared to 47% in the same period in the
prior year. Consulting services margin was 3% for the nine months ended March
31, 2002, compared to 32% in the same period in the prior year. The decrease
in consulting services margins compared to the prior year is due primarily to
declining overall revenue per consultant and severance expense of $422,000 with no similar costs
recorded in the same period last year. The software license product gross
margin was 59% for the nine months ended March 31, 2002, compared to 83% for
the same prior year period. The net decrease in software license product
margins is due to the decrease in software license revenue and relatively
higher costs of license related to fixed intangible amortization costs related
to our acquisition of UPI technology which is offset by a decrease in license
sales without royalty costs compared to license sales with royalty costs.
Software license product support margin was 82% for the nine months ended March
31, 2002 compared to 86% for the same prior year period. The decrease in the
nine months in fiscal 2002 over the prior year period is primarily due to fewer
license sales.

Research and Development (R&D): R&D expenses decreased $219,000 during the
nine months ended March 31, 2002 from the same prior year period. The net
decrease is attributable to transitioning software products from development to
production, transitioned most US software products development to a third party
contractor, severance expense of $39,000 and decrease in R & D department
headcount and related expenses. R&D expenses, as a percentage of total
revenues for the nine months ended March 31, 2002 was 20% compared to 11% in
the same prior year period, primarily due to the lower revenue in the current
year period.

Sales, Marketing,
General and Administrative:Sales, marketing, general and
administrative expenses decreased $2,071,000 during the nine months ended March
31, 2002, compared to the same prior year period. The decrease is primarily
due to reduction in head count in the sales and marketing departments resulting
from the Companys reorganization, decreased recruiting expenses and commission
expenses. In total, sales, marketing, general and administrative expenses, as a
percentage of total revenues for the nine months ended March 31, 2002 was 89%
compared to 53% in the same prior year period. The increase as a percentage of
revenue is primarily due to lower revenue in the current year period.

Other Income and Expense: Other income and expense, net, which includes
interest income and expense, increased $81,000 for the nine months ended March
31, 2002 compared with the same period in the prior year. The net decrease is
primarily due to the net of forgiveness of accrued third party royalties,
increased losses related to foreign currency exchange, increased interest
expense from short term notes payable, decreased interest expense from bank
borrowings and decreased interest income.

Provision for Income Taxes: The provision for income taxes was $29,000 and
$6,000 for the nine months ended March 31, 2002 and 2001, respectively. The
taxes are primarily related to foreign withholding taxes and state and local
taxes.

BOOKINGS AND BACKLOG

CRM bookings were $.8 million and $3.6 million for the third quarter of fiscal
2002 and 2001, respectively, and $4.2 million and $10.5 million for the nine
months ended March 31, 2002 and 2001, respectively. Bookings were derived
primarily from CRM consulting services to large manufacturing and commercial
companies. At the end of the third quarter of fiscal 2002 and 2001, backlog
stood at $.6 million and $4.1 million, respectively. The Companys booking and
backlog are largely dependent upon continued business in the CRM marketplace.
Third quarter CRM bookings were impacted by two key customers limited
consulting services during an extended period in which a shareholders vote was
pending regarding their merger.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2002, cash, cash equivalents and short-term investments were
$326,000 compared to $2,639,000 at June 30, 2001.

Cash used in operations was $6,298,000 during the nine months ended March 31,
2002, compared to $3,424,000 used in the same period of the prior year. The
increase in cash used in operations is primarily due to the increase in net
losses and changes in accounts payable, accounts receivable and deferred
revenue as compared to the same period in the prior year.

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Cash used by investing activities was $47,000 in the nine months ended March
31, 2002 compared to $202,000 used by investing activities in the same period
in the prior year. The decrease in cash used by investing activities is due to
the decreased purchasing of property and equipment.

Cash provided by financing activities was $4,032,000 for the nine months ended
March 31, 2002 compared to $7,256,000 provided in financing activities in the
same prior year period. The decrease in cash provided by financing activities
was due to a decrease in equity funding and the decreased draw down of the
Companys revolving bank credit line, partially offset by an increase in cash
provided by short term notes payable.

The Companys available cash resources at March 31, 2002 include $326,000 in
cash and cash equivalents, a bank credit facility and an equity financing
signed in February 2002. The bank credit facility consists of the lesser of
$2.0 million or 75% of eligible accounts receivable balances at any point in
time. At March 31, 2002, the Company owed $242,000 on the bank credit. The
initial term of this facility was two years, and it was renewed on July 31,
2001 for one additional year. The credit facility is secured by essentially
all of the assets of the Company. The equity financing facility signed in
February 2002 provides the Company with net additional cash of $2.15 million
for funding working capital needs. The Companys promissory notes to related
parties have a balance of approximately $3.75 million, including interest
accrued. On April 30, 2002, shareholders approved the repayment of the
approximately $3.88 million of notes and accrued interest and the $2.0 million
equity transaction by issuance of common stock at a fixed price per share of
$0.154. This resulted in the issuance of 25,172,549 shares of common stock for
the repayment of $3,876,572 for the short-term notes and interest and
12,987,013 shares of common stock were issued for the $2.0 million equity
transaction.

In April 2002, the Company entered into agreement with a related party under
which the Company can borrow up to $1.6 million, of which $1.1 million has been
borrowed through April 30, 2002. The notes bear interest at a rate equal to the
interest rate by the Senior Lender, which bears annual interest at the banks
prime rate plus 2%. The principal and accrued interest is due on April 30,
2003. Prepayment of principal, together with accrued interest, may be made at
any time without penalty. Interest hereon shall accrue at a rate equal to that
charged by the Senior Lender under the Borrowers receivable line with the
Senior Lender. If there is no Senior Lender, interest hereon shall accrue at a
rate equal to the prime rate, as published in the Wall Street Journal, plus 2
percent. The principal and any interest due and payable under this note shall
be secured by the Borrowers worldwide accounts receivable, however, only to
the extent that all obligations of the primary security holder, Senior Lender
are satisfied in full. The notes may be repaid in cash or equity by mutual
agreement of the parties

Management believes that cash on hand together with cash generated from
operations and available funds under the promissory notes and lines of credit,
will be sufficient to fund the Companys cash requirements through at least
June 30, 2002. However, if anticipated revenues and continued cost containment
measures for fiscal 2002 do not meet managements expectations, and additional
financing described above the amounts secured are not available, management has
the ability and intent to further reduce certain planned expenditures and
continue to curtail operations significantly.

PURCHASED INTANGIBLE ASSETS

On January 23, 1998, the Company purchased the rights to the Universal Portable
Interface (UPI) technology. This technology consisted of the intellectual
and proprietary property comprised of UPI and included all related copyrights,
processes, designs, formulas, inventions, trade secrets, know-how, technology,
methodologies, principles of operations flow charts, schematics, codes and
databases.

At the time of acquisition, revenues for developed and core technology were
estimated for the remainder of fiscal 1998 through fiscal 2004. As of the end
of the second quarter of fiscal 2002, the Company believes that total revenues over the life of the product will not differ to
such an extent as to require a devaluation of the current carrying value of the
intangible assets. It should be noted that while revenues allocated to the
developed and in-process technologies are expected to individually phase down
over time (consistent with normal software product life cycles), the composite
revenue attributed to all applications integration products and technologies
(including future follow-on technologies) is planned to continue growing in the
foreseeable future.

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PART II. OTHER INFORMATION




Item 1.Legal Proceedings

The Company is not a party to any material legal proceedings.




Item 6.Exhibits and Reports on Form 8-K



|a) |  | Exhibits
|-- |  | --------



| |  |  | None
| |  |  | ----



|b) |  | Reports on Form 8-K
|-- |  | -------------------



| |  |  | No reports have been filed for the quarter ended March 31, 2002.
| |  |  | ----------------------------------------------------------------

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SIGNATURE

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

| |                                                                        
| | -----------------------------------------------------------------------
| | INTELLICORP, INC                                                       
|
| | /s/ Jerome F. Klajbor
        Jerome F. Klajbor
Chief Financial Officer

Date: May 20, 2002

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