<PAGE>   1
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

--------------------------------------------------------------------------------
                                  FORM 10-KSB

                                  ANNUAL REPORT
                       Pursuant to Section 13 or 15(d) of
                       The Securities Exchange Act of 1934

                     For the Fiscal Year Ended June 30, 2001

                         Commission File Number 0-13022

                               [INTELLICORP LOGO]
                 (Name of small business issuer in its charter)

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

         1975 EL CAMINO REAL WEST, MOUNTAIN VIEW, CALIFORNIA 94040-2216
             (Address of principal executive offices and zip code)

                                 (650) 965-5500
                               (Telephone Number)

        Securities registered pursuant to Section 12(b) of the Act: NONE
           Securities registered pursuant to Section 12(g) of the Act:
                          COMMON STOCK, $.001 PAR VALUE
                                (Title of class)

Check whether the registrant (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 [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

Registrant's revenues for its most recent fiscal year: $25,613,000

The aggregate market value of the voting stock held by nonaffiliates on August
17, 2001, computed by reference to the closing price as of that date was
$11,627,421. (1)

As of August 17, 2001, 21,765,007 shares of registrant's Common Stock, par value
$.001 per share, were outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

<TABLE>
<CAPTION>
Document                                             Incorporated in Form 10-KSB
--------                                             ---------------------------
<S>                                                  <C>
Definitive Proxy Statement to be filed with                   Part III
the Securities and Exchange Commission on or
prior to October 26, 2001 and to be used in
connection With the Annual Meeting of
Stockholders to be held December 4, 2001.
</TABLE>


(1) Excludes 6,261,779 shares held by directors, officers and 10% stockholders
of registrant.

<PAGE>   2

                                TABLE OF CONTENTS


<TABLE>
<S>                                                                              <C>
PART I.............................................................................3
    ITEM 1.  Business..............................................................3
             General...............................................................3
             Services and Approach.................................................4
             Product Development...................................................4
             People................................................................4
             Selling and Marketing.................................................4
             Competition...........................................................5
             Intellectual Property Rights..........................................5
             Risk Factors..........................................................5
    ITEM 2.  Description of Property..............................................13
    ITEM 3.  Legal Proceedings....................................................13
    ITEM 4.  Submission of Matters to a Vote of Security Holders..................13
PART II...........................................................................14
    ITEM 5.  Market for Common Equity and Related Stockholder Matters.............14
    ITEM 6.  Management's Discussion and Analysis of Financial Condition and
             Results of Operations................................................16
    ITEM 7.  Financial Statements.................................................23
    ITEM 8.  Changes in and Disagreements with Accountants on Accounting an
             Financial Disclosure.................................................41
PART III..........................................................................41
    ITEM 9.  Directors,Executive Officers, Promoters and Control Persons;
             Compliance with Section 16(a) of the Exchange Act....................41
    ITEM 10. Executive Compensation...............................................43
    ITEM 11. Security Ownership of Certain Beneficial Owners and Management.......43
    ITEM 12. Certain Relationships and Related Transactions.......................43
    ITEM 13. Exhibits, List and Reports on Form 8-K...............................44
SIGNATURES........................................................................45
</TABLE>

<PAGE>   3

                                     PART I

ITEM 1.  BUSINESS

GENERAL

IntelliCorp Inc. (IntelliCorp or the Company) is an international technology
services firm that provides Global 2000 companies the business solutions
required to fully leverage their investments in information systems and business
processes. The Company offers 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.

IntelliCorp offers a combination of customized consulting services and solutions
to help its 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 designed and implemented by IntelliCorp enable its 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, IntelliCorp helps its customers
conquer the most difficult and complex aspects of the CRM process.

IntelliCorp also provides services and solutions that allow customers to
systematically identify key technology investment opportunities during the
implementation, upgrade and consolidation process of their "back-office"
solutions and business methodologies. The Company believes that this leads
customers to gain a higher return on their investment in information technology
by identifying where their processes need improvement and providing an
infrastructure to continually monitor the operational health of the
organization.

IntelliCorp's revenues are generated primarily from consulting services,
provided under time and materials based contracts. Consulting services generally
include the following:

    -   CRM strategy and technology consulting for the B2B (Business to
        Business), B2C (Business to Consumer), and B2R (Business to Reseller)
        markets,

    -   Technology design and implementation,

    -   Complex product configuration and pricing,

    -   Implementation of technology solutions that align configuration,
        personalization, customer retention, and sales solutions with
        "back-office" processes, and

    -   Strategic business process profiling in preparation for new system
        implementation, software application upgrade and solution consolidation.

In addition, IntelliCorp generates revenues from the licensing and support of
its proprietary LiveModel NetProcess(TM) and LiveInterface(TM) software
solutions for business process management and application integration.

The Company has offices across the United States as well as in the United
Kingdom, France and Germany. In addition, IntelliCorp has a distributor and
alliance program that provides support in Latin America, the Pacific Rim and
across southern Europe and South Africa.

IntelliCorp was incorporated in Delaware in 1983. The executive offices are
located at 1975 El Camino Real West, Suite #201, Mountain View, California,
94040 and the telephone number is (650) 965-5500. The stock is traded on the
Nasdaq SmallCap Market under the symbol "INAI". IntelliCorp's web address is
http://www.intellicorp.com.



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<PAGE>   4

SERVICES AND APPROACH

Using its proprietary tools, IntelliCorp approaches customer engagements by
quickly assessing the business processes the customer has implemented. The
Company also reviews the goals of the organization as it makes its next
application solution decision. By utilizing this methodology, IntelliCorp
provides its customers with a business process model to determine whether the
investment decision will deliver the desired return on investment.

To ensure customer satisfaction, IntelliCorp has implemented a targeted account
management strategy. Account Managers are responsible for overall customer
satisfaction, as well as identifying additional value added opportunities.

PRODUCT DEVELOPMENT

IntelliCorp's Product Development organization is responsible for product
architecture, core technology, product testing and expanding functionality to
LiveModel NetProcess and LiveInterface. Since inception, IntelliCorp has made
substantial investment in Product Development and related activities. Certain
technologies have been acquired and integrated into IntelliCorp's product line.

PEOPLE

As of June 30, 2001, the Company employed 155 people. IntelliCorp believes that
its future success will depend, in large part, on its ability to continue to
attract and retain highly qualified employees. None of IntelliCorp's employees
are covered by a collective bargaining agreement. The Company maintains
competitive compensation, benefits and equity participation programs.

SELLING AND MARKETING

The role of IntelliCorp's marketing program is to create brand awareness and
loyalty for IntelliCorp as a leading services and solutions firm. Marketing is
performed at the corporate level.

IntelliCorp's dedicated marketing personnel undertake a variety of marketing
activities including:

    -   Sponsorship of educational web-conferences to demonstrate thought
        leadership,

    -   Media and industry analyst outreach,

    -   Market analysis,

    -   Sponsorship and participation in targeted conferences,

    -   Sales briefings with individual companies, and

    -   Periodic updates and maintenance of the Company's website at
        www.intellicorp.com.

IntelliCorp uses a team-based sales approach. IntelliCorp's Sales Managers lead
pursuit teams that are comprised of key consulting practitioners who have the
technical and vertical industry knowledge required to bring value to each
client. A team sales approach allows IntelliCorp to focus on a select group of
customers, fully understand their business challenges and partner with them to
provide successful solutions. This approach is designed to establish long-term
annuity relationships between IntelliCorp and its customers. While IntelliCorp's
customers are derived from a broad range of industries, the Company's focus is
on serving the consumer products, high technology, and transportation verticals
within the manufacturing sector.

IntelliCorp has also introduced a dedicated alliance team that works with
regional services and solution providers, technology and application providers,
and other system integration firms to help them deliver process efficiency
solutions and technology integration solutions to their customers.



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COMPETITION

The market for the services and solutions IntelliCorp provides is highly
competitive. IntelliCorp believes that it currently competes principally with
large accounting and consulting firms and systems consulting and implementation
integration firms. To a lesser extent, IntelliCorp also competes with
specialized e-business consulting firms, strategy consulting firms, other
package technology vendors and customers' own internal information systems
groups.

INTELLECTUAL PROPERTY RIGHTS

IntelliCorp relies upon a combination of patents, trade secrets, nondisclosure
and other contractual arrangements, and copyright and trademark laws to protect
proprietary rights. All of the Company's patent maintenance fees are current,
and the expiration dates range from July 2004 thru June 2008. The Company enters
into confidentiality agreements with its employees, consultants and customers,
and limits access to and distribution of proprietary information.

IntelliCorp's services involve the development of solutions for unique selected
client engagements. Ownership of these solutions is the subject of negotiation
and is frequently assigned to the client, although IntelliCorp may retain a
license for certain solutions.

RISK FACTORS

This Annual Report on Form 10-KSB contains forward looking statements that
involve risks and uncertainties. The Company's business, operating, financial
performance and share price may be materially adversely affected by a number of
factors, including but not limited to the following risk factors, any one of
which could cause actual results to vary materially from anticipated results or
from those expressed in any forward-looking statements made by the company in
this annual report on Form 10-KSB or in other reports, press releases or other
statements issued from time to time. Additional factors that may cause such a
difference as set forth elsewhere in this annual report on Form 10-KSB.

WE MAY NOT BE ABLE TO DEVELOP OUR CONSULTING SERVICES AND PRODUCTS QUICKLY
ENOUGH TO KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE

Our business depends upon the increased acceptance and use of advanced
technologies as a means of conducting business electronically and streamlining
operations. The market for our solutions is characterized by:

    -   Ongoing technological developments,

    -   Evolving industry standards, and

    -   Rapid changes in customer requirements and demands.

As a result, our success depends on our ability to continue to:

    -   Enhance our existing consulting services and products,

    -   Develop and introduce, in a timely manner, new consulting services and
        products that take advantage of technological advances, and

    -   Respond to customer requirements and demands.

We may not be successful in developing and marketing enhancements to our
existing consulting services and products, or developing new consulting services
and products that incorporate new technology on a timely basis. Also, our new
solutions may not adequately address the changing needs of the marketplace. If
we are unable to



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develop and introduce new solutions, or enhance existing solutions, in a timely
manner in response to changing market conditions or customer requirements or
demands, our business, financial condition and results of operations will be
materially adversely affected.

OUR SUCCESS DEPENDS UPON MARKET ACCEPTANCE OF ELECTRONIC-BUSINESS TECHNOLOGIES
AS A MEANS OF CONDUCTING COMMERCE

The market for our consulting services and products is evolving and our growth
in e-business depends upon broad market acceptance of this technology. If use of
e-business technologies does not continue to grow, or grows more slowly than
expected, our revenue growth could slow or decline, and our business, financial
condition and results of operations may be adversely affected. Customers may
delay or decline adoption of e-business technologies for the following reasons:

    -   Inability to sustain or maintain an acceptable rate of return on
        projects,

    -   Inadequate system infrastructure or knowledgeable staff,

    -   Delays in the development or adoption of new technologies, including
        security and authentication technology as a means of securing
        confidential information, and

    -   Failure of companies to meet their customers' expectations in delivering
        goods and services using e-business technologies.

WE MAY NOT BE ABLE TO DEVELOP NEW PRODUCTS THAT MEET OUR CUSTOMERS' NEEDS

Our ongoing development projects are subject to the following risks:

    -   Development may not be completed successfully or on time,

    -   Projects may not include the features required to achieve market
        acceptance, and

    -   Enhancements to products may not keep pace with broadening market
        requirements.

From time to time, our competitors or we may announce new products, capabilities
or technologies that have the potential to replace or shorten the life cycle of
our existing products. Such announcements of currently planned or other new
products may cause customers to defer purchasing our existing products. Delays
or difficulties associated with new product introductions or product
enhancements may have a material adverse effect on our results of operations.
Software products that are as complex as those offered by us may contain
undetected errors when first introduced or as new versions are released. Such
errors may be found in new products after commencement of commercial shipments,
resulting in loss of or delay in market acceptance. We have no insurance for
this risk.

We may consider, from time to time, purchasing technology from third parties.
However, we may not be able to purchase new technology on commercially
reasonable terms or at all. The inability to purchase new technology could
result in delays in introduction of new products or product enhancements until
equivalent technology, if available, is identified, licensed and integrated.
Such delays could have an adverse effect on our business, financial condition
and results of operations because we may not be able to effectively compete
without these new technologies.

OUR CUSTOMERS MAY CHOSE NOT TO INVEST IN E-BUSINESS INITIATIVES DUE TO CURRENT
ECONOMIC CONDITIONS

During the second half of 2000 and the first half of 2001, many companies have
experienced financial difficulties or uncertainty, and as a result, have begun
to cancel or delay spending on e-business initiatives. Furthermore, the
financial difficulties experienced by many Internet start up companies have
reduced the urgency of larger companies to expand business on the Internet. If
companies continue to cancel or delay spending on e-business initiatives because
of unfavorable economic conditions, or for other reasons, our business,
financial condition and results of operations could be materially adversely
affected.



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OUR MARKET IS HIGHLY COMPETITIVE AND WE MAY NOT BE ABLE TO CONTINUE TO COMPETE
EFFECTIVELY

The market for e-business consulting services and products is highly competitive
and characterized by rapid and frequent changes in technology. Our primary
competitors are large accounting and consulting firms who have significantly
greater financial, technical, sales and marketing resources. These larger firms
may have the ability to offer a wide range of services and have a large
professional staff that can be deployed quickly. Other consulting companies that
specialize in integrating e-business applications also pose a threat to our
consulting solutions. In some situations, certain consulting firms we have
competed with have reduced their rates or offered substantial price discounts in
an attempt to win business.

In addition, other companies can be expected to develop and market competitive
products in the future. The important competitive factors affecting the market
for our software products are:

    -   Product sophistication, features and reliability,

    -   Product price and performance characteristics,

    -   Ease of understanding and operating the software,

    -   Maintainability,

    -   Customer support, and

    -   Integration with conventional computing environments and the Internet.

We may not be successful in the face of increasing competition from consulting
firms offering alternative consulting solutions and from new products and
enhancements introduced by competitors and by new companies entering the market.
If we cannot keep pace with the intense competition in our marketplace, our
business, financial condition and results of operations will suffer.

OUR OPERATING MARGINS CAN FLUCTUATE AS A RESULT OF THE MIX OF SERVICE AND
PRODUCT REVENUE

A significant percentage of our revenue is derived from consulting services. The
operating margins for such services are substantially lower than the operating
margins for our software product revenues. This is because of the relatively
high personnel costs incurred in providing consulting services, as well as the
higher cost of using outside consultants. As a result, our overall operating
margins may be lower than those for software companies that do not derive such a
significant percentage of revenues from consulting services.

A SIGNIFICANT PORTION OF OUR OPERATING EXPENSES ARE FIXED

A high percentage of our operating expenses are fixed, specifically personnel,
rent and depreciation. As a result, unanticipated decreases in the number or
size of consulting projects may have an adverse effect on the operating margin
for that period. An unanticipated termination of a project, a customer's
decision not to proceed with a project, or the inability to procure new projects
could require us to maintain underutilized employees, and therefore, could have
an adverse effect on our business, financial condition and results of
operations.

WE DEPEND HEAVILY ON A LIMITED NUMBER OF CUSTOMERS

In fiscal 2001, revenue from three significant customers accounted for 18%, 13%
and 11% of total revenue. The level of revenue from these customers may not
continue in future periods. In addition, revenue from certain customers may
account for a significant portion of total revenue in a particular quarter. The
loss of any principal customer for any reason, including our failure to meet
that customer's expectations, or the customer's decision to reduce spending on a
consulting service project, could have a material adverse effect on our
business, financial condition or results of operations.

WE ARE DEPENDENT ON OUR KEY EMPLOYEES

We are dependent upon a limited number of key management, technical and sales
personnel, the loss of whom would have an adverse effect on our business,
financial condition and results of operations. In addition, we may



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need to hire or replace existing key management, technical and sales personnel
in order to maintain or increase our business. Because of the complexity of the
technology of our services and products, we may only have a single employee with
appropriate expertise. The loss of such an employee could have the effect of
slowing down or stopping a customer consulting engagement or the development of
a product until we are able to find a replacement with the requisite expertise.

In addition, if one or more of our key employees joined a competitor or formed a
competing company, the loss of such personnel and any resulting loss of existing
or potential customers to that competitor could have a material adverse effect
on our business, financial condition and results of operations. Although we
require our employees to sign confidentiality agreements, which require them to
keep company information confidential, we cannot be certain that those
agreements will be substantially enforced by courts of law. We do not carry "key
man" life insurance policies on any of our employees.

IF WE CANNOT ATTRACT AND RETAIN QUALIFIED PROFESSIONAL STAFF, WE MAY NOT BE ABLE
TO ADEQUATELY PERFORM OUR CUSTOMER ENGAGEMENTS AND COULD BE LIMITED IN ACCEPTING
NEW CUSTOMER ENGAGEMENTS

Our consulting solution business is labor intensive and our future success will
depend in part on our ability to attract and retain highly qualified personnel
who specialize in e-business. We compete for such personnel with other
companies, academic institutions, and other organizations. The ability to
recruit and hire, on a timely basis, highly skilled personnel to staff our
consulting solutions and development projects will be a key factor in the
success of existing projects and in our ability to bid on and accept new
customer engagements.

IF WE CONTINUE TO EXPERIENCE LOSSES IN THE FUTURE, OUR BUSINESS, FINANCIAL
CONDITION AND GROWTH PROSPECTS WILL SUFFER

Over the five years ended June 30, 2001, we have experienced aggregate net
losses of over $23.1 million, including a net loss of $7.2 million and a net
loss applicable to common stockholders of $9.6 million for the year ended June
30, 2001. We may also have losses in future years. We may not be able to achieve
and maintain profitability.

As of June 30, 2001, we had an accumulated deficit of $70.6 million, a cash and
cash equivalent balance of $2.6 million, and a working capital balance of
$549,000. Available financing resources include a bank credit facility, which
amounts to the lesser of $2.0 million or 75% of the eligible accounts receivable
balances at any point in time. The amounts collected from outstanding, eligible
accounts receivable balances are remitted to the bank as loan payments when such
amounts are received. At June 30, 2001, no funds were available under the bank
credit facility and we owed $1.6 million on this credit facility. The bank
credit line expires in July 2002 and is secured by the assets of the Company. In
August and September 2001, we entered into promissory notes with two related
parties which will provide up to an aggregate of $1.9 million, of which $800,000
has been borrowed through September 30, 2001. The notes are secured by our
accounts receivable but are subordinate to the bank credit line.

We believe our cash and cash equivalent balances at June 30, 2001, along with
expected cash generated from operations and available funds under the promissory
notes will be sufficient to fund our operations through at least June 30, 2002.
If anticipated revenues from fiscal 2002 do not meet management's expectations,
and cost containment measures for fiscal 2002 do not meet management's
expectations, management has the ability, and intent to reduce certain planned
expenditures and continue to curtail operations significantly.

WE MAY NOT BE ABLE TO MEET OUR WORKING CAPITAL REQUIREMENTS OR OBTAIN ADDITIONAL
CAPITAL IN THE FUTURE

We will require additional financing to fund the continuation and growth of our
operations in the future. We believe our cash and cash equivalents at June 30,
2001, along with expected cash generated from operations, credit facility, and
promissory notes will be adequate to fund our operations through fiscal 2002.
However, with the significant contraction in the capital markets, particularly
in the technology sector, combined with our net loss history, it may be
difficult to raise additional capital. As a result, if adequate funds are not
available on terms favorable to us, or at all, our business, financial condition
and results of operations will be adversely affected. If the revenues from
fiscal 2002 do not meet management's expectations, and additional financing is
not available, management has the ability and intent to reduce certain planned
expenditures to lower our operating costs.



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OUR STOCK MAY BE DELISTED FROM THE NASDAQ SMALLCAP MARKET IF WE FAIL TO MEET
CERTAIN MAINTENANCE CRITERIA

The Nasdaq Stock Market rules require that the minimum bid price for our common
stock exceed $1.00 per share and that we meet at least one of the following
criteria:

    -   Our net tangible assets equal at least $2.0 million;

    -   Our market capitalization is equal to $35.0 million in public float; or

    -   We recognized net income of at least $500,000 in our most recent fiscal
        year or in two of our three previous fiscal years

If our minimum bid price falls below $1.00 per share for 30 consecutive business
days or if we fail to meet one of the three criteria relating to net tangible
assets, market capitalization or net income, then Nasdaq may find us to be out
of compliance with its listing requirements and our common stock may be removed
from the Nasdaq SmallCap Market. In the past, our net tangible assets, as well
as our stock price, have temporarily fallen below the Nasdaq minimum.

Recently, our common stock traded below $1.00 per share, and in January 2001,
Nasdaq notified us that we failed to meet the minimum bid requirement.
Subsequently, the minimum bid of our common stock exceeded the $1.00 requirement
for trading on Nasdaq, and on February 21, we were notified that we were in
compliance with Nasdaq's maintenance criteria. In August 2001, Nasdaq again
notified us that we failed to meet the minimum bid requirement of $1.00 per
share. Our stock price may not recover prior to a decision by Nasdaq to delist
our stock, and we do not have a specific plan to achieve compliance with the
Nasdaq SmallCap Market listing requirements. In addition, at June 30, 2001 (the
end of our fiscal year), the Company's net tangible assets exceeded slightly the
Nasdaq requirement but our net tangible assets may drop below $2.0 million in
the next fiscal quarter. Significant additional losses could result in our
failure to maintain the required net tangible assets minimum and minimum bid
price which may cause our common stock to be delisted from the Nasdaq SmallCap
Market. We also have not recognized net income in our most recent fiscal year or
in two of our three previous fiscal years.

Finally, under the terms of our Series C convertible preferred stock issued in
March 2001, we are required to adjust the conversion price of the Series C
convertible preferred shares and issue additional warrants as a result of a
reset provision. Issuance of these additional shares at a price below the market
value will bring the aggregate number of shares issued above 20% of our
outstanding stock, and therefore will require stockholder approval. If we do not
obtain the stockholder approval, Nasdaq may cause our common stock to be
delisted from the Nasdaq SmallCap Market.

LIQUIDITY OF OUR SHARES MAY BE SIGNIFICANTLY IMPAIRED IF OUR SHARES ARE REMOVED
FROM THE NASDAQ SMALLCAP MARKET

The public trading volume of our common stock and the ability of stockholders to
sell their shares could be significantly impaired if we fail to meet the Nasdaq
maintenance criteria and are removed from the Nasdaq SmallCap Market. In that
case, our common stock would trade on either the OTC bulletin board, a regional
exchange, or in the pink sheets. We may become subject to the penny stock rules
that may apply to some equity securities that are not listed on Nasdaq. Penny
stocks generally are equity securities with a price of less than $5.00 per
share. The penny stock rules require a broker-dealer, prior to a transaction in
a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document that provides information about penny stocks and the
nature and level of risks in the penny stock market. These disclosure
requirements may have the effect of reducing the level of trading activity in
any secondary market for a stock that becomes subject to the penny stock rules.
If our common stock becomes subject to the penny stock rules, investors
purchasing shares under this prospectus may find it difficult to sell their
shares in the future, if at all.

OUR STOCK PRICE IS VOLATILE AND MAY RESULT IN SUBSTANTIAL LOSSES FOR INVESTORS

The trading price of our stock has been subject to wide fluctuations. These
fluctuations may be in response to:

    -   Variations in our quarterly operating results,

    -   Changes in earnings estimates by industry analysts,

    -   Announcements of new service or product offerings by our competitors,



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<PAGE>   10

    -   Market acceptance of new technologies,

    -   General economic or stock market conditions, and

    -   Other events or factors that are beyond our control.

Although a significant portion of our quarterly revenues result from orders
received in that quarter, the majority of our expense levels are fixed based on
expectations of future revenues. In addition, a substantial portion of our
quarterly revenues are historically recorded in the last two weeks of each
quarter. The timing and closing of large service and license agreements increase
the risk of quarter-to-quarter fluctuations. As a result, if revenues are not
realized as expected, our business, financial condition and results of
operations may be materially adversely affected.

In addition, the general economic and stock market condition of many high
technology companies has declined in recent years. If this decline continues,
investors may choose not to invest in high technology stocks. These events may
cause the price of our common stock to be adversely affected.

IF WE CANNOT ESTABLISH OR SUSTAIN RELATIONSHIPS WITH IMPORTANT CHANNEL PARTNERS,
OUR GROWTH WILL BE ADVERSELY AFFECTED

In order to reach higher levels of revenue and sustainable growth, we will need
to establish new and sustain existing relationships with channel partners for
the sale, distribution and co-marketing of our products and solutions. Such
partners may include traditional software distributors or companies with
established distribution channels. Currently we have distributor and alliance
programs that provide support in Latin America, The Pacific Rim and across
southern Europe and South Africa. If we are unable to establish new, or sustain
existing channel partner relationships, our revenue growth could suffer, which
would have an adverse effect on our business, financial condition and results of
operations.

WE RELY ON OUR STRATEGIC PARTNERSHIPS TO PROVIDE CREDIBILITY TO OUR SOLUTIONS

We have agreements with certain leading enterprise application providers,
including SAP, AG and Siebel Systems, to provide our consulting services in
implementing certain of their selected applications. These strategic
partnerships are instrumental in providing credibility to our consulting
solutions. In addition, we have a strategic agreement with Deloitte & Touche to
assist them on certain major integration engagements.

If we are unable to sustain these strategic partnerships we could lose
credibility within the market, our reputation may be harmed and we may lose
customers, which could have an adverse effect on our business, financial
condition and results of operations.

WE MAY NOT BE SUCCESSFUL IN MANAGING CHANGING BUSINESS CONDITIONS

Since our inception, we have experienced changes in our operations that have
placed significant demands on our administrative, managerial and financial
resources. We must devote a substantial amount of these resources to monitoring
and managing our workforce and other resources. We have made, and will continue
to make, significant investments in recruiting, training, capital equipment and
other related costs necessary to grow our business. Our future performance will
depend, in part, on our ability to manage change, both in our domestic and
international operations, and to adapt our internal control systems to respond
to those changes in our business. The failure of our management to effectively
respond to and manage changing business conditions could have a material adverse
effect on our business, financial condition and results of operations.

The average cost of our solutions and size of the team required to deliver these
solutions have grown substantially. As our customer engagements become larger
and more complex, managing the projects and estimating the resources required
for a project becomes more difficult and the likelihood of problems or delays
increases. Our inability to complete customer solutions in a timely manner, or
failure to achieve customer satisfaction, could have an adverse effect on our
reputation and could materially adversely affect our business, financial
condition and results of operations.



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WE ARE SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

We currently have offices in the United Kingdom, Germany and France.
Approximately 26% of our net revenues for the fiscal year ended June 30, 2001
and 37% of our net revenues for the fiscal year ended June 30, 2000 were
attributable to international sales. Fifty-four percent of total international
revenues for the period ended June 30, 2001 related to consulting services, with
the remaining 46% related to software license and software license support
revenues. We currently offer selected local language versions of our products.
Although we intend to offer additional localized product releases in the future,
such releases may not be successfully developed, or, if developed, may not
achieve market acceptance.

International operations are subject to certain risks including:

    -   Fluctuations in currency exchange rates,

    -   Economic or political instability,

    -   U.S. restrictions on the import and export of certain technologies,

    -   Difficulties in the cost of staffing and managing international
        operations,

    -   The burdens of complying with a wide variety of foreign laws,

    -   Seasonal reductions in business activity during the summer months,
        which, especially in Europe, may make it difficult to finalize a sales
        contract on a timely basis,

    -   Unexpected changes in regulatory requirements,

    -   Potential adverse tax consequences, and

    -   Cultural barriers.

In addition, the laws of certain countries do not protect our products and
intellectual property rights to the same extent as do the laws of the United
States. With the exception of limited patent protection in Canada, we have no
patents protecting our products in foreign markets. Such factors may have an
adverse effect on our international operations and consequently on our business,
financial condition and results of operations.

OUR PROPRIETARY INFORMATION MAY NOT BE ADEQUATELY PROTECTED FROM ALL
UNAUTHORIZED USE

Our success depends, in part, upon our intellectual property rights and
proprietary software. We regard our software as proprietary and attempt to
protect it by relying on copyrights, trade secret and patent laws and
contractual nondisclosure safeguards, as well as restrictions on transferability
that are incorporated into our software license agreements. Effective copyright
and trade secret protection may be unavailable or limited in certain foreign
countries.

We require our employees and subcontractors to sign confidentiality agreements
upon hiring, which require them to keep company information confidential. We
license our software products to customers rather than transferring title. Our
"shrink-wrap" license agreements are included in the product packaging, which
explains that by opening the seal, the users agree to the terms of the license
agreement. It is uncertain whether this type of license agreement is legally
enforceable.

In spite of these precautions, it may be possible for competitors or users to
copy aspects of our intellectual property to obtain information without
authorization, or to develop similar technology independently. We can not be
certain that the steps we have taken will be adequate to deter misappropriation
of our proprietary information, or that we will be able to detect unauthorized
use. Although we believe our products and technology do not infringe on any
existing proprietary rights of others, certain patents exist with claims that
might extend to our products. Such patents, together with the growing use of
patents to protect software, have increased the risk that third parties may
assert infringement claims against us in the future. Any such claims could
result in costly litigation and may have an adverse effect on our business,
financial condition and results of operations. We do not have insurance to cover
the risk of infringement claims.



                                       11
<PAGE>   12

WE MAY NOT HAVE THE RIGHT TO RESELL OR REUSE SOLUTIONS DEVELOPED FOR CERTAIN
CUSTOMERS

A significant portion of our business involves the development of technology
solutions for specific customer engagements. Although we normally preserve the
right to utilize the solution for other customer engagements, ownership of these
solutions is subject to negotiations and may be assigned to the customer. Issues
relating to the ownership of and rights to use solutions can be complicated, and
disputes may arise that could affect our ability to resell or reuse these
solutions. Any limitation on our ability to resell or reuse a solution could
require us to incur additional expenses to develop new solutions, and could have
an adverse effect on our business, financial condition and results of
operations.

GOVERNMENT REGULATIONS COULD INTERFERE WITH THE ACCEPTANCE OF NEW TECHNOLOGIES,
WHICH COULD AFFECT DEMAND FOR OUR SERVICES

If the state, federal or international governments adopt any new laws and
regulations applicable to new technologies and electronic commerce, such laws
and regulations could have an adverse effect on the growth of new technologies
and may decrease market acceptance. If this occurs, companies may decide not to
pursue technological initiatives, which could decrease the demand for our
services. A decrease in the demand for our services could have a material
adverse effect on our business, financial condition and results of operations.

CHAIRMAN OF OUR BOARD OF DIRECTORS HAS SIGNIFICANT VOTING POWER AND MAY
INFLUENCE THE OUTCOME OF ANY STOCKHOLDER VOTE

As of June 30, 2001, Norman J. Wechsler, Chairman of the Board of Directors,
directly or indirectly owns approximately 30% of our common stock or common
stock equivalents. As a result, he has the ability to substantially influence
the outcome of corporate actions requiring stockholder approval, including the
election of directors. This concentration of ownership may also have the effect
of delaying or preventing a change of control, even if such a change of control
would benefit other stockholders. In addition, the interests of this
concentration of ownership may not always coincide with the interests of the
Company or the interests of other stockholders and accordingly, they could cause
us to enter into transactions or agreements which the Company would not
otherwise consider.

WE HAVE NOT PAID AND DO NOT INTEND TO PAY ANY DIVIDENDS ON OUR COMMON STOCK

To date, we have not paid any cash dividends on our common stock. Our Board of
Directors does not intend to declare cash dividends in the foreseeable future,
but instead intends to retain all earnings, if any, for use in our business
operations. We currently do not have any restrictions on our ability to declare
cash dividends on our common stock. We currently pay dividends on all preferred
stock.

THE SALE OR ISSUANCE OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK BY THE HOLDERS
OF OUR PREFERRED STOCK OR WARRANTS MAY AFFECT THE MARKET PRICE OF OUR COMMON
STOCK

In August 1996, we issued shares of Series A convertible preferred stock and
issued warrants to purchase common stock. The Series A convertible preferred
stock is convertible into common stock at the election of the holders. We have
registered for resale the common stock issuable upon conversion of the Series A
convertible preferred stock and exercise of the warrants.

In January and April 1998, one Series A convertible preferred stockholder
converted a total of 96,774 shares of Series A convertible preferred stock into
193,548 shares of common stock. In July 1998, the same stockholder converted
48,387 shares of Series A convertible preferred stock into 96,774 shares of
common stock. In January 2000, a stockholder converted 24,194 shares of Series A
convertible preferred stock into 48,794 shares of common stock. In March 2000,
the same stockholder exercised his warrant and purchased 30,000 shares of common
stock at an exercise price of $3.50 per share.



                                       12
<PAGE>   13

In March 1997, we sold shares of Series B convertible preferred stock. The
Series B convertible preferred stock may, at our option, be exchanged for
convertible promissory notes (the Notes) of the Company issued with the same
terms as the Series B convertible preferred stock. The Series B preferred stock
or the Notes, if issued, are convertible into common stock at the election of
the holders. We have registered for resale the shares of common stock issuable
upon conversion of the Series B convertible preferred stock or the Notes.

In March 2001, we sold shares of Series C convertible preferred stock and issued
warrants to purchase common stock. The shares of Series C convertible preferred
stock are convertible into common stock at the election of the holders. We have
registered for resale the shares of common stock issuable upon conversion of the
Series C convertible preferred stock and exercise of the warrants. The number of
shares issuable upon conversion of the Series C convertible preferred stock has
to be increased because the trading price of our common stock during the five
trading days immediately preceding the six month anniversary of the sale of the
Series C convertible preferred stock was less than $1.125. According to the
terms of Series C convertible preferred stock, we will need to register
additional shares for resale, which could have a further dilutive effect on the
value of our common stock and will require stockholder approval.

If all the shares reserved for these purposes were issued, it would
significantly increase the number of shares outstanding. Sale of substantial
amounts of our common stock by holders of the Series A preferred stock, Series B
preferred stock, Series C preferred stock, or warrants in the future could
adversely affect the market price of our common stock and could have an adverse
effect on our business, financial condition and results of operations.


ITEM 2.  DESCRIPTION OF PROPERTY

The Company's executive offices are located at 1975 El Camino Real West, Suite
#201, Mountain View, California. IntelliCorp leases approximately 34,000 square
feet of office and computer space at this facility pursuant to a lease, which
extends through August 2003.

IntelliCorp also leases space for offices in Chadds Ford, Pennsylvania, United
States as well as in Europe (London, England; Paris, France and Walldorf,
Germany).

These facilities are adequate to meet the Company's needs in the foreseeable
future.


ITEM 3.  LEGAL PROCEEDINGS

Management is not aware of any material legal proceedings to which the Company
is a party or of which any of their properties are the subject.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.



                                       13
<PAGE>   14

                                     PART II


ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's common stock trades on The Nasdaq SmallCap Market tier of The
Nasdaq Stock Market under the symbol: INAI. The following table sets forth the
closing prices since July 1, 1999 for the common stock for the fiscal quarters
indicated as reported by Nasdaq. These over-the-counter market quotations
reflect inter-dealer prices, without retail mark-up, markdown, or commissions,
and may not necessarily represent actual transactions.

At June 30, 2001, there were approximately 446 stockholders of record of the
Company's common stock. The Company has not paid any cash dividends on its
common stock and does not plan to pay any dividends in the foreseeable future.
The Company's future dividend policy will be determined by its Board of
Directors on the basis of many factors, including results of operations, capital
requirements and general business conditions

<TABLE>
<CAPTION>
                                     YEAR ENDED JUNE 30,
                        ----------------------------------------------
                                2001                      2000
                        --------------------      --------------------
                         HIGH          LOW         HIGH         LOW
                        -------      -------      -------      -------
<S>                     <C>          <C>          <C>          <C>
1st Fiscal Quarter      $ 1.750      $ 1.031      $ 2.000      $ 0.970
2nd Fiscal Quarter        1.250         .500        3.630        1.500
3rd Fiscal Quarter        1.594         .563       11.380        3.500
4th Fiscal Quarter        1.390         .980        3.880        1.440
</TABLE>

RECENT SALES OF UNREGISTERED SECURITIES

In March 1999, the Company consummated an equity arrangement which required
certain investors, to purchase, in private placements, up to $3.0 million of the
Company's common stock through March 2000, if and when requested by the Company.
The purchase price was set at 10% above the market price at the time the
purchase was made, with a minimum price of $1.50 per share and a maximum of
$3.00 per share. As of June 30, 2001, the Company sold $2.9 million of common
stock under this agreement, at a price of $1.50 and $3.00 per share. The shares
sold under this agreement are registered for resale.

In May 2000 and June 2000, the Company amended the March 1999 equity arrangement
to require an investor to purchase, in a private placement, an additional $2.8
million of the Company's common stock through December 2000, if and when
requested by the Company. The purchase price was set at 10% above the market
price at the time the purchase was made, with a minimum price of $1.00 per share
and a maximum of $2.00 per share. As common stock was purchased under this
amended agreement, the Company issued five year warrants equal to 25% of the
number of shares purchased. The exercise price of the warrants was 10% above the
purchase price of the shares purchased. As of June 30, 2001, the Company sold
$2.7 million of common stock under this amended agreement, at a price of $1.68
and $2.00 per share, and issued warrants to purchase 361,532 shares of common
stock at an exercise price of $1.85 and $2.20. The shares sold under this
amended agreement are registered for resale. None of the warrants issued as of
June 30, 2001 have been exercised.



                                       14
<PAGE>   15

                             SELECTED FINANCIAL DATA


<TABLE>
<CAPTION>
                                                                               YEAR ENDED JUNE 30,
                                                        2001           2000           1999           1998           1997
                                                      --------       --------       --------       --------       --------
                                                                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                   <C>            <C>            <C>            <C>            <C>
STATEMENT OF OPERATIONS DATA
Net revenues                                          $ 25,613       $ 22,666       $ 21,961       $ 24,445       $ 12,686
                                                      --------       --------       --------       --------       --------
Loss from operations                                    (6,996)        (6,822)        (6,082)          (625)        (1,753)
Interest expense                                          (192)          (128)          (197)          (177)          (153)
Interest income, foreign exchange loss
   and other, net                                          (61)          (122)           136            310            161
                                                      --------       --------       --------       --------       --------
Loss before income taxes                                (7,249)        (7,072)        (6,143)          (492)        (1,745)
Income tax provision (benefit)                              (3)            41             59            206            139
                                                      --------       --------       --------       --------       --------
Net loss                                              $ (7,246)      $ (7,113)      $ (6,202)      $   (698)      $ (1,884)
Preferred stock dividends:
   Series A, B and C                                      (649)          (535)          (534)          (623)          (311)
   Beneficial conversion dividend(1),(2)                (1,703)            --             --             --         (1,720)
                                                      --------       --------       --------       --------       --------

Net loss applicable to common stockholders            $ (9,598)      $ (7,648)      $ (6,736)      $ (1,321)      $ (3,915)
                                                      ========       ========       ========       ========       ========
Basic and diluted net loss per common share           $  (0.45)(2)   $  (0.44)      $  (0.44)      $  (0.10)      $  (0.31)(1)
Shares used in computation
  of basic and diluted net loss per common share        21,140         17,469         15,333         13,871         12,634
                                                      --------       --------       --------       --------       --------
BALANCE SHEET DATA
Cash, cash equivalents
   and short-term investments                         $  2,639       $  2,240       $  2,619       $  6,186       $  6,392
Working capital                                            549          1,290          2,999          6,973          6,838
Total assets                                            11,494         12,313         13,190         18,454         12,064
Convertible notes                                           --             --          1,600          1,600          1,600
Stockholders' equity                                     2,767          4,370          5,201         10,157          5,948
</TABLE>

No cash dividends were declared or paid to the common stockholders during the
periods set forth above.

(1) Net loss per common share for the year ended June 30, 1997 gives effect to
    the accounting treatment relative to the Company's Series B convertible
    preferred stock having a beneficial conversion feature. The net loss per
    common share reflects a $1.7 million preferred stock dividend as a result of
    this treatment.

(2) Net loss per common share for the year ended June 30, 2001 gives effect to
    the accounting treatment related to the Company's Series C convertible
    preferred stock having a beneficial conversion feature. The net loss per
    common share reflects a $1.7 million preferred stock dividend as a result of
    this treatment.



                                       15
<PAGE>   16

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

OVERVIEW

We are an international technology services 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.

Beginning in fiscal 2001, we changed our focus from software license products to
consulting services that help Fortune 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).

As a result of our change in focus, we determined that relying on software
license product sales in the marketplace for integrated software applications
was unpredictable as many companies had recently chosen their major business
applications platforms and completed their year 2000 reviews. We therefore 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 determined 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 directed
at the business-customer relationship. As part of this strategy, we are also
finding 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. We believe
the revision of the business plan will have a positive impact on our customers
because we will be able to offer our customers a more comprehensive suite of
eBusiness, CRM consulting services and software license products for users of
SAP, AG software.

In connection with this transition, in the quarter ended September 30, 2000 we
initiated a reduction-in-force and transferred staff from software license
product development to CRM/eCRM (electronic customer relationship management)
consulting services. These changes affected approximately 20% of our work force.
The one-time cost of this reduction-in-force was approximately $120,000, which
included expenses such as severance pay and legal fees. In May and June 2001, we
made an additional reduction in our work force of approximately 13% in order to
align available cash resources and projected expenses. The one-time cost of the
reduction-in-force was approximately $99,000 for severance pay.

A significant amount of our revenues has been, and will continue to be, derived
from consulting services and, to a lesser extent, software license product
support. The operating margins for consulting services are substantially lower
than the operating margins for our software license products. This disparity is
principally due to the low cost of materials,



                                       16
<PAGE>   17

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 consulting
services and software license products. As the proportion of consulting and
other services revenue increases, our overall margins will decrease accordingly.
Our overall operating margins may thus be lower than those for software
companies that do not derive such a significant percentage of revenues from
consulting and other services.

RESULTS OF OPERATIONS

Other than statements of historical fact, the statements made in this annual
report are hereby identified as forward-looking statements that involve risks
and uncertainties. Our actual results may differ materially from the results
discussed in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, risks associated with competitors'
product introductions, market price competition and market acceptance of our
products, as well as those discussed below and in "Risk Factors."

In particular, it is important to note that achievement of revenue goals is
affected by numerous factors beyond our control, including competitors' product
introductions, market price competition and market acceptance of our consulting
and software license products. Our historical results may not be indicative of
future operating results.



                                       17
<PAGE>   18

The following table sets forth, for the periods indicated, certain operational
data as a percentage of total revenues and as a percentage change from year to
year:

<TABLE>
<CAPTION>
                                                                                       PERCENT INCREASE
                                                  PERCENT OF REVENUES                     (DECREASE)
                                                  YEAR ENDED JUNE 30,                 2001          2000
                                           ----------------------------------       COMPARED       COMPARED
                                            2001          2000          1999         TO 2000       TO 1999
                                           ------        ------        ------       --------      ---------
<S>                                        <C>           <C>           <C>          <C>           <C>
REVENUES:
    Consulting services                        71%           53%           52%           53%            5%
    Software License                           19            32            31           (35)            8
    License support                            10            15            17           (23)          (11)
                                           ------        ------        ------        ------        ------
        Total revenues                        100           100           100            13             2
COSTS AND EXPENSES:
Cost of consulting service revenues            55            40            38            56             8
Cost of software license revenues               4             5             6           (11)          (16)
Cost of license support revenues                1             3             3           (49)           (4)
Research and development                       11            21            27           (39)          (20)
Marketing, general and administrative          56            61            54             3            19
                                           ------        ------        ------        ------        ------
        Total cost and expenses               127           130           128           (11)            5
                                           ------        ------        ------        ------        ------
Loss from operations                          (27)          (30)          (28)            3           N/M
                                           ------        ------        ------        ------        ------
Net loss                                      (28)%         (31)%         (28)%           2           N/M
                                           ======        ======        ======        ======        ======
</TABLE>

N/M -- Not meaningful


REVENUES

Our total revenue is derived from three sources, all related to providing a
suite of consulting services and software license products to the users of SAP
ERP systems, software license products, and software license product support.
Total revenues were $25.6 million, $22.7 million and $22.0 million for fiscal
years 2001, 2000, and 1999, respectively. This represents a 13% increase in
fiscal 2001 total revenues as compared to fiscal 2000. The increase is due to
the increase in CRM consulting revenue, which offsets a decrease in sales of
software licenses. The 2% increase in fiscal 2000 total revenues as compared to
fiscal 1999 is due to the increase in CRM consulting revenue and an increase in
sales of software licenses.

Consulting services revenues increased 53% during fiscal 2001 compared to fiscal
2000 and increased 5% during fiscal 2000 compared to fiscal 1999. These
increases are due primarily to consulting revenue in the CRM area. We have made
a concerted effort to increase our presence in the CRM marketplace, which should
lead to a larger backlog and greater predictability.

Software license product revenues decreased 35% in fiscal 2001 from fiscal 2000.
This decrease is primarily due to decreased sales of LiveModel and
LiveInterface. We have shifted our focus towards our new software, LiveModel
NetProcess. Software revenues increased 8% in fiscal 2000 from fiscal 1999. This
increase is primarily due to increased sales of LiveModel through the global
partners' channel.

Software license product support revenues, which consist primarily of product
support, decreased 23% during fiscal 2001 compared to fiscal 2000. This decrease
is primarily attributable to a reduction of product support revenues of
approximately $774,000 as the Company's sale of software license products
decreased. Software license product support revenues decreased 11% during fiscal
2000 compared to fiscal 1999. This decrease is primarily attributable to a
reduction of product support revenues of approximately $500,000.



                                       18

<PAGE>   19

We derived approximately 26%, 37% and 33% of our revenues in fiscal years 2001,
2000 and 1999, respectively, from international sales. We expect that export
sales will continue to provide a significant portion of total revenues. However,
changes in currency exchange rates, strength of local economies and the inherent
uncertainties in the software market make these revenues difficult to predict.

The geographic breakdown of revenues is as follows:

<TABLE>
<CAPTION>
                                                                                     PERCENT INCREASE
                                                                                         (DECREASE)
                                                                                 ------------------------
                                                YEAR ENDED JUNE 30,                2001            2000
                                       ------------------------------------      COMPARED        COMPARED
                                         2001          2000          1999         TO 2000         TO 1999
                                       --------      --------      --------      --------        --------
<S>                                    <C>           <C>           <C>           <C>             <C>
                                                                (IN THOUSANDS)
REVENUES:
        North America                  $ 18,982      $ 14,387      $ 14,675            32%             (2)%
        United  Kingdom                   3,026         3,554         3,705           (15)             (4)
        Germany                           1,001         2,707         1,857           (63)             46
        France                            2,425         1,421           539            71             164
        Pacific Rim/Latin America           179           597         1,185           (70)            (50)
                                       --------      --------      --------      --------        --------
               Total revenues          $ 25,613      $ 22,666      $ 21,961            13%              2%
                                       ========      ========      ========      ========        ========
</TABLE>

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


<TABLE>
<CAPTION>
                                          YEAR ENDED JUNE 30,
                                       --------------------------
                                       2001       2000       1999
                                       ----       ----       ----
                                             (IN THOUSANDS)
<S>                                    <C>        <C>        <C>
REVENUES:
        North America                    74%        63%        67%
        United Kingdom                   12         16         17
        Germany                           4         12          9
        France                            9          6          2
        Pacific Rim/Latin America         1          3          5
                                       ----       ----       ----
        Total revenues                  100%       100%       100%
                                       ====       ====       ====
</TABLE>

Our sales forecast for fiscal 2002 anticipates a predominant portion of future
revenues to be derived from CRM related consulting services. The existing
backlog helps to insure continued growth in this area. Factors which could
impact the level of revenue include, but are not limited to, the continued sales
of our products and services, overall customer satisfaction on our CRM
consulting services and a sustained knowledgeable workforce. Future growth will
depend heavily on CRM consulting revenues and increased headcount. There can be
no assurance, however, that the actual revenues will not differ materially from
the revenues forecast in the near term.

COSTS AND EXPENSES

Cost of consulting services revenues consists primarily of personnel, including
outside consultants and related costs. Cost of consulting services revenues as a
percentage of the related revenues was 77%, 76% and 74% for fiscal years 2001,
2000 and 1999, respectively. We expect the cost of consulting services revenues
as a percentage of the related revenues to decrease as we increase our CRM
consulting business and utilization of our consultants.

Cost of software license product revenues consists primarily of materials,
documentation, packaging, royalties and amortization of capitalized and
purchased software development costs. Cost of software license product revenues
as a percentage of software revenues was 19%, 14%, and 18% for fiscal years
2001, 2001, and 1999, respectively. The fiscal 2001 increase in software cost,
relative to software revenues, is attributable to higher royalty payments due to
an increase



                                       19
<PAGE>   20

in overall LiveSynchronizer product sales. The fiscal 2000 decrease in software
cost, relative to software revenues, is attributable to lower capitalized
software amortization related to our acquisition of UPI technology.

Cost of software license product support revenues consists primarily of product
support personnel. Cost of software license product support revenues as a
percentage of the related revenues was 14%, 22% and 20% for fiscal years 2001,
2000 and 1999, respectively. The fiscal 2001 decrease in software license
product support costs is due to lower labor costs as a result of a reduction in
workforce. The cost of software license product support revenues remained
relatively flat for fiscal years 2000 and 1999.

The aggregate cost of revenues, as well as the resulting aggregate gross margin,
may fluctuate based on the mix of license, contract, or other services performed
in a particular period.

Research and development expense consists primarily of personnel and related
costs. The decrease of 39% in research and development expense in fiscal 2001
compared to fiscal 2000 is mainly due to labor reductions. The decrease of 20%
in research and development expense in fiscal 2000 compared to fiscal 1999 is
mainly due to transitioning software products from development to production.
Research and development costs as a percentage of revenues were 11%, 21% and 27%
for fiscal year 2001, 2000 and 1999, respectively. Research and development
costs as a percentage of revenues are expected to decrease further as the
percentage of consulting services revenue increases.

Marketing, general and administrative expense consists primarily of personnel
and related costs for marketing, sales, administration, finance, information
systems, human resources, and general management. The increase of 3% in
marketing, general and administrative expense in fiscal 2001 compared to fiscal
2000 is mainly due to high recruiting expenses incurred in the third quarter of
fiscal 2001. The increase of 19% in marketing, general and administrative
expense in fiscal 2000 compared to fiscal 1999 is mainly due to our increased
focus on marketing and selling, including costs of Sapphire 2000 trade show,
which occurred in the fourth quarter of fiscal 2000.

OTHER INCOME (EXPENSE)

Other income (expense) consists primarily of interest expense and foreign
currency losses during fiscal 2001, 2000 and 1999. Interest expense consists
primarily of interest related to the convertible notes issued in April 1996 for
fiscal years 2000 and 1999, and the bank credit line interest for fiscal years
2001 and 2000.

INCOME TAX

The income taxes provision (benefit) primarily represents foreign withholding
taxes, federal and state income taxes. At June 30, 2001, we had net operating
loss carryforwards of approximately $48.0 million for federal income tax
purposes, which will expire in fiscal years 2006 through 2021. We also had net
operating loss carryforwards of approximately $4.0 million for state income tax
purposes and $16.0 million for foreign income tax purposes. The state net
operating loss carryforwards will expire in fiscal years 2002 through 2006. The
foreign net operating loss carryforwards have an indefinite carryforward period.

Utilization of the federal and state net operating losses and credits may be
subject to a substantial annual limitation due to the "change in ownership"
provisions of the Internal Revenue Code of 1986 and similar state provisions.
The annual limitation may result in the expiration of net operating losses and
credits before utilization.

NET LOSS

Our net losses were $7.2 million, $7.1 million, and $6.2 million for fiscal
years 2001, 2000, and 1999, respectively. The fiscal 2001 increase in net loss
was primarily the result of increased consulting cost of sales. The fiscal 2000
increase in net loss was primarily the result of increased marketing expenses.



                                       20
<PAGE>   21

QUARTERLY RESULTS

Our quarterly revenues and operating results have in the past, and may in the
future, vary significantly due to such factors as the timing of new product
introductions, changes in pricing policies and our competitors, market
acceptance of new products and enhanced versions of existing products, the
budgets of our customers and the length of sales cycles. Although a significant
portion of our revenues in each quarter results from orders received in that
quarter, the majority of our expense levels are fixed, based on expectations of
future revenues. In addition, a substantial amount of our quarterly license
revenues have typically been recorded in the third month of each fiscal quarter
with a concentration of such revenues in the last half of that month. The timing
of the closing of such large license agreements contributes to
quarter-to-quarter fluctuations. As a result, if revenues are not realized as
expected, our operating results will be materially adversely affected.
Accordingly, it is likely that we would experience disproportionate declines in
our operating income if revenues were to decline. In addition, it is possible
that in some future quarter, our operating results will be below the
expectations of public market analysts and investors. In such event, the price
of our common stock would likely be adversely affected.

BOOKINGS AND BACKLOG

CRM consulting bookings were $3.7 million and $3.8 million for the fourth
quarter of fiscal 2001 and 2000, respectively, and $8.8 million and $12.1
million for the 12 months ended June 30, 2001 and 2000, respectively. Bookings
were derived primarily from CRM consulting services to large commercial
companies. At the end of the fourth quarter of fiscal 2001 and 2000, backlog
stood at $4.0 million and $5.0 million, respectively. Our bookings and backlog
are largely dependent upon continued business related to CRM consulting
solutions.

LIQUIDITY AND CAPITAL RESOURCES

Our cash and cash equivalents were $2.6 million at June 30, 2001 and $2.2
million at June 30, 2000. The increase in fiscal 2001 is primarily due to cash
used in operations of $5.4 million and spending for capital equipment of
$349,000, offset by cash received in equity financings of $6.1 million. Spending
for capital equipment was $489,000 and $632,000 for fiscal years 2000 and 1999,
respectively.

As of June 30, 2001, we have an accumulated deficit of $70.6 million, and a
working capital balance of $549,000. In addition, we have a net loss of $7.2
million and a net loss applicable to common stockholders of $9.6 million for
fiscal 2001. We expect to incur additional losses through at least part of
fiscal 2002, including the first quarter, and we recognize the need to utilize
all or some of our available financing resources as of June 30, 2001 to fund our
cash requirements in fiscal 2002. Available financing resources include a bank
credit facility of the lesser of $2.0 million or 75% of eligible accounts
receivable balances at any point in time. The amounts collected from
outstanding, eligible accounts receivable balances are remitted to the bank as
loan payments when such amounts are received. At June 30, 2001, no funds were
available under the bank credit facility, and we owed $1.6 million on this
credit facility. The bank credit line expires in July 2002 and is secured by all
of our assets. In August and September 2001, we entered into promissory notes
with two related parties which will provide up to an aggregate of $1.9 million
of which $800,000 has been borrowed through September 30, 2001. The notes are
secured by our accounts receivable and is subordinate to the bank credit
facility.

We believe our cash and cash equivalents at June 30, 2001, along with expected
cash generated from operations, and available funds under the promissory notes,
will be sufficient to fund our cash requirements through at least June 30, 2002.
If anticipated revenues from fiscal 2002 do not meet management's expectations,
and cost containment measures for fiscal 2002 do not meet management's
expectations, management has the ability and intent to reduce certain planned
expenditures and continue to curtail operations significantly.

RECENT PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, Accounting for Derivative Instruments and
Hedging Activities ("SFAS 133"). SFAS 133 established accounting and reporting
standards for derivative instruments and for hedging activities. SFAS 133 is
effective for fiscal years beginning after June 15, 2000. We adopted SFAS 133
for fiscal year 2001. The adoption did not have a material impact on our
financial position or results of operations since we currently do not invest in
derivative instruments or engage in hedging activities.



                                       21
<PAGE>   22

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB 101"). SAB
101 provides guidance on the recognition, presentation, and disclosure of
revenue in financial statements. We adopted SAB 101 in the fourth quarter of
fiscal 2001. The adoption of SAB 101 did not have a significant impact on =our
financial position or results of operations.

In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation, an Interpretation of APB Opinion No.
25 ("FIN 44"). FIN 44 clarifies the application of APB 25 for (1) the definition
of an employee for purposes of applying APB 25, (2) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (3) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (4) the accounting for an exchange of stock compensation
awards in a business combination. FIN 44 was effective July 1, 2000, but certain
conclusions cover specific events that occurred after either December 15, 1998
or January 12, 2000. The adoption of FIN 44 did not have a material effect on
the Company's financial position or results of operations.

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 their acquisition.
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.

We are 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. We are currently
reviewing the impact that the adoption of these standards will have on our
financial position and results of operations.



                                       22
<PAGE>   23

ITEM 7.  FINANCIAL STATEMENTS

                           CONSOLIDATED BALANCE SHEETS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                             June 30,
                                                                      -----------------------
                                                                        2001           2000
                                                                      --------       --------
<S>                                                                   <C>            <C>
CURRENT ASSETS:
    Cash and cash equivalents                                         $  2,639       $  2,240
    Accounts receivables (less allowance for
        doubtful accounts:  2001, $169; 2000, $459)                      5,966          5,729
    Other current assets                                                   671          1,264
                                                                      --------       --------
        Total current assets                                             9,276          9,233

Property and equipment, net                                                603            911
Purchased intangibles (less accumulated amortization:
   2001, $2,507; 2000, $1,944)                                           1,472          2,035
Other assets                                                               143            134
                                                                      --------       --------
                                                                      $ 11,494       $ 12,313
                                                                      ========       ========

                           LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable                                                   $  2,381       $  1,899
   Accrued compensation                                                  1,639          1,644
   Accrued royalties                                                       284            295
   Other current liabilities                                             1,702          1,443
   Bank loan                                                             1,640            989
   Deferred revenues                                                     1,081          1,673
                                                                      --------       --------
        Total current liabilities                                        8,727          7,943

COMMITMENTS

STOCKHOLDERS' EQUITY:
    Preferred stock, $0.001 par value; 2,000,000
        shares authorized; shares issued and outstanding:
           Series A: 411,290 at June 30, 2001
           and 2000; aggregate liquidation
           preference of $1,275 at June 30, 2001                             1              1
           Series B:  5,000 at June 30, 2001 and 2000;
           aggregate liquidation preference of
           $5,067 at June 30, 2001
           Series C: 4,880 and 0 at June 30, 2001 and 2000,
           respectively, aggregate liquidation preference of
           $5,002 at June 30, 2001                                          --             --
    Common stock, $0.001 par value - 50,000,000
           shares authorized; shares issued and outstanding:
            21,745,532 and 19,999,733 at June 30, 2001 and 2000,
           respectively                                                     22             20
    Additional paid-in capital                                          73,369         67,079
    Accumulated deficit                                                (70,625)       (62,730)
                                                                      --------       --------
      Total stockholders' equity                                         2,767          4,370
                                                                      --------       --------
                                                                      $ 11,494       $ 12,313
                                                                      ========       ========
</TABLE>


See accompanying notes to consolidated financial statements.



                                       23
<PAGE>   24

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    Years ended June 30, 2001, 2000, and 1999
                    (In thousands, except per share amounts)


<TABLE>
<CAPTION>
                                                                        Year ended June 30,
                                                               --------------------------------------
                                                                 2001           2000           1999
                                                               --------       --------       --------
<S>                                                            <C>            <C>            <C>
REVENUES:
    Consulting services                                        $ 18,255       $ 11,940       $ 11,336
    Software license                                              4,760          7,354          6,830
    License support                                               2,598          3,372          3,795
                                                               --------       --------       --------
        Total revenues                                           25,613         22,666         21,961
                                                               ========       ========       ========

COSTS AND EXPENSES:
    Cost of revenues:
        Consulting services                                      14,118          9,027          8,383
        Software license                                            926          1,045          1,244
        License support                                             372            728            755
    Research and development                                      2,897          4,761          5,922
    Marketing, general and administrative                        14,296         13,927         11,739
                                                               --------       --------       --------
        Total costs and expenses                                 32,609         29,488         28,043
                                                               ========       ========       ========
Loss from operations                                             (6,996)        (6,822)        (6,082)

OTHER INCOME (EXPENSE):
    Interest expense                                               (192)          (128)          (197)
    Interest income, foreign exchange loss and other, net           (61)          (122)           136
                                                               --------       --------       --------
        Total other income (expense)                               (253)          (250)           (61)
                                                               --------       --------       --------
Loss before income taxes                                         (7,249)        (7,072)        (6,143)
Income tax provision (benefit)                                       (3)            41             59
                                                               --------       --------       --------
Net loss                                                         (7,246)        (7,113)        (6,202)
                                                               ========       ========       ========

Preferred stock dividends:
      Series A, Series B and Series C                              (649)          (535)          (534)
      Beneficial conversion feature embedded in Series C         (1,703)            --             --
                                                               --------       --------       --------
Net loss applicable to common stockholders                     $ (9,598)      $ (7,648)      $ (6,736)
                                                               ========       ========       ========

Basic and diluted net loss per common share                    $  (0.45)      $  (0.44)      $  (0.44)
                                                               --------       --------       --------
Shares used in computation of basic and diluted net
       loss per common share                                     21,140         17,469         15,333
                                                               --------       --------       --------
</TABLE>


See accompanying notes to consolidated financial statements.



                                       24
<PAGE>   25

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                 (In thousands)


<TABLE>
<CAPTION>
                                                     Preferred Stock           Common Stock     Additional
                                                 ----------------------   ---------------------   paid-in    Accumulated
                                                  Shares      Par value    Shares     Par value   capital      deficit       Total
                                                 --------     ---------   --------    --------- ----------   -----------   --------
<S>                                              <C>          <C>         <C>         <C>       <C>          <C>           <C>
Balance at June 30, 1998                              489     $      1      15,110    $     15    $ 58,487     $(48,346)   $ 10,157
Exercise of stock options                              --           --          19          --          20           --          20
Issuance of common stock                               --           --       1,160           1       1,739           --       1,740
Dividends on preferred stock                           --           --          --          --          --         (534)       (534)
Conversion of Series A convertible preferred
  stock to common stock                               (48)          --          97          --          --           --          --
Stock options issued to board members
  with exercise prices below the
  fair market value of common stock
  on the date of grant                                 --           --          --          --          20           --          20
Net loss                                               --           --          --          --          --       (6,202)     (6,202)
                                                 --------     --------    --------    --------    --------     --------    --------
Balance at June 30, 1999                              441            1      16,386          16      60,266      (55,082)      5,201

Exercise of stock options                              --           --         663           1       1,096           --       1,097
Issuance of common stock
  (less issuance cost of $39)                          --           --       1,831           2       3,814           --       3,816
Dividends on preferred stock                           --           --          --          --          --         (535)       (535)
Conversion of Series A convertible
  preferred stock to common stock                     (25)          --          49          --          --           --          --
Conversion of Convertible Note
  to common stock                                      --           --       1,041           1       1,599           --       1,600
Stock options issued below the
  fair market value of  common
  stock on the date of grant                           --           --          --          --          99           --          99
Warrants exercised                                     --           --          30          --         105           --         105
Fair value of a warrant to purchase
  common stock issued to a service provider            --           --          --          --         100           --         100
Net loss                                               --           --          --          --          --       (7,113)     (7,113)
                                                 --------     --------    --------    --------    --------     --------    --------
Balance at June 30, 2000                              416            1      20,000          20      67,079      (62,730)      4,370

Exercise of stock options                              --           --          45          --          37           --          37
Issuance of common stock to
  an employee                                          --           --         101          --         150           --         150
Issuance of common stock
  to private investors during September 2000           --           --       1,000           1         999           --       1,000
Issuance of common stock
  to private investors during December 2000            --           --         600           1         299           --         300
Dividends on preferred stock                           --           --          --          --          --         (649)       (649)
Issuance of Series C convertible preferred
  stock to private investors, net of
  issuance costs of $100                                5           --          --          --       4,780           --       4,780
Deemed dividend related to beneficial
  conversion feature of Series C convertible
  preferred stock                                      --           --          --          --       1,703           --       1,703
                                                       --           --          --          --      (1,703)          --      (1,703)
Issuance of warrants to purchase
  common stock in exchange for services                --           --          --          --          25           --          25
Net loss                                               --           --          --          --          --       (7,246)     (7,246)
                                                 --------     --------    --------    --------    --------     --------    --------
Balance at June 30, 2001                              421     $      1      21,746    $     22    $ 73,369     $(70,625)   $  2,767
                                                 ========     ========    ========    ========    ========     ========    ========
</TABLE>


See accompanying notes to consolidated financial statements.



                                       25
<PAGE>   26

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                For the years ended June 30, 2001, 2000 and 1999
                                 (In thousands)


<TABLE>
<CAPTION>
                                                                         June 30,
                                                            ----------------------------------
                                                              2001         2000         1999
                                                            --------     --------     --------
<S>                                                         <C>          <C>          <C>
CASH FLOW FROM OPERATING ACTIVITIES:
    Net loss                                                $ (7,246)    $ (7,113)    $ (6,202)
    Adjustments to reconcile net loss to
        net cash used in operating activities:
        Depreciation and amortization                            967        1,186        1,621
        Write-off of capitalized software                        247           --           --
        Loss on disposal of fixed assets                           6           --           --
        Issuance of common stock in lieu of cash                 150           --           --
        Stock options issued below the fair market value
          of common stock on the date of grant                    --           99           20
        Deemed fair value of warrants to purchase common
          stock issued to service providers                       25          100           --
    Changes in assets and liabilities:
        Accounts receivable                                     (237)         568          860
        Other current assets                                     593         (792)        (145)
        Other assets                                              (9)          25           44
        Accounts payable                                         482          627         (138)
        Accrued compensation                                      (5)         378          (55)
        Accrued royalties and other current liabilities          248          403         (254)
        Deferred revenues                                       (592)        (390)        (314)
                                                            --------     --------     --------
Net cash used in operating activities                         (5,371)      (4,909)      (4,563)
                                                            --------     --------     --------

CASH FLOW FROM INVESTING ACTIVITIES:
    Property and equipment purchases                            (349)        (489)        (632)
    Purchase of intangible assets                                 --           --          (51)
    Proceeds from sales of short-term investments                 --           --        1,472
                                                            --------     --------     --------
Net cash used in investing activities                           (349)        (489)         789
                                                            --------     --------     --------

CASH FLOW FROM FINANCING ACTIVITIES:
    Borrowings under bank credit line, net                       651          536          453
    Cash received from exercise of stock options                  37        1,097           20
    Cash received from exercise of warrants                       --          105           --
    Cash received from issuance of common stock
      to private investors                                     1,300        3,816        1,740
    Cash received from issuance of preferred stock,
      net of issuance costs                                    4,780           --           --
    Cash paid for preferred stock dividends                     (649)        (535)        (534)
                                                            --------     --------     --------
Net cash provided by financing activities                      6,119        5,019        1,679
                                                            --------     --------     --------

Increase (decrease) in cash and cash equivalents                 399         (379)      (2,095)
Cash and cash equivalents at beginning of year                 2,240        2,619        4,714
                                                            --------     --------     --------
Cash and cash equivalents at end of year                    $  2,639     $  2,240     $  2,619
                                                            ========     ========     ========

Supplemental disclosure of cash flow information:
    Income taxes paid                                       $     21     $     41     $     59
    Cash paid for interest                                  $    190     $    108     $    160
</TABLE>


See accompanying notes to consolidated financial statements.



                                       26
<PAGE>   27
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization. IntelliCorp, Inc. (IntelliCorp or the Company) is a United
States-based corporation. IntelliCorp is an international technology services
firm that provides Global 2000 companies the business solutions required to
fully leverage their investments in information systems and business processes.
The Company offers 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.

Beginning in fiscal 2001, the Company changed its focus from licensing software
products to providing consulting services that help Fortune 1000 companies
rapidly enter the world of conducting electronic business (eBusiness) on the
Internet. The Company's consulting solutions, which consist of people, processes
and technology, enable companies to accelerate the drive towards eBusiness by
enabling companies to integrate front-office applications with back-office
applications that manage comprehensive financial, manufacturing, sales,
distribution, and human resource functions (Enterprise Resource Planning, or
"ERP" systems, which are all-encompassing suites of business applications such
as SAP R/3). These consulting solutions provide SAP, AG customers with an
eBusiness strategy that maximizes their 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).

Principles of consolidation. The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries, IntelliCorp GmbH
(Germany), IntelliCorp Ltd. (United Kingdom), IntelliCorp SARL (France), and
MegaKnowledge, Inc. All significant intercompany accounts and transactions are
eliminated.

Management's plans. As of June 30, 2001, the Company had cash and cash
equivalents of $2.6 million, working capital of $549,000, and an accumulated
deficit of approximately $70.6 million. In addition, the Company incurred a net
loss of $7.2 million and a net loss applicable to common stockholders of $9.6
million in fiscal 2001 and expects to incur additional loses through fiscal
2002. Management recognizes the need to utilize all of its available financing
resources as of June 30, 2001, as well as financing of $1.9 million it has
secured in August and September 2001, to fund its expected cash requirements for
fiscal 2002.

Management's plans include securing additional financing from related parties
and others in fiscal 2002 as well as curtailing certain expenses. To that
extent, in August and September 2001, the Company entered into promissory notes
with two related parties, which will provide the Company up to an aggregate of
$1.9 million, of which $800,000 has been borrowed through September 2001. The
notes and accrued interest are due on August 31, 2002. In addition, the Company
is in continuing discussions with existing shareholders as well as new investors
and is expecting to secure an additional equity financing by December 2001.

In the quarter ending September 30, 2001, the Company implemented several cost
containment measures, which included an additional reduction in headcount of 29
employees (18% of the workforce), a reduction in specific development projects,
reductions in travel and related expenses, recruiting expenses, bonuses, and an
overall reduction in administrative costs. Management is also evaluating the
feasibility of subleasing excess office space.

Available financing resources currently consist of the cash and cash equivalents
on hand, a bank credit facility of the lesser of $3.0 million or 75% of eligible
accounts receivable balances at any point in time, and the $1.9 million cash
available under the promissory notes described above. At June 30, 2001, the
Company owed $1.6 million on the bank credit facility, which was the maximum
amount available on that date. The bank credit line expires in July 2002.
Management believes that cash on hand together with cash generated from
operations and available funds under the promissory notes, will be sufficient to
fund the Company's cash requirements through at least June 30, 2002. However, if
anticipated revenues and continued costs 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.

Use of estimates. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.

Purchased intangible assets. Purchased intangible assets primarily consist of
developed technology and other intangibles related to the acquisition of UPI
(Universal Portable Interface) technology and related assets from Deloitte &
Touche, which was accounted for using the purchase method. Amortization of these
purchased intangibles is provided on the straight-line basis over the respective
useful lives of the assets, 78 months or less. Acquired in-process research and
development without alternative future use was expensed when acquired.

Depreciation and amortization. Depreciation and amortization of capital
equipment is computed using the straight-line method over estimated useful lives
of the assets ranging from two to five years. Amortization of leasehold
improvements is computed over the shorter of the lease term or the useful life
of the underlying assets.


                                       27
<PAGE>   28

Capitalized software costs. In March 1998, the AICPA issued Statement of
Position No. 98-1), Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. ("SOP 98-1"). SOP 98-1 requires entities to
capitalize selected costs related to internal-use software once specified
criteria have been met. The Company implemented SOP 98-1 during fiscal 2000 and
capitalized costs associated with the implementation of internal-use software in
accordance with the statement. As of June 30, 2001, there are no capitalized
expenses for software obtained for internal use.

Software development costs for software products that are sold by the Company
are capitalized once technological feasibility has been established, and such
costs are amortized on a straight-line basis over the estimated useful life of
the related product (which ranges from one to three years) or on the ratio of
current revenues to the total of current and anticipated future revenues from
the product, whichever is greater. There were no software development costs
amortized in fiscal 2001 and 2000. Amortization of capitalized software
development costs charged to software cost of revenues was approximately $49,000
in fiscal 1999. As of June 30, 2001, 2000 and 1999, the net book value of
capitalized software was zero.

Revenue recognition. Contract service revenues include applications development
and consulting and training services. Contract revenues are recognized on a time
and materials basis or on the percentage of completion basis for those fixed
price contracts, if any, that involve the use of estimates. Actual results could
differ from those estimates and, as a result, future profitability on such
contracts may be more or less than planned.

The Company recognizes license revenue using the Residual Value method as
described by SOP 97-2, Software Revenue Recognition, and as amended by SOP 98-4,
and SOP 98-9. Revenue from license fees is recognized when persuasive evidence
of an agreement exists, delivery of the product has occurred, no significant
obligations with regard to implementation or otherwise remain, the fee is fixed
or determinable, and collectibility is probable. If the fee is not fixed or
determinable, revenue is recognized as payments become due from the customer. If
collectibility is not considered probable, revenue is recognized when the fee is
collected.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements ("SAB 101"). SAB
101 provides guidance on the recognition, presentation, and disclosure of
revenue in financial statements. The Company adopted SAB 101 in the fourth
quarter of fiscal 2001. The adoption of SAB 101 did not have a significant
impact on the financial position or results of operations of the Company.

Net loss per common share. Basic and diluted net loss per share is computed
using the weighted average number of common shares outstanding during the
period. Dilutive potential common shares have been excluded from the net loss
per share computation in fiscal years 2001, 2000 and 1999, as their effect is
antidilutive.

Stock options to purchase 4.4 million, 3.8 million, and 3.2 million at an
average price of $1.86, $2.54 and $2.03 per share were outstanding during fiscal
2001, 2000 and 1999, respectively, but were not included in the computation of
diluted net loss per share for those years. Also excluded from net loss per
share were 421,000, 416,000, and 441,000 convertible preferred shares during
fiscal 2001, 2000 and 1999 respectively and warrants to purchase 2.5 million,
1.1 million and 720,000 shares, at an average exercise price of $2.41, $2.92 and
$3.50 during fiscal years 2001, 2000 and 1999, respectively. These dilutive
potential common shares have been excluded because the Company reported net
losses and each of those potential shares would have had an antidilutive effect
on net loss per common share.

For the fiscal years ended June 30, 2001, 2000, and 1999, preferred stock
dividends have been included in the net loss per common share computation. The
Series A, B and C convertible preferred stock dividends have been deducted from
net loss to arrive at net loss applicable to common stockholders.

Cash and cash equivalents. The Company considers all highly liquid investments
with a maturity from the date of purchase of ninety days or less to be cash
equivalents. There were no cash equivalents as of June 30, 2001 and 2000.

The Company invests its excess cash in accordance with a short-term investment
policy set by the Board of Directors. The policy authorizes investments in
government securities, time deposits and certificates of deposit in approved
financial institutions, commercial paper rated A-1/P-1, and other money market
instruments of similar liquidity and credit quality. There were no short-term
investments as of June 30, 2001 and 2000.



                                       28
<PAGE>   29

The Company classifies its investments in debt and equity securities as
available-for-sale and, in accordance with Financial Accounting Standards Board
Statement No. 115, Accounting for Certain Investments in Debt and Equity
Securities ("SFAS 115"), records its investments at fair value. However, as the
Company had no debt or equity securities as of June 30, 2001 and 2000, and as
the difference between amortized cost and fair value was immaterial as of June
30, 1999, there have been no amounts recorded for unrealized gains and losses as
a separate component of stockholders' equity. Realized gains or losses from
available-for-sale investments have also been insignificant.

Foreign currency translation. The financial statements of foreign subsidiaries
are translated using the U.S. dollar as the functional currency. Transaction and
translation gains or losses are not significant. The Company does not enter into
foreign currency forward exchange contracts.

Concentration of credit risk and significant customers. The Company designs,
develops and markets software tools and provides related training, customer
support and consulting services to customers in diversified industries. The
Company performs ongoing credit evaluations of the financial condition of its
customers, and generally requires no collateral for customer orders and accounts
receivable. Write-offs of accounts receivable were 2.9%, 2.9% and 2.4% of total
revenue for fiscal years 2001, 2000 and 1999, respectively.

Revenues from three customers accounted for 18%, 13%, and 11% of total revenues
during fiscal year 2001. Revenues from a related party accounted for 20% and
21% of total revenues during fiscal years 2000 and 1999, respectively. Revenues
from one other customer accounted for 10% of total revenues in fiscal 1999.

Fair value of financial instruments. The carrying amounts of certain
financial instruments, including cash and cash equivalents, short-term
investments, accounts payable, accrued expenses and the bank line of credit
approximate fair value.

Stock-based compensation. As permitted under Statement of Financial Accounting
Standard No. 123 ("SFAS 123"), Accounting for Stock-Based Compensation, the
Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25") in accounting for
stock-based awards to its employees.

Comprehensive Loss. Comprehensive loss is equal to net loss for the periods
presented, as all other components of comprehensive loss were insignificant.

Recent Pronouncements In June 1998, the FASB issued Statement of Financial
Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS 133"). SFAS 133 established accounting and reporting standards
for derivative instruments and for hedging activities. SFAS 133 was effective
for fiscal years beginning after June 15, 2000, and the Company adopted SFAS 133
for fiscal year 2001. The adoption of SFAS 133 did not have a material impact on
IntelliCorp's financial position or results of operations since the Company
currently does not invest in derivative instruments or engage in hedging
activities.

In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation, an Interpretation of APB Opinion No.
25 ("FIN 44"). FIN 44 clarifies the application of APB 25 for (1) the definition
of an employee for purposes of applying APB 25, (2) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (3) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (4) the accounting for an exchange of stock compensation
awards in a business combination. FIN 44 was effective July 1, 2000, but certain
conclusions cover specific events that occurred after either December 15, 1998
or January 12, 2000. The adoption of FIN 44 did not have a material effect on
the Company's financial position or results of operations.

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



                                       29
<PAGE>   30

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. The company is
currently reviewing the impact that the adoption of these standards will have on
its financial position and results of operations.


2.  NET PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                                   2001               2000
                                               ------------       ------------
<S>                                            <C>                <C>
Equipment                                      $  7,209,000       $  7,572,000
Furniture and fixtures                            1,707,000          1,777,000
Leasehold improvements                            1,073,000          1,030,000
                                               ------------       ------------
Total property and equipment                      9,989,000         10,379,000
Accumulated depreciation and amortization        (9,386,000)        (9,468,000)
                                               ------------       ------------
Net property and equipment                     $    603,000       $    911,000
                                               ============       ============
</TABLE>

Total depreciation expense was $398,897, $624,010 and $682,911 for fiscal years
2001, 2000 and 1999, respectively.

3.  PURCHASED INTANGIBLES

On January 23, 1998, the Company entered into an asset purchase agreement with
ICS Deloitte Management LLC, an affiliate of Deloitte & Touche ("D&T") to
purchase the rights to the 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. UPI is presently a stand-alone software product sold under
the name of LiveInterface and is used for automatically building and managing
data interfaces for SAP R/3. It is used to help facilitate the data transfer
between the SAP R/3 software and pre-existing or legacy systems.

In consideration for these assets, the Company paid D&T approximately $2.6
million in cash and 1.0 million shares of the Company's common stock (with a
fair market value of $3.56 per share) and assumed certain liabilities totaling
$453,000. The acquisition was accounted for using the purchase method of
accounting. The Company's total purchase price, including liabilities assumed is
$6.6 million. For financial reporting purposes, values were assigned to acquired
in-process research and development, developed technology, customer base and the
assembled workforce.

In-Process Research and Development. The write-off of in-process research and
development related to the asset acquisition described above totaled $2.7,
million all of which was recorded in the quarter ended March 31, 1998. The value
was computed using discounted cash flow analysis on the anticipated income
stream of the related product sales. The discounted cash flow analysis was based
on forecasts of future revenues and expenses that management believes are likely
to occur. This analysis resulted in amounts assigned to in-process research and
development for the project which has not yet reached technological feasibility
(as defined and utilized by the Company in assessing software capitalization)
and does not have alternative future uses.



                                       30
<PAGE>   31

Developed and Core Technology. To determine the value of the developed and core
technology, the expected future cash flows of the existing developed technology,
as well as the core technology to be embedded in future derivatives of the UPI
product, were discounted taking into account the characteristics and
applications of the product, existing and future markets, the aggregate size and
growth rate of the existing and future markets, and assessments of the product
sales cycle.

As of June 30, 2001, the components of purchased intangibles and their estimated
lives are as follows:

<TABLE>
<CAPTION>
                                                Purchase      Accumulated       Net book       Estimated
                                                 Price        Amortization       Value           Life
                                               ----------     ------------     ----------      ---------
                                                                                                (months)
<S>                                            <C>            <C>              <C>             <C>
Developed Technology                           $  868,000      $  868,000      $       --         15
Core Technology                                 1,255,000         538,000         717,000         63
Customer Base                                     211,000         182,000          29,000         54
Assembled Work force                              100,000          87,000          13,000         48
Excess over fair value of assets acquired       1,545,000         832,000         713,000         78
                                               ----------      ----------      ----------
                                               $3,979,000      $2,507,000      $1,472,000
                                               ==========      ==========      ==========
</TABLE>

4.  INCOME TAXES

The Income tax provision (benefit) consists of the following:

<TABLE>
<CAPTION>
                                            Year ended June 30,
                                    -------------------------------------
                                      2001           2000          1999
                                    --------       --------      --------
<S>                                 <C>            <C>           <C>
CURRENT:
    Federal                         $(24,000)      $     --      $     --
    State                             15,000          9,000        38,000
    Foreign                            6,000         32,000         2,000
                                    --------       --------      --------
                                      (3,000)        41,000        40,000
DEFERRED:
    Federal                               --             --            --
    State                                 --             --            --
Income tax provision (benefit)      $ (3,000)      $ 41,000      $ 40,000
                                    ========       ========      ========
</TABLE>

The income tax provision (benefit) differs from the amount computed by applying
the federal statutory rate as a result of the following differences:


<TABLE>
<CAPTION>
                                                                     Year ended June 30,
                                                              ----------------------------------
                                                               2001          2000          1999
                                                              ------        ------        ------
<S>                                                           <C>           <C>           <C>
Expected income tax provision/(benefit)
at U.S. federal statutory rate (34%)                           (34.0%)       (34.0%)       (34.0%)
State taxes, net of federal benefit                              0.1           0.1           0.4
Net operating losses and credits not currently benefited        22.8          15.4          13.2
Foreign losses not currently benefited/(utilized)               11.0          15.4          16.7
Federal alternative minimum tax                                   --            --            --
Foreign withholding taxes                                        0.1           0.4           0.1
Other individual immaterial items                               (0.1)          3.3           4.6
                                                              ------        ------        ------
                                                                (0.0)%         0.6%          1.0%
                                                              ======        ======        ======
</TABLE>



                                       31
<PAGE>   32

Significant components of the Company's deferred tax assets for federal, state
and foreign income taxes as of June 30, 2001 and 2000 are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                   2001           2000
                                                 --------       --------
<S>                                              <C>            <C>
Deferred tax assets:
Net operating loss carryforwards                 $ 22,200       $ 19,500
General business credits (expire 2007-2021)         3,100          3,100
In process research and development                 1,500          1,400
Capitalized research and development                1,100            900
Other                                                 100            200
                                                 --------       --------
Total deferred tax assets                          28,000         25,100
Valuation allowance for deferred tax assets       (28,000)       (25,100)
                                                 --------       --------
Net deferred tax assets                          $     --       $     --
                                                 ========       ========
</TABLE>

Due to the Company's lack of earnings history, the net deferred tax asset has
been fully offset by a valuation allowance. Approximately $3.0 million of the
valuation allowance for deferred tax assets relates to benefits of stock option
deductions which, when recognized, will be allocated directly to contributed
capital.

At June 30, 2001, the Company had net operating loss carryforwards of
approximately $48.0 million for federal income tax purposes, which will expire
in fiscal years 2006 through 2021. The Company also had net operating loss
carryforwards of approximately $4.0 million for state income tax purposes and
$16.0 million for foreign income tax purposes. The state net operating loss
carryforwards will expire in fiscal years 2002 through 2006. The foreign net
operating loss carryforwards have an indefinite carryforward period.

Utilization of the federal and state net operating losses and credits may be
subject to a substantial annual limitation due to the "change in ownership"
provisions of the Internal Revenue Code of 1986 and similar state provisions.
The annual limitation may result in the expiration of net operating losses and
credits before utilization.

5.  LEASE COMMITMENTS

The Company leases its present facilities under noncancelable operating lease
agreements through fiscal year 2004. The Company has commitments under
noncancelable operating leases as of June 30, 2001 as follows: $2.0 million in
fiscal 2002, $1.7 million in fiscal 2003, and $386,000 in fiscal 2004.

Rent expense was $2.0 million in fiscal 2001, $1.7 million in fiscal 2000 and
$1.6 million in fiscal 1999.

6.  BANK LOAN

In March 1999, the Company secured a $3.0 million credit facility from a bank,
bearing an annual interest at the bank's prime rate plus 2% (8.75% and 11.5% as
of June 30, 2001 and 2000, respectively). The credit line is an asset-based
facility, and as of June 30, 2001 the amount that can be borrowed under the loan
is the lesser of $3.0 million or 75% of the eligible accounts receivable
balances at any point in time. At June 30, 2001, no funds were available under
the bank credit facility, and the Company owed $1.6 million 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 was renewed on
July 31, 2001 for one additional year. The credit facility is secured by
essentially all of the assets of the Company.

7.  STOCKHOLDERS' EQUITY

Preferred Stock

In August 1996, the Company issued 580,645 shares of Series A convertible
preferred stock and warrants to purchase 720,000 shares of common stock at $3.50
per share in exchange for the conversion of $1.8 million of convertible debt.
Such preferred stock and warrants were valued at $2.9 million, net of issuance
costs. Each share of the Series A



                                       32
<PAGE>   33

convertible preferred stock is convertible into two common shares, subject to
adjustments for dilutive events, and carries 10% mandatory cumulative dividends
payable semi-annually in April and October. The dividends for the first two
years were payable, at the Company's option, in cash or in common stock valued
at 90% of the 20 day average bid price preceding the payment due date. Series A
convertible preferred stockholders have no voting rights unless dividend
payments are more than two years in arrears, at which time the preferred
stockholders shall have the right to vote with common stockholders as one class
with the number of votes equal to the number of shares of common stock into
which the Series A convertible preferred stock is convertible. The warrants are
exercisable immediately, and expire in 2006. In March 2000, one Series A
convertible preferred stockholder exercised his warrant and purchased 30,000
shares of common stock at an exercise price of $3.50 per share. All other
warrants issued in connection with the Series A convertible preferred stock
remain outstanding at June 30, 2001. The Company can redeem the warrants at any
time after five years, if the common stock trades at or above $6.00 per share,
by paying a redemption price of $0.01 per warrant. A dilutive event occurred in
September 1999 in connection with a sale of common stock to an investor and
caused each share of Series A convertible preferred stock to be convertible into
two and seventeen one-thousandth common shares. The dilutive event resulted
because of the price of the common stock transaction was less than the
conversion price of the Series A convertible preferred stock.

In January and April 1998, one Series A convertible preferred stockholder
converted a total of 96,774 shares of Series A convertible preferred stock into
193,548 shares of common stock. In July 1998, the same stockholder converted
48,387 shares of Series A convertible preferred stock into 96,774 shares of
common stock. In January 2000, a stockholder converted 24,194 shares of Series A
convertible preferred stock into 48,794 shares of common stock. The Company has
reserved 1.6 million shares of common stock for issuance upon conversion of the
remaining Series A convertible preferred stock and exercise of the related
warrants. In the event of any liquidation or winding up of the Company, the
holders of Series A convertible preferred stock will be entitled to receive in
preference to the holders of common stock an amount equal to $3.10 per share
plus any accumulated and unpaid dividends on the preferred stock. The total
liquidation preference for Series A convertible preferred stock would be
approximately $1.3 million at June 30, 2001.

In March 1997, the Company issued 5,000 shares of Series B convertible preferred
stock at $1,000 per share. Each share is convertible into 500 shares of common
stock, subject to adjustments, at a common stock equivalent price of $2.00 per
share and carries 8% mandatory cumulative dividends payable quarterly. The
dividends for the first year were payable at the Company's option in cash or
common stock valued at 90% of the 20 day average bid price preceding the
distribution due date. Series B convertible preferred stockholders have no
voting rights unless dividend payments are more than two years in arrears, at
which time the preferred stockholders shall have the right to vote with common
stockholders as one class with the number of votes equal to the number of shares
of common stock into which the Series B convertible preferred stock is
convertible.

In the event of any liquidation, dissolution or winding up of the Company, the
holders of Series B convertible preferred stock would be entitled to receive,
junior to the rights of the holders of Series A convertible preferred stock and
in preference to the holders of common stock, an amount equal to $1,000 per
share plus all accumulated and unpaid dividends on the Series B convertible
preferred stock. The total liquidation preference for Series B convertible
preferred stock would be approximately $5.1 million at June 30, 2001. The
Company has reserved 2.5 million shares of common stock for issuance upon
conversion of the Series B convertible preferred stock.

In March 2001, the Company issued 4,880 shares of Series C convertible preferred
stock at $1,000 per share, and warrants to purchase 1,084,445 shares of common
stock at $2.00 per share. Each share is convertible into 889 shares of common
stock, subject to adjustments, at a common stock equivalent price of $1.125 per
share and carries 8% mandatory cumulative dividends payable quarterly. The
dividends for the first year are payable at the Company's option in cash or
common stock valued at 90% of the 20 day average bid price preceding the
distribution due date.

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
value of the Company's common stock. Accordingly, the difference between the
common stock equivalent price of $1.125 and the fair market value of $1.3125 on
the legal commitment date resulted in a beneficial conversion feature that has
been recorded as a deemed dividend to the Series C convertible preferred
shareholders. 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 option valuation



                                       33
<PAGE>   34
model using the following assumptions: weighted average risk-free interest rate
of 5.0%, dividend yield of 0%, volatility factor of 85%, and a term of five
years. The value of the warrants, together with the difference in the common
stock fair market value and the common stock equivalent price on the commitment
date, has resulted in a deemed dividend of $1.7 million. The Company recorded
the deemed dividend at the date of issuance by offsetting charges and credits to
additional paid-in capital. 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 deemed dividend increases the net loss
applicable to common shareholders in the calculation of basic and diluted net
loss per common share for fiscal 2001.

Series C convertible preferred stockholders have no voting rights unless
dividend payments are more than two years in arrears, at which time the
preferred stockholders shall have the right to vote with common stockholders as
one class with the number of votes equal to the number of shares of common stock
into which the Series C convertible preferred stock is convertible. The warrants
are exercisable immediately, and expire in 2006. All warrants issued in
connection with the Series C convertible preferred stock remain outstanding at
June 30, 2001.

In the event of any liquidation, dissolution or winding up of the Company, the
holders of Series C convertible preferred stock would be entitled to receive,
pari passu to the rights of the holders of Series A and B convertible preferred
stock and in preference to the holders of common stock, an amount equal to
$1,000 per share plus all accumulated and unpaid dividends on the Series C
convertible preferred stock. The total liquidation preference for Series C
convertible preferred stock would be approximately $5.0 million at June 30,
2001. The Company has reserved approximately 7.3 million shares of common stock
for issuance upon conversion of the Series C convertible preferred stock and
exercise of the related warrants.

Common Stock Private Placements

In March 1999, the Company consummated an equity arrangement that required
certain investors to purchase, in a private placement, up to $3.0 million of the
Company's common stock through March 2000, if and when requested by the Company.
The purchase price was set at 10% above the market price at the time the
purchase was made, with a minimum price of $1.50 per share and a maximum of
$3.00 per share. As of June 30, 2000, the Company had issued 1.5 million shares
of common stock at $1.50 and $3.00 per share for aggregate proceeds of $2.9
million.

In May and June 2000, the Company amended the March 1999 equity arrangement to
require certain investors to purchase, in a private placement, an additional
$2.8 million of the Company's common stock through December 2000, if and when
requested by the Company. The purchase price was set at 10% above the market
price at the time the purchase was made, with a minimum price of $1.00 per share
and a maximum of $2.00 per share. As common stock was purchased under this
amended agreement, the Company issued warrants to purchase common stock equal to
25% of the number of common shares purchased. The exercise price of the warrants
was 10% above the purchase price of the shares purchased, and the warrants
expire in 2005. As of June 30, 2000, the Company issued 1.4 million shares of
common stock for aggregate proceeds of $2.7 million, at a price of $1.68 and
$2.00 per share under this amended agreements, and issued warrants to purchase
361,532 shares of common stock at exercise prices of $1.85 and $2.20. All
warrants issued in connection with this equity arrangement remain outstanding at
June 30, 2001.

In September 2000, the Company issued 1.0 million shares of common stock at
$1.00 per share in a private placement. The investors received warrants to
purchase common stock equal to 25% of the number of common shares purchased.
Warrants were issued to purchase 250,000 shares of common stock at $2.00 per
share, and the warrants expire in 2005. These warrants remain outstanding at
June 30, 2001.

In December 2000, the Company issued 600,000 shares of common stock at $0.50 per
share in a private placement.

Stock Option Plans

In December 1997, the stockholders authorized an additional 150,000 shares for a
total of 250,000 shares authorized under the Company's 1991 Non-employee
Director's Stock Option Plan. Non-qualified options may be granted at fair
market value to non-employee directors at set times as provided in the 1991 Non
employee Directors Plan, and should the Board elect to waive fees paid by the
Company to non-employee directors, that amount of fees waived can be applied to
reduce the exercise price of options granted, pursuant to the terms of the Plan.
Options are exercisable in full six months after the



                                       34
<PAGE>   35

date of grant. The Company retains the right to repurchase unvested shares
issued upon exercise of an option at the exercise price per share, with the
right to repurchase expiring over a two year period. At June 30, 2001, options
for 26,000 shares were available for future grant, 200,000 options were
exercisable and no shares outstanding from option exercises were subject to
repurchase.

In December 1998, the stockholders authorized an additional 1.5 million shares
for a total of 4.5 million shares authorized under the Company's 1991 Stock
Option Plan. Incentive stock options must be granted with an exercise price
equal to the fair market value; non-qualified options may be granted with
exercise prices at less than fair market value. Both types of options are
exercisable in full immediately upon grant. However, the Company retains the
right to repurchase unvested shares issued upon exercise of an option at the
original exercise price per share. The repurchase rights typically expire over
periods of up to four years. Options expire on the tenth anniversary of the date
of grant. At June 30, 2001, options for 308,000 shares were available for future
grant, 1.3 million options were vested, and no shares outstanding from option
exercises were subject to repurchase. In addition, options for 183,000 of shares
granted under prior plans are outstanding and exercisable as of June 30, 2001.

In December 2000, the stockholders authorized 500,000 shares under the Company's
2000 Non-employee Director's Stock Option Plan. Non-qualified options may be
granted at fair market value to non-employee directors at set times as provided
in the 2000 Non employee Directors Plan, and should the Board elect to waive
fees paid by the Company to non-employee directors, that amount of fees waived
can be applied to reduce the exercise price of options granted, pursuant to the
terms of the Plan. Options are exercisable in full six months after the date of
grant. The Company retains the right to repurchase unvested shares issued upon
exercise of an option at the exercise price per share, with the right to
repurchase expiring over a two year period. At June 30, 2001, options for
500,000 shares were available for future grant, and no options were granted
under this plan.

In December 2000, the stockholders authorized 4.0 million shares under the
Company's 2000 Stock Option Plan. Incentive stock options must be granted with
an exercise price equal to the fair market value, and non-qualified options may
be granted with exercise prices at less than fair market value. Both types of
options are exercisable in full immediately upon grant; however, the Company
retains the right to repurchase unvested shares issued upon exercise of an
option at the original exercise price per share. The repurchase rights typically
expire over periods of up to four years. Most options expire on the tenth
anniversary of the date of grant. At June 30, 2001, 4,000,000 shares were
available for future grant, and no options were granted under this plan.

Stock Options and Warrants Granted Outside of Stock Option Plans

In January 1998, The Board of Directors authorized 267,000 shares to be granted
to employees in connection with the purchase of UPI technology. The options may
be granted at the fair market value on the date of grant with a term of 10 years
and vesting over four years and 50% of the fourth year vesting for certain
employees may be accelerated based on the achievement of certain milestones. The
options are exercisable when vested. At June 30, 2001, there were no shares
available for future grant and 92,469 options were vested.

In September 1998, the Company granted options to purchase 25,000 common shares
to a non-employee director at $1.81 per share, which was fair market value on
the date of grant. These options became fully vested at the time they were
granted. In addition, in October 1998, the Company granted options to purchase
160,000 common shares to an officer at $0.8450 per share, which was fair market
value on the date of grant. Options for 10,000 shares became fully vested at the
time they were granted, and the remaining 150,000 options vest over a four-year
period. During fiscal 2000, the Company granted options to two new officers to
purchase 400,000 common shares (outside the Employee and Non-employee Stock
Option Plans) with a term of 10 years and an exercise price of $1.50 per share,
which was fair market value on the date of grant. The Company also cancelled
103,125 options previously granted to another officer who terminated during
fiscal 2000. At June 30, 2001 and 2000, options for 425,000 shares granted
outside the employee and non-employee stock option plans were outstanding.

During fiscal 2000, in connection with the retention of an executive officer,
the Company granted options to purchase 60,000 common shares with an exercise
price of $0.875 per share, which was a price less than fair market value at the
date of grant. The Company recorded $79,000 of compensation expense related to
this option.



                                       35
<PAGE>   36

In August 2000, in connection with the retention of an executive officer, the
Company issued 100,000 shares of common stock and granted options to purchase
400,000 shares of common stock at $1.44, which was the fair market value on the
date of grant. The Company recorded compensation expense of $144,000 related to
the stock grant, which represents the intrinsic value of the stock at date of
grant.

In November 2000, in connection with a service agreement, the Company issued a
warrant to purchase 39,750 shares of common stock at $2.00 per share. The
warrants are exercisable at any time through November 2005. The fair value of
the warrant was determined to be approximately $25,000 using the Black-Scholes
option valuation model with the following assumptions: weighted average
risk-free interest rate of 3.5%, dividend yield of 0%, volatility factor of 85%,
and a weighted-average expected life of five years. The fair value of the
warrant was charged to recruiting expense, and the warrants remained outstanding
as of June 30, 2001.

The Company has reserved a sufficient number of shares of common stock to be
issued upon exercise of warrants and options.



                                       36
<PAGE>   37

A summary of stock option activity under all stock option arrangements follows:

<TABLE>
<CAPTION>
                                                2001                     2000                     1999
                                         --------------------     --------------------     --------------------
                                                     Weighted                 Weighted                 Weighted
                                                     Average                  Average                  Average
                                                     Exercise                 Exercise                 Exercise
(Shares in thousands)                    Shares       Price       Shares       Price       Shares       Price
---------------------                    ------      --------     ------      --------     ------      --------
<S>                                      <C>         <C>          <C>         <C>          <C>         <C>
Shares:
   Outstanding at beginning of year       3,813       $ 2.54       3,214       $ 2.03       3,027       $ 2.29
   Granted                                2,090         1.10       2,062         2.91         974         1.47
   Exercised                                (45)         .85        (663)        1.76         (19)        1.04
   Canceled                              (1,433)        2.59        (800)        2.09        (768)        2.37
   Outstanding at end of year             4,424       $ 1.86       3,813       $ 2.54       3,214       $ 2.03
</TABLE>

The exercise price of options exercised during fiscal 2001 ranged from $0.63 to
$1.19. Approximately 47,719 of the 1,433,000 options that were canceled during
fiscal year 2001 expired. The average weighted price of the expired options was
approximately $2.85.


The following table summarizes information about options outstanding and
exercisable at June 30, 2001:

OPTIONS OUTSTANDING

<TABLE>
<CAPTION>
                                             Weighted
                                              Average      Weighted                        Weighted
                                             Remaining     Average                         Average
      Range of                Number        Contractual    Exercise        Number          Exercise
   Exercise Prices         Outstanding         Life         Price        Exercisable        Price
  ------------------       ------------     -----------    --------      ------------      --------
<S>                        <C>              <C>            <C>           <C>               <C>
  $0.1875    $1.0000       1,008,638.33          8.54      $ 0.7609        241,853.33      $ 0.7087
  $1.0600    $1.4375       1,248,125.75          8.58      $ 1.2667        218,561.06      $ 1.1875
  $1.5000    $1.9688         914,425.00          8.02      $ 1.6335        401,206.25      $ 1.6938
  $2.0000    $4.5000         765,762.00          6.03      $ 2.7496        647,087.87      $ 2.7442
  $4.6875    $4.6875         487,500.00          8.60      $ 4.6875        458,531.25      $ 4.6875
                           ------------      --------      --------      ------------      --------
  $0.1875    $4.6875       4,424,451.08          8.02      $ 1.8607      1,967,239.76      $ 2.5597
</TABLE>

The Company has elected to continue to follow APB 25 for accounting for its
employee stock options because, as discussed below, the alternative fair value
method of accounting prescribed by SFAS 123 requires the use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, no compensation expense is recognized when the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant.

Pro forma information regarding net loss and loss per share in fiscal 2001, 2000
and 1999 has been determined as if the Company had accounted for its employee
stock options granted subsequent to June 30, 1995 under the fair value method
proscribed by SFAS 123. The resulting effect on pro forma net loss and loss per
share disclosed for fiscal 2001, 2000 and 1999 is not likely to be
representative of the effects on net income and earnings per share on a pro
forma basis in future years, because fiscal 2001, 2000 and 1999 pro forma
results include the impact of only four years, three years, and two years,
respectively, of grants and related vesting, while subsequent years will include
additional years of grants and vesting. The fair value of options was estimated
at the date of grant using the Black-Scholes option valuation model with the
following assumptions for fiscal 2001, 2000 and 1999: weighted average risk-free
interest rates of 3.5%, 6.5% and 5.0% respectively; dividend yields of 0% for
all three years; volatility factors of the expected market price of the
Company's common stock of 85% for all three years; and a weighted-average
expected life of five years which



                                       37
<PAGE>   38

represents one year beyond vesting. The weighted average fair value of options
granted during fiscal 2001, 2000 and 1999 was $0.24, $2.30 and $1.17,
respectively.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion the existing models do not necessarily provide a reliable single measure
of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of options is
amortized to pro forma expense over the options' vesting period. Pro forma
information follows:


<TABLE>
<CAPTION>
                                                                   Year ended June 30,
                                                          ------------------------------------
                                                                  (in thousands, except
                                                                    per share amounts)
                                                            2001          2000          1999
                                                          --------      --------      --------
<S>                                                       <C>           <C>           <C>
Net loss applicable to common shareholders-pro forma      $ 10,953      $  9,734      $  7,600
Net loss per common share-pro forma                       $   0.52      $   0.56      $   0.50
</TABLE>

Number of shares of common stock reserved for future issuance as of June 30,
2001 is as follows:

<TABLE>
<S>                                    <C>
    Stock Option Plans                  4,423,452
    Warrants                            2,493,613
    Conversion of Preferred Stock       7,953,320
                                       ----------
        Total Reserved                 14,870,385
                                       ==========
</TABLE>

8.  SEGMENT AND GEOGRAPHIC INFORMATION

The Company conducts its business within one industry segment. The breakdown of
revenues is as follows:

<TABLE>
<CAPTION>
                                        Year ended June 30
                               ------------------------------------
                                 2001          2000          1999
                               --------      --------      --------
                                         (in thousands)
<S>                            <C>           <C>           <C>
North America                  $ 18,982      $ 14,387      $ 14,675
United Kingdom                    3,026         3,554         3,705
Germany                           1,001         2,707         1,857
France                            2,425         1,421           539
Pacific Rim/Latin America           179           597         1,185
                               --------      --------      --------
    Total revenues             $ 25,613      $ 22,666      $ 21,961
                               ========      ========      ========
</TABLE>

The breakdown of product type revenues is as follows:

<TABLE>
<CAPTION>
                                                                  Year ended June 30
                                                         ------------------------------------
                                                           2001          2000          1999
                                                         --------      --------      --------
<S>                                                      <C>           <C>           <C>
Business Process Management (BPM) Software               $  4,330      $  5,792      $  5,388
Enterprise  Application  Integration (EAI) Software           430         1,563         1,442
                                                         --------      --------      --------
Total Product Revenue                                       4,760         7,355         6,830
Total Consulting Revenue                                   18,256        11,939        11,337
Total Support Revenue                                       2,597         3,372         3,794
                                                         --------      --------      --------
Total Revenue                                            $ 25,613      $ 22,666      $ 21,961
                                                         ========      ========      ========
</TABLE>

9.  RESTRUCTURING CHARGE

On July 17, 2000, IntelliCorp announced a reorganization of its existing product
offerings to provide for greater operational efficiency and focus. This
reorganization included a reduction-in-force as well as staff transfers from
software license production to CRM/eCRM consulting solutions, which affected
approximately 20% of IntelliCorp's workforce during the



                                       38
<PAGE>   39

first quarter of fiscal year 2001. There were a total of 13 employees affected
by the reduction in force, which consisted of four technical professionals and
nine employees in marketing, general and administration departments. The
one-time cost of the reduction-in-force was approximately $120,000, which
included approximately $116,000 in severance pay and approximately $4,000 in
legal fees. Of the $120,000, $3,000 was charged to cost of revenues, $6,000 was
charged to research and development expenses and $111,000 was charged to
marketing, general and administrative expenses. The reorganization also included
the abandonment of certain internal use software. As a result of the shift in
the Company's focus from software license products, management reevaluated the
effectiveness of the financial software that was to be implemented in the fall
of 2000. In that evaluation, the Company determined that the financial software
that it intended to implement did not meet the information needs of the Company.
As a result, approximately $247,000 of capitalized costs were charged to general
and administrative expenses at the time of the abandonment. The Company has
disposed of the software.

In May and June 2001, the Company reduced its work force by 13% in order to
align cash resources with available projected expenses. A total of 13
employees were affected by the reduction in force, which consisted of 10
technical professionals and three employees in marketing, general and
administration. The one-time cost of the reduction-in-force was approximately
$99,000 in severance pay. Of the $99,000, $84,000 was charged to cost of
revenues, $4,000 was charged to research and development expenses and $11,000
was charged to marketing, general and administrative expenses.

10.  SIGNIFICANT SHAREHOLDER

Norman J. Wechsler, chairman of the Board of Directors, directly or indirectly
owned approximately 30%, 27% and 21% of the Company's common stock or common
stock equivalents at June 30, 2001, 2000 and 1999, respectively.

11.  SUBSEQUENT EVENTS

In July and August 2001, the Company reduced its work force by 18% in order to
align cash resources with projected expenses for fiscal year 2002. Estimated
revenues were impacted by a downturn in the economy during fiscal 2001. A total
of 29 employees were affected by the reduction in force, which consisted of 24
technical professionals and 5 employees in marketing, general and
administration. The one-time cost of the reduction-in-force was approximately
$260,000 for severance pay. Of the $260,000, $218,000 was charged to cost of
revenues, $5,000 was charged to research and development expenses and $37,000
was charged to marketing, general and administrative expenses.

In August and September 2001, the Company entered into promissory notes with two
related parties to provide an aggregate of $1.9 million, of which $800,000 has
been borrowed through September 30, 2001. The notes bear interest at a rate
equal to the interest rate on the Company's bank loan, which bears annual
interest at the bank's prime rate plus 2%. The notes and accrued interest are
due on August 31, 2002. The notes are secured by the Company's accounts
receivable.

The Company is required to adjust the conversion price of the Series C
convertible preferred stock and issue additional warrants as a result of a reset
provision. The reset provision specifies that if the original conversion price
($1.25) 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 is 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. As
the average closing bid price was approximately $0.71. Therefore, the conversion
price will be reset to $0.84 and could result in the issuance of an additional
1,471,747 shares of common stock. In addition, Series C convertible preferred
stockholders will receive warrants to purchase an additional 367,937 shares of
common stock at $2.00 per share.

In September 2001, the bank credit line was amended to allow the Company to
borrow the lesser of $2.0 million or 75% of eligible accounts receivable
balances at any point in time.

                                       39
<PAGE>   40

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
IntelliCorp, Inc.

We have audited the accompanying consolidated balance sheets of IntelliCorp,
Inc. as of June 30, 2001 and 2000, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended June 30, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with accounting principles generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of IntelliCorp, Inc.
at June 30, 2001 and 2000, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended June 30, 2001, in
conformity with accounting principles generally accepted in the United States.

/s/ ERNST & YOUNG LLP

Palo Alto, California
July 27, 2001
Except for note 11, as to which the date is
September 27, 2001



                                       40
<PAGE>   41

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AN
         FINANCIAL DISCLOSURE

Not applicable.

                                    PART III



ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

The Company incorporates by reference the information set forth under the
caption "Nomination and Election of Directors" of the Company's Proxy Statement.

EXECUTIVE OFFICERS OF THE REGISTRANT.

As of September 15, 2001, the executive officers and directors of IntelliCorp
are as follows:

<TABLE>
<CAPTION>
Name                                     Age    Position
----                                     ---    --------
<S>                                      <C>    <C>
Raymond Moreau......................     55     Chief Executive Officer and Director
Jerome Klajbor......................     45     Vice President Finance, Secretary and
                                                Chief Financial Officer
Gregory Sulier......................     52     Vice President, Managing Director European
                                                Consulting
Jeffrey Dalton......................     40     Vice President, North American Consulting
George D'Auteuil, Jr................     40     Vice President, Software Products and
                                                Business Development
David Loeb..........................     40     Vice President, Chief Technical Officer
Norman Wechsler (1), (2)............     56     Director and Chairman of the Board
Kenneth Haas........................     50     Director and Vice Chairman of the Board
Arthur Berry (1), (2)...............     60     Director
Elmer Fisher (1), (2)...............     63     Director
Robert Lauridsen (1), (2)...........     53     Director
</TABLE>

(1)     Audit Committee Member

(2)     Compensation and Stock Option Committee Member



                                       41
<PAGE>   42

Mr. Moreau joined IntelliCorp as President and Chief Operating Officer in August
2000. In April 2001, Mr. Moreau was promoted to Chief Executive Officer and
appointed as a director. Prior to IntelliCorp, Mr. Moreau served as Senior
Partner at Ernst & Young, directing technology-oriented projects in excess of
$250 million. From 1988 to 1995 Mr. Moreau was the Managing Director responsible
for building a highly effective team consisting of 30 partners and 380
consultants servicing thirteen states. Mr. Moreau held various Director
positions at Davy International, and various positions with Exxon and Peat,
Marwick & Mitchell CPA's. Mr. Moreau received a MBA degree in Quantitative
Management Science and Accounting and a B.S. degree in Industrial Management
from Louisiana Tech University.

Mr. Klajbor joined IntelliCorp as Chief Financial Officer in June 2000. Prior to
IntelliCorp, Mr. Klajbor served as CFO at Stanford Telecommunications and was
part of a successful $500 million merger with Newbridge Networks. From 1987 to
1988, Mr. Klajbor worked at Acurex Corporation as the Supervisor of Contracts.
From 1978 to 1986, Mr. Klajbor worked for the U.S. Government. Mr. Klajbor
received a B.A. in Political Science/Public Administration from Washington State
University

Mr. Sulier joined IntelliCorp as Executive Vice President, Consulting Services
in May 2000. Prior to IntelliCorp, Mr. Sulier spent 13 years with Ernst & Young,
where he was most recently a senior consulting partner. From 1986 to 1987 Mr.
Sulier worked at American Medical International first as the Sales and Marketing
Automation Project Manager and then as the Director of Quality Assurance. Mr.
Sulier received a M.A. degree in Communications from the California State
University, Northridge.

Mr. Dalton joined IntelliCorp as Vice President in May 2001. Prior to
IntelliCorp, Mr. Dalton served as a regional Vice President for eCRM services
firm eLoyalty, and as a Chief Technology Executive with Ernst & Young, LLP. Mr.
Dalton brings to IntelliCorp over 14 years of technology consulting and
leadership experience implementing eCRM and Supply Chain solutions for major
clients in the automotive, manufacturing, health care, and insurance industries.

Mr. D'Auteuil joined IntelliCorp as Executive Vice President, Business
Development in February 2001. Prior to IntelliCorp, Mr. D'Auteuil served as Vice
President, CRM for SAP America. Prior to SAP, Mr. D'Auteuil was Vice President
of US Operations with K&V Information Systems. Mr. D'Auteuil brings to
IntelliCorp over 15 years of experience in customer-facing and decision support
information technology. Mr. D'Auteuil received his MBA from Bryant College in
Smithfield, RI and holds degrees in Computer Information Systems and Engineering
Management.

Mr. Loeb joined IntelliCorp as a Senior Field Consultant in 1994. Mr. Loeb was
promoted to Director, GTE Project, and then in 1995 was appointed Managing
Director, Consulting and Training. Mr. Loeb was appointed a Vice President in
1998. Prior to joining IntelliCorp, Mr. Loeb held consulting, product
development and management positions at IBM's Research Center, AICorp and
Enterprise Software. Mr. Loeb studied Computer Science at the University of
Illinois and is the author of two patents.

Mr. Wechsler has been a Director of the Company since September 1996 and was
appointed Chairman in April 2001. Mr. Wechsler is Chairman of Wechsler & Co., a
private investment company and a broker-dealer. Mr. Wechsler is also Chairman of
the Board of Directors of Rave, LLC., a semiconductor equipment manufacturer.
Mr. Wechsler is a member of the Board of Directors of Ariat, a private
equestrian footwear company. Mr. Wechsler also serves as a consultant to
Management and the Board of Directors of many companies, both public and
private.

Mr. Haas joined IntelliCorp as General Counsel in 1983. Mr. Haas was promoted to
Vice President and Secretary in 1984, then appointed Vice President, Finance and
Chief Financial Officer in January 1990. In 1992, Mr. Haas was promoted to
President, and in 1999 to Chief Executive Officer. Mr. Haas served as Chief
Executive Officer until April 2001. Mr. Haas has been a Director of the Company
since 1993 and was appointed Vice Chairman in April 2001. Mr. Haas received his
A.B. from Harvard College, his J.D. from Harvard Law School, and attended the
Harvard Business School Advanced Management Program.

Mr. Berry has been a Director of the Company since August 1997. Since 1990, Mr.
Berry has been Chairman of Pecks Management Partners Ltd. in New York; a
specialized, institutional investment manager focusing on public and privately
placed convertible securities. From 1985 to 1990, Mr. Berry was President of the
Alliance Capital Management, L.P. Convertible Fund. Prior to joining Alliance,
Mr. Berry was with the Harris Bank in Chicago, first as Senior Portfolio



                                       42
<PAGE>   43

Manager in the bank's individual investment group, then as Vice President and
Head of the Special Funds section and Manager of the Harris Convertible Fund.
Mr. Berry, a Chartered Financial Analyst, is a graduate of Monmouth College and
holds an MBA degree from Washington University. Mr. Berry is a director of
Hybridon, Inc.

Mr. Fisher joined the IntelliCorp Board of Directors in July 2000. Mr. Fisher
held the position of Chairman/CEO at Deliotte Consulting/ICS, where he built a
$1 billion, 5,000 person global SAP consultancy firm. From 1990-1995, Mr. Fisher
worked as the National Managing Director of Operations at Deliotte & Touche.

Mr. Lauridsen has been a Director of the Company since April 1999. Mr. Lauridsen
is a Partner with R.B. Webber & Company in Palo Alto, California, a
management-consulting firm focused on working with high technology companies.
Mr. Lauridsen has been with R.B. Webber since 1995. From 1990 to 1995 Mr.
Lauridsen was an executive with Apple Computer; from 1991 as Vice President of
Corporate Development. Mr. Lauridsen has also been a Partner with The Boston
Consulting Group and Booz, Allen & Hamilton's Technology Practice. Mr. Lauridsen
was also founder and CEO of Redwood Fire and Casualty Insurance Company, a
subsidiary of Berkshire Hathaway Company.


ITEM 10.  EXECUTIVE COMPENSATION

The Company incorporates by reference the information set forth under the
caption "Executive Compensation" of the Proxy Statement.


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The Company incorporates by reference the information set forth under the
caption "Beneficial Stock Ownership" of the Proxy Statement.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company incorporates by reference the information set forth under the
caption "Executive Compensation" of the Proxy Statement.



                                       43
<PAGE>   44

ITEM 13.  EXHIBITS, LIST AND REPORTS ON FORM 8-K

(a)  2. Exhibits

<TABLE>
<S>                 <C>
          3-A       Certificate of Incorporation (1)

          3-B       By-Laws (2)

          3-C       Certificate of Designation, Preferences and Rights of the
                    Series C Preferred Stock (10)

          10-AA     Office Lease dated as of February 27, 1995 between
                    Registrant and El Camino Office Investments, as amended (3)

          10-FF     Registrant's 1991 Stock Option Plan (4)

          10-GG     Registrant's 1991 Nonemployee Directors Stock Option Plan
                    (2)

          10-HH     Registrant's 2000 Stock Option Plan (8)

          10-II     Registrant's 2000 Nonemployee Directors Stock Option Plan
                    (8)

          10-JJ     Employment Agreement dated October 30, 1991 between
                    Registrant and Kenneth H. Haas, as amended (2)

          10-KK     Employment Agreement, as amended, dated December 27, 2000
                    between Registrant and Kenneth H. Haas (10)

          10-LL     Employment Agreement, as amended, dated May 1, 2000 between
                    Registrant and Kenneth H. Haas (10)

          10-RR     Series B Preferred Stock Purchase Agreement dated March 19,
                    1997 (5).

          10-SS     Office Lease dated March 17, 1998 (6)

          10-UU     Series C Preferred Stock Purchase Agreement dated March 8,
                    2001 (9)

          10-VV     Form of Warrant to Purchase Common Stock dated March 8,
                    2001 (9)

          10-WW     Common Stock Purchase Agreement dated September 29, 2000 (9)

          10-XX     Form of Warrant to Purchase Common Stock dated September
                    29, 2000 (9)

          10-YY     Common Stock Purchase Agreement dated December 28, 2000 (9)

          10-ZZ     The Agreement for the Purchase and Sale of Common Stock
                    dated March 30, 1999, as amended (9)

          10-aa     Warrant to Purchase Common Stock dated June 19, 2000 (9)

          10-bb     Warrant to Purchase Common Stock dated June 30, 2000 (9)

          20        Definitive form of Proxy Statement for the Annual Meeting of
                    Stockholders to be held December 7, 1999 (7)

          21        Subsidiaries of Registrant (1)

          23        Consent of Ernst & Young LLP, Independent Auditors.

          25        Power of Attorney - See page 46 hereof.
</TABLE>

(b)     Reports on Form 8-K

        Form 8-K was filed on May 3, 2001


----------

(1) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1990 and incorporated herein by reference.

(2) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1992 and incorporated herein by reference.

(3) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1993 and incorporated herein by reference.

(4) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1994 and incorporated herein by reference.

(5) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997 and incorporated herein by reference.

(6) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1998 and incorporated herein by reference.

(7) The Registrant's definitive Proxy Statement will be filed with the
Securities and Exchange Commission on or before October 28, 2001.

(8) Filed as an Exhibit to Registrant's definitive Proxy Statement for the
fiscal year ended June 30, 2001 and incorporated herein by reference.

(9) Filed as an Exhibit to Registrant's Statement on Form S-3 (File No.
333-5770) filed on March 28, 2001, as amended to June 28, 2001 and incorporated
herein by reference.

(10) Filed as an Exhibit to Registrant's Statement on Form 10-QSB for the
quarterly period ended March 31, 2001 and incorporated herein by reference.



                                       44
<PAGE>   45

                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.




               INTELLICORP, INC.




               By:   /s/  Raymond G. Moreau
                  ---------------------------------
               Raymond G. Moreau
               Director and Chief Executive Officer



               Date: September 28, 2001
                     ------------------



                                       45
<PAGE>   46

POWER OF ATTORNEY TO SIGN AMENDMENTS

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
does hereby constitute and appoint Raymond G. Moreau and Jerome F. Klajbor, and
each of them, with full power of substitution and full power to act without the
other, his true and lawful attorney-in-fact and agent to act for him in his
name, place and stead, in any and all capacities, to sign any or all amendments
to this Annual Report on Form 10-KSB, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully, to all intents and purposes, as they or he might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.

<TABLE>
<CAPTION>
        Signature                             Title                      Date
        ---------                             -----                      ----
        <S>                            <C>                          <C>
        /s/ Raymond G. Moreau          Director and                 September 28, 2001
        ---------------------          Chief Executive Officer
        Raymond G. Moreau

        /s/ Jerome F. Klajbor          Chief Financial Officer      September 28, 2001
        ---------------------          and Secretary
        Jerome F. Klajbor

        /s/ Norman J. Wechsler         Chairman                     September 28, 2001
        ----------------------
        Norman J. Wechsler

        /s/ Kenneth H. Haas            Vice Chairman                September 28, 2001
        -------------------
        Kenneth H. Haas

        /s/ Arthur W. Berry            Director                     September 28, 2001
        -------------------
        Arthur W. Berry

        /s/ Elmer F. Fisher            Director                     September 28, 2001
        -------------------
        Elmer F.  Fisher

        /s/ Robert A. Lauridsen        Director                     September 28, 2001
        -----------------------
        Robert A. Lauridsen
</TABLE>



                                       46
<PAGE>   47

                                 EXHIBIT INDEX



<TABLE>
         Exhibit
         Number     Description
<S>                 <C>

          3-A       Certificate of Incorporation (1)

          3-B       By-Laws (2)

          3-C       Certificate of Designation, Preferences and Rights of the
                    Series C Preferred Stock (10)

          10-AA     Office Lease dated as of February 27, 1995 between
                    Registrant and El Camino Office Investments, as amended (3)

          10-FF     Registrant's 1991 Stock Option Plan (4)

          10-GG     Registrant's 1991 Nonemployee Directors Stock Option Plan
                    (2)

          10-HH     Registrant's 2000 Stock Option Plan (8)

          10-II     Registrant's 2000 Nonemployee Directors Stock Option Plan
                    (8)

          10-JJ     Employment Agreement dated October 30, 1991 between
                    Registrant and Kenneth H. Haas, as amended (2)

          10-KK     Employment Agreement, as amended, dated December 27, 2000
                    between Registrant and Kenneth H. Haas (10)

          10-LL     Employment Agreement, as amended, dated May 1, 2000 between
                    Registrant and Kenneth H. Haas (10)

          10-RR     Series B Preferred Stock Purchase Agreement dated March 19,
                    1997 (5).

          10-SS     Office Lease dated March 17, 1998 (6)

          10-UU     Series C Preferred Stock Purchase Agreement dated March 8,
                    2001 (9)

          10-VV     Form of Warrant to Purchase Common Stock dated March 8,
                    2001 (9)

          10-WW     Common Stock Purchase Agreement dated September 29, 2000 (9)

          10-XX     Form of Warrant to Purchase Common Stock dated September
                    29, 2000 (9)

          10-YY     Common Stock Purchase Agreement dated December 28, 2000 (9)

          10-ZZ     The Agreement for the Purchase and Sale of Common Stock
                    dated March 30, 1999, as amended (9)

          10-aa     Warrant to Purchase Common Stock dated June 19, 2000 (9)

          10-bb     Warrant to Purchase Common Stock dated June 30, 2000 (9)

          20        Definitive form of Proxy Statement for the Annual Meeting of
                    Stockholders to be held December 7, 1999 (7)

          21        Subsidiaries of Registrant (1)

          23        Consent of Ernst & Young LLP, Independent Auditors.

          25        Power of Attorney - See page 46 hereof.
</TABLE>

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(1) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1990 and incorporated herein by reference.

(2) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1992 and incorporated herein by reference.

(3) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1993 and incorporated herein by reference.

(4) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1994 and incorporated herein by reference.

(5) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997 and incorporated herein by reference.

(6) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1998 and incorporated herein by reference.

(7) The Registrant's definitive Proxy Statement will be filed with the
Securities and Exchange Commission on or before October 28, 2001.

(8) Filed as an Exhibit to Registrant's definitive Proxy Statement for the
fiscal year ended June 30, 2001 and incorporated herein by reference.

(9) Filed as an Exhibit to Registrant's Statement on Form S-3 (File No.
333-5770) filed on March 28, 2001, as amended to June 28, 2001 and incorporated
herein by reference.

(10) Filed as an Exhibit to Registrant's Statement on Form 10-QSB for the
quarterly period ended March 31, 2001 and incorporated herein by reference.