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                    U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

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

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

                    FOR THE FISCAL YEAR ENDED JUNE 30, 2000

                         COMMISSION FILE NUMBER 0-13022

                               [INTELLICORP LOGO]
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

<TABLE>
<S>                                            <C>
                   DELAWARE                                      94-2756073
(STATE OR OTHER JURISDICTION OF INCORPORATION)      (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>

                           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: $22,666,000

     The aggregate market value of the voting stock held by nonaffiliates on
September 15, 2000, computed by reference to the closing price as of that date
was $20,259,000.(1)

     As of September 15, 2000, 19,999,733 shares of registrant's Common Stock,
par value $.001 per share, were outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

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                          DOCUMENT                            INCORPORATED IN FORM 10-KSB
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Definitive Proxy Statement to be filed with the Securities             Part III
and Exchange Commission on or prior to October 27, 2000 and
to be used in connection
With the Annual Meeting of Stockholders to be held December
5, 2000.
</TABLE>

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(1) Excludes 4,564,326 shares held by directors, officers and 10% stockholders
of registrant.

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                                     PART I

ITEM 1. BUSINESS

GENERAL

     IntelliCorp, Inc., (IntelliCorp or the Company) develops, markets and
supports a comprehensive suite of eBusiness and Customer Relationship Management
(CRM) consulting solutions for the SAP community. These 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 Enterprise Resource Planning (ERP)
systems.

     Transitioning from primarily a product focus, beginning in fiscal 2000,
IntelliCorp is now focused on helping traditional Fortune 1000 companies rapidly
enter the eBusiness world. IntelliCorp's consulting solutions provide SAP
customers with an eBusiness strategy that maximizes their ERP investment and
minimizes integration and data management issues associated with implementing
best-of-breed software.

     IntelliCorp believes that in today's competitive climate, companies must
utilize both eBusiness channels and their SAP R/3 investment to accelerate
business growth, to increase customer satisfaction and retention, and to
differentiate themselves from competitors. However, before this can be
accomplished, companies may need to resolve obstacles such as the need to
upgrade, consolidate, divest or outsource their R/3 systems.

     To enable users to overcome key obstacles on the road to eBusiness success,
IntelliCorp has launched the S7 Consulting Solutions Portfolio(TM). This new
service offering is based upon IntelliCorp's demonstrated expertise and
experience with SAP front-office and back-office applications. Consisting of
people, processes and technology, the portfolio consists of consulting solutions
for eBusiness Transformation, B2B Procurement, Internet Sales, SFA
Implementation, Sales Configuration, Upgrades, and Consolidations. Although some
of these consulting solutions are more mature than others, they have all been
designed to meet the needs of traditional businesses implementing eBusiness
initiatives.

INTELLICORP S7 CONSULTING SOLUTIONS PORTFOLIO

     - EBUSINESS TRANSFORMATION SOLUTION -- This consulting solution utilizes
       reverse-engineered blueprints to compare against industry best practices.
       Decisions are made regarding refinement versus replacement in order to
       streamline front-to-back office applications. The degree of integration
       both desired and possible is determined early in the effort rather than
       being encountered as an obstacle after implementation has occurred.

     - B2B PROCUREMENT SOLUTION -- Companies wishing to implement B2B
       procurement can benefit from IntelliCorp's experience implementing the
       SAP IPC. Having deployed the majority of SAP's pilot IPC implementations,
       IntelliCorp understands the requirements necessary for successful B2B
       implementations. B2B Procurement Solutions are deployed based on
       libraries from other successful implementations.

     - INTERNET SALES -- Internet point-of-sale consulting solutions for
       configurable products, as implemented by IntelliCorp, present users with
       a series of product options. These are prioritized based on information
       gathered from previous website visits, previous purchasing data, and
       other points of contact users have had with the vendor.

     - SFA IMPLEMENTATION SOLUTION -- Combining configuration and quotation
       capabilities with mySAP.com increases productivity for direct sales
       forces, shortens quote-to-cash time and improves order accuracy.

     - SALES CONFIGURATION -- IntelliCorp's experienced consultants implement,
       configure-to-order business processes. IntelliCorp's knowledge of R/3
       logistics (SD, PP, MM) provides the business process and technical
       experience needed to deliver an optimized configure-to-order business
       process and "pull" supply chain. This solution increases inventory turns
       by storing components rather than assemblies, configuring products to
       order, and improving material planning.

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     - UPGRADE SOLUTION -- IntelliCorp's Upgrade Solution rapidly
       reverse-engineers blueprints of business processes currently in use. This
       blueprint becomes the foundation for the planning and execution of the
       upgrade project, ensuring that all staff involved have immediate access
       to key business process definitions. This solution reduces the effort and
       costs necessary to evaluate existing functionality and capabilities in
       the target R/3 system, including the comparison of ABAP code, data
       structures, user interfaces and interfaces with legacy and third-party
       party solutions.

     - CONSOLIDATION SOLUTION -- IntelliCorp's Consolidation Solution rapidly
       identifies where systems overlap and "underlap" pinpointing specific
       system differences, down to the ABAP code-level.

     The Biz2e Implementation Methodology(TM) is the driving force behind
IntelliCorp's S7 Consulting Solutions Portfolio. IntelliCorp's solution-oriented
implementation methodology differs significantly from pure consulting firms due
to the use of both commercially developed third-party applications and
internally-developed tools and libraries and the Company's extensive knowledge
of SAP R/3.

     Supporting the S7 Consulting Solutions Portfolio(TM), IntelliCorp's product
family includes LiveModel(TM), LiveModel WebExpress(TM), LiveCapture(TM),
LiveSynchronizer(TM), Document Accelerator(TM), LiveInterface(TM),
LiveTransfer(TM), LiveAnalyst(TM) and legacy products. The product lines can be
divided into two distinct product areas; eBusiness Process Management (eBPM) and
Enterprise Application Integration (EAI).

EBPM TOOLS

     IntelliCorp's eBusiness Process Management (eBPM) tools maximize Return on
Investment (ROI) for second wave initiatives and reduce costs for
implementation, training and on-going support. IntelliCorp's eBPM applications
clarify business processes and accelerate the decision making process.

     - LIVEMODEL(TM) -- Understand and manage business processes supported by
       the SAP(TM) R/3(R) system.

     - LIVEMODEL WEBEXPRESS(TM) -- Publish process models via the
       Internet/Intranet.

     - LIVECAPTURE(TM) -- Create an up-to-date process blueprint from your live
       R/3 system.

     - LIVESYNCHRONIZER(TM) -- Compare two SAP instances, even across different
       SAP releases, identifying differences in ABAP/4 reports.

     - DOCUMENT ACCELERATOR(TM) -- Rapidly generate reports based upon data
       contained within LiveModel.

EAI TOOLS FOR R/3

     IntelliCorp's Enterprise Application Integration (EAI) tools enables
customers to build, manage, and monitor interfaces into and out of SAP R/3. The
tools also ensure that every interface is successfully implemented and executes
reliably.

     - LIVEINTERFACE(TM) -- Accelerates the creation and management of data
       interfaces for R/3.

     - LIVETRANSFER(TM) -- Reads data directly from source databases or
       applications, then performs sophisticated transformations on the data as
       needed.

     - LIVEANALYST(TM) -- Tests and optimizes R/3 configuration variants to show
       the impact of new workflows.

     IntelliCorp markets its consulting solutions and applications directly in
the United States and Europe as well as through independent software vendors
("ISVs"), value-added resellers ("VARs"), representatives and distributors in
other regions around the world. Its customers are mostly large end-user
corporations.

     For the last year, the Company focused on the SAP market and promoted its
solutions and products at two SAPPHIRE(R) User Conferences, one in Europe and
the other in the United States, in addition to various SAP user group meetings
around the world. The Company has continued to grow its relationship with SAP
which has included a Licensing and Distribution Agreement to package the R/3
Reference Model with the Company's products and a Joint Development Agreement
for future technical investment by both parties.

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During 1999 the Company entered into a number of agreements with SAP for the
development of the Diagram Explorer, which is bundled and distributed by SAP
with its ASAP Toolkit, and for Configure to Order products also to be
distributed by SAP. During 2000, IntelliCorp entered into several additional
agreements with SAP to continue development of CRM products. See Dependence on
SAP under the Risk Factors section of this report for additional information and
risks related to SAP.

     IntelliCorp's legacy software development tools which are maintained but
not further developed, represent a decreasing percentage of the Company's
business, include PowerModel(R), Kappa-PC(R) and Knowledge Engineering
Environment (KEE(R)). PowerModel is an object-oriented development and delivery
environment for UNIX/X-Motif and MS-Windows client-server applications and
Kappa-PC provides similar capabilities for PCs running DOS/MS-Windows. A number
of these products can be connected to databases and software applications on
mainframe, UNIX and PC platforms, and offer organizations the ability to
translate business model definitions and needs into cost-effective software
applications.

TECHNOLOGY BASE

     IntelliCorp's consulting solution offerings are partially based upon
IntelliCorp's partnership agreements with SAP to develop CRM offerings. As a
co-developer and implementer of the SAP Internet Pricing and Configurator (IPC),
the Company has gained significant eCRM and eBusiness insight and experience.

     IntelliCorp's products derive from several important software technologies
including object-oriented programming, client/server architecture, and modeling
and encapsulating technology, as well as from technologies acquired and/or
licensed from third parties.

     In terms of the LiveModel product line, which includes LiveModel
WebExpress(TM) released in early 2000, the current approach used in SAP R/3
implementations relies on substantial knowledge and experience of the
implementation team. Based on the R/3 Reference Model (a business blueprint of
the R/3 software) those business processes that are not relevant in a specific
implementation context need to be identified and pruned, remaining processes
adapted where necessary and new processes added as appropriate. The result is an
implementation specific model that defines the scope for the customization
activities necessary to configure the R/3 software to implement those business
processes. LiveModel: SAP R/3 Edition is a business process modeling tool,
tailored to support the SAP R/3 implementation process using the SAP R/3
Reference Model. It provides a mechanism for SAP R/3 implementation team members
to review the SAP Reference Model, revise the model, and validate changes prior
to actual R/3 code configuration. It accelerates R/3 implementations by enabling
users to better understand the R/3 system and to better articulate their
business requirements. Version 2.0, released in fiscal year 1998, extended the
tool's usefulness by enabling customers to animate design decisions and links to
live R/3 transactions, both to describe behavior and predict change. In version
3.0 released in fiscal year 1999, IntelliCorp extended the LiveModel
functionality to include support for an ERP-independent modeling notation called
the Business Definition Layer, which provides a customized view of business
processes, including manual processes, depending on the audience perspective
(executive-level, IT professional, business owner, or end user), and
bi-directional integration with the SAP AcceleratedSAP tools to immediately
visualize the business implications of changes made in the ASAP Q&A database.

     LiveCompass combines the technology of LiveModel with the expertise of the
IntelliCorp consulting organization. Using its proprietary LiveCapture
technology, IntelliCorp consultants reverse-engineer a model from a customer's
existing R/3 system, populating a LiveModel repository with an accurate
reflection of the current state of the R/3 system. Using this model as a base,
the consultants work with the customer to develop a strategy for addressing
business change, ensuring that the LiveModel repository continues to reflect the
desired business processes of the customer.

     IntelliCorp has entered into an agreement with Mercury Interactive to
integrate LiveModel with Mercury's TestDirector product. This integration helps
an implementation team focus their testing activities based on their system
design in LiveModel, providing a business process-oriented view of the entire
design, implement, and test cycle.

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     LiveSynchronizer is a product originally developed by KPMG. KPMG continues
to sell the product as InstanceSynchronizer. An agreement to resell the
InstanceSynchronizer product as LiveSynchronizer was entered into in January
2000. The LiveSynchronizer product facilitates an accelerated and smooth
implementation of SAP R/3. It allows R/3 users to identify differences between
any two R/3 instances. It also allows R/3 users to pinpoint inconsistencies
between two clients within any single R/3 instance.

     LiveSynchronizer not only compares objects and configuration data, but it
also searches for discrepancies which might result in problematic system
performance, such as different database and operating system settings between
two separate R/3 instances. Additionally, LiveSynchronizer compares logically
related master and transactional data (based on key input) between any two R/3
System instances. Authority checks are conducted to ensure appropriate end user
access. Remote output comparisons can be performed, allowing users to run one
report in one instance and the same report in a remote system. This allows users
to compare the differences, line by line.

     LiveInterface is both a developer's workbench and interface management
framework. After mapping the data that must be transferred between SAP R/3 and
one or more external computer systems, LiveInterface automatically generates the
code (in ABAP/4) for the required interface. The management framework not only
provides the necessary capabilities for defining how and when the interfaces
should run but also a view on how they are executing and capabilities for
recovery in case of failure.

     LiveTransfer is a product originally developed by Reliant Data Systems
(RDS) of Austin, Texas. IntelliCorp entered into an OEM relationship with RDS in
October 1998, for the purpose of extending the Enterprise Application
Integration offering and providing end-to-end application integration
capabilities. IntelliCorp has the right to sell LiveTransfer until October 2003
and RDS has agreed to provide technical customer support on the technology until
October 2000. To extend this period would require a re-negotiation of the
current agreement, or the Company could develop the expertise in-house, or it
could find an alternative to this technology from another third party vendor
(although none of these options are guaranteed). The product is sold under the
name LiveTransfer throughout the IntelliCorp worldwide sales distribution
network.

     LiveAnalyst, IntelliCorp's general purpose business process modeling and
simulation tool, supports organizational and knowledge integration features
essential when mapping strategic business objectives to SAP design requirements.
The ability to drag and drop Event Process Chain (EPC) objects from LiveModel
into LiveAnalyst and the interface to Human Resources (HR) makes it easy to test
and optimize configuration variants to show the impact of new workflows and to
optimally configure resources.

     In April 1996, IntelliCorp commercially released the PowerModel system,
version 3.2, one of the Company's key software development tools based on the C
programming language, the UNIX operating system and the X Windows interface.
This product was initially introduced in 1990. PowerModel is aimed at corporate
and independent software vendor developers. These individuals are generally
trained as professional programmers and are familiar with more complex technical
issues. PowerModel 3.2 has many features including: portability across UNIX and
MS Windows platforms, new interface building tools, and C++ interoperability.

     The Kappa-PC product is based on the C programming language. Kappa-PC
features object-oriented programming, active graphics, compact code size, and
links to other software applications, spreadsheets and databases. Kappa-PC can
be used by customers on industry-standard PCs, and is aimed at the PC developer
building single user departmental applications.

     Finally, IntelliCorp continues to market the Lisp-based KEE system
(originally introduced in August 1983) for complex AI and expert system
applications. The KEE system, version 4.1, released in May 1993, is available on
HP 9000 Series 700 and 800 workstations, the Sun SPARCstation and IBM RS6000
workstation. KEE 4.1 provides support for the X Windows interface, a color
capability and an enhanced development environment. The KEE system is typically
used for complex applications, enabling users to develop their own
knowledge-based systems for a broad range of commercial and scientific
applications.

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CUSTOMER SERVICE AND SUPPORT

     To help customers become more productive using both the BPM or EAI
families, IntelliCorp offers a support package to its customers that includes
program maintenance and unspecified updates (including new SAP R/3 Reference
Models), documentation, training in the use of its software, on-site
consultation and application support via telephone, fax, email or world wide
web. IntelliCorp offers extensive support materials on its world wide web site
located at http://www.intellicorp.com.

MARKETING AND SALES

     IntelliCorp's sales strategy utilizes multiple channels to reach the
customer. Solution sales (the predominant focus) are conducted primarily by a
dedicated sales staff and usually include a combination of product licensing and
consulting services. Other channels include direct licensing to end-user
customers as well as the development and support of ISVs, VARs, distributors and
representatives outside the United States with whom the Company has cooperative
marketing agreements. The Company works closely with other consulting firms and
system integrators to provide complete solutions to its customers. The Company
focuses on those companies implementing SAP software as well as the existing SAP
R/3 install base. As SAP continues its move into the mid-market ($250M -- $2B
companies), IntelliCorp is likewise expanding its reach to encompass this
broader market.

     In June 1996, IntelliCorp entered into an agreement with Deloitte & Touche
Consulting Group/ICS (ICS) under which ICS will use LiveModel: Industry Print
Edition to help their customers make better business engineering decisions and
accelerate SAP implementations. Since that time, four of the "Big 5" accounting
firms have adopted IntelliCorp's products, as have IBM and other major SAP
Implementation Partners. In fiscal 1999, the Company signed agreements with
additional major implementation partners, including Cap Gemini in France and
Origin in Europe.

     IntelliCorp has sales offices in Mountain View and in multiple cities
around the United States, as well as in London, Paris and Frankfurt. Its sales
force uses direct mail, telephone and personal contact marketing to identify
potential customers, with an emphasis on major corporate accounts. The Company
also relies on customer referrals from SAP Implementation Partners. In addition,
the Company's sales and marketing efforts include a combination of exhibits and
demonstrations at trade shows and presentations at seminars. The marketing
efforts have expanded significantly in fiscal year 2000 to include web-based
teleconferences and e-mail direct marketing, as well as increased use of the
World Wide Web for prospecting, differentiation and education. Marketing efforts
in fiscal 2000 also included engagement of public relations firms in North
America, UK and France in support of press and analyst relations to raise brand
awareness.

DISTRIBUTION

     IntelliCorp has entered into agreements pursuant to which distributors and
resellers in certain European countries, South Africa, Latin America and in the
Asia Pacific region have been granted non-exclusive rights to market and
sublicense IntelliCorp's products in their respective countries and certain
other territories.

COMPETITION

     The Company believes that its ability to compete depends on factors both
within and outside its control, including the timing and success of new
solutions and products developed by the Company and its competitors; product
performance and price, distribution and customer support. There can be no
assurance that the Company will be able to compete successfully with respect to
these factors.

     The greatest competitive threat to IntelliCorp's solution offerings is
posed by the large consulting firms which include, Anderson Consulting, Cap
Gemini/Ernst and Young, IBM Global Services, KPMG and PricewaterhouseCoopers.
Other eIntegrators such as Scient and Viant also pose a competitive threat to
IntelliCorp's solution offerings. Although these companies represent the major
eCRM and eBusiness Integration players, IntelliCorp has extensive experience and
knowledge of what it takes to implement and integrate highly optimized
back-office ERP with eBusiness and CRM front-office systems. Unlike the

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Company's competition, IntelliCorp has created and marketed business modeling
and interface development tools for SAP R/3, as well as co-developed a number of
SAP's CRM offerings including the Internet Pricing and Configurator (IPC),
providing some unique intellectual property to IntelliCorp.

     One factor in the success of LiveModel: SAP R/3 Edition is the Company's
relationship with SAP. Continued growth of this relationship would help ensure
the Company's success in the SAP R/3 market. It is SAP's policy to provide
application programming interfaces (API) to its technology that allows existing
and potential competitors to access the models and other parts of the R/3
system, thereby ensuring that there is competition.

     Competitors in the SAP business process management marketplace have
included IDS Scheer with the ARIS product line, and Micrografx Inc. with the
Enterprise Charter. In November of 1998, an agreement was reached between
IntelliCorp and Visio under which the customer base for the Visio Business
Modeler was transferred to IntelliCorp, effectively eliminating one competitor
from the market. Other competitors are expected to enter the business process
modeling and management marketplace. In addition, SAP provides the ASAP
Implementation Toolkit at no-charge to licensees of R/3 for use in implementing
the system. SAP has stated that it intends to continue to develop this product
set for the foreseeable future. The Company's strategy is to collaborate with
SAP in creating components of the ASAP Toolkit for SAP distribution while, at
the same time, developing add-on products for sale by the Company. Such add-on
products greatly extend the value and continued use of the ASAP Toolkit and data
contained therein.

     With respect to LiveInterface, formerly known as UPI, the primary
competition comes from four companies: Mercator.Neon (formally TSI), ETI, Neon
and IBI. With the introduction of LiveTransfer during fiscal 1998, steps were
taken to increase the scope of the Company's offering in this area and to reduce
the threat from other vendors. The continued sustainability of its competitive
position in the application integration market is dependent on the successful
development of future follow-on technology (refer to Item 6, Management's
Discussion and Analysis of Financial Condition and Results of Operations).

     See the Risk Factors section of this report for additional information
related to competition.

PRODUCT RESEARCH AND DEVELOPMENT

     To date, much of the Company's research and development has been done
in-house. IntelliCorp expects that most of its software products will continue
to be developed internally, although it may on occasion, as has been done in the
past, outsource certain projects or acquire ownership of, or rights to market,
existing technology.

     An agreement with Poet Software Corporation, completed in December 1995,
grants rights to IntelliCorp to license and deliver the Poet Object-Oriented
Database for use with LiveModel: SAP R/3 Edition and derivative products.
IntelliCorp resells the Poet Database as part of its ModelStore(TM) product in
both single user (Client) and multi-user (Server) configurations.

     In April 1996, IntelliCorp announced the signing of two agreements with
SAP -- a licensing/distribution agreement to package the R/3 Reference Model
with the Company's products and a joint development agreement which includes a
formal commitment of resources on behalf of both parties to explore the utility
of IntelliCorp's technology within the content of the SAP R/3 system. In August
1997, the Company announced the signing of another License and Development
agreement with SAP. This agreement was further extended by SAP and IntelliCorp
at the end of its initial term. During 2000 a number of product development
extensions, as provided for in the agreement, were executed. See Dependence on
SAP under the Risk Factors section of this report for additional information on
this agreement.

     An agreement with ProUBIS, completed in April 1997, grants rights to
IntelliCorp to license and deliver the Bonapart Business Process Re-engineering
tool as IntelliCorp's LiveAnalyst product.

     In January 1998, IntelliCorp acquired UPI technology from ICS Deloitte
Management LLC. UPI is sold by IntelliCorp as LiveInterface. At the time of
acquisition, IntelliCorp hired a number of key development and support staff who
had worked on the UPI technology at ICS Deloitte and Touche Consulting/ICS.

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     In October 1998, IntelliCorp entered into an agreement with RDS to obtain
the rights to resell the technology underlying its product known as
LiveTransfer. LiveTransfer is a product originally developed by Reliant Data
Systems (RDS) of Austin, Texas. IntelliCorp entered into an OEM relationship
with RDS in October 1998, for the purpose of extending the Enterprise
Application Integration offering and providing end-to-end application
integration capabilities. IntelliCorp has the right to sell LiveTransfer until
October 2003 and RDS has agreed to provide technical customer support on the
technology until October 2000. To extend this period would require a
re-negotiation of the current agreement, or the Company could develop the
expertise in-house, or it could find an alternative to this technology from
another third party vendor (although none of these options are guaranteed). The
product is sold under the name LiveTransfer throughout the IntelliCorp worldwide
sales distribution network.

     An agreement with Visio Inc., completed in November 1998, grants rights to
IntelliCorp to distribute the VBM renamed to IntelliCorp Business Visualizer. In
accordance with the agreement, Visio has ceased distribution of the Business
Modeler and has transferred all then-current support agreements to IntelliCorp
for continued execution in return for the assumption by IntelliCorp of minimal
up-grade obligations.

     An agreement with DSC, a German Company, completed in May 1999, grants
rights for IntelliCorp to distribute DSC's CADAgent product. CADAgent is a
middleware that provides real-time synchronization between a CAD Model and the
contents of an SAP R/3 order BOM. CAD Agent currently supports CADSS5, AutoCAD
and Pro/Engineer.

PRODUCT PROTECTION

     IntelliCorp regards its software as proprietary and attempts to protect it
by relying upon copyrights, trade secret and patent laws and contractual
nondisclosure safeguards, as well as restrictions on transferability that are
incorporated into its software license agreements. IntelliCorp licenses its
software products to customers rather than transferring title. In spite of these
precautions, it may be possible for competitors or users to copy aspects of
IntelliCorp's products or, to obtain information which the Company regards as
trade secrets without authorization, or to develop similar technology
independently. In addition, effective copyright and trade secret protection may
be unavailable or limited in certain foreign countries. IntelliCorp has not
required end-users of LiveModel: SAP R/3 Edition and derivative products,
LiveInterface, LiveTransfer, LiveAnalyst and Kappa-PC to sign license
agreements. Instead, the license agreement for these products is included in the
product packaging, and the packaging explains that by installing and executing
the product, the user is agreeing to the terms of the license agreement. It is
uncertain whether "shrink-wrap" license agreements of this type are legally
enforceable.

     IntelliCorp currently has four patents on its technology. See Proprietary
Information under the Risk Factors section of this report for additional
information related to patents.

     In view of the rapid rate of technological change in the areas in which the
Company does business and the uncertainty of the scope of the protection
afforded by copyright and patent laws, IntelliCorp does not believe that
copyrights or patents will be of major competitive advantage to it. Rather,
IntelliCorp believes that it must rely primarily on the technical competence and
creative ability of its personnel to improve and update its software products
and create additional products in order to be successful.

EMPLOYEES

     As of June 30, 2000, the Company employed 137 people, many of whom hold
advanced degrees. IntelliCorp's development engineers come from a variety of
commercial and research backgrounds. IntelliCorp believes that its future
success will depend, in large measure, on its ability to continue to attract and
retain qualified employees. None of IntelliCorp's employees is covered by a
collective bargaining agreement and the Company believes that its relations with
its employees are good. The Company maintains competitive compensation, benefits
and equity participation programs. Competition for qualified personnel is
intense, and there can be no assurance that the Company will be able to attract
and retain qualified personnel in the future.

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                                  RISK FACTORS

     The information about the Company included or incorporated by reference
herein contains forward-looking statements that involve risks and uncertainties,
including the risks detailed below.

NEED FOR MARKET ACCEPTANCE OF THE COMPANY'S PRODUCTS

     The market for the Company's solutions and products is evolving, and its
growth in the area of business process management, in particular, depends upon
broader market acceptance of business process management and modeling
technology. Business process management represents a fundamental shift in the
implementation and management of customers' SAP R/3 systems, that, from time to
time, may or may not be compatible with implementation methodologies promoted by
SAP. One such example of this risk was SAP's shift in the fall of 1998 from the
Business Engineer technology (which relied more heavily on modeling technology)
to their ASAP(TM) methodology. It took a significant amount of time to
effectively integrate our BPM products with the ASAP methodology and to
re-position our solutions and their value appropriately in the marketplace. As a
result, there can be no assurance that organizations will choose to make the
investment required to use IntelliCorp's business process management tools and
solutions for their ERP lifecycle needs. In addition, even if these products
gain broader market acceptance, a number of other vendors offer competing
products, and there are also a number of other approaches to business and
application modeling. See Competition below.

     The market for enterprise application integration tools is well established
and is fought over by a number of successful companies. One of LiveInterface's
key differentiating characteristics is that it is written in ABAP, an SAP
proprietary language, and resides "inside" the R/3 system. The leading
competitors typically endorse an ERP-independent approach to application
integration, relying on a hub-and-spoke architecture for application
communication. There can be no assurance that the Company's approach will be
accepted over that provided by other vendors.

     In addition, sales of the Company's SAP R/3 based products will depend on
the acceptance and use by consulting firms and others who assist their customers
to implement the complex R/3 system. There can be no assurance that the Company
will be successful in achieving and sustaining partnerships with third party
packaged system vendors or with strategic consulting firms. SAP has formed
strategic alliances with other companies to develop R/3 modeling/implementation
software products as well as applications integration products, and SAP itself
offers products that include a subset of the capabilities of IntelliCorp's
products. While the Company believes that its products offer advantages over
competing products in this market, there can be no assurance that the Company
will be successful in refocusing its business in the SAP R/3 market or that the
Company's products will successfully compete with others in this market.

     The Company's sales forecast for fiscal 2001 anticipates a predominant
portion of future revenues to be derived from CRM consulting services. An
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, overall customer satisfaction on our CRM services and a sustained
knowledgeable workforce. Future growth will depend heavily on CRM sales and
manpower growth. There can be no assurance, however, that the actual sales will
not differ materially from the sales forecast in the near term.

RAPID TECHNOLOGICAL CHANGE; PRODUCT DEVELOPMENT

     The market for the Company's solutions is characterized by ongoing
technological developments, evolving industry standards, rapid changes in
customer requirements and increasing customer demands. As a result, the
Company's success depends upon its ability to continue to enhance its existing
solutions, develop and introduce in a timely manner new solutions that take
advantage of technological advances, and respond to new customer requirements
and demands. There can be no assurance that the Company will be successful in
developing and marketing enhancements to its existing solutions or new solutions
incorporating new technology on a timely basis, or that its new solutions will
adequately address the changing needs of the marketplace. If the Company is
unable to develop and introduce new solutions, or enhancements to existing
solutions, in a timely manner -- in response to changing market conditions or
customer requirements or demands, the Company's business and results of
operations will be materially and adversely affected.

                                        9
<PAGE>   10

     LiveInterface is written in the SAP ABAP programming language. There can be
no assurance that SAP will not discontinue or dramatically change the
specifications to this language. The competition for expert Windows and ABAP
programmers is highly competitive. In addition, customer requirements and
technology for the applications integration market is evolving very rapidly.
New, follow-on technology and products will be necessary to remain competitive.

     The Company also relies on licenses from third parties, such as POET, SAP,
Reliant Data Systems, and ProUBIS for some of its technology and product
functionality. There can be no assurance that these licensed technologies will
be maintained and/or enhanced by their owners such that they can continue to
provide the necessary functionality for IntelliCorp's products. For example, the
current agreement with Reliant Data Systems requires RDS to provide technical
customer support on the technology underlying IntelliCorp's LiveTransfer product
until October 2000. To extend this period would require a re-negotiation of the
current agreement, or the Company could develop the expertise in-house, or it
could find an alternative to this technology from another third party vendor
(although none of these options are guaranteed).

     Looking forward, IntelliCorp may consider, from time to time, purchasing or
licensing additional new technologies from third parties. However, there is no
assurance that the Company can do this successfully or that, if the Company does
acquire new technology, there is no assurance that it will not have an adverse
impact on the operating results of the Company as a result of the acquisition of
this technology.

     Although the Company has a number of ongoing development projects, there
can be no assurance that the development of these products will be completed
successfully or on time, that the projects will include the features required to
achieve market acceptance, or that enhancements to the product will keep pace
with broadening market requirements. From time to time the Company or its
competitors may announce new products, capabilities or technologies that have
the potential to replace or shorten the life cycles of the Company's existing
products. There can be no assurance that announcements by the Company or its
competitors of currently planned or other new products will not cause customers
to defer purchasing existing Company products. In the past, the Company has
experienced delays in software development, and there can be no assurance that
the Company will not experience further delays in connection with its current
product development or future development activities. Delays or difficulties
associated with new product introductions or product enhancements could have a
material adverse effect on the Company's results of operations. Software
products as complex as those offered by the Company may contain undetected
errors when first introduced or as new versions are released. There can be no
assurance that errors will not be found in new products after commencement of
commercial shipments, resulting in loss of or delay in market acceptance. The
Company maintains no insurance for this risk.

DEPENDENCE UPON SAP

     IntelliCorp entered into a software license and development agreement with
SAP in August 1997. Under this agreement, which includes an extension of the
previous development agreement between the companies, SAP has contracted for
IntelliCorp to develop viewing and configuration technology to embed into SAP's
software. This agreement also provides a license to SAP for this viewing and
configuration technology. SAP has released the viewing technology to its users,
and is using LiveModel: SAP R/3 Edition internally as the authoring environment
for the R/3 Reference Model and Industry-Solution (IS) specific models. There
can be no assurance that these actions will not affect IntelliCorp's own product
sales and have a negative effect on the Company's future revenue stream.

     In addition, IntelliCorp has subsequently entered into other custom
development projects with SAP. The revenues from these development agreements
have been one-time in nature. There is no guarantee that IntelliCorp will be
able to replace these revenues with other customer revenues, if and when these
custom projects for SAP cease. In addition, there can be no assurance that SAP
will continue their relationship with IntelliCorp. Termination of the SAP
arrangement could have a material adverse effect on the Company's financial
results.

                                       10
<PAGE>   11

COMPETITION

     The Company believes that its ability to compete depends on factors both
within and outside its control, including the timing and success of new
solutions and products developed by the Company and its competitors, product
performance and price, distribution and customer support. There can be no
assurance that the Company will be able to compete successfully with respect to
these factors.

     The greatest competitive threat to IntelliCorp's solution offerings is
posed by the large consulting firms which include, Anderson Consulting, Cap
Gemini/Ernst and Young, IBM Global Services, KPMG and PricewaterhouseCoopers.
Other eIntegrators such as Scient and Viant also pose a competitive threat to
IntelliCorp's solution offerings. Although these companies represent the major
eCRM and eBusiness Integration players, IntelliCorp has extensive experience and
knowledge of what it takes to implement and integrate highly optimized
back-office ERP with eBusiness and CRM front-office systems. Unlike the
Company's competition, IntelliCorp has created and marketed business modeling
and interface development tools for SAP R/3, as well as co-developed a number of
SAP's CRM offerings including the Internet Pricing and Configurator (IPC),
providing some unique intellectual property to IntelliCorp.

     The market for IntelliCorp's software and consulting products has been
intensely competitive and characterized by rapid change and frequent
introduction of new products. The important competitive factors in the industry
are acceptance of its products by the SAP implementation partners, continued
close relationship with SAP itself, product sophistication, features,
reliability, price/performance characteristics, ease of understanding and
operating the software, integration with conventional computing environments and
the internet. There can be no assurance that the Company will be successful in
the face of increasing competition from new products and enhancements introduced
by existing competitors and by new companies entering the market.

     The Company's advantage continues to be its close relationship with the SAP
development organization and continued growth of this relationship is necessary
to insure the Company's success in the SAP R/3 market. This relationship is
always at risk based upon the ability of the Company to perform the development
work desired by SAP and the alternatives available to SAP.

     The Company is at risk for encroachment into the value provided by
LiveModel: SAP R/3 Edition by SAP's continued improvement to the ASAP
Implementation Toolkit. As new facilities are added to this freely provided
component of the SAP R/3 implementation toolset, there is no guarantee that the
value of the facilities in LiveModel will not be jeopardized. The Company must
continue to enhance the facilities in LiveModel and/or introduce new products of
software assets to retain and/or grow its revenues.

     SAP also provides an environment that fosters competition to LiveModel
through a published API to the models in their repository. Existing competitors
such as IDS Scheer and Micrografx already have access to these APIs, and other
modeling tool companies may be interested in entering this market by using API's
and their existing or planned products to offer valuable business process
modeling capabilities to their customers.

     The major competitor in the SAP business process management marketplace is
IDS Scheer with the ARIS product line which offers broad BPR capabilities. Other
competitors are expected to enter this business modeling marketplace. In
addition, SAP offers the ASAP Implementation Toolkit with a subset of the
capabilities of the IntelliCorp products.

     The primary competitors to the Company's LiveInterface product today are
Mercator.Neon (formally TSI), IBI, and ETI. However, there are numerous other
competitors that include data transformation and middle ware vendors who have
invested in technologies to access data within SAP R/3. IntelliCorp's strategy
is to partner with some of these vendors and to develop follow-on product
offerings that result in a more complete solution for the customer. Refer to
Item 6 "Management's Discussion and Analysis of Financial Condition and Results
of Operations", for additional information on the risks related to
LiveInterface.

     TestDirectors' primary competitors are Autotester Inc. and SAP. Both
companies have test automation tools and test management tools for use in R/3.
Both have a close focus on SAP implementations. In addition, SAP's Computer
Aided Testing Tool (CATT) is delivered free with the R/3 Developers Workbench.

                                       11
<PAGE>   12

IntelliCorp intends to compete with these tools in several ways, first, the
integration with LiveModel is a key differentiator as it supports process-based
testing. Second, IntelliCorp emphasizes the ability of TestDirector to address
all of a customer's enterprise systems, not just SAP.

     The PowerModel business continues to decline primarily due to the declining
market for internal application development and the focus for new application
development is on Windows and Java applications. Since neither of these
application delivery platforms is the primary development environment for
PowerModel, PowerModel is susceptible to competition from many sources. The
major market has been the existing customer base where the value of PowerModel
facilities are appreciated, and the applications built with PowerModel continue
to need support.

     Many of the Company's current and prospective competitors have
significantly greater financial, technical, manufacturing and sales and
marketing resources than the Company. These companies, as well as other hardware
and database software vendors can be expected to develop and market additional
competitive products in the future. In addition, a variety of established
companies are also building object-oriented products as extensions to their
existing product lines.

DEPENDENCE ON KEY PERSONNEL

     The Company is dependent upon a limited number of key management, technical
and sales personnel, the loss of whom would adversely affect the Company's
business. In addition, in the future, the Company may need to augment or replace
existing key management, technical, or sales personnel in order to maintain or
increase its business. Because of the complexity and breadth of the Company's
product line in certain technical areas, the Company may have only a single
employee with appropriate expertise. The loss of any such employee can have the
effect of slowing down or halting development with respect to a product until
the Company is able to locate and hire another technical person with the
requisite expertise. In addition, certain management, technical and support
personnel are relatively new to the Company, and the Company's success in the
future will depend in part on successful assimilation of new personnel. The
Company's future success will depend in part upon its ability to attract and
retain highly qualified personnel. The Company competes for such personnel with
other companies, academic institutions, government entities and other
organizations. The ability to recruit, on a timely basis, appropriate personnel
to staff the various development efforts will be a key factor in the success of
those projects. If the Company cannot recruit the appropriate personnel and must
hire outside consultants to perform the work, the contract margins may be
adversely affected. There can be no assurance that the Company will be
successful in hiring or retaining qualified personnel. It is particularly
difficult to hire personnel with SAP and configure to order expertise. Loss of
key personnel or inability to hire and retain qualified personnel could have a
material adverse effect on the Company's business and results of operations.
From time to time in the past, the Company has experienced significant turnover
in its sales force. There can be no assurance that the Company will be able to
reduce this periodic turnover in its sales force and, as a result, the Company
may lose sales opportunities, market share or customers.

DEPENDENCE ON LOWER MARGIN SERVICE REVENUES

     A significant amount of the Company's revenues has been derived from
contract and other services. The operating margins from revenues for such
services are substantially lower than the operating margins from revenues for
the Company's software products. This disparity is principally due to the low
cost of materials, royalties, and other costs of the Company's software
products, as compared to the relatively high personnel costs (including the
higher cost of using outside consultants) incurred in providing consulting
services. In addition, as the proportion of contract and other service revenues
increases, the overall margins will decrease accordingly. As a result of the
Company's reliance on contract and other revenues, the Company's overall
operating margins may be lower than those for software companies that do not
derive such a significant percentage of revenues from contract and other
services. As well as, the Company's 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 products and services.

                                       12
<PAGE>   13

LACK OF PROFITABILITY, POTENTIAL FUTURE LOSSES

     Over the last five years, the Company has experienced aggregate
consolidated net losses of over $20.4 million, including net losses of $7.1
million and $6.2 million for the years ended June 30, 2000 and 1999,
respectively. The Company may also have losses in future years. There can be no
assurance that the Company will attain and maintain profitability.

     As of June 30, 2000, the Company has an accumulated deficit of $62.7
million, a cash and cash equivalents balance of $2.2 million, and a working
capital balance of $1.3 million. In addition, the Company has a net loss of $7.1
million for fiscal 2000. Management expects to incur additional losses through
at least part of fiscal 2001, including the first quarter, and it recognizes the
need to utilize all or some of its available financing resources as of June 30,
2000 to fund its cash requirements in fiscal 2001. Available financing resources
as of June 30, 2000 consist of a bank credit facility which amounts to the
lesser of $3.0 million or 80% of eligible accounts receivable. At June 30, 2000,
the amount of the bank credit facility available was $1.8 million. At this time,
management's plans for fiscal 2001 anticipate that revenues together with
available financing alternatives will be sufficient to fund the Company's cash
requirements through at least June 30, 2001. However, if anticipated revenues
for fiscal 2001 do not meet management's expectations, and additional financing,
above the available resources, are not available, management has the ability to
reduce certain planned expenditures to lower the Company's operating costs.

     To allow its Common Stock to remain listed for trading on The NASDAQ
SmallCap Market tier of The NASDAQ Stock Market (NASDAQ), the Company is
required to maintain a minimum capital and surplus of $2.0 million as well as a
closing bid stock price of at least $1.00 per share. In the past, the Company's
capital and surplus as well as its stock price have fallen temporarily below the
NASDAQ minimum. Significant additional losses could adversely affect the
Company's ability to maintain the required minimum capital and surplus in the
future, and potentially impact IntelliCorp's stock price. Should the Company's
Common Stock be delisted from the NASDAQ Stock Market, the trading market for
the Common Stock would likely be adversely affected.

POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

     The Company's 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 by the Company and its
competitors, market acceptance of new products, enhanced versions of existing
products, the information systems department budgets of its customers, and the
length of sales cycles. Although a significant portion of the Company's revenues
in each quarter results from orders received in that quarter, the majority of
the Company's expense levels are fixed, based on expectations of future
revenues. In addition, a substantial amount of the Company's quarterly revenues
have typically been recorded in the third month of the fiscal quarter with a
concentration of such revenues in the last half of the month. The timing of the
closing of large license agreements increases the risk of quarter to quarter
fluctuations. As a result, if revenues are not realized as expected, the
Company's operating results will be materially adversely affected. Accordingly,
it is likely that the Company would experience disproportionate declines in its
operating results if revenues were to decline. In addition, it is possible that
in some future quarter the Company's operating results will be below the
expectations of public market analysts and investors. In such event, the price
of the Company's Common Stock would likely be adversely affected.

CUSTOMER CONCENTRATION

     For fiscal 2000, revenues from the sale of products and services to one
related party accounted for 20% of total revenues. The level of revenues
received from this customer may not continue in future periods. In addition,
certain customers may account for a significant portion of net revenues in a
particular quarter, which may lead to significant variations in quarterly
results.

                                       13
<PAGE>   14

NEED FOR CHANNEL PARTNERS

     In order for the Company to reach higher levels of revenue and sustainable
growth, the Company may require channel partners for the sale, distribution and
co-marketing of its products. Such partners may include SAP, consulting firms,
systems integrators, traditional software distributors or hardware or software
companies with established distribution channels. The Company has an agreement
with some global SAP Implementation Partners to promote or utilize the Company's
LiveModel: SAP R/3 Edition, as well as its LiveInterface product. These channel
partners are instrumental in gaining acceptance of IntelliCorp's tools both for
their consulting methodology as well as by their customers for continuing
operating requirements. The Company anticipates that a significant portion of
fiscal year 2001 revenues will be generated through these arrangements and other
similar arrangements or agreements with consulting firms and hardware companies.
There can be no assurance that the Company will be able to achieve significant
sales through its global implementation partner relationships or that the
Company will be successful in establishing additional channel partner
arrangements or that, if such relationships are established, they will prove to
be commercially successful. In addition, there can be no assurance that the
Company's partners will not utilize their relative size or financial strength to
the disadvantage of the Company.

MANAGING A CHANGING BUSINESS

     Since its inception, the Company has experienced changes in its operations
which have placed significant demands on the Company's administrative,
operational and financial resources. The Company's future performance will
depend in part on its ability to manage change, both in its domestic and
international operations, and to adapt its operational and financial control
systems as necessary to respond to changes in its business. The failure of the
Company's management to effectively respond to and manage changing business
conditions could have a material adverse effect on the Company's business and
results of operations.

INTERNATIONAL OPERATIONS

     Approximately 37% of the Company's net revenues for the fiscal year ended
June 30, 2000 and 33% of the Company's net revenues for the fiscal year ended
June 30, 1999 were attributable to international sales. Most international
revenues to date have been derived from license revenues. The Company currently
offers selected local language versions of its products. Although it does intend
to offer additional localized product releases in the future, there can be no
assurance that such releases will be successfully developed or, if developed,
that they will achieve market acceptance. The Company faces certain risks as a
result of international sales. The results of the Company could be affected
adversely by short-term fluctuations in currency exchange rates. Additionally,
the Company's international operations may be affected by changes in demand
resulting from long-term changes in interest and currency exchange rates. The
Company is also subject to other risks associated with international operations,
including tariff regulations and requirements for export licenses, particularly
with respect to the export of certain technologies, which may on occasion be
delayed or difficult to obtain, unexpected changes in regulatory requirements,
longer accounts receivable payment cycles, difficulties in managing
international operations, potentially adverse tax consequences, economic and
political instability, restrictions on repatriation of earnings, the burdens of
complying with a wide variety of foreign laws, and patterns of customers' staff
vacations, especially in Europe, that may reduce earnings in Company's fiscal
first quarter. In addition, the laws of certain countries do not protect the
Company's products and intellectual property rights to the same extent as do the
laws of the United States. There can be no assurance that such factors will not
have an adverse effect on the Company's future international sales and,
consequently, on the Company's business and results of operations. With the
exception of limited patent protection in Canada, the Company has no patents
protecting its products in foreign markets.

PROPRIETARY INFORMATION

     IntelliCorp regards its software as proprietary and attempts to protect it
by relying upon copyrights, trade secret and patent laws and contractual
nondisclosure safeguards as well as restrictions on transferability that are
incorporated into its software license agreements. IntelliCorp licenses its
software products to customers rather than transferring title. In spite of these
precautions, it may be possible for competitors or users to copy

                                       14
<PAGE>   15

aspects of IntelliCorp's products or to obtain information which the Company
regards as trade secrets without authorization, or to develop similar technology
independently. In addition, effective copyright and trade secret protection may
be unavailable or limited in certain foreign countries. IntelliCorp licenses
LiveInterface in a machine-independent form for users to install into their SAP
R/3 systems. This practice increases the possibility of misappropriation or
other misuse of the Company's products. IntelliCorp has not required end-users
of Kappa-PC (a PowerModel product), LiveModel: SAP R/3 Edition (and derivative
editions), LiveAnalyst and LiveInterface to sign license agreements. Instead,
the license agreement for these products is included in the product packaging,
and the packaging explains that by opening the seal the user is agreeing to the
terms of the license agreement. It is uncertain whether "shrink-wrap" license
agreements of this type are legally enforceable.

     IntelliCorp's first three patents, relating primarily to knowledge-based
technology, were issued between June 1987 and May 1990. IntelliCorp's fourth
patent with respect to certain technologies integrated in its PowerModel product
was issued in May 1994. However, there can be no assurance that any further
patents will be issued with respect to the Company's products, and existing
patent and copyright laws afford only limited practical protection to
IntelliCorp. Although the Company believes that its products and technology do
not infringe on any existing proprietary rights of others, there exist several
patents with claims that might extend to IntelliCorp's products, which, together
with the growing use of patents to protect software, has increased the risk that
third parties may assert infringement claims against IntelliCorp in the future.
Any such claims, with or without merit, could result in costly litigation or
might require the Company to enter into royalty or licensing agreements. Such
royalty or license agreements, if required, may not be available on terms
acceptable to the Company or at all. The Company does not have insurance to
cover the risk of infringement claims.

     In view of the rapid rate of technological change in the areas in which it
does business and the uncertainty of the scope of the protection afforded by
copyright and patent laws, IntelliCorp does not believe that copyrights or
patents will be of major competitive advantage to it. Rather, IntelliCorp
believes that it must rely primarily on the technical competence and creative
ability of its personnel to improve and update its software products and create
additional products in order to be successful.

PUBLIC TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

     The trading price of the Company's Common Stock is subject to wide
fluctuations in response to variations in the actual or anticipated quarterly
operating results of the Company, announcements of new products or technological
innovations by the Company or its competitors, and general conditions in the
industry. In addition, stock markets for securities of high technology companies
have experienced extreme price and volume trading volatility in recent years.
This volatility may have a substantial effect on the market prices of securities
of many high technology companies for reasons unrelated to the operating
performance of the specific companies. These broad market fluctuations may
adversely affect the market price of the Company's Common Stock.

     In March 1997, the Company had a preferred stock offering for shares of its
Series B Preferred Stock (the "Series B Preferred Stock"). The Series B
Preferred Stock may, at the option of the Company, be exchanged for convertible
promissory notes of the Company issued with the same terms as the Series B
Preferred Stock (the Notes). The Series B Preferred Stock or the Notes, if
issued, are convertible into Common Stock at the election of the holders. The
Company has registered for resale the shares of Common Stock issuable with
respect to the Series B Preferred Stock or the Notes, as well as the Common
Stock expected to be issued in payment of dividends or interest with respect to
the Series B Preferred Stock or Notes, as applicable. If all the shares reserved
for these purposes were issued, it would significantly increase the number of
shares outstanding. Sales or issuance of substantial amounts of the Company's
Common Stock by the holders of the Series B Preferred Stock or others in the
future could adversely affect the market price of the Company's Common Stock.
Other than for 1,446,126 shares sold in a private placement in June of 2000, all
of the outstanding shares of the Company's Common Stock are eligible for sale in
the public market. In addition, the holders of stock options could exercise
their options and sell the vested shares in the public market.

                                       15
<PAGE>   16

ITEM 2. DESCRIPTION OF PROPERTY

     The Company's executive offices are located at 1975 El Camino Real West,
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, Paris and Walldorf).

     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.

                                       16
<PAGE>   17

                                    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, 1998 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, 2000, there were approximately 449 registered stockholders 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,
                                                             ---------------------------------
                                                                  2000               1999
                                                             ---------------    --------------
                                                              HIGH      LOW     HIGH      LOW
                                                             ------    -----    -----    -----
<S>                                                          <C>       <C>      <C>      <C>
1st Fiscal Quarter.........................................  $ 2.00    $0.97    $4.13    $1.50
2nd Fiscal Quarter.........................................    3.63     1.50     2.00     0.78
3rd Fiscal Quarter.........................................   11.38     3.50     1.63     1.03
4th Fiscal Quarter.........................................    3.88     1.44     1.19     0.81
</TABLE>

RECENT SALES OF UNREGISTERED SECURITIES

     In March 1999, the Company consummated an equity arrangement which requires
certain investors, who are also Shareholders & Board Members, 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 is set at
10% above the market price at the time the purchase is 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 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 were
registered for resale on June 30, 2000.

     In May 2000 and June 2000, the Company amended the March 1999 equity
arrangement which requires an investor, who is also a Shareholder and Board
Member, 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 is set at 10% above the market price at the time the
purchase is made, with a minimum price of $1.00 per share and a maximum of $2.00
per share. As common stock is purchased under this amended agreement, the
Company will issue five year warrants equal to 25% of the number of shares
purchased. The exercise price of the warrants will be 10% above the purchase
price of the shares purchased. As of June 30, 2000, 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 will be registered for resale on a best effort basis upon the demand
of the investors.

                                       17
<PAGE>   18

                            SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                          YEAR ENDED JUNE 30,
                                         -----------------------------------------------------
                                          2000       1999       1998       1997         1996
                                         -------    -------    -------    -------      -------
                                               (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                      <C>        <C>        <C>        <C>          <C>
STATEMENT OF OPERATIONS DATA
Net revenues...........................  $22,666    $21,961    $24,445    $12,686      $10,992
                                         -------    -------    -------    -------      -------
Loss from operations...................   (6,822)    (6,082)      (625)    (1,753)      (3,269)
Interest expense.......................     (128)      (197)      (177)      (153)         (69)
Interest income and other, net.........     (122)       136        310        161          109
                                         -------    -------    -------    -------      -------
Loss before income taxes...............   (7,072)    (6,143)      (492)    (1,745)      (3,229)
Provision for income taxes.............       41         59        206        139          113
Loss before extraordinary item.........   (7,113)    (6,202)      (698)    (1,884)      (3,342)
Extraordinary item.....................       --         --         --         --       (1,157)
                                         -------    -------    -------    -------      -------
Net loss...............................  $(7,113)   $(6,202)   $  (698)   $(1,884)     $(4,499)
Preferred stock dividend requirements:
  Series A and B.......................     (535)      (534)      (623)      (311)          --
  Embedded Dividend(1).................       --         --         --     (1,720)          --
                                         -------    -------    -------    -------      -------
Net loss applicable to common
  stockholders.........................  $(7,648)   $(6,736)   $(1,321)   $(3,915)     $(4,499)
Basic and diluted net loss before
  extraordinary item per common
  share................................  $ (0.44)   $ (0.44)   $ (0.10)   $ (0.31)(1)  $ (0.27)
Basic and diluted net loss per common
  share................................  $ (0.44)   $ (0.44)   $ (0.10)   $ (0.31)(1)  $ (0.37)
Shares used in computation of basic and
  diluted net loss per common share....   17,469     15,333     13,871     12,634       12,209
BALANCE SHEET DATA
Cash, cash equivalents and short-term
  investments..........................  $ 2,240    $ 2,619    $ 6,186    $ 6,392      $ 4,124
Working capital........................    1,290      2,999      6,973      6,838        2,851
Total assets...........................   12,313     13,190     18,454     12,064        7,401
Convertible notes......................       --      1,600      1,600      1,600        1,600
Stockholders' equity...................    4,370      5,201     10,157      5,948        2,097
</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.

                                       18
<PAGE>   19

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

OVERVIEW

     IntelliCorp, Inc., (IntelliCorp or The Company) develops, markets and
supports a comprehensive suite of eBusiness and Customer Relationship Management
(CRM) consulting solutions for the SAP community. These 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 Enterprise Resource Planning (ERP)
systems.

     Transitioning from primarily a product focus, beginning in fiscal 2001,
IntelliCorp will now be focused on helping traditional Fortune 1000 companies
rapidly enter the eBusiness world. IntelliCorp's consulting solutions provide
SAP customers with an eBusiness strategy that maximizes their ERP investment and
minimizes integration and data management issues associated with implementing
best-of-breed software.

     In connection with the transition to a consulting solutions focus, the
Company implemented a reduction-in-force as well as staff transfers from
products to CRM/eCRM consulting solutions, which affected approximately 20% of
its work force. The one-time cost of the reduction-in-force is estimated to be
approximately $150,000, which includes expenses such as severance pay, legal
fees and contract cancellation fees. These expenses will be recorded in the
quarter ending September 30, 2000. In addition, the Company implemented a
process to shorten its billing cycle for consulting services to semi-monthly.
Both actions are expected to improve cash flow and working capital.

     A significant amount of the Company's revenues has been derived from
contract and other services. The operating margins from revenues for such
services are substantially lower than the operating margins from revenues for
the Company's software products. This disparity is principally due to the low
cost of materials, royalties, and other costs of the Company's software
products, as compared to the relatively high personnel costs (including the
higher cost of using outside consultants) incurred in providing consulting
services. In addition, as the proportion of contract and other service revenues
increases, the overall margins will decrease accordingly. As a result of the
Company's reliance on contract and other revenues, the Company's overall
operating margins may be lower than those for software companies that do not
derive such a significant percentage of revenues from contract and other
services. As well as, the Company's 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 products and 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. The Company's 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 the Company's 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 the Company's control. Historical results of
the Company may not be indicative of future operating results.

                                       19
<PAGE>   20

     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,                2000          1999
                                             ------------------------      COMPARED      COMPARED
                                             2000      1999      1998      TO 1999       TO 1998
                                             ----      ----      ----      --------      --------
<S>                                          <C>       <C>       <C>       <C>           <C>
REVENUES:
  Software.................................   32%       31%       57%          8%          (51)%
  Contract services........................   53        52        33           5            38
  Other services...........................   15        17        10         (11)           59
                                             ---       ---       ---         ---           ---
          Total revenues...................  100       100       100           2           (10)
COSTS AND EXPENSES:
  Cost of software revenues................    5         6         5         (16)           (2)
  Cost of contract service revenues........   40        38        20           8            72
  Cost of other services revenues..........    3         3         2          (4)           58
  Research and development.................   21        27        24         (20)            2
  Marketing, general and administrative....   61        54        41          19            18
  In-process research and development
     charge................................   --        --        11          --            --
                                             ---       ---       ---         ---           ---
          Total cost and expenses..........  130       128       103           5            12
                                             ---       ---       ---         ---           ---
Loss from operations.......................  (30)      (28)       (3)        N/M           N/M
                                             ---       ---       ---         ---           ---
Net loss...................................  (31)%     (28)%      (3)%       N/M           N/M
                                             ---       ---       ---         ---           ---
</TABLE>

---------------
N/M -- Not meaningful

REVENUES

     The Company's total revenue is derived from three sources: software
licenses, contract services and other services including product support and
training. Total revenues were $22.7 million, $22.0 million and $24.4 million for
fiscal years 2000, 1999, and 1998, respectively. This represents a 2% increase
in fiscal 2000 total revenues as compared to fiscal 1999. The increase is due to
the increase in CRM revenue and an increase in sales of software licenses. The
10% decrease in fiscal 1999 total revenues as compared to fiscal 1998 is due to
reduced sales of software licenses associated with LiveModel: SAP R/3 Edition.
In addition, the decrease was also due to revenue recognized in connection with
the license and development agreement with SAP AG.

     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 revenues decreased 51% in fiscal 1999 from fiscal
1998. This decrease is attributable primarily to two factors. First, IntelliCorp
went through a significant transition in its sales and marketing organization.
Second, SAP created uncertainties regarding its business process modeling
direction when it cancelled the Business Engineer project and put more focus on
its ASAP R/3 implementation methodology. It took the rest of the fiscal year for
IntelliCorp to re-build its sales organization to support scalable revenue
growth, as well as re-position its business process management solutions in the
ASAP context, including extension of its market reach and value to the large
post-implementation market. As the Company transitions to a consulting solutions
focus, software revenue is expected to reduce as a percentage of the total
revenue.

     Contract services revenues increased 5% during fiscal 2000 compared to
fiscal 1999. The increase is due primarily to consulting revenue in the CRM
area. IntelliCorp has made a concerted effort to increase its presence in the
CRM marketplace which should lead to a larger backlog and greater
predictability. Contract services revenues increased 38% during fiscal 1999
compared to fiscal 1998. The increase is due to consulting revenue related to
LiveModel: SAP R/3 Edition (including custom development projects),
LiveInterface, and the configure-to-order consulting business.

                                       20
<PAGE>   21

     Other services revenues, which consist primarily of product support,
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 from fiscal 1999 to 2000. Other services revenues
increased 59% during fiscal 1999 compared to fiscal 1998. This increase is
primarily attributable to product support revenues related to the LiveModel: SAP
R/3 product and the LiveInterface product.

     The Company derived approximately 37%, 33% and 28% of its revenues in
fiscal years 2000, 1999 and 1998, respectively, from international sales. The
Company expects 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,           2000        1999
                                           -----------------------------    COMPARED    COMPARED
                                            2000       1999       1998      TO 1999     TO 1998
                                           -------    -------    -------    --------    --------
                                                              (IN THOUSANDS)
<S>                                        <C>        <C>        <C>        <C>         <C>
REVENUES:
  North America..........................  $14,387    $14,675    $17,595       (2)%       (17)%
  Europe.................................    7,682      6,101      5,581       26           9
  Pacific Rim/Latin America..............      597      1,185      1,269      (50)         (7)
                                           -------    -------    -------      ---         ---
          Total revenues.................  $22,666    $21,961    $24,445        3%        (10)%
                                           =======    =======    =======      ===         ===
</TABLE>

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

<TABLE>
<CAPTION>
                                                              YEAR ENDED JUNE 30,
                                                              --------------------
                                                              2000    1999    1998
                                                              ----    ----    ----
                                                                 (IN THOUSANDS)
<S>                                                           <C>     <C>     <C>
REVENUES
  North America.............................................   63%     67%     72%
  Europe....................................................   34      28      23
  Pacific Rim/Latin America.................................    3       5       5
                                                              ---     ---     ---
          Total revenues....................................  100%    100%    100%
                                                              ===     ===     ===
</TABLE>

     The Company's sales forecast for fiscal 2001 anticipates a predominant
portion of future revenues to be derived from CRM 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 the Company's products and services, overall customer satisfaction on
our CRM services and a sustained knowledgeable workforce. Future growth will
depend heavily on CRM sales and manpower growth. There can be no assurance,
however, that the actual sales will not differ materially from the sales
forecast in the near term.

COSTS AND EXPENSES

     Cost of software revenues consists primarily of materials, documentation,
packaging, royalties and amortization of capitalized and purchased software
development costs. Cost of software revenues as a percentage of software
revenues decreased from 9% of revenues in fiscal 1998, increased to 18% of
revenues in fiscal year 1999 and decreased to 14% of revenues in fiscal year
2000. The fiscal 2000 decrease in software cost, relative to software revenues,
is attributable to lower capitalized software amortization related to the UPI
acquisition. The fiscal 1999 increase in software cost, relative to software
revenues, is attributable to higher capitalized software amortization related to
the UPI acquisition that occurred in the third quarter of fiscal 1998, and to
the significant portion of the expenses that are fixed such as salaries and
depreciation expenses; therefore, revenue fluctuations do not result in
comparable changes in related costs.

                                       21
<PAGE>   22

     Cost of contract services revenues consists primarily of personnel,
including outside consultants and related costs. Cost of contract services
revenues as a percentage of the related revenues is 76%, 74% and 58% for fiscal
years 2000, 1999 and 1998, respectively. Cost of contract services revenues as a
percentage of the related revenues remained relatively flat for fiscal years
2000 and 1999. The increase in fiscal 1999 is primarily due to absorption of
existing staff costs related to decreased LiveModel and LiveInterface license
sales. The Company expects the cost of contract services revenues as a
percentage of the related revenues to decrease as the Company increases its CRM
consulting business.

     Cost of other services revenues consists primarily of product support
personnel. Cost of other service revenues as a percentage of the related
revenues remained relatively flat at 22%, 20% and 20%, respectively for the
fiscal years 2000, 1999 and 1998.

     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. Research and development costs decreased 20% in fiscal 2000
compared to fiscal 1999. 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 21%, 27% and 24% for fiscal year 2000, 1999 and
1998, respectively. Research and development costs as a percentage of revenues
are expected to decrease further as the percentage of contract 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
19% in marketing, general and administrative expense in fiscal 2000 compared to
fiscal 1999 is mainly due to the Company's increased focus on marketing and
selling, including costs of Sapphire 2000 trade show which occurred in the
fourth quarter of fiscal 2000. The increase of 18% in marketing, general and
administrative expense in fiscal 1999 compared to fiscal 1998 is mainly due to
increased marketing and selling resource investment, including the opening of
French and German offices.

     The in-process Research and Development charge recognized during fiscal
1998 relates to the Company's purchase of UPI Technology. 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 new 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. The in-process research and development charge of $2.7
million in 1998 is related to the acquisition of the UPI technology.

OTHER INCOME (EXPENSE)

     Interest expense and other consists primarily of interest expense and
foreign currency losses during fiscal 2000 and 1999. Interest expense consists
primarily of interest related to the convertible notes issued in April 1996 and
the bank credit line.

                                       22
<PAGE>   23

INCOME TAX

     The provision for income taxes primarily represents foreign withholding
taxes, federal and state income taxes (Alternative Minimum Tax). At June 30,
2000, the Company had net operating loss carryforwards of approximately $42.0
million for federal income tax purposes, which will expire in fiscal years 2006
through 2020. The Company also had net operating loss carryforwards of
approximately $5.0 million for state income tax purposes and $13.5 million for
foreign income tax purposes. The state net operating loss carryforwards will
expire in fiscal years 2000 through 2005. 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.

PRO FORMA NET LOSS

     Pro forma net loss, which excludes amortization charges and in-process R&D
charges related to purchased intangibles, was ($6.6 million) or ($0.41) per
share in fiscal 2000, compared to a pro forma net loss of ($5.3 million) or
($0.38) per share in fiscal 1999. Net loss as reported includes the impact of
purchased intangibles. The Company's net loss as reported was ($7.1 million) or
($0.44) per share in fiscal 2000, compared to a net loss as reported of ($6.2
million) or ($0.44) per share in fiscal 1999.

QUARTERLY RESULTS

     The Company's 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 by the Company and its
competitors, market acceptance of new products and enhanced versions of existing
products, the budgets of its customers and lengthy sales cycles. Although a
significant portion of the Company's revenues in each quarter result from orders
received in that quarter, the majority of the Company's expense levels are
fixed, based on expectations of future revenues. In addition, a substantial
amount of the Company's 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 the 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, the Company's operating results will be
materially adversely affected. Accordingly, it is likely that the Company would
experience disproportionate declines in its operating income if revenues were to
decline. In addition, it is possible that in some future quarter, the Company's
operating results will be below the expectations of public market analysts and
investors. In such event, the price of the Company's common stock would likely
be adversely affected.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's cash and cash equivalents were $2.2 million at June 30, 2000,
and $2.6 million at June 30, 1999. The decrease in fiscal 2000 is primarily due
to an operating loss of $6.8 million offset by cash received in equity
financings of $5.6 million and a decrease in accounts receivable of $568,000.
Spending for capital equipment was $489,000, $632,000 and $1.2 million for
fiscal years 2000, 1999 and 1998, respectively.

     As of June 30, 2000, the Company has an accumulated deficit of $62.7
million, a cash and cash equivalents balance of $2.2 million, and a working
capital balance of $1.3 million. In addition, it has a net loss of $7.1 million
for fiscal 2000. Management expects to incur additional losses through at least
part of fiscal 2001, including the first quarter, and it recognizes the need to
utilize all or some of its available financing resources as of June 30, 2000 to
fund its cash requirements in fiscal 2001. Available financing resources as of
June 30, 2000 consist of a bank credit facility of the lesser of $3.0 million or
80% of eligible accounts receivable. At June 30, 2000, the amount of the bank
credit facility was $1.8 million. At this time, management's plans for fiscal
2001 anticipate that revenues together with available financing alternatives
will be sufficient to fund the Company's cash requirements through at least June
30, 2001. However, if anticipated

                                       23
<PAGE>   24

revenues for fiscal 2001 do not meet management's expectations, and additional
financing above the available resources are not available, management has the
ability to reduce certain planned expenditures to lower the Company's operating
costs. Further, as the percentage of revenue increases from the CRM consulting,
the Company should experience an improvement in cash flow due to the regular
semi-monthly billing for CRM consulting.

     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. The Company believes the adoption of SFAS 133 will have no material impact
on its financial position or results of operations.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statement ("SAB
101"). SAB 101 provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements. All registrants are expected to
apply the accounting and disclosures described in SAB 101 for reporting periods
beginning after September 2000. The Company does not expect a material impact
from the adoption of SAB 101 on its future revenues and results of operations.

                                       24
<PAGE>   25

ITEM 7. FINANCIAL STATEMENTS

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

                                     ASSETS

<TABLE>
<CAPTION>
                                                                    JUNE 30,
                                                              --------------------
                                                                2000        1999
                                                              --------    --------
<S>                                                           <C>         <C>
CURRENT ASSETS:
  Cash and cash equivalents.................................  $  2,240    $  2,619
  Accounts receivables (less allowance for doubtful
     accounts: 2000, $459; 1999, $445)......................     5,729       6,297
  Other current assets......................................     1,264         472
                                                              --------    --------
          Total current assets..............................     9,233       9,388
Property and equipment, net.................................       911       1,046
Purchased intangibles (less accumulated amortization: 2000,
  $1,944; 1999, $1,381).....................................     2,035       2,597
Other assets................................................       134         159
                                                              --------    --------
                                                              $ 12,313    $ 13,190
                                                              ========    ========

                       LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable..........................................  $  1,899    $  1,272
  Accrued compensation......................................     1,644       1,266
  Accrued royalties.........................................       295          64
  Other current liabilities.................................     1,443       1,271
  Bank loan.................................................       989         453
  Deferred revenues.........................................     1,673       2,063
                                                              --------    --------
          Total current liabilities.........................     7,943       6,389
CONVERTIBLE NOTES...........................................        --       1,600
COMMITMENTS
STOCKHOLDERS' EQUITY:
  Preferred stock, $.001 par value; 2,000,000 shares
     authorized; shares issued and outstanding:
     Series A: 411,290 and 435,484 at June 30, 2000 and
      1999, respectively; aggregate liquidation preference
      of $1,297,000 at June 30, 2000........................         1           1
     Series B: 5,000 at June 30, 2000 and 1999; aggregate
      liquidation preference of $5,068,000 at June 30,
      2000..................................................        --          --
  Common stock, $.001 par value -- 50,000,000 shares
     authorized; shares issued and outstanding:
     19,999,733 and 16,386,169 at June 30, 2000 and 1999,
      respectively..........................................        20          16
  Additional paid-in capital................................    67,079      60,266
  Accumulated deficit.......................................   (62,730)    (55,082)
                                                              --------    --------
          Total stockholders' equity........................     4,370       5,201
                                                              --------    --------
                                                              $ 12,313    $ 13,190
                                                              ========    ========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       25
<PAGE>   26

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                   YEARS ENDED JUNE 30, 2000, 1999, AND 1998
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                               2000       1999       1998
                                                              -------    -------    -------
<S>                                                           <C>        <C>        <C>
REVENUES:
  Software..................................................  $ 7,354    $ 6,830    $13,861
  Contract services.........................................   11,940     11,336      8,198
  Other services............................................    3,372      3,795      2,386
                                                              -------    -------    -------
          Total revenues....................................   22,666     21,961     24,445
                                                              =======    =======    =======
COSTS AND EXPENSES:
  Cost of revenues:
     Software...............................................    1,045      1,244      1,266
     Contract services......................................    9,027      8,383      4,877
     Other services.........................................      728        755        477
  Research and development..................................    4,761      5,922      5,818
  Marketing, general and administrative.....................   13,927     11,739      9,932
  Purchase of in-process research and development...........       --         --      2,700
                                                              -------    -------    -------
          Total costs and expenses..........................   29,488     28,043     25,070
                                                              =======    =======    =======
Loss from operations........................................   (6,822)    (6,082)      (625)
OTHER INCOME (EXPENSE):
  Interest expense..........................................     (128)      (197)      (177)
  Interest income, foreign exchange loss and other, net.....     (122)       136        310
                                                              -------    -------    -------
          Total other income (expense)......................     (250)       (61)       133
                                                              =======    =======    =======
Loss before income taxes....................................   (7,072)    (6,143)      (492)
Provision for income taxes..................................       41         59        206
                                                              -------    -------    -------
Net loss....................................................   (7,113)    (6,202)      (698)
Preferred stock dividend requirements:
     Series A and Series B..................................     (535)      (534)      (623)
                                                              -------    -------    -------
Net loss applicable to common stockholders..................  $(7,648)   $(6,736)   $(1,321)
                                                              -------    -------    -------
Basic and diluted net loss per common share:
Net loss per common share...................................  $ (0.44)   $ (0.44)   $ (0.10)
                                                              -------    -------    -------
Shares used in computation of net loss per common share.....   17,469     15,333     13,871
                                                              -------    -------    -------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       26
<PAGE>   27

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                   YEARS ENDED JUNE 30, 2000, 1999, AND 1998
                                 (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>
Balances June 30, 1997........   586         $1        12,940       $13        $52,959       $(47,025)     $ 5,948
Exercise of stock options.....    --         --           403         1            455             --          456
Exercise of warrants..........    --         --           350        --            712             --          712
Issuance of common stock in
  lieu of payment of
  interest....................    --         --            41        --            177             --          177
Dividends on preferred
  stock.......................    --         --           183        --            531           (531)          --
Dividends on preferred stock
  to be distributed...........    --         --            --        --             92            (92)          --
Issuance of common stock in
  connection with UPI asset
  purchase....................    --         --         1,000         1          3,561             --        3,562
Conversion of series A
  Preferred Stock to common
  stock.......................   (97)        --           193        --             --             --           --
Net loss......................    --         --            --        --             --           (698)        (698)
                                 ---         --        ------       ---        -------       --------      -------
Balances, 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
  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)
                                 ---         --        ------       ---        -------       --------      -------
Balances, 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
  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)
                                 ---         --        ------       ---        -------       --------      -------
Balances, June 30, 2000.......   416         $1        20,000       $20        $67,079       $(62,730)     $ 4,370
                                 ===         ==        ======       ===        =======       ========      =======
</TABLE>

See accompanying notes to consolidated financial statements.

                                       27
<PAGE>   28

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               2000       1999       1998
                                                              -------    -------    -------
<S>                                                           <C>        <C>        <C>
CASH FLOW FROM OPERATING ACTIVITIES:
  Net loss..................................................  $(7,113)   $(6,202)   $  (698)
  Adjustments to reconcile net loss to net cash used in
     operating activities:
     Purchase of in-process research and development........       --         --      2,700
     Depreciation and amortization..........................    1,186      1,621      1,037
     Issuance of common stock in lieu of interest
       payments.............................................       --         --        177
     Stock options issued below the fair market value of
       common stock on the date of grant....................       99         20         --
     Fair value of a warrant to purchase common stock issued
       to a service provider................................      100         --         --
                                                              -------    -------    -------
  Changes in assets and liabilities:
     Accounts receivable....................................      568        860     (2,327)
     Other current assets...................................     (792)      (145)      (195)
     Other assets...........................................       25         44        (15)
     Accounts payable.......................................      627       (138)       760
     Accrued compensation...................................      378        (55)       525
     Accrued royalties and other current liabilities........      403       (254)      (136)
     Deferred revenues......................................     (390)      (314)       528
                                                              -------    -------    -------
Net cash provided by (used in) operating activities.........   (4,909)    (4,563)     2,356
                                                              -------    -------    -------
CASH FLOW FROM INVESTING ACTIVITIES:
  Property and equipment purchases..........................     (489)      (632)    (1,158)
  Purchase of intangible assets.............................       --        (51)    (2,572)
  Purchases of short-term investments.......................       --         --     (5,092)
  Proceeds from sales of short-term investments.............       --      1,472      5,649
                                                              -------    -------    -------
Net cash provided by (used in) investing activities.........     (489)       789     (3,173)
                                                              -------    -------    -------
CASH FLOW FROM FINANCING ACTIVITIES:
  Borrowings under bank credit line.........................      536        453         --
  Cash received from exercise of stock options..............    1,097         20        712
  Cash received from exercise of warrants...................      105         --         --
  Issuance of common stock..................................    3,816      1,740        456
  Cash dividends............................................     (535)      (534)        --
                                                              -------    -------    -------
Net cash provided by financing activities...................    5,019      1,679      1,168
                                                              -------    -------    -------
Increase (decrease) in cash and cash equivalents............     (379)    (2,095)       351
Cash and cash equivalents, beginning of year................    2,619      4,714      4,363
                                                              -------    -------    -------
Cash and cash equivalents, end of year......................    2,240    $ 2,619    $ 4,714
                                                              =======    =======    =======
Supplemental disclosure of cash flow information:
  Income taxes paid.........................................  $    41    $    59    $   206
  Cash paid for interest....................................  $   108    $   160    $    --
Non cash financing activities:
  Exchange of common stock for assets.......................       --         --      3,562
</TABLE>

See accompanying notes to consolidated financial statements.

                                       28
<PAGE>   29

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

     Organization and principles of consolidation. IntelliCorp is a United
States-based corporation. The Company develops, markets and supports a
comprehensive suite of eBusiness and Customer Relationship Management (CRM)
consulting solutions for the SAP community. These 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 Enterprise Resource Planning (ERP) systems.

     Transitioning from primarily a product focus, beginning in fiscal 2001,
IntelliCorp will now be focused on helping traditional Fortune 1000 companies
rapidly enter the eBusiness world. IntelliCorp's consulting solutions provide
SAP customers with an eBusiness strategy that maximizes their ERP investment and
minimizes integration and data management issues associated with implementing
best-of-breed software.

     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.

     Basis of presentation and accounting principles. As of June 30, 2000, the
Company had an accumulated deficit of $62.7 million, a cash and cash equivalents
balance of $2.2 million, and a working capital balance of $1.3 million. In
addition, the Company incurred a net loss of $7.1 million for fiscal 2000.
Management expects to incur additional losses through at least part of fiscal
2001 including the first quarter, and it recognizes the need to utilize all or
some of its available financing resources as of June 30, 2000 to fund its cash
requirements in fiscal 2001. Available financing resources as of June 30, 2000
consist of a bank credit facility of the lesser of $3.0 million or 80% of
eligible accounts receivable. At June 30, 2000, the amount of the bank credit
facility available was $1.8 million. The bank credit line expires in April 2001.
At this time, management's plans for fiscal 2001 anticipate that revenues
together with available financing alternatives will be sufficient to fund the
Company's cash requirements through at least June 30, 2001. However, if
anticipated revenues for fiscal 2001 do not meet management's expectations, and
additional financing, above the available resources, are not available,
management has the ability, and will be required to reduce certain planned
expenditures to lower the Company's operating costs.

     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
technology and related assets from Deloitte & Touche which was accounted for
using the purchase method. See Note 3. Amortization of these purchased
intangibles is provided on the straight-line basis over the respective useful
lives of the assets. The purchased intangible assets are amortized over a period
of 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.

     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, 2000 the amount capitalized for
software obtained for internal use totaled $239,000.

                                       29
<PAGE>   30
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Software development costs for software products which 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. Amortization of capitalized
software development costs charged to software cost of revenues was
approximately $49,000 and $138,000 in fiscal 1999 and 1998, respectively. There
were no software development costs amortized in fiscal 2000. As of June 30, 2000
and 1999, the net book value of capitalized software was zero.

     Revenue recognition. The Company has adopted Statement of Position 97-2,
Software Revenue Recognition ("SOP 97-2"), and Statement of Position 98-4,
Deferral of the Effective Date of a Provision of SOP 97-2, Software Revenue
Recognition ("SOP 98-4") which were issued by the American Institute of
Certified Public Accounting ("AICPA"). In December 1998, the American Institute
of Certified Public Accountants (AICPA) issued Statement of Position 98-9,
"Modifications of SOP 97-2, Software Revenue Recognition, With Respect to
Certain Transactions" ("SOP 98-9"). SOP 98-9 amends SOP 98-4 to extend the
deferral of the application of certain passages of SOP 97-2 provided by SOP 98-4
through fiscal years beginning on or before March 15, 1999. All other provisions
of SOP 98-9 are effective for transactions entered into in fiscal years
beginning after March 15, 1999.

     The Company derives revenue from software licenses, post-contract customer
support ("PCS"), and services. PCS includes telephone support, bug fixes, and
rights to updates on a when-and-if-available basis. Services include training
and consulting for software modification and customization to meet specific
customer needs.

     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 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.

     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
which involves 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.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statement("SAB
101"). SAB 101 provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements. All registrants are expected to
apply the accounting and disclosures described in SAB 101. The Company is in the
process of evaluating the impact from the adoption of SAB101 on its future
revenues and results of operations.

     Income taxes. Tax credits reduce the provision for income taxes when
realizable.

     Net loss per common share. Basic 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 2000, 1999 and 1998, as their effect is
antidilutive.

     Stock options to purchase 3.8 million, 3.2 million, and 3.0 million at an
average price of $2.08, $2.03 and $2.29 per share were outstanding during fiscal
2000, 1999 and 1998, 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 416,000, and 441,000 convertible preferred shares during fiscal 2000
and 1999 respectively and warrants to purchase 1.1 million and 720,000 shares,
at an average exercise price of $3.05 during fiscal years 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.

                                       30
<PAGE>   31
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     For the fiscal years ended June 30, 2000, 1999, and 1998, preferred stock
dividends have been included in the net loss per common share computation. The
Series A and B preferred stock dividends has 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. At June 30, 1999, the Company had $46,000 in money market
mutual funds which invest in various U.S. government securities including
Treasury bills, notes and bonds, and U.S. corporate paper, certificates of
deposit, and bank notes. These amounts are included in cash and cash
equivalents. There were no cash equivalents as of June 30, 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, 1999 and 2000.

     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 short term investments as of June 30, 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. To date, write-offs of accounts receivable have been
immaterial.

     Revenues from one related party accounted for 20% of total revenues during
fiscal 2000, 21% and 19% for 1999 and 1998, respectively, and revenues from
another related party accounted for 10% of total revenues in fiscal 1999. No
other customer accounted for more than 10% during fiscal 2000, 1999 or 1998.

     Fair value of financial instruments. The carrying amounts of certain of the
Company's financial instruments, including cash and cash equivalents, short-term
investments, accounts payable, accrued expenses, the bank line of credit and the
convertible notes 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 Income. 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 is effective for
fiscal years beginning after June 15, 2000. The Company believes the adoption of
SFAS 133 will have no material impact on its financial position or results of
operations.

                                       31
<PAGE>   32
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     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 (a)
the definition of an employee for purposes of applying APB 25, (b) the criteria
for determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1, 2000,
but certain conclusions cover specific events that occur after either December
15, 1998 or January 12, 2000. The Company believes that FIN 44 will not have a
material effect on its financial position or results of operations.

 2. NET PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost and at June 30 consist of:

<TABLE>
<CAPTION>
                                                               2000           1999
                                                            -----------    -----------
<S>                                                         <C>            <C>
Equipment.................................................  $ 7,572,000    $ 7,328,000
Furniture and fixtures....................................    1,777,000      1,776,000
Leasehold improvements....................................    1,030,000      1,047,000
                                                            -----------    -----------
Total property and equipment..............................   10,379,000     10,151,000
Accumulated depreciation and amortization.................   (9,468,000)    (9,105,000)
                                                            -----------    -----------
Net property and equipment................................  $   911,000    $ 1,046,000
                                                            ===========    ===========
</TABLE>

 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.

     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.

                                       32
<PAGE>   33
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     As of June 30, 2000 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        299,000        956,000       63
Excess over fair value of assets
  acquired..........................   1,545,000        594,000        951,000       78
Customer Base.......................     211,000        121,000         90,000       54
Assembled Work force................     100,000         62,000         38,000       48
                                      ----------     ----------     ----------
                                      $3,979,000     $1,944,000     $2,035,000
                                      ==========     ==========     ==========
</TABLE>

 4. INCOME TAXES

     The Company's provision for income taxes consists of the following:

<TABLE>
<CAPTION>
                                                            YEAR ENDED JUNE 30,
                                                       ------------------------------
                                                        2000       1999        1998
                                                       -------    -------    --------
<S>                                                    <C>        <C>        <C>
CURRENT:
  Federal............................................  $    --    $19,000    $ 89,000
  State..............................................    9,000     38,000      29,000
  Foreign............................................   32,000      2,000      88,000
                                                       -------    -------    --------
                                                        41,000     59,000     206,000
DEFERRED:
  Federal............................................       --         --          --
  State..............................................       --         --          --
                                                       -------    -------    --------
Provision for income taxes...........................  $41,000    $59,000    $206,000
                                                       =======    =======    ========
</TABLE>

     The Company's provision for income taxes differs from the amount computed
by applying the federal statutory rate to income taxes as follows:

<TABLE>
<CAPTION>
                                                                YEAR ENDED JUNE 30,
                                                              -----------------------
                                                              2000     1999     1998
                                                              -----    -----    -----
<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      0.4     11.5
Net operating losses and credits not currently benefited....   15.4     13.2     (3.2)
Foreign losses not currently benefited/(utilized)...........   15.4     16.7     29.8
Federal alternative minimum tax.............................     --       --     53.7
Foreign withholding taxes...................................    0.4      0.1     53.0
Other individual immaterial items...........................    3.3      4.6     13.3
                                                              -----    -----    -----
                                                                0.6%     1.0%   124.1%
                                                              =====    =====    =====
</TABLE>

                                       33
<PAGE>   34
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Significant components of the Company's deferred tax assets for federal,
state and foreign income taxes as of June 30, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                              2000            1999
                                                          ------------    ------------
<S>                                                       <C>             <C>
Deferred tax assets:
  Net operating loss carryforwards......................  $ 19,500,000    $ 17,100,000
  General business credits (expire 2006 - 2020).........     3,100,000       3,000,000
  In process research and development...................     1,400,000       1,400,000
  Capitalized research and development..................       900,000              --
  Other.................................................       200,000         400,000
                                                          ------------    ------------
     Total deferred tax assets..........................    25,100,000      21,900,000
  Valuation allowance for deferred tax assets...........   (25,100,000)    (21,900,000)
                                                          ------------    ------------
  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, 2000, the Company had net operating loss carryforwards of
approximately $42.0 million for federal income tax purposes, which will expire
in fiscal years 2006 through 2020. The Company also had net operating loss
carryforwards of approximately $5.0 million for state income tax purposes and
$13.5 million for foreign income tax purposes. The state net operating loss
carryforwards will expire in fiscal years 2000 through 2005. 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, 2000, as follows: $1.6 million in
fiscal 2001, $1.6 million in fiscal 2002, $1.4 million in fiscal 2003, and
$206,000 in fiscal 2004.

     Rent expense was $1.7 million, in fiscal 2000, $1.6 million in fiscal 1999
and $915,000 in fiscal 1998.

 6. BANK LOAN

     In March 1999, the Company secured a $3.0 million credit facility from a
bank, bearing annual interest at the bank's prime rate plus 2% (11.5 % as of
June 30, 2000). The credit line is an asset-based facility, and the amount that
can be borrowed under the loan is the lesser of $3.0 million or 80% of the
eligible accounts receivable balances at any point in time. At June 30, 2000,
the amount of the bank credit facility available was $1.8 million. 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 is two years. The credit facility is secured by essentially all of
the assets of the Company. The Company owed $989,000 on this credit facility at
June 30, 2000.

 7. CONVERTIBLE NOTES

     In April 1996, the Company issued $3.4 million of seven-year unsecured
senior convertible notes. The interest portion was only payable semi-annually in
October and April at 10% per annum. Interest payments for

                                       34
<PAGE>   35
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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. On June 27, 1996, the noteholders agreed to exchange debt totaling $1.8
million for preferred stock and warrants (see Note 8).

     During fiscal 2000, note holders converted the remaining $1.6 million of
the convertible notes into approximately 1.0 million shares of common stock in
accordance with the terms of the Company's 1996 Convertible Note Agreement.

 8. STOCKHOLDERS' EQUITY

     Series A Preferred Stock and warrants. On June 27, 1996, the Company agreed
to issue 580,645 shares of Series A 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 the convertible debt. Such preferred shares and warrants were
valued at $2.9 million, net of issue costs. Each share of the 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. 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 preferred stock is convertible. The warrants are
exercisable immediately, and expire in 2006. 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 March 1999 in connection with the sale of common stock to an
investor and caused each share of preferred stock to be convertible into two and
seventeen one-thousandth common shares.

     The Series A Preferred Stock and warrants issuable in fiscal 1996
(discussed above) were issued in August 1996. In January and April 1998, one
Series A Preferred stockholder converted 96,774 shares of Series A Preferred
Stock into 193,548 shares of Common Stock. In September 1998, the same
stockholder converted 48,387 shares of Series A Preferred Stock into 96,744
shares of common stock. In January 2000, a stockholder converted 24,194 shares
of Series A 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 preferred stock and exercise of these warrants. The common shares
issuable in connection with the conversion of Series A Preferred Stock or
exercise of warrants were registered on December 23, 1996. In the event of any
liquidation or winding up of the Company, the holders of Series A 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 Preferred
Stock would be approximately $1.3 million at June 30, 2000.

     Series B Preferred Stock. On March 19, 1997, the Company issued 5,000
shares of 8% convertible Series B Preferred Stock at $1,000 per share. Each
share is convertible into 500 shares of common stock, subject to adjustments, at
$2.00 per share and carries 8% mandatory cumulative dividends. 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.

     In the event of any liquidation, dissolution or winding up of the Company,
the holders of Series B Preferred Stock will be entitled to receive, junior to
the rights of the holders of Series A Preferred Stock, 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 Preferred Stock. The total
liquidation preference for Series B Preferred Stock would be approximately $5.1
million at June 30, 2000. The Company has reserved 2.5 million shares of common
stock for issuance upon conversion of the Series B Preferred Stock. These common
shares were registered on July 30, 1997.

                                       35
<PAGE>   36
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Common Stock Arrangement. In March 1999, the Company consummated an equity
arrangement which 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 is 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
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 2000 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 is set at 10% above the
market price at the time the purchase is made, with a minimum price of $1.00 per
share and a maximum of $2.00 per share. As common stock is purchased under this
amended agreement, the Company will issue five year warrants to purchase common
stock with the number of shares under the warrant arrangement equal to 25% of
the number of common shares purchased. The exercise price of the warrants will
be 10% above the purchase price of the shares purchased. 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
agreement, and issued warrants to purchase 361,532 shares of common stock at an
exercise price of $1.85 and $2.20.

     Stock Option Plans. 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 may not be granted
with exercise price at less than 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. Unless otherwise provided by
the 1991 Stock Option Plan, the repurchase rights typically expire over periods
of up to four years. Most options expire on approximately the tenth anniversary
of the date of grant. At June 30, 2000, options for 541,920 shares were
available for future grant, 1.3 million options were vested, and no shares
outstanding from option exercises were subject to repurchase. Options for
190,000 of shares granted under prior plans are outstanding and exercisable as
of June 30, 2000.

     In December 1997, the stockholders authorized an additional 150,000 shares
for 250,000 shares authorized under the Company's 1991 Non-employee Director's
Stock Option Plan. Options may be granted at fair market value to non-employee
directors at set times as provided in the 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, 2000, options for 100,625 shares were available for future
grant, 125,000 options were exercisable and no shares outstanding from option
exercises were subject to repurchase.

     In January 1998, The Board of Directors authorized 267,000 shares to be
granted to employees in connection with the purchase of UPI technology (refer to
Note 3). 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. 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,
2000, there were no shares available for future grant and 93,907 options were
vested.

     During fiscal 2000, the Company granted two new officers options 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, and cancelled 103,125 options
previously granted to another officer who terminated during fiscal 2000. 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

                                       36
<PAGE>   37
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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. At June 30, 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.

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

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

<TABLE>
<CAPTION>
                                               2000                      1999                      1998
                                      -----------------------   -----------------------   -----------------------
                                                  WEIGHTED                  WEIGHTED                  WEIGHTED
                                                  AVERAGE                   AVERAGE                   AVERAGE
       (SHARES IN THOUSANDS)          SHARES   EXERCISE PRICE   SHARES   EXERCISE PRICE   SHARES   EXERCISE PRICE
       ---------------------          ------   --------------   ------   --------------   ------   --------------
<S>                                   <C>      <C>              <C>      <C>              <C>      <C>
Shares:
  Outstanding at beginning of
     year...........................  3,214         2.03        3,027        $2.29        2,737        $1.73
  Granted...........................  2,061         2.91          974         1.47          818         3.47
  Exercised.........................   (663)        1.76          (19)        1.04         (403)        1.06
  Canceled..........................   (802)        2.09         (768)        2.37         (125)        1.68
                                      -----         ----        -----        -----        -----        -----
  Outstanding at end of year........  3,810         2.08        3,214        $2.03        3,027        $2.29
</TABLE>

     The exercise price of options exercised during fiscal 2000 ranged from
$0.63 to $5.19.

     The following table summarizes information about options outstanding and
exercisable at June 30, 2000:

                              OPTIONS OUTSTANDING

<TABLE>
<CAPTION>
                                                                       WEIGHTED            WEIGHTED
                    RANGE OF                          NUMBER       AVERAGE REMAINING       AVERAGE
                EXERCISE PRICES                     OUTSTANDING    CONTRACTUAL LIFE     EXERCISE PRICE
                ---------------                     -----------    -----------------    --------------
<S>                                                 <C>            <C>                  <C>
$0.1875 - $1.6875...............................     1,245,866           7.81years         $0.9706
 1.7500 -  2.0000...............................       732,451           7.25               1.8773
 2.0313 -  2.7500...............................       449,711           6.84               2.3242
 2.8438 -  3.5000...............................       401,595           7.10               3.1255
 3.5625 -  4.6875...............................       980,850           9.34               4.4627
                                                     ---------           ----              -------
$0.1875 - $4.6875...............................     3,810,473           7.91years         $2.2130
</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 2000,
1999 and 1998 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 prescribed by SFAS 123. The resulting effect on pro forma net loss and
loss per share disclosed for fiscal 2000, 1999 and 1998 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 2000, 1999 and 1998 pro forma

                                       37
<PAGE>   38
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 a Black-Scholes option valuation model with the
following assumptions for fiscal 2000, 1999 and 1998: weighted average risk-free
interest rates of 6.5%, 5.0% and 5.7% respectively; dividend yields of 0% for
all three years; volatility factors of the expected market price of the
Company's common stock of 85%, 85% and 68%, respectively; and a weighted-average
expected life of five years which represents one year beyond vesting. The
weighted average fair value of options granted during fiscal 2000, 1999 and 1998
was $2.30, $1.17 and $1.80, 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 for the years ended June 30 follows:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED JUNE 30,
                                                              --------------------------
                                                               2000      1999      1998
                                                              ------    ------    ------
                                                                    (IN THOUSANDS,
                                                              EXCEPT PER SHARE AMOUNTS)
<S>                                                           <C>       <C>       <C>
Net loss applicable to common shareholders -- pro forma.....  $9,734    $7,600    $1,514
Net loss per common share -- pro forma (including preferred
  stock dividends)..........................................  $ 0.56    $ 0.50    $ 0.15
</TABLE>

9. 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,
                                                              -----------------------------
                                                               2000       1999       1998
                                                              -------    -------    -------
                                                                     (IN THOUSANDS):
<S>                                                           <C>        <C>        <C>
United States...............................................  $14,387    $14,675    $17,595
Europe......................................................    7,682      6,101      5,581
Pacific Rim/Latin America...................................      597      1,185      1,269
                                                              -------    -------    -------
          Total revenues....................................  $22,666    $21,961    $24,445
                                                              =======    =======    =======
</TABLE>

     Revenues and operating income recorded by the foreign subsidiaries of the
Company and their corresponding identifiable assets were not material in fiscal
2000, 1999 or 1998.

10. RELATED PARTY TRANSACTIONS

     On August 8, 1996, SAP AG purchased from Informix Corporation approximately
1.7 million shares of common stock of the Company. This total represents all the
Company shares previously held by Informix Corporation. As of June 30, 2000, SAP
AG holds approximately 8.7% of the outstanding common stock of the Company. The
Company recognized $4.3 million and $4.6 million of total revenues from SAP AG
during fiscal 2000 and 1999, respectively and had $1.6 million and $732,000
included in accounts receivable at June 30, 2000 and 1999, respectively, from
SAP AG.

                                       38
<PAGE>   39
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. SUBSEQUENT EVENTS

     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
products to CRM/eCRM consulting solutions, which affected approximately 20% of
IntelliCorp's workforce. The one-time cost of the reduction-in-force is
estimated to be approximately $150,000, which includes expenses such as
severance pay, legal fees and contract cancellation fees. These expenses will be
recorded in the quarter ending September 30, 2000.

                                       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, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended June 30, 2000. 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 from 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, 2000 and 1999, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended June 30, 2000
in conformity with accounting principles generally accepted in the United
States.

                                          ERNST & YOUNG LLP

Palo Alto, California
July 28, 2000

                                       40
<PAGE>   41

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
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 7, 2000, the executive officers and directors of
IntelliCorp are as follows:

<TABLE>
<CAPTION>
                  NAME                    AGE                        POSITION
                  ----                    ---                        --------
<S>                                       <C>    <C>
Kenneth Haas............................  49     Director and Chief Executive Officer
Raymond G. Moreau.......................  54     President and Chief Operating Officer
Gregory Sulier..........................  51     Executive Vice President
Peter Christiansen......................  42     Vice President, Advanced Development
Jerome Klajbor..........................  44     Vice President Finance, Secretary and Chief
                                                 Financial Officer
David Loeb..............................  39     Vice President, and Managing Director, Consulting
                                                 and Training
Adrian Rayner...........................  48     Vice President and Managing Director, Europe
Martin Snelgrove........................  37     Vice President, Product Development
Katharine Branscomb(1)(2)...............  44     Director
Norman Wechsler(1)(2)...................  55     Director
Arthur Berry(1)(2)......................  59     Director
Elmer F. Fisher(2)......................  62     Director
Robert Lauridsen(1)(2)..................  52     Director
</TABLE>

---------------
(1) Audit Committee Member

(2) Compensation and Stock Option Committee Member

     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 has been
a Director of the Company since 1993. Mr. Haas received a B.A. degree from
Harvard College, his J.D. from Harvard Law School, and attended the Harvard
Business School Advanced Management Program.

     Mr. Moreau joined IntelliCorp as President and Chief Operating Officer in
August 2000. 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 he 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, 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. 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.

                                       41
<PAGE>   42

     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 he worked for the U.S. Government. Mr. Klajbor
received a B.A. in Political Science/Public Administration from Washington State
University.

     Mr. Higdon joined IntelliCorp as Vice President of North American Sales in
November 1999. Prior to IntelliCorp, Mr. Higdon served as the Director of
National Sales at Walker from 1997 to 1999. From 1989 to 1997 he was Vice
President of Sales at National Computer Systems where he was responsible for all
software application sales. Mr. Higdon received a BSBA in Economics from the
University of Florida.

     Mr. Rayner joined IntelliCorp as European General Manager in November 1993.
Mr. Rayner was promoted to Vice President and Managing Director, Europe in 1997.
Prior to IntelliCorp, he was the United Kingdom Sales Director for Boole &
Babbage from 1991 to 1993, and from 1987 to 1991 he served as the National Sales
Manager at Phillips Business Systems. Mr. Rayner holds an Electrical Engineering
degree from the University of London.

     Ms. Branscomb has been a Director of the Company since 1988. She is
currently a consultant and Senior Business Advisor to Interval Research in Palo
Alto, California and a Director of Ariat Corporation. From October 1992 to
November 1995, she was Senior Vice President of Business Development for Lotus
Development Corporation and, in that capacity, served a principal role in the
sale of Lotus to IBM in June 1995. From November 1991 until joining Lotus, Ms.
Branscomb was the Chief Executive Officer of IntelliCorp, Inc. She had
previously held the position of Chief Operating Officer since late 1988. Prior
to joining IntelliCorp, Ms. Branscomb was Senior Vice President of Sales and
Marketing at Aion Corporation, founding principal and Vice President of Metaphor
Computer Systems and a consultant with the Boston Consulting Group, Inc.

     Mr. Wechsler has been a Director of the Company since September 1996. He is
Chairman and President of Wechsler & Co., Inc., a broker-dealer and investment
company, which he joined in 1963. The firm is a member of the NASD and SIPC.

     Mr. Berry has been a Director of the Company since August 1997. Since 1990,
he 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,
he was with the Harris Bank in Chicago, first as Senior Portfolio 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. He is a director of Hybridon, Inc.

     Mr. Lauridsen has been a Director of the Company since April 1999. He is a
Partner with R.B. Webber & Company in Palo Alto, California, a
management-consulting firm focused on working with high technology companies. He
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's has also been a Partner with The Boston Consulting
Group and Booz, Allen & Hamilton's Technology Practice. He was also founder and
CEO of Redwood Fire and Casualty Insurance Company, a subsidiary of Berkshire
Hathaway Company.

     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 he
worked as the National Managing Director of Operations at Deloitte & Touche.

ITEM 10. EXECUTIVE COMPENSATION.

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

                                       42
<PAGE>   43

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.

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

(a) 2. EXHIBITS

<TABLE>
<CAPTION>
                                    DESCRIPTION
    <S>     <C>
    3-A     Certificate of Incorporation(1)
    3-B     By-Laws(2)
    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(2)
    10-GG   Registrant's 1991 Nonemployee Directors Stock Option Plan(2)
    10-JJ   Employment Agreement dated October 30, 1991 between
            Registrant and Kenneth H. Haas(2)
    10-KK   Employment Agreement dated October 30, 1992 between
            Registrant and Gary Fine(5).
    10-OO   Seven-Year Senior Convertible Note Purchase Agreement dated
            April 19, 1996(6).
    10-PP   Form of Senior Convertible Note(6)
    10-QQ   Agreement to exchange convertible debt for preferred stock
            and warrants(4).
    10-RR   Series B Preferred Stock Purchase Agreement dated March 19,
            1997(7).
    10-SS   Office Lease dated March 17, 1998(5).
    10-TT   UPI asset purchase dated January 23, 1998(5).
    20      Definitive form of Proxy Statement for the Annual Meeting of
            Stockholders to be held December 7, 1999(4).
    21      Subsidiaries of Registrant(1).
    23      Consent of Ernst & Young LLP, Independent Auditors.
    25      Power of Attorney -- See page 46 hereof.
    27      Financial Data Schedule.
</TABLE>

(b) REPORTS ON FORM 8-K

     No reports have been filed for the fiscal year ended June 30, 2000.
---------------
(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) The Registrant's definitive Proxy Statement will be filed with the
    Securities and Exchange Commission on or before October 28, 1999.

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

                                       43
<PAGE>   44

(6) Filed as an Exhibit to Registrant's Quarterly Report on Form 10-QSB for the
    quarter ended March 31, 1996 and incorporated herein by reference.

(7) Filed as an Exhibit to Registrant's Quarterly Report on Form 10-QSB for the
    quarter ended March 31, 1997 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/ KENNETH H. HAAS
                                            ------------------------------------
                                                      Kenneth H. Haas
                                            Director and Chief Executive Officer

Date: September 28, 2000

                      POWER OF ATTORNEY TO SIGN AMENDMENTS

     KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below does hereby constitute and appoint Kenneth H. Haas 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/ KENNETH H. HAAS                           Director and          September 28,2000
-----------------------------------------------------    Chief Executive Officer
                   Kenneth H. Haas

                /s/ RAYMOND G. MOREAU                         President and          September 28, 2000
-----------------------------------------------------    Chief Operating Officer
                  Raymond G. Moreau

                /s/ JEROME F. KLAJBOR                    Chief Financial Officer     September 28, 2000
-----------------------------------------------------         and Secretary
                  Jerome F. Klajbor

             /s/ KATHARINE C. BRANSCOMB                          Director            September 28, 2000
-----------------------------------------------------
               Katharine C. Branscomb

               /s/ NORMAN J. WECHSLER                            Director            September 28, 2000
-----------------------------------------------------
                 Norman J. Wechsler

                 /s/ ARTHUR W. BERRY                             Director            September 28, 2000
-----------------------------------------------------
                   Arthur W. Berry

               /s/ ROBERT A. LAURIDSEN                           Director            September 28, 2000
-----------------------------------------------------
                 Robert A. Lauridsen

                 /s/ ELMER F. FISHER                             Director            September 28, 2000
-----------------------------------------------------
                   Elmer F. Fisher
</TABLE>

                                       45
<PAGE>   46

                                 EXHIBIT INDEX

                               INTELLICORP, INC.
                                  FORM 10-KSB

<TABLE>
<CAPTION>
INDEX
 NO.
-----
<S>    <C>
3-A    Certificate of Incorporation(1).
3-B    By-Laws(2).
10-AA  Office Lease dated as of August 31, 1993 between Registrant
       and El Camino Office Investments, as amended(3).
10-FF  Registrantis 1991 Stock Option Plan(2).
10-GG  Registrantis 1991 Nonemployee Directors Stock Option
       Plan(2).
10-JJ  Employment Agreement dated October 30, 1991 between the
       Registrant and Kenneth H. Haas(2).
10-KK  Employment Agreement dated October 30, 1992 between the
       Registrant and Gary Fine(5).
10-OO  Seven Year Senior Convertible Note Purchase Agreement dated
       April 19, 1996(6).
10-PP  Form of Senior Convertible Note(6).
10-QQ  Agreement to exchange convertible debt for preferred stock
       and warrants(4).
10-RR  Series B Preferred Stock Purchase Agreement dated March 19,
       1997(7).
10-SS  Office Lease dated March 17, 1998(5).
10-TT  UPI asset purchase dated January 23, 1998(5).
20     Definitive form of Proxy Statement for the Annual Meeting of
       Stockholders to be held December 8, 1998(4).
21     Subsidiaries of Registrant(1).
23     Consent of Ernst & Young LLP, Independent Auditors.
25     Power of Attorney. -- See page 46 hereof.
27     Financial Data Schedule.
</TABLE>

---------------
(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) The Registrant's definitive Proxy Statement will be filed with the
    Securities and Exchange Commission on or before October 28, 1997.

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

(6) Filed as an Exhibit to Registrant's Quarterly Report on Form 10-QSB for the
    quarter ended March 31, 1996 and incorporated herein by reference.

                                       46