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================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                ----------------

                                    FORM 10-K

[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 2001

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

           FOR THE TRANSITION PERIOD FROM ____________ TO ____________

                                    000-27431
                              (COMMISSION FILE NO.)
                                ----------------

                              CALICO COMMERCE, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                 DELAWARE                                77-0373344
       (STATE OF OTHER JURISDICTION         (I.R.S. EMPLOYER IDENTIFICATION NO.)
    OF INCORPORATION OR ORGANIZATION)

                      333 WEST SAN CARLOS STREET, SUITE 300
                           SAN JOSE, CALIFORNIA 95110
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

        REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 408-975-7400

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

        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)

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [ ]

As of May 31, 2001, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $9,666,894 based on the
closing sales price of such stock as reported on the Nasdaq Stock Market on such
date of $0.33 per share. Shares of common stock held by officers, directors and
holders of more than ten percent of the outstanding common stock have been
excluded from this calculation because such persons may be deemed to be
affiliates. The determination of affiliate status is not necessarily a
conclusive determination for other purposes.

As of May 31, 2001, there were 35,339,028 shares of the registrant's common
stock, $.001 par value, issued and outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive proxy statement which is expected to be
filed not later than 120 days after the Registrant's fiscal year ended March 31,
2001, to be delivered in connection with the Registrant's Annual Meeting of
stockholders, are incorporated by reference into Part III of this Form 10-K.

================================================================================


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                       INDEX TO ANNUAL REPORT ON FORM 10-K
                    FOR THE FISCAL YEAR ENDED MARCH 31, 2001

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                                                                                     PAGE
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                                     PART I

<S>                                                                                  <C>
Item 1.    Business................................................................

Item 2.    Properties..............................................................

Item 3.    Legal Proceedings.......................................................

Item 4.    Submission of Matters to a Vote of Security Holders.....................

                                     PART II

Item 5.    Market for Registrant's Common Stock and Related Stockholder Matters....

Item 6.    Selected Financial Data.................................................

Item 7.    Management's Discussion and Analysis of Financial Condition and
           Results of Operations...................................................

Item 7A.   Quantitative and Qualitative Disclosures about Market Risk..............

Item 8.    Financial Statements and Supplementary Data.............................

Item 9.    Changes in and Disagreements with Accountants on Accounting and
           Financial Disclosure....................................................

                                    PART III

Item 10.   Directors and Executive Officers of the Registrant......................

Item 11.   Executive Compensation..................................................

Item 12.   Security Ownership of Certain Beneficial Owners and Management..........

Item 13.   Certain Relationships and Related Transactions..........................

                                     PART IV

Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K.........

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


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                                     PART I


        The information in this report contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. We use words
such as "may," "will," "should," "estimates," "predicts," "potential,"
"continue," "strategy," "believes," "anticipates," "plans," "expects,"
"intends," and similar expressions to identify these forward-looking statements.
We have based these statements on our current expectations and projections about
future events. Our actual results and the timing of future events may differ
significantly from the results discussed in the forward-looking statement. These
forward-looking statements are subject to risks, uncertainties and assumptions
about us, including:

        -   our ability to generate sufficient revenues and decrease costs in
            order to achieve and maintain positive cash flows and/or
            profitability;

        -   customer acceptance of our products;

        -   our ability to maintain our listing on the Nasdaq National Market;

        -   our ability to introduce new products and enhancements to existing
            products that are accepted by our customers;

        -   our ability to enter new markets for our products;

        -   delays or losses due to long sales and implementation cycles for our
            products; and

        -   our ability to raise additional capital on acceptable terms.

        Other factors that might cause our actual results to differ from
expectation are discussed in "Factors That Could Affect Our Future Performance."

        In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this report might not occur. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information or future events.


ITEM 1. BUSINESS

OVERVIEW

        Calico Commerce, Inc. ("Calico" or "we" or "us") provides interactive
selling software that enables our customers to sell broad and complex product
offerings through their different sales channels as well as direct to customers
over the Internet. Our products are Java and standards-based, and contain
advanced configuration, recommendation and pricing technology that allows our
customers to interact directly with users to create a web-based, guided selling
experience that improves order accuracy, shortens sales cycles and results in
improved customer satisfaction. Although applicable to a wide range of
industries and markets, we have historically focused on the telecommunications,
financial services, retail, computer hardware and manufacturing industries. In
connection with the ongoing strategic restructuring of our business that we
announced in January 2001, we anticipate evaluating new markets on which we may
focus.

        On March 20, 2001, we sold the assets of ConnectInc.com, our
wholly-owned subsidiary, consisting of Connect's Market Stream product line
(which we had renamed MarketMaker), in exchange for approximately 1.63 million
shares of common stock of Digital River, Inc. The assets sold to Digital River
primarily consisted of our MarketMaker software product and the related
intellectual property rights. The agreement with Digital River includes a
contingent earnout whereby we may receive additional shares of Digital River's
common stock based upon the revenue generated by the MarketMaker product, from
sales by Digital River or by us, over the 13 months following March 20, 2001.

        In March 2001, we announced the appointment of Leslie E. Wright as our
interim chief financial officer, following the resignation of our chief
financial officer, Arthur F. Knapp, Jr., for personal reasons. On June 25, 2001,
we engaged a consulting firm to perform an evaluation of both the business
situation facing the company and the implementation of recommendations on the
potential


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financial and operational restructuring of the company, as approved by our board
of directors. We may enter into a long-term agreement with this consulting firm
to manage Calico's ongoing operations and to fill several of our management
positions.

        References in this annual report on Form 10-K to "Calico," "we," "our,"
and "us" collectively refer to Calico Commerce, Inc., a Delaware corporation,
its subsidiaries and its California predecessor. Our principal executive offices
are located at 333 West San Carlos Street, Suite 300, San Jose, California
95110, and our telephone number at that address is (408) 975-7400.

INDUSTRY BACKGROUND

        INTERACTIVE SELLING REQUIRES A NEW CLASS OF SOFTWARE

        Over the past two decades, many major corporations have invested
resources automating their internal business processes by implementing
enterprise resource planning and sales force automation software. These systems
have enabled companies to centralize and better manage important company-wide
data and business processes, and provide sales representatives with updated
product information, contact management and data to track sales leads. While
these systems have become an important element of company-wide information
technology processes and have brought many operational benefits, they were
developed prior to the commercial use of the Internet, and were not designed for
large-scale, Internet-based, customer-driven interactions and commerce. Because
these process automation systems were designed for a limited universe of
internal users, they have not generally scaled to accommodate the significant
number of users or transactions made possible by the Internet and have not
provided the level of intuitive graphical user interface that is necessary for
engaging customer interactions.

        As commercial use of the Internet began to develop, early electronic
commerce vendors developed custom websites and transactions systems using
general purpose Internet publishing tools, such as HTML editors and specialized
database tools. These tools enabled companies to post static product catalogs
and brochure content on the Internet, but generally allowed only limited
real-time interactivity and did not provide proven reliability and scalability.
Recently, packaged electronic commerce applications have emerged, focusing
primarily on enabling transactions by providing security, credit card validation
and the management of "shopping baskets". In addition, a variety of point
solution software applications have been developed to provide functionality in
discrete aspects of the selling process, such as personalization and content
delivery. Even those vendors who have brought configuration applications to
market rely on proprietary development languages and architectures, and lack
powerful development and deployment tools, limiting their ability to solve
complex problems, and necessitating large investments of time and resources to
deploy and maintain solutions.

        These early packaged applications and point solutions have helped to
automate online transactions. However, these applications and point solutions
did not provide well-integrated functionality or capabilities for the online
purchasing of complex and configurable products and services, such as
telecommunications services, computers, network equipment or financial services.
Second, they did not enable companies to sell through all their channels,
on-line and off-line, seamlessly and effortlessly without requiring unique
content to be created for each channel. Furthermore, given the complexity of the
configuration problems encountered, these applications focused on avoiding
errors when configuring complex products and services, but overlooked how
development tools needed to be designed to maximize productivity of the internal
users who would set up and maintain these solutions.

        We believe that the rapid growth and evolution of interactive selling
requires software solutions designed specifically for complex sales interactions
with customers, resellers and partners. This type of software must leverage
companies' large investments in company-wide business applications, and combine
the reliability of traditional enterprise systems with the scalability and
flexibility of Internet software. In addition, this software must be
customer-driven, built on standards, integrate a broad range of sophisticated
functionality and enable the sale of complex products and services through all
sales channels. Finally, these applications must provide the right tools for
each internal user, maximize the effectiveness and efficiency, and therefore,
the return on investment, from deploying these solutions.


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PRODUCTS

        Calico provides an eBusiness application suite that enables our
customers to sell broad or complex products and service offerings over the
Internet and across their other existing sales channels, including direct
interaction with customers over the Internet, through sales representatives or
existing reseller and distributor channels, or to customers within a marketplace
serving multiple buyers and suppliers. Our products enable our clients to
provide their customers with the ability to create aspects of person-to-person
selling in an online environment, matching the customer needs with the client's
products. Our applications can be implemented individually or as part of the
suite, depending on customer preference.

        Since last year, all of our products have been based on our Lightning
Architecture,TM our standards-based eBusiness application platform. The Calico
Lightning Architecture incorporates the BEA WebLogic Server, a Java-based
application server which provides support for high transaction volumes and is
the foundation of many of the world's most heavily trafficked e-Commerce sites.
Our Lightning Architecture was designed to help customers more efficiently
integrate our solutions into their existing systems.

We are currently selling the following from our suite of products:

        CALICO ADVISOR. Calico Advisor is a high performance configuration and
recommendation application. Calico Advisor emulates an experienced sales
representative by dynamically analyzing customer needs, and configuring,
recommending, pricing, cross-selling and up-selling complex products and
services. Calico Advisor is a Java, J2EE application server-based architecture
and employs our "user guided behavior" technology to explore different
combinations of solution elements. This technology enables users to evaluate
alternatives on price, performance or other attributes, while concurrently
determining that the configured product or service meets business or legal
constraints set by the vendor. Calico Advisor provides a recommendation template
for rapidly developing, prototyping, and deploying scenarios that help users
navigate to appropriate solutions by dynamically presenting information,
gathering data, adjusting the response to the user's unique requirements, and
providing real-time feedback. Calico Advisor uses the Calico Visual Modeler,
which creates models that can be loaded into an application running standalone
or in a multi-user setting. A single model can be implemented and accessed
across multiple sales channels, including direct sales, in-store, resellers,
telesales, and sales over the Internet, streamlining maintenance and permitting
significant flexibility.

        Calico Advisor now includes the quoting and information delivery
functionality previously offered separately by Calico through its Quote and
InfoGuide applications, which we are no longer selling as separate products.
Calico Advisor's quoting functionality provides customized sales quotations to
customers for selected products and stores quotes for later retrieval or
immediate entry into an order management system. It is designed to enable
unification of product requirements, complex configurations and pricing and acts
as the intermediary to automating order entry. The information delivery
functionality provides targeted marketing content, such as brochures, product
data sheets, product reviews and competitive comparisons, directly to customers
during the online buying process.

        Under the terms of our agreement with Digital River, Digital River can
resell our Advisor and Price Point products in a hosted environment worldwide.

        CALICO NETWORK ADVISOR. Calico Network Advisor is a Java application
that guides users through the online customization of networked communication
services, thereby simplifying and accelerating the sales process. Specifically
designed for the communication services industry, Network Advisor is optimized
for selling voice and data networks. A broad array of services can be
represented, from simpler products such as wireless and DSL, to the most complex
solutions such as ATM/Frame Relay and IP VPN.

        MARKET MAKER, PRICE POINT & LOYALTY BUILDER. We sold our MarketMaker
product to Digital River in March 2001, and currently resell licenses of the
MarketMaker product under the terms of our agreement with Digital River on an
OEM basis only. Our OEM agreement with Digital River will enable us to continue
to provide the catalog and transaction functionality to customers who require it
as part of their Interactive Selling Solution.

        We have previously sold our Price Point and Loyalty Builder products;
however, although we may continue to support these products under terms of
agreements with select customers, we do not currently intend to


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continue actively selling Price Point or Loyalty Builder as separate products.
Calico Price Point is a web-based dynamic pricing solution that enables
customers to create and deploy contracted, targeted and promotional pricing
information across all sales channels. Calico Loyalty Builder is designed to
provide customers with profiling technology for personalized buying over the
Internet.


PROFESSIONAL SERVICES

        We offer a range of professional and support services to our customers
in connection with the design and implementation of our products. We will
analyze customer requirements and then define and create sample customer
implementations that capture and model the business logic and policies that
reflect the customer's marketing and selling practices. We provide design, data
analysis and process modification advice, implementation consultation,
education, and post- implementation maintenance. Our professional services
consultants also help with the integration of our applications into other
company-wide computer software systems maintained by our customers. Our
professional services team and our consulting partners use Dreamweaver to
design, create and finalize graphical user interfaces.

        We use our Planning and Assessment Methodology to define the opportunity
set, quantify the business justification and plan the business and technical
components of the project. This methodology requires us to perform
cross-functional facilitation sessions, financial reviews and market comparisons
to determine how our customers' business needs compare to leading practices in
their industries.

        We also rely on the services of third-party systems integrators and
professional services organizations to aid in the implementation and deployment
of our products.

MAINTENANCE AND CUSTOMER SERVICE

        We offer post-implementation maintenance and customer service options to
meet the varying needs of each customer. Customers covered by maintenance
agreements can report application problems, request enhancements and obtain
update releases of our products. Our help desk is staffed with technical support
engineers experienced in Calico products and in a variety of programming
languages. Our Technical Support Center consists of the Online Care Center and
the Help Desk. Maintenance customers are eligible for this support and can
access both the Online Care Center and the Help Desk via the web, or by e-mail,
telephone, or facsimile. In addition to our support service options, we also
offer remote consulting for customers needing migration assistance or
performance consultations. We target our implementation support to customers who
have completed development and now require assistance with deployment. We also
help troubleshoot problems with network bandwidth, network access and
configurations as they pertain to our products.

SALES AND MARKETING

        We market and sell our products primarily through our direct sales force
located at our headquarters in San Jose, and our regional sales and service
offices in North America, Europe and Japan. We have multi-disciplinary sales
teams that consist of sales, technical and support professionals. However, we
have substantially reduced our sales and marketing organization and expect to
make further reductions shortly. Matthew Thompson, our former Vice President,
Worldwide Sales, resigned in January 2001 and his position remains vacant. As of
May 31, 2001, our total sales and marketing organization consisted of 56
employees, a decrease from the 84 employees comprising our sales and marketing
organization at March 31, 2000.

        As part of recent strategic decisions and our cost-cutting measures, we
have decreased our emphasis on international sales and marketing, other than in
Japan and the U.K. Consequently, we have closed a number of our foreign sales
offices. In addition, as a result of current uncertain economic conditions and
reduced spending by our customers, the sales cycle of our products have
lengthened, resulting in lower revenues and greater resources over a longer
period of time being spent by our sales and marketing organization to close
sales. Many of our customers have engaged in their own reductions in force,
resulting in changes during the sales cycle to the point of contact within
potential customers, causing our sales representatives to spend increased time
closing sales leads.


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        To support our direct sales efforts and to actively promote our Calico
brand, we conduct marketing programs and market research, including public
relations, trade shows, speaking engagements and ongoing customer
communications.

STRATEGIC ALLIANCES

        Our strategic alliances are focused on relationships with systems
integrators and professional services organizations such as Accenture (formerly
Andersen Consulting), other professional services organizations such as KPMG,
and systems integration and professional services partners including Cap Gemini,
Ernst & Young, TSC, DiamondCluster, Nereid, Logica and CGI. These relationships
allow us to provide our customers with additional professional services in the
implementation, installation, customization and deployment of our products. As
integration to enterprise systems is critical to our customers, we work with
leading enterprise application integration vendors such as TIBCO and Vitria to
provide integration from our products to many leading enterprise application
vendors, including Oracle, Siebel Systems and SAP.

        We also maintain marketing, implementation and resale alliances with
software vendors, systems integrators, and professional services organizations
that are intended to increase our geographic sales coverage and address new
vertical markets and market segments. Although we are not currently engaged in
any direct marketing initiatives with such alliances and have not generated
significant revenue from these alliances, we are focused on strengthening
relationships with key alliances that have demonstrated a mutually beneficial
and effective strategic fit.

        In Japan, we have reseller, professional services and business alliances
with firms such as NEC, ISID, TIS and OGIS-RI.

CUSTOMERS

        We have concentrated sales to customers in the telecommunications
services, computer and electronic hardware and network and telecommunications
equipment industries, although our future strategy may include focus on
additional markets. In fiscal 2001, no single customer represented more than 10%
of our total net revenue, in fiscal 2000, Nortel and Qwest each represented more
than 10% of our total net revenue, and in fiscal 1999, Gateway and Dell each
represented more than 10% of our total net revenue. A substantial portion of our
revenue in any given quarter has been, and is expected to continue to be,
generated from a limited number of customers. For example, in fiscal 2001, 30 of
our largest customers accounted for 80% of our total net revenue and 12 of our
largest customers accounted for over 50% of our total net revenue. In fiscal
2001 we generated revenue from 111 customers, compared to 120 customers in
fiscal 2000.

TECHNOLOGY

        A year ago, we moved all of our applications to the Java 2 Enterprise
Edition platform, and adopted BEA WebLogic as our application server. Our
technology comprises expert systems using artificial intelligence (AI), and in
addition to the J2EE standards, uses eXtensible Markup Language (XML), a
data-driven model and Internet-standard security protocols.

        The architecture of the Calico Suite comprises several layers, including
various front-end client interfaces, the Web server, the Calico Server (BEA
WebLogic), the data repository, custom-developed enterprise connectors and
industry-standard Java application programming interfaces. The solution
accommodates an open development framework, a streamlined data maintenance
environment, data-independent rules builder tools in the development environment
and multiple industry-standard Web developer tools.

        CALICO LIGHTNING ARCHITECTURE. The Calico Lightning Architecture(TM) is
the Java, standards-based system framework for our suite. Built on BEA's
WebLogic Server, a Java 2Enterprise Edition-ready Web application server, the
Calico Lightning Architecture makes it possible for all Calico applications to
deliver scalability, performance and flexibility. The Calico Lightning
Architecture includes encryption technology supplied with BEA's WebLogic Server,
which enables secure online communications and supports all common relational
database management systems, and supports load balancing, clustering and
automatic fail-over.


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        USER-GUIDED BEHAVIOR TECHNOLOGY. We have developed proprietary
"user-guided behavior" technology that is based upon expert systems that provide
the ability to match user requirements with specific product and service
offerings, subject to a number of constraints. Our data maintenance system
allows data to be entered in tabular form for concise expression of
relationships between data. Applications that are constructed from the models
created with the Calico Visual Modeler require only constraints and product
content information. The user interface information is defined separately using
industry-standard tools such as Macromedia Dreamweaver. Since models can be
loaded into an application running standalone or in a multi-user setting, the
same application can be targeted to run on laptops, desktops and the Internet.
Constraints, together with our user-guided behavior technology, provide options
to the end user and explain why particular configurations are not valid. Our
technology allows for compound modeling, which permits the configuration to
extend to network class configuration problems.

        ADHERENCE TO INDUSTRY STANDARDS. Calico's applications have been
designed based on XML, an emerging standard for data representation and
computer-to-computer exchange of information supporting electronic commerce.
Software systems that support XML provide customers with the ability to reduce
application development time, easily integrate with prior generations of
business software and hardware systems and build applications that span the
business processes of a company, its suppliers, distributors and customers.

        In addition, Calico's applications have all been designed using Java, a
programming language that enables compatibility across multiple platforms and
facilitates Internet-based performance. Our architecture is designed to comply
with widely accepted commercial software industry standards for building
large-scale Internet applications. In addition to XML, we use other widely
accepted standards in developing our products, including structured query
language, Java database connectivity and open database connectivity for
accessing relational database management systems, HTTP for Internet access and
HTML for web information presentation. Calico's applications can be operated in
conjunction with enterprise applications provided by Oracle, Siebel, Baan, SAP,
JD Edwards and other enterprise software vendors.

RESEARCH AND DEVELOPMENT

        Our research and development expenses were $22.9 million in fiscal 2001,
$15.7 million in fiscal 2000, and $6.1 million in fiscal 1999. Although we
believe that our future success depends on our ability to continue to enhance
our existing products and to develop new products that maintain technological
competitiveness, we expect that our investment in research and development will
decline in the near term. We expect to focus our research and development
efforts in the near term on our configuration and interactive selling solutions.
We will be evaluating our products to determine where future research and
development resources should be applied; however, there can be no assurance that
any of these product development efforts will result in commercially successful
products, or that our products will not be rendered obsolete by changing
technology or new product announcements by other companies.

        As of March 31, 2001, 86 of our employees were engaged in research and
development activities. As a result of our recent workforce reductions, as of
May 31, 2001, 58 employees were engaged in research and development activities,
and it is anticipated that further significant reductions will be made in July
2001.

PROPRIETARY RIGHTS

        Our success and ability to compete are substantially dependent on our
internally developed technology and software applications. We have been issued
two U.S. patents, one of which is related to monitoring and notification
technology and the other of which is related to certain aspects of our
user-guided product configuration technology. In addition, we have filed
additional patent applications in the United States and three foreign
jurisdictions. While we rely on patent, trademark, copyright and trade secret
laws and restrictions in the United States and other jurisdictions, together
with contractual restrictions, to protect our proprietary rights, patent,
trademark, copyright and trade secret protection may not be available in every
country in which we distribute our products.

        We also typically enter into confidentiality and invention assignment
agreements with our employees and contractors, and nondisclosure agreements with
our customers, suppliers and strategic partners in order to limit access to and
distribution and disclosure of our proprietary information. However, despite our
efforts to protect our proprietary rights, unauthorized parties could copy or
otherwise obtain and use our products or technology or develop products with the
same functionality as our products. Policing unauthorized use is difficult, and
the steps


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we have taken may not prevent misappropriation of our technology. In addition,
the laws of some foreign countries provide less protection of proprietary rights
than do the laws of the United States, and we expect that it will become more
difficult to monitor the use of our products if we continue to increase our
international presence.

        We utilize technology provided by BEA Systems, Inc. for our application
servers, Oracle Corporation for Relational Database, from Web Gain for
object-relational mapping, from Install Shield for product installation, and
from Rogue Wave Software, Inc. for development software. Should this third-party
software no longer continue to be available at an acceptable cost, our products
could be delayed until equivalent software could be developed or licensed and
integrated into our products.

        Substantial litigation regarding intellectual property rights exists in
the software industry. We expect that software products may increasingly be
subject to third-party infringement claims as the number of competitors
supplying electronic commerce applications and solutions grows, and the
functionality in other industry segments overlaps. Some of our competitors may
have filed or intend to file patent applications covering aspects of their
technology that they claim our technology infringes. Our competitors may make a
claim of infringement against us with respect to our products and technology.
These claims could result in litigation subjecting us to significant liability
for damages, or in invalidation of our proprietary rights. Any claims, with or
without merit, could be time consuming to defend, result in costly litigation,
divert management's attention and resources or require us to enter into royalty
or licensing agreements in order to be able to sell our products. Royalty or
licensing agreements, if required, may not be available on terms acceptable to
us, or at all.

COMPETITION

        The market for software and services that enable electronic commerce for
the interactive selling of products is intensely competitive, highly fragmented
and rapidly changing. Competition has continued to persist, increase and
intensify in the past year, with competition from vendors of enterprise class
application software, including Siebel Systems, Oracle, SAP, and Baan, as well
as point-solution, configuration competitors, such as Trilogy, Selectica and
FirePond, all of which offer integrated solutions for electronic commerce
incorporating some of the functionality of our solution. These competitors may
intensify their efforts in our market. In addition, other enterprise software
companies may offer competitive products in the future and companies may develop
solutions in-house.

        Many of our competitors and potential competitors have a number of
significant advantages over us, including:


        -      stronger financial condition;

        -      a longer operating history;

        -      preferred vendor status with our customers;

        -      more extensive name recognition and marketing power; and

        -      significantly greater financial, technical, marketing and other
               resources.

        We also expect that competition will increase as a result of continued
software industry consolidation, particularly in light of recent economic
uncertainties and the weakening market, as our customers continue to decrease
the amount of their resources spent on products such as ours as part of their
own cost-cutting measures. Our competitors may bundle their products in a manner
that may discourage customers from purchasing our products. Current and
potential competitors have and may continue to establish cooperative
relationships among themselves or with third parties or adopt aggressive pricing
policies to gain market share. In addition, new competitors could emerge and
rapidly capture market share.

        We believe that our ability to compete depends on many factors, both
within and beyond our control, including:

        -      the performance, functionality, scalability and flexibility of
               our software solutions;



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        -      the timing and market acceptance of new products and product
               enhancements to our products;

        -      the effectiveness of our sales and marketing efforts;

        -      the quality and performance of our professional services;

        -      concerns over our financial condition;

        -      our ability to compete against competitors that may have
               substantially greater financial and organizational resources than
               do we; and

        -      general economic conditions, particularly current uncertainties
               over the state of the market resulting in reduced purchases by
               customers of products such as ours.

Furthermore, concerns over our financial condition may cause customers to
contract with our competitors rather than us and we may continue to lose market
share to our competitors.

EMPLOYEES

        As of March 31, 2001, we had 262 employees, of which 86 were primarily
engaged in product development, engineering or systems engineering, 92 were
engaged in sales and marketing, 56 were engaged in professional services and 28
in general and administrative services. We recently restructured our
organization, in both the final quarter of fiscal 2001 and the first quarter of
fiscal 2002, and as of May 31, 2001, we had 172 employees, of which 58 were
engaged in product development, engineering or systems engineering, 56 were
engaged in sales and marketing, 38 in professional services and 20 in general
and administrative services. We anticipate making further significant reductions
in our workforce during July 2001 in order to continue to streamline operations
and reduce costs. None of our employees are represented by a labor union, and we
have never experienced a work stoppage. We believe our relations with our
employees are good.


                                       10
<PAGE>   11

                FACTORS THAT COULD AFFECT OUR FUTURE PERFORMANCE

Our future performance is subject to a variety of risks. If any of the following
risks actually occur, our business could be harmed and the trading price of our
common stock could decline. You should also refer to the other information
contained in this report, including our consolidated financial statements and
the related notes.

WE HAVE A HISTORY OF LOSSES, OUR REVENUES REACHED A HIGH OF $11.3 MILLION IN THE
QUARTER ENDED MARCH 31,2000, AND HAVE DECLINED IN EVERY QUARTER SINCE THAT DATE,
AND WE MAY BE UNABLE TO ACHIEVE REVENUES TO MATCH EXPENSES IN ORDER TO ACHIEVE
POSITIVE CASH FLOWS TO CONTINUE AS A GOING CONCERN.

Since inception, we have funded our business primarily through selling our
stock, not from cash generated by our business. We have incurred quarterly and
annual losses in each of the six years since we were formed, and we expect to
continue to incur losses on both a quarterly and annual basis for the
foreseeable future. We incurred net losses of $77.1 million and $141.3 million
for the three and twelve months ended March 31, 2001, respectively, as well as
$27.8 million and $15.3 million for the fiscal years ended March 31, 2000 and
1999, respectively. As of March 31, 2001, we had an accumulated deficit of
$198.8 million. Moreover, our revenues reached a high of $11.3 million in the
quarter ended March 31, 2000 and have declined in every quarter since that date.
If our revenues continue to decline and we are unable to significantly reduce
our expenses, our business may be seriously harmed. This has caused some of our
potential customers to question our viability, which has in turn hampered our
ability to sell some of our products. Our growth has been from a limited base of
customers, and we may not be able to increase revenues sufficiently to keep pace
with our expenditures. Although we are exploring strategic alternatives,
including reductions in our workforce, other reductions in operating expenses,
and changes to our sales and marketing strategy, we expect to continue to
experience losses and negative cash flows in the near term. If we are unable to
increase revenue, we cannot be certain that we can reach profitability or
positive cash flows on a quarterly or annual basis in the future. If we are
unable to generate sufficient revenues to achieve positive cash flows, we may
require additional financing. We cannot be sure that additional financing will
be available on acceptable terms, if at all. With the decline in our stock
price, any such financing is likely to be dilutive to existing stockholders. If
we are unable to raise additional capital when we need it, we may be unable to
continue as a viable company. Our auditors have included a paragraph in their
report indicating that substantial doubt exists as to our ability to continue as
a going concern.

WE MAY NEED ADDITIONAL CAPITAL WHICH MAY NOT BE AVAILABLE, AND WHICH WOULD
DILUTE EXISTING STOCKHOLDERS.

        Our capital requirements over the next twelve months will depend on many
factors, including our ability to achieve anticipated revenues and further
reduce operating expenses. To reduce our expenditures, we recently restructured
in several areas, including reduced staffing, expense management and curtailed
capital spending. For example, in the six months ended June 30, 2001, we reduced
our workforce by approximately 50% in order to reduce costs. However, as these
actions will not be sufficient for us to obtain a positive cash flow, we plan to
further reduce our expenditures and operating costs, including significant
workforce reductions in July. We expect operating losses and negative cash flows
from operations to continue for the foreseeable future. Our auditors have
included a paragraph in their report indicating that substantial doubt exists as
to our ability to continue as a going concern. We are uncertain as to whether
our cash balance, collections on accounts receivable and funding from projected
operations will be sufficient to meet our working capital and operating resource
expenditure requirements for the next 12 months, and believe it necessary for us
to achieve expected revenues and substantially reduce expenditures. If we are
unable to substantially increase revenues, reduce expenditures and collect upon
accounts receivable, or if we incur unexpected expenditures, or are unable to
liquidate our holdings in Digital River common stock on a timely basis and at an
acceptable price, then we will need to reduce expenses further through further
work force reductions and other cost cutting measures, and raise additional
funds in order to continue as a going concern. Especially in light of our
declining stock price and the extreme volatility in the technology capital
markets, additional funding may not be available on favorable terms or at all.
If additional funding is not available on acceptable terms when needed, we may
be unable to continue as a going concern and achieve our intended business
objectives.

OUR INABILITY TO MAINTAIN OUR LISTING ON THE NASDAQ NATIONAL MARKET WILL REDUCE
THE MARKET AND LIQUIDITY OF OUR SHARES AND DAMAGE OUR GENERAL BUSINESS
REPUTATION.

        In connection with our listing on the Nasdaq National Market we must
maintain compliance with several requirements related to the trading price of
our stock, our financial condition and our board of directors, among other
factors. Our stock currently has been trading beneath the $1.00 minimum bid
price on the Nasdaq National Market since February 14, 2001 and on June 27, 2001
we received notice from the Nasdaq National Market that we will be delisted. We
do not intend to appeal this decision, and expect to be delisted shortly. Once
we are delisted from the Nasdaq National Market, we will probably not qualify
for the SmallCap listing of Nasdaq, and expect that our common stock will be
traded on the over-the-counter market. Such action will reduce the market and
liquidity of our shares and consequently the ability of our stockholders to
purchase and sell our shares in an orderly manner or at all. Furthermore, our
delisting from the Nasdaq National Market will likely damage our general
business reputation and thus may harm our financial condition and operating
results.


                                       11
<PAGE>   12

OUR QUARTERLY RESULTS FLUCTUATE SIGNIFICANTLY, ARE SUBJECT TO SEASONALITY AND
MAY FALL SHORT OF ANTICIPATED LEVELS, WHICH MAY CAUSE VOLATILITY OR A DECLINE IN
THE PRICE OF OUR COMMON STOCK.

        Our quarterly operating results have varied significantly in the past
and we expect that they will continue to vary significantly from quarter to
quarter in the future. As our revenues have declined, our dependence on limited
numbers of customers per quarter has increased, which has further added to the
volatility of our quarterly revenues. We expect to continue to incur substantial
general and administrative, sales and marketing and research and development
expenses, and, as a result, we will need to generate significant revenue to
achieve and maintain profitability. Many of our expenses are relatively fixed in
the short term, and are based in part on our expectations regarding future
revenue levels. As a result, if total revenues for a particular quarter are
below expectations, we might not be able to reduce operating expenses for that
quarter, and a revenue shortfall could have a disproportionate effect on our
operating results for that quarter as well as for the fiscal year.

        We have always received a major portion of our orders near the end of
each quarter, and recently have received a major portion of our orders in the
last several days of the quarter. Therefore, our ability to predict the volume
and timing of orders has decreased, and delays in closing orders or
implementation of our software has caused and is expected to continue to cause
our operating results to fall substantially short of anticipated levels for that
quarter.

        We experience seasonal fluctuations in the sales of our software
products and have experienced a decrease in orders and a lengthening of the
sales cycle for our products as a result of the economic uncertainties facing
our customers. These fluctuations lead to fluctuations in our quarterly
operating results and difficulty in predicting the timing of our ability to
close sales.

        As a result of these and other factors, our current operating results
have fallen below the expectations of public market analysts and investors,
which can cause volatility or decline in the price of our common stock.

WE ARE IN BREACH OF THE FINANCIAL COVENANTS OF OUR BANK LOAN AND IF WE ARE
UNABLE TO AGREE A WAIVER OF THE COVENANTS WITH OUR BANK, WE MAY HAVE TO USE
SUBSTANTIAL CASH RESOURCES TO REPAY THE AMOUNTS DUE.

        We are in breach of certain financial covenants contained in credit
agreements in the principal amount of approximately $1.8 million with our bank
and are negotiating with the bank to secure waivers from the bank with respect
to these breaches. Should the bank be unwilling to grant waivers, we could
default on the loans, triggering remedies in favor of the bank. The bank could
require additional cash or other security to secure the loan, or could declare
loan immediately due and payable and foreclose on the assets currently securing
the loan, including restricted cash and intellectual property. If the bank were
to demand immediate payment of the loan amounts, the cash outlays for such
purposes would not be available for other general corporate purposes.
Consequently, our available cash, financial condition, operating results and
business reputation could be materially and adversely affected. Our inability to
comply with these financial covenants may preclude us from engaging in other
financial transactions beneficial to the company, which could materially limit
our ability to conduct our business or to enter into certain strategic
transactions designed to maximize stockholder value.

WE MAY BE UNABLE TO HIRE AND RETAIN THE SKILLED PERSONNEL NECESSARY TO DEVELOP
OUR ENGINEERING, PROFESSIONAL SERVICES AND SUPPORT CAPABILITIES IN ORDER TO
CONTINUE TO GROW OUR BUSINESS.

        Although we have made considerable workforce reductions, and expect to
make further reductions, we may need to increase our engineering, professional
services and product management personnel in the future. Competition for these
individuals is intense, and we may not be able to attract, integrate or retain
highly qualified personnel in the future. Our business cannot continue to grow
if we are unable to attract and retain qualified engineers to timely develop new
and enhanced products that are accepted in the marketplace. Turnover among our
engineering staff has been significant and we expect to lose additional
employees in the future. Hiring qualified engineers has always been very
competitive in the area in which we are headquartered, due to the limited number
of people available with the necessary technical skills. We face greater
difficulty attracting these personnel in light of our recent workforce
reductions, which may adversely affect the morale of, and our ability to retain,
those employees who have not been terminated. Because our stock price has
recently suffered a significant decline, stock-based compensation, including
options to purchase our common stock, may have diminished effectiveness as


                                       12
<PAGE>   13

employee hiring and retention devices. If our retention efforts are ineffective,
employee turnover could increase and our ability to execute our product
development or sales and marketing strategies could be negatively affected.

WE MAY FACE DIFFICULTIES IN HIRING AND RETAINING QUALIFIED SALES PERSONNEL TO
SELL OUR PRODUCTS AND SERVICES, WHICH COULD HARM OUR ABILITY TO INCREASE OUR
REVENUES IN THE FUTURE.

        Our financial success depends to a large degree on the ability of our
direct sales force to develop customer relationships and increase sales to a
level that will allow us to reach and maintain profitability. Our ability to
increase our sales will depend on our ability to train and retain top quality
sales people who are able to target prospective customers' senior management,
and who can productively and efficiently generate and service large accounts.
Competition for these individuals is intense, and we may not be able to attract,
assimilate or retain highly qualified personnel in the future. Turnover among
our sales staff has been significant and a number of our employees have left or
been terminated. For example, our Vice President of Worldwide Sales, who joined
us in June of 2000, resigned his position in January of 2001. We expect to lose
additional employees in the future. As part of our recent restructuring, we
terminated a significant number of sales and marketing employees, and expect to
make further significant reductions in our sales and marketing organization in
July 2001. If we are able to support an increase in our sales and marketing
staff in the future, hiring qualified sales and marketing personnel is very
competitive. Furthermore, it may take a new salesperson a number of months
before he or she becomes a productive member of our sales force. In the event we
are unable to recruit and retain effective sales personnel, we will be unable to
generate significant revenue and our operating results will be materially
reduced.

OUR WORKFORCE REDUCTIONS AND FINANCIAL PERFORMANCE MAY ADVERSELY AFFECT THE
MORALE AND PERFORMANCE OF OUR PERSONNEL AND OUR ABILITY TO HIRE NEW PERSONNEL.

        In connection with our effort to streamline operations, reduce costs and
bring our staffing and structure in line with industry standards, we recently
restructured our organization with reductions in our workforce. From September
30, 1997 to December 31, 2000, we expanded from 85 to 360 employees. We then
reduced our workforce by 36 full-time positions and 54 consultant positions in
January 2001 and again by 90 full-time positions in April 2001, with plans for
further significant reductions in July 2001. From January 1 to June 30, 2001 we
have incurred costs of $1.2 million associated with the workforce reduction
related to severance and other employee-related costs, and expect to incur
further costs. Our restructuring may also yield unanticipated consequences, such
as attrition beyond our planned reduction in workforce and loss of employee
morale and decreased performance. In addition, the recent trading levels of our
common stock have decreased the value of our stock options granted to employees
pursuant to our stock option plans. As a result of these factors, our remaining
personnel may seek employment with larger, more established companies or
companies they perceive as having less volatile stock prices. Continuity of
personnel can be an important factor in the successful completion of our
development projects, and ongoing turnover in our research and development
personnel could materially and adversely impact our development and marketing
efforts. We believe that hiring and retaining qualified individuals at all
levels is essential to our success, and there can be no assurance that we will
be successful in attracting and retaining the necessary personnel.

WE HAVE APPOINTED A NEW INTERIM CHIEF FINANCIAL OFFICER AND REPLACED MANY OF OUR
OTHER SENIOR OFFICERS, AND THE INTEGRATION OF THESE OFFICERS MAY INTERFERE WITH
OUR OPERATIONS.

        We have lost or replaced most of our executive team in the last several
months. We replaced our chief financial officer with our new interim chief
financial officer, who joined Calico in March 2001, and we may need to recruit
and train a permanent chief financial officer. We have lost our vice president
of worldwide sales and replaced our chief technology officer and vice president
of marketing. We have engaged Regent Pacific Management Corporation to perform
consulting services, and anticipate entering into a long-term agreement with
Regent Pacific that includes fulfillment of several senior management positions.
We may need to selectively hire senior managers, or promote current employees to
management positions. The transition of these employees into new duties and the
loss of senior management has resulted and will continue to result in disruption
to our ongoing operations and these transitions may materially harm the way that
the market perceives our company and the price of our common stock. Our ability
to operate our business depends upon our ability to integrate qualified and
experienced management personnel, in addition to training and supervising
current employees who are entrusted with a greater degree of responsibility and
duties. Failure to effectively manage this period of business transition could
result in loss of sales, delays in new product development and diversion of
remaining management resources, among other adverse effects.


                                       13
<PAGE>   14


WE MAY EXPERIENCE INCREASING DIFFICULTY COLLECTING AMOUNTS DUE FROM OUR
CUSTOMERS.

        With the recent economic slowdown and the downturn in the market for
products and services offered by our customers, many of these potential
customers are forecasting that their revenue for the foreseeable future will be
lower than anticipated, and some customers have experienced or are likely to
experience serious cash flow problems and even bankruptcy. Economic conditions
affecting our customers could cause customers to become unable or unwilling to
pay us in a timely manner, or at all, for products and services that we have
provided them, and we may continue to experience delays in our collection
efforts. Although we have established reserves that we believe are sufficient to
cover losses due to bad debts, there can be no assurance that such reserves will
be sufficient to cover such losses. If losses due to delays or inability to pay
are greater than our reserves, it could harm our business, operating results and
financial condition.

A DECLINE IN GENERAL ECONOMIC CONDITIONS OR A DECREASE IN INFORMATION TECHNOLOGY
SPENDING COULD HARM OUR RESULTS OF OPERATIONS.

        The change in economic conditions may lead to revised budgetary
constraints regarding information technology spending for our customers.
Potential customers which select our solution from a number of competitors may
decide not to implement any configuration system in favor of reducing
expenditures for information technology. A general slowdown in information
technology spending due to economic conditions or other factors could
significantly harm our business and operating results.

PENDING LITIGATION COULD SERIOUSLY HARM OUR BUSINESS.

        Since March 2001, various of our stockholders have filed class action
lawsuits against us, certain of our current and former directors and officers
and certain underwriters of our initial public offering of common stock in
October 1999. The complaints, which recently were consolidated, allege generally
that we and other named defendants failed properly to disclose certain
underwriting arrangements or terms in connection with our initial public
offering, which resulted in the manipulation of the price of our common stock.
The lawsuits seek an unspecified amount of damages and are based on transactions
in Calico common stock generally between October 1999 and June 2000. The
uncertainty associated with these substantial, unresolved lawsuits could
seriously harm our business and financial condition. In particular, the lawsuits
could harm our relationships with existing customers and our ability to obtain
new customers. The continued defense of these lawsuits also could result in the
diversion of resources including diversion of our management's time and
attention away from business operations, which could materially harm our
business and financial results. Negative developments with respect to the
lawsuits could cause our stock price to decline significantly. In addition,
although we are unable to determine the amount, if any, that we may be required
to pay in connection with the defense and resolution of these lawsuits, by
settlement of otherwise, the size of any such payments could seriously harm our
financial condition. Because the complaints do not specify the amount of damages
plaintiffs seek, we are unable to estimate the possible range of damages that
could be awarded as a result of the lawsuits. We maintain Directors and Officers
insurance applicable to the lawsuits, but there can be no guarantee that the
proceeds of such insurance will be available for defense fees and costs, or
payment of any settlement or judgment in the lawsuits. We have not set aside any
financial reserves relating to potential damages associated with these lawsuits.

TO DATE, OUR SALES HAVE BEEN CONCENTRATED IN THE COMPUTER HARDWARE, NETWORK AND
TELECOMMUNICATIONS EQUIPMENT, AND EMERGING GROWTH COMPANY MARKETS AND IF WE ARE
UNABLE TO SUCCESSFULLY PENETRATE NEW MARKETS, WE MAY NOT BE ABLE TO ACHIEVE
EXPECTED SALES GROWTH.

        Sales of our products and services in three markets -- computer
hardware, network and telecommunications equipment and emerging growth companies
-- accounted for nearly 72% of our total net revenue in the year ended March 31,
2001. We expect that revenue from computer hardware, network and
telecommunications equipment companies will continue to account for a
substantial portion of our total net revenue. However, we are evaluating new
markets on which to focus our sales and marketing efforts, including the medical
devices market. If we are unable to successfully increase penetration of our
existing markets or expand into additional markets, or if the overall economic
climate of our target markets deteriorates, we may not be able to maintain or
achieve sales growth, which would cause our business to be seriously harmed.


                                       14
<PAGE>   15


OUR PRODUCTS HAVE AN INCREASINGLY LONG SALES CYCLE WHICH MAKES IT DIFFICULT TO
PREDICT OUR QUARTERLY RESULTS AND MAY CAUSE OPERATING RESULTS TO VARY
SIGNIFICANTLY.

        The sales cycle for our products is long, typically ranging from three
months to a year, making it difficult to predict the quarter in which revenue
recognition may occur. In addition, recent market conditions have resulted in a
lengthening of our sales cycle, as customers spend longer periods evaluating our
software before purchasing. Furthermore, concerns over our financial performance
may cause customers to contract with our competitors rather than us, requiring
us to spend additional time and resources with each sales lead. In addition, as
our customers have implemented their own reductions in their workforce, our
sales representatives have had to develop new points of contact, thus
lengthening the sales cycle even further. Our products have a relatively high
sales price per unit, and often are part of a significant strategic decision by
our customers regarding their information systems infrastructure. Accordingly,
the decision to purchase our products typically requires significant
pre-purchase evaluation, and in this climate of economic uncertainty and
reluctance to spend resources, sales become harder to close. We spend
significant time educating and providing information to prospective customers
regarding the use and benefits of our products. During this evaluation period,
we may expend substantial funds in sales, marketing and management efforts.

        This lengthy sales cycle causes our license revenue and operating
results to vary significantly from period to period. With the overall decline in
our sales, we have become increasingly dependent on a limited number of
customers in each quarter. Accordingly, if anticipated sales from a specific
customer for a particular quarter are not realized in that quarter, our
operating results may vary significantly and we may not achieve expected
revenues.

IF WE ARE UNABLE TO COMPLETE SUBSTANTIAL LICENSE SALES WHEN ANTICIPATED OR
EXPERIENCE DELAYS IN THE PROGRESS ON A PROJECT OR IN THE SATISFACTION OF
CONTRACT TERMS, WE MAY HAVE TO DEFER REVENUE UNTIL LATER QUARTERS, CAUSING OUR
QUARTERLY RESULTS TO FLUCTUATE AND FALL BELOW ANTICIPATED LEVELS.

        Even after the purchase of our products, it often takes substantial time
and resources to implement our software and to integrate it with our customers'
existing computer systems. We may not be able to recognize all or a portion of
the revenue until the implementation of the software is completed or milestones
are achieved. We have in the past and may in the future be required to defer
license revenue for software products from the period in which the agreement for
the license of software is signed, to subsequent periods. If we are unable to
complete one or more substantial anticipated license sales or experience delays
in the progress on a project or product or in the satisfaction of contract terms
required for revenue recognition in a particular quarter, we may not be able to
recognize revenue when anticipated, causing our quarterly results to fluctuate
and fall below anticipated levels. This could cause our stock price to decline.
In addition, some of our customers are experiencing uncertain financial results,
and if funding is not assured, rendering our ability to collect amounts due for
the sale of our products or services, we are unable to recognize revenue in the
quarter in which agreement is reached, and must defer recognition until payment
is received from the customer.

OUR FAILURE TO MEET CUSTOMER EXPECTATIONS ON DEPLOYMENT OF OUR PRODUCTS COULD
RESULT IN NEGATIVE PUBLICITY AND REDUCED SALES, BOTH OF WHICH WOULD
SIGNIFICANTLY HARM OUR BUSINESS AND OPERATING RESULTS.

        In the past, our customers have experienced difficulties or delays in
completing implementation of our products. We may experience similar
difficulties or delays in the future. Our products require some customization in
implementation, which can be more time consuming than we or our customers
anticipate. Deploying our products can also involve time-consuming integration
with our customers' legacy systems, such as existing databases and enterprise
resource planning software. Failing to meet customer expectations on deployment
of our products could result in a loss of customers and negative publicity
regarding us and our products, which could adversely affect our ability to
attract new customers. In addition, time-consuming deployments may also increase
the amount of professional services we must allocate to each customer, thereby
increasing our costs and adversely affecting our business and operating results.

BECAUSE A SMALL NUMBER OF NEW CUSTOMERS ACCOUNT FOR A SUBSTANTIAL PORTION OF OUR
REVENUE IN EACH QUARTER, WE MAY NOT ACHIEVE EXPECTED REVENUE IF WE DO NOT
CONTINUE TO GENERATE SALES FROM NEW CUSTOMERS.

        We derive a significant portion of our revenue in each quarter from a
limited number of customers. For the twelve months ended March 31, 2001, no
single customer accounted for 10% or more of total revenue, however, 12


                                       15
<PAGE>   16

customers accounted for over 50% of our total revenues, and 30 customers
accounted for over 80% of our total revenues. For the twelve months ended March
31, 2000, two customers accounted for 17% and 14% of total revenue,
respectively. We expect that a limited number of customers will continue to
account for a substantial portion of our revenue for the foreseeable future, and
that this trend is likely to increase in the near term. As a result, if we lose
a major customer, if a contract is delayed, cancelled or deferred or if an
anticipated sale is not made, our revenue would be adversely affected. In
addition, customers that have accounted for significant revenue in the past may
not continue to generate revenue, particularly license revenue, in any future
period.

WE MAY NOT ACHIEVE ANTICIPATED REVENUE IF WE DO NOT SUCCESSFULLY INTRODUCE, OR
IF OUR CUSTOMERS DO NOT ACCEPT, UPGRADES AND ENHANCEMENTS TO OUR PRODUCTS.

        Our business depends on the success and customer acceptance of the
introduction of upgrades as well as future enhancements to our products.
Although our products have been subject to our internal testing procedures,
customers may discover errors or other problems with the products, which may
adversely affect its acceptance. In addition, customers that have prior versions
of our products that are not based upon our Lightning Architecture may have
greater difficulty migrating to our new architecture with later releases of our
products

        We are no longer actively selling all of our existing products, and
expect to focus attention on enhancement to our products comprising interactive
selling solutions--those products providing configuration and recommendation
functionality. This strategy will require certain enhancements to and upgrades
of our products, and we expect that we will continue to depend on revenue from
new and enhanced versions of these products for the foreseeable future. If our
target customers do not continue to adopt and expand their use of these
products, and if our focus on interactive selling solutions is not successful,
we may not achieve anticipated revenue.

WE COULD FAIL TO ACHIEVE ANTICIPATED REVENUE IF WE EXPERIENCE DELAYS IN THE
INTRODUCTION AND MARKET ACCEPTANCE OF NEW PRODUCTS.

        We have in the past experienced delays in the planned release dates of
our software products and upgrades. New products may not be released on schedule
or may contain defects when released. The introduction of enhancements to our
suite of products may cause customers to defer orders for our existing products.
New and enhanced products may not meet the requirements of the marketplace and
achieve market acceptance. If we are unable to ship or implement new or enhanced
products when planned, or fail to achieve timely market acceptance of our new or
enhanced products, we may suffer lost sales and could fail to achieve
anticipated revenue. We cannot guarantee that any new products or enhancements
to our existing products will attract widespread demand or market acceptance. If
we are unsuccessful in our development efforts, we will be unable to increase
our revenues, or improve our business as anticipated.

IF OUR PRODUCTS DO NOT SCALE TO OPERATE IN A COMPANY-WIDE ENVIRONMENT, WE MAY
LOSE SALES AND SUFFER DECREASE REVENUE.

        Our software must be highly scalable, or able to accommodate substantial
increases in the number of users concurrently using the product. If our
solutions do not perform adequately in large-scale implementations, we may lose
customer sales resulting in a decline in revenue.

        In addition, the computer software for our larger customer applications
is often implemented together with computer software applications from other
companies. Some of these implementations are performed by third parties. If our
customers experience delays or difficulties implementing our software together
with these computer software applications in large scale complex integrations,
we may lose sales, incur customer dissatisfaction and suffer decreased revenue.

DEFECTS IN OUR SOFTWARE PRODUCTS AND SYSTEM ERRORS IN OUR CUSTOMERS' SYSTEMS
AFTER INSTALLING OUR SOFTWARE COULD RESULT IN LOSS OF REVENUE, DELAY IN MARKET
ACCEPTANCE AND INJURY TO OUR REPUTATION.

        Complex software products like ours may contain undetected errors or
defects, that may be detected at any point in the life of the product. We have
in the past discovered software errors in our products and as a result have
experienced delays in shipment of products during the period required to correct
these errors. Errors may be found from time to time in our new or enhanced
products after commencement of commercial shipments, resulting in loss


                                       16
<PAGE>   17

of revenue, delay in market acceptance and sales, diversion of development
resources, injury to our reputation or increased warranty and repair costs.

        Our products are generally used in systems with other vendors' products,
and as a result our products must integrate successfully with these existing
systems. System errors, whether caused by our products or those of another
vendor, could adversely affect the market acceptance of our products, and any
necessary revisions could cause us to incur significant expenses.

IF WE ARE UNABLE TO ESTABLISH AND MAINTAIN RELATIONSHIPS WITH THIRD PARTY
CONSULTANTS, WE MAY NOT BE ABLE TO PROVIDE ADEQUATE IMPLEMENTATION SERVICES TO
OUR CUSTOMERS.

        Sales of the license of our products depends on our ability to provide
our customers with professional services to assist with design, implementation,
deployment and maintenance of our products. If we are unable to obtain the
support of third-party consultants to provide these services in a cost-effective
and efficient manner, or if third-party consultants decide to develop their own
products or support the products of our competitors rather than our products, we
may not be able to provide sufficient implementation services to our customers.
This could result in delays to the implementation of our products, increased
cost of implementation for our customers, decreased customer satisfaction and
loss of sales. In addition, if we have to retain third party consultants to
provide services for our customers for which we have previously committed, the
resulting increased costs could have an adverse impact on the gross margins for
our professional services.

OUR DEPENDENCE ON SERVICES REVENUE, WHICH CAN HAVE A LOWER GROSS MARGIN THAN
LICENSE REVENUE, COULD ADVERSELY IMPACT OUR GROSS MARGIN AND OPERATING RESULTS.

        We anticipate that services revenue will continue to represent a
significant portion of total net revenue as we continue to provide consulting
and training services that complement our products. Although services revenue is
important to our business, services revenue has lower gross margins than license
revenue. As a result, a continued increase in the percentage of total net
revenue represented by services revenue or an unexpected decrease in license
revenue could have a detrimental impact on our overall gross margins and our
operating results.

WE NEED TO ESTABLISH AND MAINTAIN KEY MARKETING ALLIANCES TO COMPLEMENT OUR
DIRECT SALES FORCE IN ORDER TO GROW SALES. HOWEVER FEW POTENTIAL PARTNERS HAVE
FOCUSED ON OUR SOFTWARE MARKET AND WE HAVE ONLY ENTERED INTO A SMALL NUMBER OF
KEY ALLIANCES.

        In order to increase geographic sales coverage and to address new
markets and customer segments, we must complement our direct sales force with
strategic marketing alliances. However, few potential partner organizations have
focused on the type of packaged electronic commerce applications that we offer,
and we have only established a limited number of such key alliances. To date, we
have yet to generate meaningful amounts of revenue from these alliances and we
are not actively engaged in any joint marketing initiatives with any of these
alliances. If we fail to maintain and increase the effectiveness of our existing
relationships or fail to establish new key alliances, we may not be able to
expand our sales.

WE FACE SUBSTANTIAL COMPETITION AND MAY NOT BE ABLE TO COMPETE EFFECTIVELY.

        The market for software and services that enable electronic commerce for
the interactive selling of products is intensely competitive, highly fragmented
and rapidly changing. Competition has continued to persist, increase and
intensify in the past year, with competition from vendors of enterprise class
application software, including Siebel Systems, Oracle, SAP, and Baan, and
point-solution, configuration competitors, such as Trilogy, Selectica and
FirePond, as well as companies developing solutions in-house.

Competitors vary in size and in the scope and breadth of the products and
services offered. Many of our competitors and potential competitors have a
number of significant advantages over us, including:

        -      stronger financial condition;

        -      a longer operating history;



                                       17
<PAGE>   18

        -      preferred vendor status with our customers;

        -      more extensive name recognition and marketing power; and

        -      significantly greater financial, technical, marketing and other
               resources.

        We also expect that competition will increase as a result of continued
software industry consolidation, particularly in light of recent economic
uncertainties and the weakening market, as our customers continue to decrease
the amount of their resources spent on products such as ours as part of their
own cost-cutting measures. Our competitors may bundle their products in a manner
that may discourage customers from purchasing our products. Current and
potential competitors have and may continue to establish cooperative
relationships among themselves or with third parties or adopt aggressive pricing
policies to gain market share. In addition, new competitors could emerge and
rapidly capture market share. Competitive pressures may require us to reduce the
prices of our products and services. We may not be able to maintain or expand
our sales if competition increases and we are unable to respond effectively.

        In addition, concerns over our financial performance may cause customers
to contract with our competitors rather than us and we may continue to lose
market share to our competitors.

NEW TECHNOLOGIES COULD RENDER OUR PRODUCTS OBSOLETE OR REQUIRE US TO REWRITE OUR
SOFTWARE IN NEW COMPUTER LANGUAGES OR FOR OTHER OPERATING SYSTEMS.

        The market for software and services that enable electronic commerce is
characterized by rapid technological change, changes in customer requirements,
frequent new product and service introductions and enhancements, and emerging
industry standards. Advances in Internet technology or in applications software
directed at electronic commerce, or the development of entirely new technologies
to replace existing software, could lead to new competitive products that have
better performance or lower prices than our products and could render our
products obsolete and unmarketable. In addition, if a new software language or
operating system becomes standard or is widely adopted in our industry, we may
need to rewrite portions of our products in another computer language or for
another operating system to remain competitive. If we are unable to develop
products that respond to changing technology, our business could be harmed.

        It is common for software companies to acquire other companies as a
means of introducing new products or emerging technologies. If a new technology
or product emerges that may displace our product lines, competitors with large
market capitalizations or cash reserves would be better positioned than we are
to acquire such new technology or product.

WE DEPEND ON TECHNOLOGY LICENSED TO US BY THIRD PARTIES FOR CERTAIN OF THE
UNDERLYING TECHNOLOGY IN OUR PRODUCTS AND THE LOSS OF THESE LICENSES COULD
RESULT IN INCREASED COSTS OR DELAY OF OUR PRODUCTS.

        We utilize technology provided by BEA Systems, Inc. for our application
servers, Oracle Corporation for Relational Database, from Web Gain for
object-relational mapping, from Install Shield for product installation, and
from Rogue Wave Software, Inc. for development software. Should this third-party
software no longer continue to be available at an acceptable cost, our products
could be delayed until equivalent software could be developed or licensed and
integrated into our products.

        We license, and anticipate continuing to license, technology from
several software providers for our application servers, our relational database,
object relational mapping, product installation and our development software. In
particular, we depend on technology from BEA WebLogic for our servers. This
software may not continue to be available on commercially reasonable terms, if
at all, and some of it could be difficult to replace. The loss of any of these
technology licenses could result in delays in the license of our products until
equivalent technology, if available, is developed or identified, licensed and
integrated. In addition, the effective implementation of our products depends
upon the successful operation of third-party licensed products in conjunction
with our products, and therefore any undetected errors in these licensed
products could prevent the implementation or impair the functionality of our
products, delay new product introductions and/or injure our reputation. The use
of additional third-party software would require us to enter into license
agreements with third parties, which could result in higher royalty payments and
a loss of product differentiation.

                                       18
<PAGE>   19


SHOULD WE BECOME SUBJECT TO PRODUCT LIABILITY LITIGATION, IT COULD BE COSTLY AND
TIME CONSUMING TO DEFEND.

        Since our products are used for company-wide, integral computer
applications with potentially strong impact on our customers' sales of their
products, errors, defects or other performance problems could result in
financial or other damages to our customers. Although our license agreements
generally contain provisions designed to limit our exposure to product liability
claims, existing or future laws or unfavorable judicial decisions could negate
such limitation of liability provisions. Product liability litigation, even if
it were unsuccessful, would be time consuming and costly to defend.

IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY WE MAY LOSE A VALUABLE
ASSET OR INCUR COSTLY LITIGATION TO PROTECT OUR RIGHTS.

        We rely on patent, trademark, trade secret and copyright laws to protect
the intellectual property upon which we depend for our success. Despite our
efforts to protect our intellectual property, a third party could copy or
otherwise obtain our software or other proprietary information without
authorization, or could develop software competitive to ours. Our means of
protecting our proprietary rights may not be adequate and our competitors may
independently develop similar technology, duplicate our products or design
around our patents or other intellectual property. In addition, the laws of some
foreign countries do not protect our proprietary rights to as great an extent as
do the laws of the United States, and we expect that it will remain difficult to
monitor the use of our products overseas.

        We may have to litigate to enforce our intellectual property rights, to
protect our trade secrets or know-how or to determine their scope, validity or
enforceability. Enforcing or defending our proprietary technology is expensive,
could cause the diversion of our resources and may not prove successful. Our
protective measures may prove inadequate to protect our proprietary rights. Any
failure to enforce or protect our rights could cause us to lose a valuable
asset. If we are unable to protect our intellectual property, we may lose a
valuable asset or incur costly litigation to protect our rights.

IF THE FUNCTIONALITY OF OUR PRODUCTS OVERLAPS A COMPETITORS' PRODUCTS AND WE
BECOME SUBJECT TO INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS, THESE CLAIMS COULD
BE COSTLY AND TIME-CONSUMING TO DEFEND, DIVERT MANAGEMENT ATTENTION OR CAUSE
PRODUCT DELAYS.

        There has been substantial litigation in the software and Internet
industries regarding intellectual property rights. It is possible that, in the
future, third parties may claim that we or our current or potential future
products infringe their intellectual property. We expect that software product
developers and providers of electronic commerce solutions will increasingly be
subject to infringement claims as the number of products and competitors in our
industry grows and the functionality of products overlaps. Any claims, with or
without merit, could be costly and time-consuming to defend, divert our
management's attention, or cause product delays. If our products were found to
infringe a third party's proprietary rights, we could be required to enter into
royalty or licensing agreements in order to be able to sell our products.
Royalty and licensing agreements, if required, may not be available on terms
acceptable to us or at all.


                                       19
<PAGE>   20

THE LACK OF A RELIABLE SUPPLY OF ELECTRICITY IN CALIFORNIA OR ELSEWHERE COULD
DISRUPT BOTH OUR OPERATIONS AND DAMAGE OUR ABILITY TO EARN REVENUE AND OUR
GENERAL BUSINESS CONDITION.

        California has recently experienced ongoing power system shortages which
have resulted in "rolling blackouts," and the recent bankruptcy filing by one of
the major California public utilities may increase the number and severity of
these blackouts. These blackouts, blackouts in other regions or procedures
implemented to avert blackouts could cause disruptions to our operations and the
operations of our customers. Such disruptions, particularly at the end of a
quarter, could adversely affect quarterly revenues and net income by delaying
the closing of a number of licensing transactions.

IF WE DO NOT SUCCESSFULLY ADDRESS THE RISKS INHERENT IN OUR INTERNATIONAL
OPERATIONS, OUR BUSINESS COULD SUFFER.

        In the year ended March 31, 2001, we continued to pursue international
sales of our products. We derived 26% of our revenue from international sales in
the year ended March 31, 2001, compared to 13% in the year ended March 31, 2000.
Although we intend to continue to operate in international markets and spend
financial and managerial resources to do so, we have recently reduced our
international operations. If revenues from international operations do not
exceed the expense of maintaining these operations, our business, financial
condition and operating results will suffer. We have limited experience in
international operations and may not be able to compete effectively. We face
certain risks inherent in conducting business internationally, including:

        -   longer accounts receivable collection cycles;

        -   expenses associated with localizing products for foreign markets;

        -   difficulties in managing operations across disparate geographic
            areas;

        -   difficulties in hiring qualified local personnel;

        -   difficulties associated with enforcing agreements and collecting
            receivables through foreign legal systems;

        -   unexpected changes in regulatory requirements that impose multiple
            conflicting tax laws and regulations;

        -   fluctuations in currency exchange rates and imposition of currency
            exchange controls;

        -   Potentially adverse tax consequences; and

        -   Reduced protection for intellectual property rights in some
            countries.

INCREASING GOVERNMENT REGULATION OF THE INTERNET COULD LIMIT THE MARKET FOR OUR
PRODUCTS AND SERVICES, OR IMPOSE ON US GREATER TAX BURDENS OR LIABILITY FOR
TRANSMISSION OF PROTECTED DATA.

        As electronic commerce and the Internet continue to evolve, we expect
that federal, state and foreign governments will adopt laws and regulations
covering issues such as user privacy, taxation of goods and services provided
over the Internet, pricing, content and quality of products and services. If
enacted, these laws and regulations could limit the market for electronic
commerce, and therefore the market for our products and services. Although many
of these regulations may not apply directly to our business, we expect that laws
regulating the solicitation, collection or processing of personal or consumer
information could indirectly affect our business.

        The Telecommunications Act of 1996 prohibits certain types of
information and content from being transmitted over the Internet. The
prohibition's scope and the liability associated with a Telecommunications Act
violation are currently unsettled. The imposition upon us and other software and
service providers of potential liability for information carried on or
disseminated through our applications could require us to implement measures to
reduce our exposure to this liability. These measures could require us to expend
substantial resources or discontinue certain services. In addition, although
substantial portions of the Communications Decency Act (the Act through which
the Telecommunications Act of 1996 imposes criminal penalties) were held to be
unconstitutional, similar legislation may be enacted and upheld in the future.
It is possible that this legislation could expose companies involved in
electronic commerce to liability, which could limit the growth of electronic
commerce generally. Legislation like the Telecommunications Act and the
Communications Decency Act could dampen the growth of Internet usage and
decrease its acceptance as a communications and commercial medium.


                                       20
<PAGE>   21

RESTRICTIONS ON EXPORT OF ENCRYPTED TECHNOLOGY COULD CAUSE US TO INCUR DELAYS IN
INTERNATIONAL PRODUCT SALES.

        Our software utilizes encryption technology, the export of which is
regulated by the United States government. If our export authority is revoked or
modified, if our software is unlawfully exported or if the United States adopts
new legislation restricting export of software and encryption technology, we may
experience delay or reduction in shipment of our products internationally.
Current or future export regulations could limit our ability to distribute our
products outside of the United States. While we take precautions against
unlawful exportation of our software, we cannot effectively control the
unauthorized distribution of software across the Internet.

THE ROLE OF ACQUISITIONS IN OUR GROWTH MAY BE LIMITED, WHICH COULD SERIOUSLY
HARM OUR CONTINUED OPERATIONS.

        In the past, acquisitions have been an important part of our growth
strategy. To gain access to key technologies, new products and broader customer
bases, we have acquired companies in exchange for shares of our common stock.
Because the recent trading price of our common stock has been significantly
lower than in the past, the role of acquisitions in our growth may be
substantially limited. If we are unable to acquire companies in exchange for our
common stock, we may not have access to new customers, needed technological
advances or new products and enhancements to existing products. This would
substantially impair our ability to respond to market opportunities, which could
adversely affect our operating results and financial condition.

WE HAVE IMPLEMENTED CERTAIN ANTI-TAKEOVER PROVISIONS THAT MAY PREVENT OR DELAY
AN ACQUISITION OF CALICO THAT MIGHT BE BENEFICIAL TO OUR STOCKHOLDERS.

        Provisions of our certificate of incorporation and bylaws, as well as
provisions of Delaware law, could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our stockholders. These
provisions include:

        -      establishment of a classified board of directors such that not
               all members of the board may be elected at one time;

        -      the ability of the board of directors to issue without
               stockholder approval up to 10,000,000 shares of preferred stock
               to increase the number of outstanding shares and thwart a
               takeover attempt;

        -      no provision for cumulative voting in the election of directors,
               which would otherwise allow less than a majority of stockholders
               to elect director candidates;

        -      limitations on who may call special meetings of stockholders;

        -      prohibiting stockholder action by written consent, thereby
               requiring all stockholder actions to be taken at a meeting of our
               stockholders; and

        -      establishing advance notice requirements for nominations for
               election to the board of directors or for proposing matters that
               can be acted upon by stockholders at stockholder meetings.

OUR STOCK PRICE HAS BEEN HIGHLY VOLATILE AND HAS EXPERIENCED A SIGNIFICANT
DECLINE, PARTICULARLY BECAUSE OUR BUSINESS DEPENDS ON THE INTERNET, AND MAY
CONTINUE TO BE VOLATILE AND DECLINE.

        The trading price of our common stock has fluctuated widely in the past
and is expected to continue to do so in the future, as a result of a number of
factors, many of which are outside our control. In addition, the stock market
has experienced extreme price and volume fluctuations that have affected the
market prices of many technology and computer software companies, particularly
Internet-related companies, and that have often been unrelated or
disproportionate to the operating performance of these companies. These broad
market fluctuations has adversely affect the market price of our common stock.
In the past, following periods of volatility in the market price of a particular
company's securities, securities class action litigation has often been brought
against that company. Current pending securities class action litigation could
result in substantial costs and a diversion of our management's attention and
resources. Our common stock reached a high of $31.313 during the year ended
March 31, 2001 and traded as low as $0.125 through June 30, 2001.


                                       21
<PAGE>   22

OUR HEADQUARTERS ARE LOCATED IN NORTHERN CALIFORNIA WHERE NATURAL DISASTERS MAY
OCCUR WHICH COULD DAMAGE OUR FACILITIES AND RENDER US UNABLE TO MANAGE OUR
BUSINESS FOR SOME PERIOD OF TIME.

        Our corporate headquarters is located in Northern California. Northern
California historically has been vulnerable to natural disasters and other
risks, such as earthquakes, which at times have disrupted the local economy and
posed physical risks to our property. In the event of such disaster, our
business would suffer. We presently do not have redundant, multiple site
capacity in the event of a natural disaster.


ITEM 2. PROPERTIES

        Our headquarters facility is located in San Jose, California. We lease
approximately 42,000 square feet for our corporate headquarters which includes
research and development, sales and marketing, general and administrative
operations. This lease expires in September 2004. We also lease office space for
sales and marketing activities in Boston, Massachusetts; Addison, Texas; Reston,
Virginia; New York, New York; Atlanta, Georgia; Reading, England; Tokyo, Japan
and Bangalore, India, under leases for terms expiring from March 2001 to
December 2005. We also have leased approximately 34,000 square feet of office
space in San Jose, California, Oakbrook, Illinois and Chicago, Illinois, all of
which we have sublet to unrelated third parties. We believe that our current
facilities will be adequate to meet our needs for the foreseeable future.


ITEM 3. LEGAL PROCEEDINGS

        Beginning in March, 2001, a number of complaints were filed in the
Southern District of New York seeking an unspecified amount of damages on behalf
of an alleged class of persons who purchased shares of our common stock between
the date of our initial public offering and the end of June, 2000. The
complaints name as defendants Calico and certain of its current and former
directors and officers, and several underwriters of our initial public offering.
Plaintiffs allege, among other things, that our prospectus, incorporated in the
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission was materially false and misleading because it failed to disclose
that the investment banks which underwrote Calico's initial public offering of
securities and others received undisclosed and excessive brokerage commissions,
and required investors to agree to buy shares of our securities after the
initial public offering was completed at predetermined prices as a precondition
to obtaining initial public offering allocations. The plaintiffs further allege
that these actions artificially inflated the price of our common stock after the
initial public offering. The plaintiffs attempt to state claims for violation of
Sections 11, 12 and 15 of the Securities Act of 1933, and under Section 10(b)
and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated by
the Securities Exchange Commission. On June 12, 2001, Judge Shira A. Scheindlin,
United States District Judge for the Southern District of New York, ordered
that: (a) all of the class action complaints be consolidated, (b) Cynthia Yuen
Lai Hui, Marshall Hui and Paul Statham be appointed to serve as lead plaintiffs
pursuant to the Private Securities Litigation Reform Act ("PSLRA"), and (c) the
law firms of Bernstein Liebhard & Lifschitz LLP of New York and Schiffrin &
Barroway of Bala Cynwood Pennsylvania be appointed and serve as lead counsel for
plaintiffs pursuant to the PSLRA. Calico and the other defendants will be
required to respond to a consolidated amended complaint at the end of August,
2001. While management intends to defend the actions vigorously, the litigation
is in the preliminary stage, and we cannot predict the outcome with certainty.
We may incur substantial legal fees and expenses, and the litigation may divert
the attention of some of our key management. Our defense of this litigation,
regardless of its outcome, may be costly and time-consuming. Should the outcome
of the litigation be adverse to us, we could be required to pay significant
monetary damages to the plaintiffs, which could harm our business.

        We are also subject to various other claims and legal actions arising in
the ordinary course of business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these matters is
not expected to have a material effect on our business, financial condition or
results of operations.


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


                                       22
<PAGE>   23

        No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this report.


                                     PART II


ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        Our Common Stock is traded on the Nasdaq National Market under the
symbol "CLIC." Public trading of our common stock commenced on October 7, 1999.
Prior to that date, there was no public market for our common stock. The
following table sets forth, for the periods indicated, the high and low closing
sales prices per share of our common stock as reported on the Nasdaq National
Market, during each quarter the stock has been publicly traded.

<TABLE>
<CAPTION>
         YEAR ENDED MARCH 31, 2001                   HIGH              LOW
<S>                                                  <C>               <C>
         First Quarter                               $31.31            $12.25
         Second Quarter                               17.75             5.81
         Third Quarter                                6.13              0.59
         Fourth Quarter                               2.53              0.30
</TABLE>

<TABLE>
         YEAR ENDED MARCH 31, 2000                   HIGH              LOW
<S>                                                  <C>               <C>
         Third Quarter (from October 7, 1999)        $75.00            $40.00
         Fourth Quarter                               58.88             30.00
</TABLE>


        As of May 31, 2001, there were approximately 533 holders of record of
our common stock. This number does not include stockholders whose shares are
held in trust by other entities. The actual number of stockholders is greater
than this number of holders of record. We estimate that the number of beneficial
stockholders of the shares of our common stock as of May 31, 2001 was
approximately 15,500.

        We have never declared or paid any cash dividends on our common stock.
We currently intend to retain any earnings, if any, for use in our business and
do not anticipate paying any cash dividends in the foreseeable future. In
addition, our existing credit facilities prohibit the payment of cash or stock
dividends on our capital stock without the lender's prior written consent. See
Item 7--"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."

        Under the exemption afforded by Section 4(2) of the Securities Act of
1933, as amended, Calico from time to time issues to various of our business
partners warrants to purchase unregistered shares of our common stock. During
the quarter ended December 31, 2000, we issued an aggregate of two warrants,
each to purchase 50,0000 shares of our common stock, to two business partners.
The per share exercise price of the warrants is $1.50 and $1.00 Both warrants
expire December 28, 2002.

During the year ended March 31, 2001, we issued an aggregate of 354,000 shares
of our common stock upon the exercise of outstanding options to purchase our
common stock. A portion of those shares were issued pursuant to an exemption by
reason of Rule 701 under the Securities Act of 1933.


                                       23
<PAGE>   24
ITEM 6. SELECTED FINANCIAL DATA

        You should read the following selected financial data in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our audited consolidated financial statements and related notes
included elsewhere in this report. The statement of operations data set forth
below for the years ended March 31, 2001, 2000 and 1999 and the balance sheet
data as of March 31, 2001 and 2000 are derived from, and are qualified by
reference to, our audited financial statements included elsewhere in this
report. The statement of operations data set forth below for the years ended
March 31, 1998 and 1997 and the balance sheet data as of March 31, 1999, 1998
and 1997 are derived from audited consolidated financial statements not included
in this report. Share and per share data applicable to prior periods has been
restated to give retroactive effect to our stock split effected in August 1999.
Historical results are not necessarily indicative of results to be expected in
any future period. The results for fiscal year 2001 include restated results for
the first, second and third quarters of fiscal 2001 for certain financial
reporting matters affecting revenue and expenses which was previously reported
in those quarters.

                      CONSOLIDATED SELECTED FINANCIAL DATA
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)



<TABLE>
<CAPTION>
                                                                     YEAR ENDED MARCH 31,
                                               -----------------------------------------------------------------------
                                                 2001           2000           1999           1998             1997
                                               ---------      ---------      ---------      ---------       ---------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:

Total net revenue                              $  29,734      $  35,624      $  21,413      $  11,859       $   5,903
Gross profit                                       8,113         20,028         12,741          8,479           3,603
Loss from operations                            (142,969)       (30,163)       (15,238)        (5,458)         (6,921)
Net loss                                        (141,329)       (27,801)       (15,261)        (5,499)         (6,900)
Net loss per share:
     Basic and diluted                         $   (4.09)     $   (1.36)     $   (2.25)     $   (1.08)      $   (2.12)
     Weighted average shares                      34,525         20,450          6,775          5,075           3,250

<CAPTION>

                                                                             MARCH 31,
                                               ----------------------------------------------------------------------
                                                 2001           2000           1999           1998             1997
                                               ---------      ---------      ---------      ---------       ---------
<S>                                            <C>            <C>            <C>            <C>             <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents                      $   8,354      $  25,917      $  15,441      $   2,514       $   1,921
Working capital                                   21,225         66,112         10,187             44             353
Total assets                                      44,730        188,660         31,368          7,692           4,356
Debt and capital leases, long term portion            32          1,519            877            814             815
Total Mandatorily Redeemable
  Convertible Preferred Stock                         --             --         32,535         14,505           9,500
Total stockholders' equity (deficit)           $  27,331      $ 163,984      $ (16,780)     $ (13,428)      $  (8,854)
</TABLE>



                                       24
<PAGE>   25

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

        The following discussion contains forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements are
based upon current expectations that involve risks and uncertainties. Any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Our actual results could differ
substantially from those anticipated in these forward-looking statements as a
result of many factors, including those set forth under "Item 1. Business--Risk
Factors That Could Affect Our Future Performance." The following discussion
should be read in conjunction with our financial statements and related notes
included elsewhere in this report.

        Calico Commerce provides interactive selling software that enables our
customers to sell broad and complex product offerings through their different
sales channels as well as direct to customers over the Internet. We were
incorporated in April 1994 in California and were reincorporated in Delaware in
September 1999. From May 1994 through March 1997, we generated revenue primarily
from the license of products based upon our first generation configuration
technology. In March 1997, we released our first product designed for use over
the Internet and corporate networks. In March 2000, we introduced Calico
Advisor(TM), a product with a next generation configuration and recommendation
application designed for large scale e-commerce sites. Our products are entirely
Java and standards-based, and contain advanced configuration, recommendation and
pricing technology that allows our customers to interact directly with users to
create a web-based, guided selling experience that improves order accuracy,
shortens sales cycles and results in improved customer satisfaction.

        To date we have derived substantially all of our revenue from licensing
our software and the delivery of associated implementation and support services,
and we have sold our products worldwide primarily through our direct sales
force. The mix of products and services sold varies by customer, and follow-on
sales typically reflect an expansion of the use of our products within the
customer's business, rather than a migration to different products.

        Licenses for our products are sold in different methods, such as per
user, per site or per enterprise. Customer licenses are typically several
hundred thousand dollars. The price of our annual maintenance contracts are
based on a percentage of the related product license price and is generally paid
in advance. Consulting fees for implementation and training are generally priced
on a per hour basis. We charge standard hourly rates based upon the nature of
the services and the experience of the professionals performing the services,
and such services are separately priced in contracts.

        For contracts with multiple elements, and for which vendor-specific
objective evidence of fair value exists for the undelivered elements, we
recognize revenue for the delivered elements based upon the residual contract
value as prescribed by SOP 98-9. Revenue from license fees is recognized when
persuasive evidence of an agreement exists, the product has been delivered, no
significant company obligations with regard to implementation or integration
exist, the license fee is fixed or determinable, and collection of the fee is
probable. Arrangements for which the fees are not deemed probable for collection
are recognized upon cash collection. Arrangements for which the fees are not
deemed fixed or determinable are recognized in the period they become due. If
the arrangement involves significant customization of the software or services
which are essential to the functionality of the software, the license revenue is
recognized under contract accounting using the percentage-of-completion method
the which is generally based upon the number of labor hours completed as the
measure of progress towards completion. A provision for estimated losses on
engagements is made in the period in which the loss becomes probable and can
reasonably be estimated.

        Services revenue primarily comprises revenue from consulting services,
maintenance contracts and training. Services revenue from consulting and
training is generally recognized as the service is performed. Maintenance
contracts include the right to unspecified upgrades and ongoing support.
Maintenance revenue is deferred and recognized on a straight-line basis as
services revenue over the life of the related contract, which is typically one
year. Our customers generally purchase maintenance contracts with their initial
software implementation. Future renewal rates are included as a term of the
contract, and we use the renewal rate as vendor-specific objective evidence of
fair value for post-contract support. Revenue under arrangements where multiple
products or services are sold together is allocated to each element based on
their relative fair values.


                                       25
<PAGE>   26



        We bill customers in accordance with contract terms. Customer advances
and amounts billed to customers in excess of revenue recognized are recorded as
deferred revenue. Amounts recognized as revenue in advance of billing are
recorded as unbilled receivables.

        Our cost of license revenue includes royalties due to third parties for
technology integrated into our products, the cost of product documentation, and
shipping and delivery costs. Cost of services revenue consists primarily of
personnel-related expenses, subcontracted consultants, travel costs, equipment
costs and overhead associated with delivering professional services to our
customers.

        Our operating expenses are classified into three general categories:
sales and marketing, research and development, and general and administrative.
We classify all charges to these operating expense categories based on the
nature of the expenditures.

        Since our inception, we have incurred substantial costs to develop our
products and to recruit, train and compensate personnel for our engineering,
sales, marketing and administrative departments. As a result, we have incurred
substantial quarterly and annual losses since inception, and we expect to
continue to incur losses on both a quarterly and annual basis for the
foreseeable future. We incurred net losses of $141.3 million for fiscal 2001,
$27.8 million for fiscal 2000, and $15.3 million for fiscal 1999. As of March
31, 2001, we had an accumulated deficit of $198.8 million.

        In order to streamline operations, reduce costs and reduce staffing and
overhead costs, we restructured our organization in the fourth quarter of fiscal
2001 and the first quarter of fiscal 2002. During this time our total headcount
declined by approximately 200 people. As of May 31, 2001, we had approximately
172 full-time employees. We anticipate that we will make additional reductions
in our workforce and additional cuts to our overhead costs. As part of our
restructurings, we are reducing our facilities commitments and office space and
disposing of excess capital equipment and software maintained for internal use.
We expect to record an operating charge in the quarter ending June 30, 2001
related to the restructuring plan. We incurred restructuring charges in the
quarter ended March 31, 2001 in the aggregate amount of $1.4 million.

        In January 2000, we acquired ConnectInc.com, a provider of technology
and services that dynamically connect buying and selling companies over the
Internet. Under the terms of the Agreement and Plan of Merger dated November
19,1999, among ConnectInc.com and Calico Acquisition Corporation, approximately
1.4 million shares of Calico Common Stock were exchanged for all outstanding
shares, options and warrants of ConnectInc.com. The acquisition was accounted
for using the purchase method of accounting and, accordingly, the net assets and
results of operations of ConnectInc.com have been included in our consolidated
financial statements since the acquisition date. Of the total purchase price of
$90.5 million, approximately $3.6 million was allocated to tangible assets
acquired, offset by $5.4 million of liabilities assumed and the remainder was
allocated to intangible assets including customer base of $150,000, in-place
workforce of $2.6 million, in-process research and development of $230,000,
existing technology of $5.0 million and goodwill of $84.2 million. The estimate
of fair value of the net assets acquired was based on an independent appraisal
and management estimates. The acquired in-process research and development was
expensed in the period of acquisition. The other acquired intangible assets,
excluding goodwill, were amortized using estimated useful lives of three years.
Goodwill was amortized using the straight-line method over three years. We
structured the acquisition as a tax-free exchange of stock; therefore, the
differences between the recognized fair values of acquired assets, including
tangible and intangible assets, and their historical tax bases are not
deductible for tax purposes.

        In connection with the acquisition, we assumed all outstanding options
and warrants of Connect, of which 58% were vested options and 41% were unvested
options and 1% were warrants. The fair value of the unvested options was
included in the total purchase consideration. Upon acquisition, these options
and warrants converted to options and warrants to acquire an aggregate of
219,717 shares of common stock and warrants, with an average



                                       26
<PAGE>   27
exercise price of $20.77 per share. We used the Black Scholes option pricing
model to determine the fair value of approximately $10.8 million for the assumed
options and warrants, based on the following assumptions: (i) risk free rate of
5.6%; (ii) average expected life of 2.5 years; (iii) expected volatility of 75%;
and (iv) no dividends expected to be paid on the outstanding shares. This amount
was included as a component of the purchase price.

        On March 20, 2001, we sold the assets of ConnectInc.com, our
wholly-owned subsidiary, consisting of Connect's MarketMaker product line, in
exchange for approximately 1.63 million shares of common stock of Digital River,
Inc., valued at $7.9 million on the date of sale. The assets sold to Digital
River primarily consisted of our MarketMaker software product and the related
intellectual property rights. The agreement with Digital River includes a
contingent earnout whereby we may receive additional shares of Digital River's
common stock based upon the revenue generated by the MarketMaker product, from
sales by Digital River or by us, over the 13 months following March 21, 2001. We
also signed an agreement with Digital River, whereby we may still sell the
MarketMaker product, either as a stand-alone product or as part of our suite,
and Digital River may sell our Price Point product. The royalty and support
amounts to be paid under the agreement vary according to the type and
geographical location of the sale.

        We are restricted in the number of shares of Digital River common stock
that we can sell in any period. During the 180 day period following the
effectiveness of the registration statement on Form S-3 that has been filed by
Digital River covering the shares, we can only sell 80% of the shares of Digital
River common stock received. In addition, we are also limited to selling no more
than 175,000 shares within a consecutive five-day trading period.

        We incurred a loss on the sale in the aggregate amount of $49.7 million,
calculated as follows (in thousands):

<TABLE>
<S>                                                              <C>
            Fair value marketable securities received             $  7,846
            Book value equipment and intangible assets             (56,807)
            Transaction costs                                         (706)
                                                                  --------
                              Loss on sale                        $(49,667)
                                                                  ========
</TABLE>

        In August 1998, we acquired all of the outstanding shares of FirstFloor
Software, Inc., a developer and marketer of interactive marketing systems for
business-to-business communications, in exchange for 1.2 million shares of our
Series D preferred stock, valued at $4.558 per share. In addition, we assumed
all of the outstanding options to purchase FirstFloor common stock and converted
them into options to acquire 47,203 shares of our Series D preferred stock. We
accounted for the acquisition using the purchase method of accounting. Of the
total purchase price, valued at approximately $6.1 million, approximately $1.8
million was allocated to in-process research and development and immediately
charged to operations, $360,000 to tangible assets, $1.5 million to existing
products and core technology, $2.0 million to liabilities assumed, and $4.3
million to goodwill. The intangible assets will be amortized over their
estimated useful lives which range from seven to 48 months. We structured the
acquisition as a tax-free exchange of stock; therefore, the differences between
the recognized fair values of acquired assets, including tangible and intangible
assets, and their historical tax bases are not deductible for tax purposes.

        As part of our review of our fourth quarter financial results, an
impairment assessment of our long-lived assets was performed. The assessment was
performed primarily due to the significant decline in our stock price, the
overall decline in industry growth rates and our lower fourth quarter and
projected fiscal 2002 operating results. As a result, we determined that the
carrying value of goodwill and other intangible assets identified below would
not be recoverable based upon the existence of one or more of these indicators
of impairment, and recorded an impairment charge aggregating $3.8 million in the
fourth quarter of fiscal 2001, as described below.

        We recorded a $1.4 million impairment charge to adjust goodwill and
other intangible assets and deferred costs associated with our acquisition of
First Floor Software, Inc. to $0, which approximated its estimated fair value.
The estimate of fair value was based upon the discounted estimated cash flows
for the succeeding three years using a discount rate of 25%. The assumption
supporting the estimated cash flows, including the discount rate and an
estimated terminal value, reflects management's best estimates. The discount
rate was primarily based upon the weighted average cost of capital for
comparable companies.

        Due to the large amount of excess computer equipment on hand at March
31, 2001, primarily resulting from our reduction in force announced in January
2001, an assessment of the carrying value of property and equipment was
performed. All excess capital equipment (i.e. no longer in service) was reduced
to its residual value based on published resale information. The carrying value
of assets determined not to have any significant resale value were reduced to
zero. As a result, an impairment charge of $1.1 million was recorded in the
fourth quarter of fiscal 2001.

        In addition, during the fourth quarter of fiscal 2001, we determined
that certain of our investments had suffered an other-than-temporary decline in
value primarily due to the limited liquidity and poor prospects for additional
funding. We thus reduced their carrying amounts to their estimated fair value by
a charge of $1.3 million to results of operations.

        We have incurred quarterly and annual losses in each of the six years
since we were formed, and we expect to continue to incur losses on both a
quarterly and annual basis for the foreseeable future. We incurred net losses of
$77.1 million and $141.3.0 million for the three and twelve months ended March
31, 2001, respectively, as well as $27.8 million, $15.3 million and $5.5 for the
fiscal years ended March 31, 2000, 1999 and 1998, respectively. As of March 31,
2001, we had an accumulated deficit of $198.8 million. We believe that our
prospects must be considered in light of the risks, expenses and difficulties
frequently experienced by companies in early stages of development, particularly
companies in rapidly evolving markets such as ours. Although we have recently
taken steps to reduce operating expenses, we are facing increasing competition
in our markets, a worsening economic


                                       27
<PAGE>   28

outlook and declining expenditures on enterprise software products. We do not
expect to achieve profitability in the next 12 months and may not ever achieve
or maintain profitability.

RESULTS OF OPERATIONS

        We have restated the financial results of our first, second and third
quarters for the year ended March 31, 2001 for certain financial reporting
matters affecting revenue and expenses which was previously reported in those
quarters. As a result, our financial results for these three quarters were
materially restated or revised, and the revised results are reflected in the
following tables.

        The following tables present selected data for the periods presented, as
well as such data expressed as a percentage of total net revenues:


<TABLE>
<CAPTION>
                                                         YEAR ENDED MARCH 31                       AS A PERCENTAGE
                                                            (IN THOUSANDS)                       OF TOTAL NET REVENUE
                                                  ---------------------------------        -----------------------------------
                                                   2001         2000          1999          2001         2000            1999
                                                  -------      -------      -------        -------      -------        -------
<S>                                              <C>          <C>           <C>            <C>          <C>           <C>
Net Revenue:
License                                           $12,992      $17,030       10,482           44%           48%           49%
Services                                           16,742       18,594       10,931           56            52            51
                                                  -------      -------      -------        -----         -----         -----
Total of net revenue                               29,734       35,624       21,413          100           100           100
                                                  -------      -------      -------        -----         -----         -----

Cost of Net Revenue:
License                                             1,354        1,143          362            5             3             2
Amortization of purchased technology                1,860          739          817            6             2             4
Services                                           18,407       13,714        7,493           62            38            34
                                                  -------      -------      -------        -----         -----         -----
Total cost of net revenue                          21,621       15,596        8,672           73            43            40
                                                  -------      -------      -------        -----         -----         -----
Gross profit                                        8,113       20,028       12,741           27            57            60
                                                  -------      -------      -------        -----         -----         -----

Operating expenses:
Sales and marketing                                37,278       21,881       15,066          125            61            70
Research and development                           22,892       15,736        6,055           77            44            28
General and administrative                          8,343        6,566        4,468           28            19            21
Acquired in-process research and development           --          230        1,840           --             1             9
Amortization of intangibles and other assets       29,125        5,778          550           98            16             3
Restructuring expenses                              1,362           --           --            5            --            --
Impairment and loss on disposal
   of long-lived assets                             2,415           --           --            8            --            --
Loss on sale of product line                       49,667           --           --          167            --            --
                                                  -------      -------      -------        -----         -----         -----
Total operating expenses                          151,082       50,191       27,979          508           141           131
                                                  -------      -------      -------        -----         -----         -----
</TABLE>


                                       28
<PAGE>   29


<TABLE>
<S>                                              <C>           <C>          <C>             <C>           <C>           <C>
Loss from operations                             (142,969)     (30,163)     (15,238)        (481)          (84)          (71)

Interest and other income/(expenses), net           3,624        2,362          (23)          12             7            --
Write-down of long-term investments                (1,350)          --           --           (5)           --            --
                                                  -------      -------      -------        -----         -----         -----
Net loss before income taxes                     (140,695)     (27,801)     (15,261)        (473)          (77)          (71)
Provision for income taxes                           (634)          --           --            2            --            --
                                                  -------      -------      -------        -----         -----         -----
Net loss                                          $(141,329)   $(27,801)    (15,261)        (475)%         (77)%         (71)%
                                                  =======      =======      =======        =====         =====         =====
</TABLE>

COMPARISON OF FISCAL YEARS ENDED MARCH 31, 2001, 2000 AND 1999

REVENUE

        Total net revenue decreased 17% to $29.7 million in fiscal 2001 from
$35.6 million in fiscal 2000, and increased 66% in fiscal 2000 from $21.4
million in fiscal 1999.

        License. License revenue decreased 24% to $13.0 million in fiscal 2001
from $17.0 million in fiscal 2000, and increased 62% in fiscal 2000 from $10.5
million in fiscal 1999. License revenue as a percentage of total net revenue was
44% in fiscal 2001, 48% in fiscal 2000 and 49% in fiscal 1999. The decrease in
license revenue in absolute dollars from fiscal 2000 to fiscal 2001 is
attributable primarily to a decrease in the average dollar value per license
transaction. The number of license transactions recognized during fiscal 2001
remained relatively constant when compared to fiscal 2000. The increase in
license revenue in absolute dollars in fiscal 2000 is attributable to an
increase in the number of license transactions recognized during the period.

        Services. Services revenue decreased 10% to $16.7 million in fiscal 2001
from $18.6 million in fiscal 2000, and increased 71% in fiscal 2000 from $10.9
million in fiscal 1999. Services revenue as a percentage of total net revenue
was 56% in fiscal 2001, 52% in fiscal 2000 and 51% in fiscal 1999. The decrease
in services revenue in absolute dollars in fiscal 2001 is attributable primarily
to a decrease in the average amount of services purchased in connection with
new license transactions. The increase in services revenue in absolute dollars
in fiscal 2000 is attributable to an increase in the number and size of
consulting engagements, as well as an increase in the installed base of
customers and in the average size of maintenance contracts.

COST OF REVENUE

        License. Cost of license revenue increased 18% to $1.4 million in fiscal
2001 from $1.1 million in fiscal 2000, and increased 216% in fiscal 2000 from
$362,000 in fiscal 1999. Cost of license revenue as a percentage of total net
revenue was 5% in fiscal 2001, 3% in fiscal 2000 and 2% in fiscal 1999. The
increase in cost of license revenue as a percentage of license revenue in fiscal
2001 is due primarily to an increase in the number of our products which incur
royalties for embedded technology. The increase in cost of license revenue as a
percentage of license revenue in fiscal 2000 is due to royalties paid to third
parties for embedded technology. Since it is our continuing strategy to license
third-party technology for inclusion in our products, we expect the cost of
license revenue as a percentage of license revenue to fluctuate or increase in
future periods.

        Amortization of Purchased Technology. Expenses for amortization of
purchased technology increased to $1.9 million in fiscal 2001 from $739,000 in
fiscal 2000, and decreased in fiscal 2000 from $817,000 in fiscal 1999. The
increase in expenses for amortization of purchased technology in fiscal 2001 was
due to the amortization of existing technology acquired in the ConnectInc.com
acquisition. As a result of the sale of the ConnectInc.com product, MarketMaker,
this cost will not recur. The decline in fiscal 2000 is due to one of the two
products acquired in the acquisition of FirstFloor being fully amortized, offset
by the $278,000 of amortization related to the additional $5.0 million of
existing technology acquired in the acquisition of ConnectInc.com.


                                       29
<PAGE>   30
        Services. Cost of services revenue increased 34% to $18.4 million in
fiscal 2001 from $13.7 million in fiscal 2000, and increased 83% in fiscal 2000
from $7.5 million in fiscal 1999. Cost of services revenue as a percentage of
total net revenue was 62% in fiscal 2001, 38% in fiscal 2000 and 35% in fiscal
1999. The increase in cost of services revenue in absolute dollars in fiscal
2001 is primarily due to costs associated with increased personnel and
subcontractor expenses in our services organization. Services experienced a
negative gross margin in the year ended March 31, 2001 due to expenses for
project activities beyond the billable scope of engagements, work on engagements
where revenue was not recognized because of customer creditworthiness,
investments in services infrastructure, as well as additional costs incurred due
to starting up our services organization in Japan. As part of our restructuring
plan, we have significantly reduced the size and cost of our services
organization, and expect to make further reductions in our workforce. The
increase in cost of services revenue in absolute dollars in fiscal 2000 is
primarily due to costs associated with increased personnel in our services
organization. The increase in cost of services revenue as a percentage of
services revenue in fiscal 2000 is primarily due to costs of contract personnel
used to augment company services capacity, as well as investments in
infrastructure and training to support our systems integrator products.

OPERATING EXPENSES

        Sales and Marketing. Sales and marketing expenses increased 70% to $37.3
million in fiscal 2001 from $21.9 million in fiscal 2000, and increased 45% in
fiscal 2000 from $15.1 million in fiscal 1999. Sales and marketing expenses as a
percentage of total net revenue was 125% in fiscal 2001, 61% in fiscal 2000 and
70% in fiscal 1999. Sales and marketing expenses increased in absolute dollars
in fiscal 2001 primarily due to increased personnel-related costs, resulting
from our expansion in the development of our domestic and international sales
and marketing organizations, including our expansion into Japan during fiscal
2001, as well as advertising and other marketing activities. We expect that
sales and marketing expenses will decline in absolute dollars as a result of our
restructuring and reductions in work force. Sales and marketing expenses
increased in absolute dollars in fiscal 2000 primarily due to increased
personnel-related costs, resulting from our continued investment in the
development of our domestic and international sales and marketing organizations.

        Research and Development. Research and development expenses increased
45% to $22.9 million in fiscal 2001 from $15.7 million in fiscal 2000, and
increased 157% in fiscal 2000 from $6.1 million in fiscal 1999. Research and
development expenses as a percentage of total net revenue was 77% in fiscal
2001, 44% in fiscal 2000 and 28% in fiscal 1999. Research and development
expenses increased in absolute dollars and as a percentage of total net revenue
in fiscal 2001 as a result of the addition of engineering and product
development personnel and consultants, partially due to our acquisition of
ConnectInc.com and our addition of an engineering office in India.
Personnel-related expenses accounted for the majority of the increase in
absolute dollars. We believe that continued investment in new product
development is central to achieving our strategic objectives, but expect that
research and development expenses will decline in absolute dollars as a result
of our restructuring and reductions in workforce. Research and development
expenses increased in absolute dollars and as a percentage of total net revenue
in fiscal 2000 as a result of the addition of engineering and product
development personnel and consultants. Personnel-related expenses accounted for
the majority of the increase in absolute dollars.

        General and Administrative. General and administrative expenses
increased 27% to $8.3 million in fiscal 2001 from $6.6 million in fiscal 2000,
and increased 47% in fiscal 2000 from $4.5 million in fiscal 1999. General and
administrative expenses as a percentage of total net revenue were 28% in fiscal
2001, 18% in fiscal 2000 and 21% in fiscal 1999. General and administrative
expenses increased in absolute dollars in fiscal 2001 due to increased bad debt
provisions and increased personnel costs. General and administrative expenses
declined in the fourth quarter in response to our restructuring plan and
reductions in workforce, and we expect these expenses to decline further.
General and administrative expenses increased in absolute dollars in fiscal
2000 as a result of increased personnel-related costs resulting from the growth
of our finance, human resources and information systems staff, along with
increased legal and financial advisory fees. General and administrative expenses
declined slightly in fiscal 2000 as a percentage of net revenues due primarily
to higher sales growth.

        Acquired in-Process Research and Development. In fiscal 2001 we made no
charges to acquired in-process research and development. In fiscal 2000, in
connection with our acquisition of ConnectInc.com, we ascribed $230,000 to three
specific in-process research and development projects -- all additional features
to be added to the MarketStream product (which we renamed as MarketMaker) --
which was charged to operations in the quarter ended March 31, 2000.


                                       30
<PAGE>   31

        To value the in-process technology, we used the income approach.
Management estimated revenue that each in-process product will generate over its
economic life. From this amount, a deduction was made for the revenue that is
attributable to the previously existing technology. The result is the revenue
attributable to in-process technology for each in-process product, which we used
to apply the income approach. Cost of goods sold and estimated operating
expenses were then deducted, a 40% corporate tax rate applied and finally the
present value of the cash flow stream was calculated using a 35% discount rate.

        In connection with our acquisition of FirstFloor, we ascribed $1.8
million to two specific in-process research and development projects -- a
marketing information delivery system and a personalization solution -- which
was charged to operations in the quarter ended September 30, 1998.

        The amount of purchase price allocated to in-process research and
development in the FirstFloor acquisition was determined using appropriate
valuation techniques, including percentage-of-completion, which utilizes
research and development cost metrics and key milestones to estimate the stage
of development of each in-process research and development project at the date
of acquisition, estimating cash flows resulting from the revenue expected to be
generated from these projects, and discounting the net cash flows back to their
present value. The discount rate includes a factor that takes into account the
uncertainty surrounding the successful development of the purchased in-process
technology. The remaining identified intangibles, including the value of
acquired existing products and core technology, is amortized over the periods of
benefit ranging from 7 to 48 months.

UNEARNED STOCK COMPENSATION

        In connection with certain stock option grants during the years ended
March 31, 2001, 2000 and 1999, we recorded unearned compensation for the
estimated difference between the exercise price of the options and their deemed
fair value of the underlying common stock for accounting purposes on the date of
grant, totaling $0, $0, and $2.9 million, respectively. This amount is included
as a component of stockholders' equity and is being amortized on an accelerated
basis by charges to operations over the four year vesting period of the options,
consistent with the method described in Financial Accounting Standards Board
Interpretation No. 28. Net amortization of unearned compensation totaled
$218,000, $1.6 million, and $2.0 million for the years ended March 31, 2001,
2000 and 1999, respectively. The remaining unearned compensation will be
amortized in 2002 by charges to operations.

COMMON STOCK WARRANTS

        In September 1999, in connection with an equipment lease financing
arrangement, we issued a warrant to purchase 5,263 shares of common stock to an
equipment lessor. The warrant's fair value of $30,000 will be recognized as
interest expense over the life of the financing instrument. The warrant was
immediately vested and exercisable upon issuance and has a three year term.

        In December 1999, we entered into license, maintenance and services
agreements with a business partner. Concurrently with the license agreement, we
issued a common stock warrant to the business partner to purchase 4,108 shares
of our common stock at 85% of the average market price for the 20 consecutive
business days commencing 39 days before the date of grant, which was $45.05. The
warrant vested immediately and had a three year term. The warrant was valued at
$118,000.

        In March 2000, we entered into further license, maintenance and service
agreements with this business partner. Concurrently with the license agreement,
we issued a common stock warrant to the business partner to purchase 5,475
shares of our common stock at 85% of the average market price for the 20
consecutive business days

        In connection with sales transactions, we issued to customers a warrant
to purchase 5,395 shares in June 2000, and two warrants, each for 50,000
shares, in December 2000. The aggregate fair value of these warrants of $27,450
has been recorded as a reduction in revenue in the fiscal year ended March 31,
2001. Each of the warrants was immediately vested and exercisable upon issuance
and each warrant has a three year term.




                                       31
<PAGE>   32

commencing 30 days before the date of grant, which was $31.051. The warrant
vested immediately and had a three year term. The warrant was valued at
$115,000.

        The following lists information on the warrants we have issued to
business partners since September 1999:


<TABLE>
<CAPTION>
                                                                         ESTIMATED        FISCAL YEAR OF
            DATE OF GRANT           SHARES          EXERCISE PRICE       FAIR VALUE         EXPIRATION
            -------------           ------          --------------       ----------       --------------
<S>                                 <C>              <C>                 <C>                 <C>
            September 1999           5,263            $    9.50           $ 30,000            2002
            December 1999            4,108                45.05            118,000            2002
            March 2000               5,475                31.05            115,000            2003
            June 2000                5,395                12.60             27,450            2002
            December 2000           50,000                 1.50             13,600            2003
            December 2000           50,000                 1.00             18,950            2003
</TABLE>

AMORTIZATION OF INTANGIBLE ASSETS.

        Of the $6.1 million purchase price paid for FirstFloor Software and
$90.5 million for ConnectInc.com, amortization of intangibles expenses was $29.1
million in fiscal 2001, $5.8 million in fiscal 2000 and $550,000 in fiscal 1999,
reflecting the amortization of goodwill acquired as part of the FirstFloor and
ConnectInc.com acquisitions.

IMPAIRMENT OF LONG-LIVED ASSETS

        As part of our review of our fourth quarter financial results, an
impairment assessment of our long-lived assets was performed. The assessment was
performed primarily due to the significant decline in our stock price, the
overall decline in industry growth rates and our lower fourth quarter and
projected fiscal 2002 operating results. As a result, we determined that the
carrying value of goodwill and other intangible assets identified below would
not be recoverable based upon the existence of one or more of these indicators
of impairment, and recorded an impairment charge aggregating $3.8 million in the
fourth quarter of fiscal 2001, as described below.

        We recorded a $1.4 million impairment charge to adjust goodwill and
other intangible assets and deferred costs associated with our acquisition of
First Floor Software, Inc. to $0, which approximated its estimated fair value.
The estimate of fair value was based upon the discounted estimated cash flows
for the succeeding three years using a discount rate of 25%. The assumption
supporting the estimated cash flows, including the discount rate and an
estimated terminal value, reflects management's best estimates. The discount
rate was primarily based upon the weighted average cost of capital for
comparable companies.

        Due to the large amount of excess computer equipment on hand at March
31, 2001, primarily resulting from our reduction in force announced in January
2001, an assessment of the carrying value of property and equipment was
performed. All excess capital equipment (i.e. no longer in service) was reduced
to its residual value based on published resale information. The carrying value
of assets determined not to have any significant resale value were reduced to
zero. As a result, an impairment charge of $1.1 million was recorded in the
fourth quarter of fiscal 2001.

        In addition, during the fourth quarter of fiscal 2001, we determined
that certain of our investments had suffered an other-than-temporary decline in
value primarily due to the limited liquidity and poor prospects for additional
funding. We thus reduced their carrying amounts to their estimated fair value by
a charge of 1.3 million to results of operations.

        There were no impairment charges related to goodwill and other
intangible assets recorded in fiscal 2000 or 1999.

RESTRUCTURING EXPENSES

        On January 24, 2001, we announced a strategic restructuring plan,
designed to reduce operating expenses. In connection with the restructuring, we
reduced our workforce by approximately 36 employees in the quarter ending March
31, 2001, and significantly reduced the use of outside contract labor. We also
made provisions for reductions in office space and the disposal of related
assets.


                                       32
<PAGE>   33
        The total amount of the restructuring charge incurred in connection with
this strategic restructuring was $1.4 million.  The aggregate restructuring
charge is comprised of $590,000 in employee-related expenses for employee
terminations, $749,000 of estimated expenses for facilities-related charges
comprised of excess lease payments, and $24,000 for the disposal of certain
excess capital equipment. Of these amounts $24,000 were non-cash charges.

        Severance-related payments include an aggregate of approximately
$373,000 through March 31, 2001, with a remaining aggregate of $217,000 include
of  be expended through September 2001. The focus of the personnel reductions
was in the professional services and sales and marketing organizations in North
America, which were reduced by 12 and 22 positions, respectively.

        As of March 31, 2001, we had incurred costs totaling approximately
$557,000 related to the restructuring, which required $533,000 in cash
expenditures. The remaining reserve related to this restructuring was
approximately $805,000, which is included in accrued liabilities and relates
primarily to facilities charges and remaining severance payments.

        The following table lists the components of the January 2001
restructuring charge for the year ended March 31, 2001 (in thousands):


<TABLE>
<CAPTION>
                                                          Excess
                                      Employee          Facilities
                                        Costs          and Equipment            Total
                                      --------         -------------           -------
<S>                                    <C>                 <C>                 <C>
Initial reserve established            $   590             $   772             $ 1,362
Reserve utilized  in the
  year ended March 31, 2001               (373)               (184)               (557)
                                       -------             -------             -------
Balance at March 31, 2001              $   217             $   588             $   805
                                       =======             =======             =======
</TABLE>

LOSS ON THE SALE OF PRODUCT LINE

        In March 2001, we sold our MarketMaker business to Digital River, Inc.
in exchange for 1.6 million shares of common stock of Digital River, valued at
$7.9 million on the date of sale. We incurred a loss in fiscal 2001 on the sale
of these assets in the aggregate amount of $49.7 million, calculated as follows:

<TABLE>
<S>                                                              <C>
            Fair value marketable securities received             $  7,846
            Book value equipment and intangible assets             (56,808)
            Transaction costs                                         (705)
                                                                  --------
                              Loss on sale                        $(49,667)
                                                                  ========
</TABLE>

INTEREST AND OTHER INCOME, NET

        Interest and other income, net was $3.6 million in fiscal 2001, $2.4
million in fiscal 2000 and ($23,000) in fiscal 1999. The increases in fiscal
2001 and fiscal 2000 are both primarily due to interest generated on higher
average investments, cash and cash equivalents balances as a result of our
initial public offering in fiscal 2000.


IMPAIRMENT OF EQUITY INVESTMENTS

        During 2001, we determined that certain equity investments in
privately-held companies had incurred a decline in value that was considered
other-than -temporary. We recorded a charge of $1.4 million in our results of
operations to write-down the investments to their estimated fair values. See
Note 3 of Notes to Consolidated Financial Statements -- Investments.



                                       33
<PAGE>   34

INCOME TAXES

        We have incurred operating losses for all periods from inception through
March 31, 2001, and therefore have not recorded a provision for federal or state
income taxes for fiscal 2001, 2000 or 1999. However, in fiscal 2001, we have
generated revenues and established sales subsidiaries in foreign locales.
Accordingly, we have recorded a provision for income taxes of $634,000 for
fiscal 2001, representing the estimate of taxes due on income generated in our
foreign locations. The provision as a percentage of total net revenue was 2%.

        As of March 31, 2001, we had net operating loss carryforwards for
federal income tax reporting purposes of $109.8 million that expire in various
amounts beginning in fiscal 2009. We also had net operating loss carryforwards
for state income tax reporting purposes of $23.0 million that expire in various
amounts beginning in fiscal 2003. We had net deferred tax assets, including our
net operating loss carryforwards and tax credits of $39.5 million as of March
31, 2000. We have recorded a valuation allowance for the net deferred tax asset
balance of our deferred taxes assets, as the future realization of the tax
benefit is not currently likely. See note 6 of the notes to our consolidated
financial statements. Under the provisions of the Internal Revenue Code of 1986,
as amended, substantial changes in ownership may limit the amount of net
operating loss carryforwards that could be utilized annually in the future to
offset taxable income.

NET LOSS

        Our net loss was $141.3 million for fiscal 2001 and $27.8 million for
fiscal 2000. We have experienced increases in our expenditures since our
inception consistent with expansion of our operations and personnel, although we
have recently reduced our operating expenses. In addition, goodwill impairment,
amortization of goodwill and identifiable intangible assets, charges to fixed
assets and stock-based compensation charges have contributed to the significant
increase in our net loss during the year ended March 31, 2001.

QUARTERLY RESULTS OF OPERATIONS

        The following table sets forth our unaudited consolidated statement of
operations data for each of the four quarters during the fiscal years ended
March 31, 2001 and 2000. We have prepared this unaudited consolidated
information on a basis consistent with our audited consolidated financial
statements, and in the opinion of our management, this information reflects all
normal recurring adjustments necessary for a fair presentation of our operating
results for the quarters presented. You should read this information in
conjunction with our consolidated financial statements and related notes
included elsewhere in this prospectus. You should not draw any conclusions about
our future results from the operating results for any quarter.

        We have restated the financial results of our first, second and third
quarters for the year ended March 31, 2001 for certain financial reporting
matters affecting revenue which was previously reported in those quarters, due
to the following:

        -       Revenue transactions in which sales of software and services
                were contingent upon future events, or had rights to return the
                software, that were contained in side agreements or oral
                understandings, have been reversed;

        -       Revenue from a licensing transaction for which revenue was
                recognized and it was subsequently determined that the majority
                of the revenue should have been recorded in later quarters; and

        -       Revenue from two reciprocal/barter transactions have been
                reversed for which we believe there is insufficient
                contemporaneous evidence which would clearly support the
                expectation that the software would be deployed so as to realize
                the fair value ascribed to the software received in the
                transactions.

        In addition to the above adjustments, reclassifications were made in the
first, second and third quarters between cost of services and operating
expenses based upon an extensive analysis of the Company's cost of providing
professional services to its customers.

<TABLE>
<CAPTION>
                                        --------------------------------------------------------------------------------

                                        MARCH 31, 2001         DECEMBER 31, 2000                SEPTEMBER 30, 2000
                                                          AS REPORTED       AS RESTATED     AS REPORTED      AS RESTATED
                                        ---------------   -----------       -----------     -----------      -----------
                                                                          (IN THOUSANDS)
<S>                                        <C>              <C>              <C>              <C>              <C>
CONSOLIDATED STATEMENT
  OF OPERATIONS DATA:
Net Revenue:
License                                     $  2,936         $  1,569         $  1,569         $  4,245         $  3,461
Services                                       2,409            3,959            3,933            4,832            4,711
                                            --------         --------         --------         --------         --------
Total of net revenue                           5,345            5,528            5,502            9,077            8,172
                                            --------         --------         --------         --------         --------
Cost of net revenue:
License                                          751              851              851              275              275
Amortization of purchased technology                                                                483              483
Services                                       3,162            5,034            4,375            6,220            5,811
                                            --------         --------         --------         --------         --------
Total cost of net revenue                      3,913            5,885            5,226            6,978            6,569
                                            --------         --------         --------         --------         --------
Gross profit                                   1,432             (357)             276            2,099            1,603
                                            --------         --------         --------         --------         --------

</TABLE>

                                       34
<PAGE>   35
<TABLE>
<CAPTION>
                                        --------------------------------------------------------------------------------
                                                               DECEMBER 31, 2000                 SEPTEMBER 30, 2000
                                        MARCH 31, 2001    AS REPORTED       AS RESTATED     AS REPORTED      AS RESTATED
                                        ---------------   -----------       -----------     -----------      -----------
                                                                      (IN THOUSANDS)
<S>                                        <C>              <C>              <C>              <C>              <C>
Operating expenses:
Sales and marketing                            8,993           10,655           11,039            9,850           10,020
Research and development                       5,919            5,613            5,866            5,484            5,723
General and administrative                     2,643            2,473            2,370            1,846            1,824
Acquired in-process research
   and development                                --               --               --               --               --
Amortization of intangibles                    6,682            7,481            7,481            7,481            7,481
Restructuring and other activities             1,362               --               --               --               --
Impairment and loss on disposal
   of long-lived assets                        2,415               --               --               --               --
Sale of product line                          49,667               --               --               --               --
                                            --------         --------         --------         --------         --------
Total operating expenses                      77,681           26,222           26,756           24,661           25,048
                                            --------         --------         --------         --------         --------
Loss from operations                         (76,249)         (26,579)         (26,480)         (22,562)         (23,445)
Interest and other income, net                   717              849              849              947              947
Write-down of long term investments           (1,350)              --               --               --               --
                                            --------         --------         --------         --------         --------
Net loss before income taxes                 (76,882)         (25,730)         (25,631)         (21,615)         (22,498)
Provision for income taxes                      (220)            (414)            (414)              --               --
                                            --------         --------         --------         --------         --------
Net loss                                    $(77,102)        $(26,144)        $(26,045)        $(21,615)        $(22,498)
                                            ========         ========         ========         ========         ========

<CAPTION>
                                     ----------------------------------------------------------------------------------------------
                                             JUNE 30, 2000              MARCH 31,       DECEMBER 31,     SEPTEMBER 30,    JUNE 30,
                                     AS REPORTED      AS RESTATED         2000              1999            1999           1999
                                     -----------      -----------      -----------      -----------      -------------  -----------
                                                                             (IN THOUSANDS)
<S>                                   <C>              <C>              <C>              <C>              <C>            <C>
CONSOLIDATED STATEMENT
  OF OPERATIONS DATA:
Net Revenue:
License                                $  6,971         $  5,026         $  5,668         $  4,403         $  3,502       $  3,457
Services                                  5,609            5,689            5,627            4,317            4,674          3,976
                                       --------         --------         --------         --------         --------       --------
Total of net revenue                     12,580           10,715           11,295            8,720            8,176          7,433

Cost of net revenue:
License                                     357              357            1,055              455              236            137
Amortization of purchased technology        497              497
Services                                  5,208            5,059            4,375            3,112            3,516          2,712
                                       --------         --------         --------         --------         --------       --------
Total cost of net revenue                 6,062            5,913            5,430            3,567            3,752          2,849
                                       --------         --------         --------         --------         --------       --------
Gross profit                              6,518            4,802            5,865            5,153            4,424          4,584
                                       --------         --------         --------         --------         --------       --------


<CAPTION>
                                       -------------------------------------------------------------------------------------------
                                                JUNE 30, 2000          MARCH 31,       DECEMBER 31,     SEPTEMBER 30,   JUNE 30,
                                       AS REPORTED      AS RESTATED       2000              1999            1999          1999
                                       -----------      -----------    -----------      -----------      ------------- -----------
                                                                            (IN THOUSANDS)
<S>                                     <C>              <C>             <C>              <C>              <C>           <C>
Operating expenses:
Sales and marketing                         7,077            7,226          6,516            5,737            4,841         4,785
Research and development                    5,384            5,384          5,055            3,973            3,904         2,804
General and administrative                  1,506            1,506          1,108            1,935            1,974         1,549
Acquired in-process research
   and development                             --                             230                                --            --
Amortization of intangibles                 7,481            7,481          5,066              236              236           240
Restructuring and other activities             --               --             --               --               --
                                         --------         --------       --------         --------         --------      --------
Total operating expenses                   21,448           21,597         17,975           11,881           10,955         9,378
                                         --------         --------       --------         --------         --------      --------
Loss from operations                      (14,930)         (16,795)       (12,110)          (6,728)          (6,531)       (4,794)
Interest and other income, net              1,111            1,111          1,081            1,071               66            71
Write-down of investments                      --               --             --               --               --            --
Sale of assets                                 --               --             --               --               --            --
                                         --------         --------       --------         --------         --------      --------
Net loss before income taxes              (13,819)         (15,684)       (11,029)          (5,657)          (6,465)       (4,723)
Provision for income taxes                     --               --             --
                                         --------         --------       --------         --------         --------      --------
Net loss                                 $(13,819)        $(15,684)      $(11,029)        $ (5,657)        $ (6,465)     $ (4,723)
                                         ========         ========       ========         ========         ========      ========
</TABLE>

        The amount and timing of our operating expenses generally will vary from
quarter to quarter depending on our level of actual and anticipated business
activities. Our revenues and operating results are difficult to forecast and
will fluctuate, and we believe that period-to-period comparisons of our
operating results will not necessarily be meaningful. As a result, you should
not rely upon them as an indication of future performance.

        In the second half of fiscal 2001 quarterly results had negative
comparisons with the prior years quarters. License revenues declined 64% in the
third quarter and 48% in the fourth quarter of 2001 compared to the same
quarters in the prior year. Total revenues also declined significantly. These
negative revenue comparisons were due to a decline in its average license and
servicer revenue per transaction.

        Operating and net losses increased significantly in the fourth quarter
of 2001 compared to previous quarters of fiscal 2001 and the fourth quarter of
fiscal 2000. In addition to the impact of lower revenues these losses included
charges for restructuring activities, impairment of long-lived assets,
write-down of investments and the sale of a product line.

        RESTRUCTURING OF OPERATIONS

        On January 24, 2001, we announced a strategic restructuring plan,
designed to reduce operating expenses. In connection with the restructuring, we
reduced our workforce by 42 employees, and significantly reduced use of outside
contract labor. We also made provisions for reductions in office space and the
disposal of related assets.

        The total amount of the restructuring charge was $1.4 million. Of these
amounts, $24,000 were non-cash charges. The focus of the personnel reduction was
outside of the product development and customer service organizations, and
primarily affected sales and marketing functions. The reduction was also
designed to reduce the excess capacity in our consulting service organization.

        IMPAIRMENT OF LONG-LIVED ASSETS

        As part of our review of our fourth quarter financial results, an
impairment assessment of our long-lived assets was performed. The assessment was
performed primarily due to the significant decline in the Company's stock price,
the overall decline in industry growth rates and lower fourth quarter operating
results. As a result, an impairment charge aggregating $2.4 million was recorded
in the fourth quarter of fiscal 2001, as described below.

        As part of our review of our fourth quarter financial results, an
impairment assessment of our long-lived assets was performed. The assessment was
performed primarily due to the significant decline in our stock price, the
overall decline in industry growth rates and our lower fourth quarter and
projected fiscal 2002 operating results. As a result, we determined that the
carrying value of goodwill and other intangible assets identified below would
not be recoverable based upon the existence of one or more of these indicators
of impairment, and recorded an impairment charge aggregating $3.8 million in the
fourth quarter of fiscal 2001, as described below.

        We recorded a $1.4 million impairment charge to adjust goodwill and
other intangible assets and deferred costs associated with our acquisition of
First Floor Software, Inc. to $0, which approximated its estimated fair value.
The estimate of fair value was based upon the discounted estimated cash flows
for the succeeding three years using a discount rate of 25%. The assumption
supporting the estimated cash flows, including the discount rate and an
estimated terminal value, reflects management's best estimates. The discount
rate was primarily based upon the weighted average cost of capital for
comparable companies.

        Due to the large amount of excess computer equipment on hand at March
31, 2001, primarily resulting from our reduction in force announced in January
2001, an assessment of the carrying value of property and equipment was
performed. All excess capital equipment (i.e. no longer in service) was reduced
to its residual value based on published resale information. The carrying value
of assets determined not to have any significant resale value were reduced to
zero. As a result, an impairment charge of $1.1 million was recorded in the
fourth quarter of fiscal 2001.

        In addition, during the fourth quarter of fiscal 2001, we determined
that certain of our investments had suffered an other-than-temporary decline in
value primarily due to the limited liquidity and poor prospects for additional
funding. We thus reduced their carrying amounts to their estimated fair value by
a charge of $1.3 million to results of operations.

        Due to the large amount of excess computer equipment on hand at March
31, 2001, primarily resulting from the reduction in force of January 2001, an
assessment of the carrying value of property and equipment was performed. All
excess capital equipment was reduced to its residual value based on published
resale information and assets determined not to have any significant resale
value were written off. As a result, an impairment charge of $1.1 million was
recorded in the fourth quarter of fiscal 2001.


        SALE OF ASSETS

        In March 2001 the Company completed a sale of the intangible and capital
assets related to its MarketMaker application to Digital River, Inc. The
MarketMaker product had been acquired by the Company in January of 2000 via its
acquisition of Connect, Inc. Under the terms of the Asset Purchase Agreement,
the Company received 1.6 million shares of Digital River common stock, valued at
$7.9 million on the date of sale.

        The calculation of the loss on the sale was determined as follows (in
thousands):

<TABLE>
<S>                                                               <C>
     Fair value marketable securities received ...............   $  7,846
     Book value equipment and intangible assets ..............    (56,807)
     Transaction costs .......................................       (706)
                                                                 --------
        Loss on sale ........................................    $(49,667)
                                                                 ========
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

        In September 1999, we completed the initial public offering of our
common stock and realized net proceeds from the offering of approximately $81.7
million. Prior to the initial public offering, we had financed our operations
primarily from private sales of convertible preferred stock and common stock,
and, to a lesser extent, from bank borrowings and lease financing.

        As of March 31, 2001, we had $8.4 million of cash and cash equivalents
and $24.4 million of short-term investments, including 1.6 million shares of
Digital River common stock valued at approximately $7.8 million, compared with
$25.9 million of cash and cash equivalents and $49.7 million of short-term
investments as of March 31, 2000 and $15.4 million of cash and cash equivalents
as of March 31, 1999. We estimate that we will have approximately $14.0 million
in cash, cash equivalents and short-term investments, excluding the value of our
Digital River common stock, as of June 30, 2001.

        Cash used in operating activities was $51.2 million for fiscal 2001,
primarily from net losses, net of non-cash expenses including depreciation,
amortization and stock compensation, loss on the sale of our MarketMaker product
a decrease in accounts payable, accrued liabilities, and deferred revenue. Cash
used in operating activities was $17.7 million for fiscal 2000, primarily from
net losses, net of non-cash expenses including depreciation and stock
compensation, and increases in our accounts receivable and other current assets
offset by increases in accounts payable and accrued liabilities.

        Net cash provided by investing activities was $31.8 million for fiscal
2001, primarily related to net sales and maturities of investments, partially
offset by the purchase of capital equipment and software. Net cash used in
investing activities of $56.8 million for fiscal 2000, related primarily to the
purchase of investments after our initial public offering and, to a lesser
extent, purchases of computer equipment and software. Net cash used in investing
activities of $1.8 million for the year ended March 31, 1999 related primarily
to purchases of computer equipment and office furniture.



                                       35
<PAGE>   36

        Financing activities provided $1.8 million in fiscal 2001, primarily
related to the sales of our common stock through the exercise of stock options,
partially offset by payments on debt and leases. Net cash provided by financing
activities of $84.9 million for fiscal 2000 consisted primarily of net proceeds
from the sale of our common stock in our initial public offering. Net cash
provided by financing activities of $22.1 million for fiscal 1999 consisted
primarily of net proceeds from private sales of our convertible preferred stock
and common stock. We have used debt and leases to partially finance our
operations and capital purchases.

        At March 31, 2001, we had $1.8 million in current debt as well as
$133,000 in current and non-current lease obligations. Our debt and lease
obligations include a bank loan that is secured by the equipment financed by the
bank and with other assets including intellectual property. Our ability to
borrow under the bank loan expired on June 30, 2000. The bank loan bears
interest at the bank's prime rate plus .50% and principal payments are due
between March 2001 and February 2003. We also entered into three capital leases
for the lease of computer and office equipment due through January 2003 and one
note payable to an equipment financing company that bears interest at 7% per
annum, which was paid in full in October 2000. We issued a warrant to the bank
to purchase 5,263 shares of our common stock at $9.50 per share in September
1999.


        The terms of our bank loan require us to meet certain monthly and
quarterly financial tests, including minimum operating results and certain
liquidity, leverage and debt service ratios. At March 31, 2001 we were not in
compliance with the financial covenants concerning our quick ratio, minimum
tangible net worth and profitability due to larger than expected net operating
losses. We are currently applying for a waiver from the bank with respect to our
non-compliance with these financial tests. To obtain a waiver, we may have to
provide the bank with additional assets to secure the loan, including additional
restricted cash. The bank currently holds restricted cash in the amount of
$750,000 to secure our obligations under this facility, and we expect to
increase this restricted cash to at least $1.25 million. As a result of our
default of these covenants, without a waiver, the bank has the right to
accelerate payment of all amounts outstanding under the commitment and demand
immediate full payment of all amounts due, including outstanding interest and
any penalties. Accordingly, we have classified the outstanding balance under the
commitment as a current liability. If we are successful in obtaining a waiver
from the bank, then the appropriate portion of these notes will be reclassified
as long-term liabilities.

        Our capital requirements over the next twelve months will depend on many
factors, including our ability to achieve anticipated revenues and further
reduce operating expenses. To reduce our expenditures, we recently restructured
in several areas, including reduced staffing, expense management and curtailed
capital spending. For example, in the six months ended June 30, 2001, we reduced
our workforce by approximately 50% in order to reduce costs. However, as these
actions will not be sufficient for us to obtain a positive cash flow, we plan to
further reduce our expenditures and operating costs, including significant
workforce reductions in July. We expect operating losses and negative cash flows
from operations to continue for the foreseeable future. Our auditors have
included a paragraph in their report indicating that substantial doubt exists as
to our ability to continue as a going concern. We are uncertain as to whether
our cash balance, collections on accounts receivable and funding from projected
operations will be sufficient to meet our working capital and operating resource
expenditure requirements for the next 12 months, and believe it necessary for us
to achieve expected revenues and substantially reduce expenditures. If we are
unable to substantially increase revenues, reduce expenditures and collect upon
accounts receivable, or if we incur unexpected expenditures, or are unable to
liquidate our holdings in Digital River common stock on a timely basis and at an
acceptable price, then we will need to reduce expenses further through further
work force reductions and other cost cutting measures, and raise additional
funds in order to continue as a going concern. Especially in light of our
declining stock price and the extreme volatility in the technology capital
markets, additional funding may not be available on favorable terms or at all.
If additional funding is not available on acceptable terms when needed, we may
be unable to continue as a going concern and achieve our intended business
objectives.


                                       36
<PAGE>   37


        If we seek to raise additional funds, we may not be able to obtain funds
on terms which are favorable or otherwise acceptable to us. If we raise
additional funds through the issuance of equity securities, the percentage
ownership of our stockholders would be reduced. Furthermore, these securities
may have rights, preferences or privileges senior to our common stock.

RECENT ACCOUNTING PRONOUNCEMENTS

        In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 133 "Accounting for Derivative Instruments
and Hedging Activities." The new standard requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Under SFAS 133, gains or losses resulting from changes in the values of
derivatives are to be reported in the statement of operations or as a deferred
item, depending on the use of the derivatives and whether they qualify for hedge
accounting. The key criterion for hedge accounting is that the derivative must
be highly effective in achieving offsetting changes in fair value or cash flows
of the hedged items during the term of the hedge. The adoption of SFAS 133 did
not have any material effect on our results of operations, financial position or
cash flows as we have not engaged in any foreign currency or interest hedging
activities.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Exchange Rate Sensitivity

        We develop products in the United States and market our products in
North America, and to a lesser extent in Europe and Asia. As a result, our
financial results could be affected by factors such as changes in foreign
currency exchange rates or weak economic conditions in foreign markets. Because
nearly all of our revenue is currently denominated in U.S. dollars, a
strengthening of the dollar could make our products less competitive in foreign
markets.

        We do not use derivative financial instruments for speculative purposes.
We do not engage in exchange rate hedging or hold or issue foreign exchange
contracts for trading purposes. We do have foreign-based operations where
transactions are denominated in foreign currencies and are subject to market
risk with respect to fluctuations in the relative value of currencies.
Currently, we have branches or subsidiaries in the United Kingdom, Japan,
Germany, France, Singapore and India. Pursuant to our strategic restructuring
announced in January 2001, we anticipate that our only significant ongoing
operations in local currency will be conducted in the United Kingdom and Japan.
To date, the impact of fluctuations in the relative fair value of other
currencies has not been material.




                                       37
<PAGE>   38

Interest Rate Sensitivity

        Our interest income is sensitive to changes in the general level of U.S.
interest rates, particularly since the majority of our investments are in
short-term instruments. Due to the short-term nature of our investments, we do
not believe that we have a material risk exposure. Because some of our debt
arrangements are based on variable rates of interest, our interest expense is
sensitive to changes in the general level of U.S. interest rates. Since these
obligations represent a small percentage of our total capitalization, we believe
that there is not a material risk exposure.

        At March 31, 2001, we had cash, cash equivalents , short term
investments and long term investments of $33.2 million, compared to $75.8
million at March 31, 2000, which consisted of cash, money market funds,
corporate notes and corporate, municipal and other government agency bonds.
These investments may be subject to interest rate risk and will decrease in
value if market interest rates decrease. A hypothetical increase or decrease in
market interest rates by 10 percent from the market interest rates at March 31,
2001 would not cause interest income to change by a material amount. Declines in
interest rates over time will, however, reduce our interest income and interest
expense.

Equity Price Risk

        We have also invested in a small number of privately held companies,
almost all of which can still be considered in the start-up or development
stages. These investments are inherently risky as the market for the
technologies or products they have under development are typically in the early
stages and may never materialize. We could lose our entire initial investment in
these companies.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ANNUAL FINANCIAL STATEMENTS

        The financial statements and supplementary data required by this Item 8
are listed in Item 14(a)(1) and begin at page F-1 of this report.

SELECTED QUARTERLY RESULTS OF OPERATIONS

        The Selected Quarterly Results of Operations required by this Item 8 are
included in Item 7. - Management's Discussion and Analysis of Financial
Condition and Results of Operations.

SUPPLEMENTAL DATA

        The following table sets forth certain unaudited quarterly statements of
operations data for the fiscal years ended March 31, 2000 and 2001. This
information has been derived from our consolidated, unaudited financial
statements, which, in management's opinion, have been prepared on the same basis
as the audited financial statements, and include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
information for the quarters presented. This information should be read in
conjunction with our audited consolidated financial statements and the notes
thereto included elsewhere in this document.

        The amount and timing of our operating expenses generally will vary from
quarter to quarter depending on our level of actual and anticipated business
activities. Our revenues and operating results are difficult to forecast and
will fluctuate, and we believe that period-to-period comparisons of our
operating results will not necessarily be meaningful. As a result, you should
not rely upon them as an indication of future performance.





                                       38
<PAGE>   39
        We have restated the financial results of our first, second and third
quarters for the year ended March 31, 2001 for certain financial reporting
matters affecting revenue which was previously reported in those quarters, due
to the following:

        -       Revenue transactions in which sales of software and services
                were contingent upon future events, or had rights to return the
                software, that were contained in side agreements or oral
                understandings, have been reversed;

        -       Revenue from a licensing transaction for which revenue was
                recognized and it was subsequently determined that the majority
                of the revenue should have been recorded in later quarters; and

        -       Revenue from two reciprocal/barter transactions have been
                reversed for which we believe there is insufficient
                contemporaneous evidence which would clearly support the
                expectation that the software would be deployed so as to realize
                the fair value ascribed to the software received in the
                transactions.

        In addition to the above adjustments, reclassifications were made in the
first, second and third quarters between cost of services and operating
expenses based upon an extensive analysis of the Company's cost of providing
professional services to its customers.

<TABLE>
<CAPTION>
                                        --------------------------------------------------------------------------------
                                                               DECEMBER 31, 2000                SEPTEMBER 30, 2000
                                        MARCH 31, 2001    AS REPORTED       AS RESTATED     AS REPORTED      AS RESTATED
                                        ---------------   -----------       -----------     -----------      -----------
                                                                          (IN THOUSANDS)
<S>                                        <C>              <C>              <C>              <C>              <C>
CONSOLIDATED STATEMENT
  OF OPERATIONS DATA:
Net Revenue:
License                                     $  2,936         $  1,569         $  1,569         $  4,245         $  3,461
Services                                       2,409            3,959            3,933            4,832            4,711
                                            --------         --------         --------         --------         --------
Total of net revenue                           5,345            5,528            5,502            9,077            8,172
                                            --------         --------         --------         --------         --------
Cost of net revenue:
License                                          751              851              851              275              275
Amortization of purchased technology                                                                483              483
Services                                       3,162            5,034            4,375            6,220            5,811
                                            --------         --------         --------         --------         --------
Total cost of net revenue                      3,913            5,885            5,226            6,978            6,569
                                            --------         --------         --------         --------         --------
Gross profit                                   1,432             (357)             276            2,099            1,603
                                            --------         --------         --------         --------         --------

</TABLE>
<TABLE>
<CAPTION>
                                        ---------------------------------------------------------------------------------

                                                                 DECEMBER 31, 2000                 SEPTEMBER 30, 2000
                                         MARCH 31, 2001   AS REPORTED       AS RESTATED     AS REPORTED      AS RESTATED
                                        ---------------   -----------       -----------     -----------      -----------
                                                                      (IN THOUSANDS)
<S>                                        <C>              <C>              <C>              <C>              <C>
Operating expenses:
Sales and marketing                            8,993           10,655           11,039            9,850           10,020
Research and development                       5,919            5,613            5,866            5,484            5,723
General and administrative                     2,643            2,473            2,370            1,846            1,824
Acquired in-process research
   and development                                --               --               --               --               --
Amortization of intangibles                    6,682            7,481            7,481            7,481            7,481
Restructuring and other activities             1,362               --               --               --               --
Impairment and loss on disposal
   of long-lived assets                        2,415               --               --               --               --
Sale of product line                          49,667               --               --               --               --
                                            --------         --------         --------         --------         --------
Total operating expenses                      77,681           26,222           26,756           24,661           25,048
                                            --------         --------         --------         --------         --------
Loss from operations                         (76,249)         (26,579)         (26,480)         (22,562)         (23,445)
Interest and other income, net                   717              849              849              947              947
Write-down of long term investments           (1,350)              --               --               --               --
                                            --------         --------         --------         --------         --------
Net loss before income taxes                 (76,882)         (25,730)         (25,631)         (21,615)         (22,498)
Provision for income taxes                      (220)            (414)            (414)              --               --
                                            --------         --------         --------         --------         --------
Net loss                                    $(77,102)        $(26,144)        $(26,045)        $(21,615)        $(22,498)
                                            ========         ========         ========         ========         ========

<CAPTION>
                                     ----------------------------------------------------------------------------------------------
                                             JUNE 30, 2000              MARCH 31,       DECEMBER 31,     SEPTEMBER 30,    JUNE 30,
                                     AS REPORTED      AS RESTATED         2000              1999            1999           1999
                                     -----------      -----------      -----------      -----------      -------------  -----------
                                                                             (IN THOUSANDS)
<S>                                   <C>              <C>              <C>              <C>              <C>            <C>
CONSOLIDATED STATEMENT
  OF OPERATIONS DATA:
Net Revenue:
License                                $  6,971         $  5,026         $  5,668         $  4,403         $  3,502       $  3,457
Services                                  5,609            5,689            5,627            4,317            4,674          3,976
                                       --------         --------         --------         --------         --------       --------
Total of net revenue                     12,580           10,715           11,295            8,720            8,176          7,433

Cost of net revenue:
License                                     357              357            1,055              455              236            137
Amortization of purchased technology        497              497
Services                                  5,208            5,059            4,375            3,112            3,516          2,712
                                       --------         --------         --------         --------         --------       --------
Total cost of net revenue                 6,062            5,913            5,430            3,567            3,752          2,849
                                       --------         --------         --------         --------         --------       --------
Gross profit                              6,518            4,802            5,865            5,153            4,424          4,584
                                       --------         --------         --------         --------         --------       --------


<CAPTION>
                                       -------------------------------------------------------------------------------------------
                                                JUNE 30, 2000          MARCH 31,       DECEMBER 31,     SEPTEMBER 30,   JUNE 30,
                                       AS REPORTED      AS RESTATED       2000              1999            1999          1999
                                       -----------      -----------    -----------      -----------      ------------- -----------
                                                                            (IN THOUSANDS)
<S>                                     <C>              <C>             <C>              <C>              <C>           <C>
Operating expenses:
Sales and marketing                         7,077            7,226          6,516            5,737            4,841         4,785
Research and development                    5,384            5,384          5,055            3,973            3,904         2,804
General and administrative                  1,506            1,506          1,108            1,935            1,974         1,549
Acquired in-process research
   and development                             --                             230                                --            --
Amortization of intangibles                 7,481            7,481          5,066              236              236           240
Restructuring and other activities             --               --             --               --               --
                                         --------         --------       --------         --------         --------      --------
Total operating expenses                   21,448           21,597         17,975           11,881           10,955         9,378
                                         --------         --------       --------         --------         --------      --------
Loss from operations                      (14,930)         (16,795)       (12,110)          (6,728)          (6,531)       (4,794)
Interest and other income, net              1,111            1,111          1,081            1,071               66            71
Write-down of investments                      --               --             --               --               --            --
Sale of assets                                 --               --             --               --               --            --
                                         --------         --------       --------         --------         --------      --------
Net loss before income taxes              (13,819)         (15,684)       (11,029)          (5,657)          (6,465)       (4,723)
Provision for income taxes                     --               --             --
                                         --------         --------       --------         --------         --------      --------
Net loss                                 $(13,819)        $(15,684)      $(11,029)        $ (5,657)        $ (6,465)     $ (4,723)
                                         ========         ========       ========         ========         ========      ========
</TABLE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

None.



                                    PART III

        The SEC allows us to include information required in this report by
referring to other documents or reports we have already or will soon be filing.
This is called "Incorporation by Reference." We intend to file our definitive
proxy statement pursuant to Regulation 14A not later than 120 days after the end
of the fiscal year covered by this report, and certain information therein is
incorporated in this report by reference.


                                       39
<PAGE>   40

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

        The information required by this Item is incorporated by reference to
information set forth in our definitive proxy statement under the heading
"Proposal No. 1 -- Election of Directors" which is to be filed in connection
with our 2001 Annual Meeting of Stockholders within 120 days of our year ended
March 31, 2001.

        The information required by this Item with respect to compliance with
Section 16(a) of the Securities Exchange Act of 1934 is incorporated by
reference to information set forth in the definitive proxy statement under the
heading "Section 16(a) Beneficial Ownership Reporting Compliance."

ITEM 11. EXECUTIVE COMPENSATION.

        The information required by this Item is incorporated by reference to
information set forth in our definitive proxy statement under the heading
"Executive Compensation and Other Matters."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

        The information required by this Item is incorporated by reference to
information set forth in our definitive proxy statement under the heading
"Security Ownership of Certain Beneficial Owners and Management."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

        The information required by this Item is incorporated by reference to
information set forth in our definitive proxy statement under the heading
"Certain Relationships and Related Transactions."

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:

1. FINANCIAL STATEMENTS

        The following consolidated financial statements of the Company are filed
as part of this Annual Report on Form 10-K as follows:


<TABLE>
<CAPTION>
                                                                        PAGE
                                                                        ----
<S>                                                                     <C>
   Report of Independent Accountants ................................    F-2
   Consolidated Balance Sheet .......................................    F-3
   Consolidated Statement of Operations .............................    F-4
   Consolidated Statement of Stockholders' Equity (Deficit) .........    F-5
   Consolidated Statement of Cash Flows .............................    F-6
   Notes to Consolidated Financial Statements .......................    F-7
</TABLE>

2. FINANCIAL STATEMENT SCHEDULES

        Financial statement schedules have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statement or the notes thereto.

3. EXHIBITS

        The exhibits listed on the accompanying index to exhibits immediately
following the financial statement schedule are filed as part of, or incorporated
by reference into, this Form 10-K.




                                       40
<PAGE>   41
(a) EXHIBITS

                                  EXHIBIT LIST

<TABLE>
<CAPTION>
    No.                                  Description
    ---                                  -----------
<S>             <C>
    2.1*        Agreement and Plan of Reorganization dated as of June 23, 1998
                by and among Calico Technology, Inc., Calico Acquisition
                Corporation, FirstFloor Software, Inc., Certain Shareholders of
                FirstFloor Software, Inc., and Certain Shareholders of Calico
                Technology, Inc.

    2.2*        Form of Agreement and Plan of Merger between Calico Technology,
                Inc., a California corporation, and Calico Commerce, Inc., a
                Delaware corporation

    2.3**       Agreement and Plan of Merger dated as of November 19, 1999 by
                and between Calico Commerce, Inc., ConnectInc.com, Co., and
                Calico Acquisition, Inc.

    2.4***      Asset Purchase Agreement, dated March 20, 2001, by and between
                Calico, ConnectInc.com, Co. and Digital River, Inc.

    3.1*        Certificate of Incorporation

    3.2*        Bylaws

   10.1*        Office Lease between Metropolitan Life Insurance Company and
                Calico Commerce, Inc. dated as of August 18, 1999

   10.2*        1997 Stock Option Plan and forms of agreements thereunder

   10.3*        1995 Stock Option Plan and forms of agreements thereunder

   10.4*        1999 Employee Stock Purchase Plan

   10.5*        Form of Indemnity Agreement for directors and officers

   10.6*        Investors' Rights Agreement, dated as of May 26, 1995, as
                amended, among Calico Technology, Inc. William G. Paseman, and
                the persons identified on the schedules attached thereto

   10.8*        Four Variable Rate Installment Notes between Calico Technology,
                Inc. and Comerica Bank -- California

   10.9*        Common Stock Purchase Agreement dated September 3, 1999 between
                Calico Commerce, Inc. and Dell U.S.A., L.P.

   10.10*       Letter Agreement between Andersen Consulting LLP and Calico
                Commerce, Inc. dated September 17, 1999

   10.11*       Common Stock Purchase Agreement dated September 29, 1999 between
                Calico Commerce, Inc. and AC II Technology (ACT II) B.V.

   10.12*       Amendment Number Nine to Investors' Rights Agreement dated
                September 28, 1999

   10.13****    2000 Non-officer Stock Option Plan

   10.14+****   Software License Agreement dated April 27, 1999, as amended
                October 28, 1999, between Calico Commerce, Inc. and WebXpress, A
                BEA Company

</TABLE>



                                       41
<PAGE>   42
<TABLE>
<CAPTION>
    No.                                  Description
    ---                                  -----------
<S>             <C>
   10.15+       Second Amendment, dated April 28, 2000, and Third Amendment,
                dated March 15, 2001, to Software License Agreement between
                Calico Commerce, Inc. and WebXpress, A BEA Company

   10.16        Security Agreement by and between Calico Commerce, Inc. and
                Comerica Bank - California, dated March 16, 2001

   10.17        Common Stock Warrant issued to Anjes, Inc. dated December 28,
                2000

   10.18        Common Stock Warrant issued to Hefei Xin Hua Hai electronics
                Limited dated December 28, 2000

   10.19+       Letter of Agreement Regarding Financial Services Proposal by and
                between Calico Commerce, Inc. and David Powell, Inc. dated
                February 22, 2001

   21.1         List of Subsidiaries

   23.1         Consent of PricewaterhouseCoopers LLP, Independent Accountants
</TABLE>

*      Incorporated herein by reference to Calico's Registration Statement on
       Form S-1, as amended (File No. 333-82907)

**     Incorporated herein by reference to Calico's Current Report on Form 8-K
       filed November 29, 1999

***    Incorporated herein by reference to Calico's Current Report on Form 8-K
       filed April 4, 2001

****   Incorporated by reference to Calico's Annual Report on Form 10-K filed
       June 29, 2000

+      Confidential treatment has been requested for certain portions of this
       exhibit. The omitted portions have been separately filed with the
       Commission

(b) REPORTS ON FORM 8-K

        We did not file any reports on Form 8-K during the quarter ended March
31, 2001:




                                       42
<PAGE>   43

                                    SIGNATURE


        Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

        DATE:  JULY 13, 2001        CALICO COMMERCE, INC.


                                      BY: /S/ ALAN P. NAUMANN
                                          -------------------------------------
                                          ALAN P. NAUMANN
                                          PRESIDENT AND CHIEF EXECUTIVE OFFICER



                                POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Alan Naumann and Leslie E. Wright, and each of
them, as such person's true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for such person and in such person's
name, place and stead, in any and all capacities, to sign any and all amendments
to this report on Form 10-K, and to file 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 connection therewith, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his or her substitute or substitutes, 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/ ALAN P. NAUMANN                              President and Chief Executive Officer                July 13, 2001
--------------------------------------           (Principal Executive Officer)
Alan P. Naumann


/s/ LESLIE E. WRIGHT                             Interim Chief Financial Officer                      July 13, 2001
--------------------------------------           (Principal Financial and Accounting Officer)
Leslie E. Wright


/s/ JOSEPH B. COSTELLO                           Director                                             July 13, 2001
--------------------------------------
Joseph B. Costello


/s/ JOEL P. FRIEDMAN                             Director                                             July 13, 2001
--------------------------------------
Joel P. Friedman


/s/ BERNARD J. LACROUTE                          Director                                             July 13, 2001
--------------------------------------
Bernard J. Lacroute


/s/ WILLIAM D. UNGER                             Director                                             July 13, 2001
--------------------------------------
William D. Unger
</TABLE>


                                       43
<PAGE>   44
                              CALICO COMMERCE, INC.
                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                             Page
                                                                             ----
<S>                                                                          <C>
CALICO COMMERCE, INC. CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants.........................................   F-2
Consolidated Balance Sheet................................................   F-3
Consolidated Statement of Operations and Other Comprehensive Loss. .......   F-4
Consolidated Statement of Stockholders' Equity (Deficit).. ...............   F-5
Consolidated Statement of Cash Flows......................................   F-6
Notes to Consolidated Financial Statements................................   F-7
</TABLE>


                                      F-1
<PAGE>   45
                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
  Calico Commerce, Inc.:

         In our opinion, the consolidated financial statements listed in the
index appearing under Item 14(a)(1) on page 40 present fairly, in all material
respects, the financial position of Calico Commerce, Inc. and its subsidiaries
at March 31, 2001 and 2000, and the results of their operations and their cash
flows for each of the three years in the period ended March 31, 2001 in
conformity with accounting principles generally accepted in the United States of
America. 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 of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

         The accompanying consolidated financial statements have been prepared
assuming that Calico Commerce, Inc. will continue as a going concern. As
discussed in Note 1 to the consolidated financial statements, Calico Commerce,
Inc. has suffered recurring losses from operations which raise substantial
doubt as to their ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.


/s/ PRICEWATERHOUSECOOPERS LLP

San Francisco, California
July 10, 2001


                                      F-2
<PAGE>   46
                              CALICO COMMERCE, INC.

                           CONSOLIDATED BALANCE SHEET
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                             March 31,
                                                                      -----------------------
                                                                         2001          2000
                                                                      ---------     ---------
<S>                                                                   <C>           <C>
ASSETS
    Current Assets:
    Cash and cash equivalents ....................................    $   8,354     $  25,917
    Restricted cash ..............................................          400           200
    Short-term investments .......................................       24,411        49,723
    Accounts receivable, net .....................................        2,582        10,829
    Other current assets .........................................        2,449         2,568
                                                                      ---------     ---------
          Total current assets ...................................       38,196        89,237

Long-term investments ............................................          250         4,777
Restricted cash ..................................................        1,450           600
Property and equipment, net ......................................        4,644         4,462
Intangibles and other assets, net ................................          190        89,584
                                                                      ---------     ---------
                                                                      $  44,730     $ 188,660
                                                                      =========     =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable .............................................    $   1,823     $   4,152
    Accrued liabilities ..........................................       11,187        11,641
    Deferred revenue .............................................        2,031         5,802
    Current portion of notes payable .............................        1,826         1,255
    Current portion of capital lease obligations .................          104           275
                                                                      ---------     ---------
          Total current liabilities ..............................       16,971        23,125

Notes payable, non-current .......................................            3         1,413
Capital lease obligations, non-current ...........................           29           106
Other liabilities ................................................          396            32
                                                                      ---------     ---------
                                                                         17,399        24,676
                                                                      ---------     ---------
Commitments and contingencies (Note 12)

Stockholders' equity:
   Preferred Stock; $0.001 par value; 15,000 shares authorized;
      no shares issued and outstanding ...........................           --            --
   Common Stock; $0.001 par value; 150,000 shares authorized;
      35,282 and 34,942 shares issued and outstanding ............           35            35
   Additional paid-in capital ....................................      226,786       224,587
   Notes receivable from stockholders ............................         (617)       (1,752)
   Unearned compensation .........................................           (7)       (1,228)
   Other comprehensive loss ......................................          (58)         (179)
   Accumulated deficit ...........................................     (198,808)      (57,479)
                                                                      ---------     ---------
          Total stockholders' equity .............................       27,331       163,984
                                                                      ---------     ---------
                                                                      $  44,730     $ 188,660
                                                                      =========     =========
</TABLE>

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


                                      F-3
<PAGE>   47
                              CALICO COMMERCE, INC.

        CONSOLIDATED STATEMENT OF OPERATIONS AND OTHER COMPREHENSIVE LOSS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                        Year Ended March 31,
                                                                  -----------------------------------
                                                                     2001         2000         1999
                                                                  ---------     --------     --------
<S>                                                               <C>           <C>          <C>
Net revenue:
License ......................................................    $  12,992     $ 17,030     $ 10,482
Services .....................................................       16,742       18,594       10,931
                                                                  ---------     --------     --------
     Total net revenue .......................................       29,734       35,624       21,413
                                                                  ---------     --------     --------
Cost of net revenue:
License ......................................................        1,354        1,143          362
Amortization of purchased technology .........................        1,860          739          817
Services (including stock-based compensation of $16, $159,
  and $221, respectively) ....................................       18,407       13,714        7,493
                                                                  ---------     --------     --------
     Total cost of net revenue ...............................       21,621       15,596        8,672
                                                                  ---------     --------     --------
Gross profit .................................................        8,113       20,028       12,741
                                                                  ---------     --------     --------
Operating expenses:
  Sales and marketing (including stock-based compensation
     of $72, $715, and $928, respectively) ...................       37,278       21,881       15,066
  Research and development (including stock-based
     compensation of $14, $389, and $378,respectively) .......       22,892       15,736        6,055
  General and administrative (including stock-based
     compensation of $116, $288, and $480, respectively) .....        8,343        6,566        4,468
  Acquired in-process research and development ...............           --          230        1,840
  Amortization of intangibles and other assets................       29,125        5,778          550
  Restructuring expense ......................................        1,362           --           --
  Impairment and loss on disposal of long-lived assets .......        2,415           --           --
  Loss on sale of product line ...............................       49,667           --           --
                                                                  ---------     --------     --------
     Total operating expenses ................................      151,082       50,191       27,979
                                                                  ---------     --------     --------
Loss from operations .........................................     (142,969)     (30,163)     (15,238)

Interest expense .............................................         (335)        (222)        (192)
Interest income ..............................................        3,868        2,620          293
Write down of long-term investments ..........................       (1,350)          --           --
Other income/(expense), net ..................................           91          (36)        (124)
                                                                  ---------     --------     --------
Loss before taxes ............................................     (140,695)     (27,801)     (15,261)
Provision for income taxes ...................................         (634)          --           --
                                                                  ---------     --------     --------
Net loss .....................................................    $(141,329)    $(27,801)    $(15,261)
Other comprehensive income/(loss):
  Unrealized gain/(loss) on investments ......................           11         (179)          --
  Reclassification adjustment for gains included in
     net loss ................................................          179           --           --
  Foreign currency translation adjustments ...................          (69)          --           --
                                                                  ---------     --------     --------
Comprehensive loss ...........................................    $(141,208)    $(27,980)    $(15,261)
                                                                  =========     ========     ========
Net loss per share:
Basic and diluted ............................................    $   (4.09)    $  (1.36)    $  (2.25)
                                                                  =========     ========     ========
Weighted average shares ......................................       34,525       20,450        6,775
                                                                  =========     ========     ========
</TABLE>

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


                                      F-4
<PAGE>   48
                              CALICO COMMERCE, INC.

                CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                Notes                     Accumulated                     Total
                                    Common Stock  Additional  Receivable                      Other                    Stockholders'
                                  ---------------  Paid-In      from        Unearned     Comprehensive   Accumulated    (Deficit)
                                   Shares  Amount  Capital   Stockholders Compensation    Income (Loss)     Deficit       Equity
                                  -------  ------ ---------- ------------ ------------   --------------  -----------  --------------
<S>                               <C>      <C>    <C>        <C>          <C>            <C>             <C>          <C>
Balance at March 31,1998 ........   9,498   $  9  $   3,658    $  (712)      $ (1,966)           $--       $ (14,417)   $ (13,428)
Exercise of stock options .......   1,526      2      1,811     (1,660)            --             --              --          153
Issuance of Common Stock ........   1,053      1      9,999         --             --             --              --       10,000
Repayment of notes receivable ...      --     --        (92)       161             --             --              --           69
Repurchase of Common Stock ......    (641)    (1)      (501)        --             --             --              --         (502)
Issuance of Common Stock options
  to non-employees ..............      --     --        148         --             --             --              --          148
Unearned compensation ...........      --     --      2,854         --         (2,854)            --              --           --
Amortization of unearned
  compensation ..................      --     --         --         --          2,041             --              --        2,041
Net loss ........................      --     --         --         --             --             --         (15,261)     (15,261)
                                  -------   ----  ---------    -------       --------       --------       ---------    ---------
Balance at March 31, 1999 .......  11,436     11     17,877     (2,211)        (2,779)            --         (29,678)     (16,780)
Exercise of stock options .......     584      1      1,905       (285)            --             --              --        1,621
Repurchase of Common Stock ......    (488)    --       (218)       216             --             --              --           (2)
Repayments of notes receivable ..      --     --         --        528             --             --              --          528
Issuance of Common Stock
  Options to non-employees ......      --     --         83         --             --             --              --           83
Issuance of warrants ............      --     --        232         --             --             --              --          232
Exercise or warrants ............     129     --         --         --             --             --              --           --
Issuance of Common Stock
  in initial public offering ....   6,443      6     81,709         --             --             --              --       81,715
Issuance of Common Stock
  in business combination .......   1,206      1     79,741         --             --             --              --       79,742
Issuance of options assumed
  In business combination .......      --     --     10,722         --             --             --              --       10,722
Conversion of Preferred Stock
  to Common Stock upon initial
  public offering ...............  15,632     16     32,536         --             --             --              --       32,552

Amortization of unearned
  compensation ..................      --     --         --         --          1,551             --              --        1,551
Unrealized loss on investments ..      --     --         --         --             --           (179)             --         (179)
Net loss ........................      --     --         --         --             --             --         (27,801)     (27,801)
                                  -------   ----  ---------    -------       --------       --------       ---------    ---------
Balance at March 31, 2000 .......  34,942     35    224,587     (1,752)        (1,228)          (179)        (57,479)     163,984
Exercise of stock options .......     354     --      1,545         --             --           --              --          1,545
Repurchase of Common Stock ......    (274)    --       (214)       177             --           --              --            (37)
Repayments of notes receivable ..      --     --         --        350             --           --              --            350
Interest on notes receivable ....      --     --         --       (144)            --           --              --           (144)
Forgiveness of notes
  receivable ....................      --     --         --        752             --           --              --            752
Issuance of Common Stock under
  employee stock purchase plan ..     260     --      1,811         --             --           --              --          1,811
Issuance of warrants to
  customers .....................      --     --         60         --             --           --              --             60
Amortization of unearned
  compensation ..................      --     --         --         --            218           --              --            218
Unearned compensation, net of
  cancellations .................      --     --     (1,003)        --          1,003           --              --             --
Unrealized gain on investments ..      --     --         --         --             --          190              --            190
Foreign currency translation
  adjustments ...................      --     --         --         --             --          (69)             --            (69)
Net loss ........................      --     --         --         --             --           --        (141,329)      (141,329)
                                  -------   ----  ---------    -------       --------     --------       ---------      ---------
Balance at March 31, 2001 .......  35,282   $ 35  $ 226,786    $  (617)      $     (7)    $    (58)      $(198,808)     $  27,331
                                  =======   ====  =========    =======       ========     ========       =========      =========
</TABLE>

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



                                      F-5
<PAGE>   49
                              CALICO COMMERCE, INC.

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                             Year Ended March 31,
                                                                      ------------------------------------
                                                                         2001          2000         1999
                                                                      ---------     ---------     --------
<S>                                                                   <C>           <C>           <C>
Cash flows from operating activities:
   Net loss ......................................................    $(141,329)    $ (27,801)    $(15,261)
Adjustments to reconcile net loss to net cash used in
   operating activities:
   Provision for doubtful accounts ...............................        1,203           102          200
   Depreciation and amortization .................................       34,000         8,721        4,481
   Amortization of unearned compensation .........................          218         1,866        2,189
   Warrants to customers .........................................           60            --           --
   Loss on disposal of fixed assets ..............................          922            36          260
   Impairment of long-lived assets ...............................        1,493            --           --
   Interest on notes receivable ..................................         (144)           --           --
   Forgiveness of stockholder notes receivable ...................          752            --           --
   Forgiveness of employee loan ..................................           60            --           --
   Write down of long-term investments ...........................        1,350            --           --
   Loss on sale of product line ..................................       49,667            --           --
Changes in assets and liabilities, net of acquisition:
   Accounts receivable ...........................................        7,044        (2,652)      (4,574)
   Other current assets ..........................................           59        (1,131)      (1,072)
   Other assets ..................................................           (6)           --           --
   Accounts payable ..............................................       (2,329)        2,282          531
   Accrued liabilities ...........................................       (1,160)        1,437        2,662
   Deferred revenue ..............................................       (2,992)         (487)       3,130
   Other liabilities .............................................          (23)          (59)          91
                                                                      ---------     ---------     --------
     Net cash used in operating activities .......................      (51,155)      (17,686)      (7,363)
                                                                      ---------     ---------     --------
Cash flows from investing activities:
Purchases of property and equipment ..............................       (4,442)       (3,696)      (1,829)
Purchases of investments .........................................      (21,996)     (100,550)          --
Maturity of investments ..........................................       58,521        45,071           --
Deposits .........................................................         (300)         (184)          --
Acquisition, net of cash acquired ................................           46         2,601           --
                                                                      ---------     ---------     --------
     Net cash provided by (used in) investing activities .........       31,829       (56,758)      (1,829)
                                                                      ---------     ---------     --------
Cash flows from financing activities:
   Proceeds from initial public offering, net of issuance
     costs .......................................................           --        81,715           --
   Proceeds from issuance of Common Stock, net of
     issuance costs ..............................................        3,356         1,605       10,153
   Common stock repurchases ......................................          (37)         (135)        (502)
   Proceeds from repayments of stockholder loans .................          350           662           69
   Proceeds from issuance of preferred stock, net of
     issuance costs ..............................................           --            16       12,217
   Restriction of cash under compensating balance
     agreement ...................................................         (750)           --           --
   Proceeds from issuance of notes payable .......................          515         2,143          763
   Repayments of notes payable ...................................       (1,354)         (803)        (409)
   Principal payments under capital lease obligations ............         (248)         (283)        (172)
                                                                      ---------     ---------     --------
     Net cash provided by financing activities ...................        1,832        84,920       22,119
                                                                      ---------     ---------     --------
         Effect of foreign exchange on cash ......................          (69)           --           --

Net increase (decrease) in cash and cash equivalents .............      (17,563)       10,476       12,927
Cash and cash equivalents at beginning of period .................    $  25,917        15,441        2,514
                                                                      ---------     ---------     --------
Cash and cash equivalents at end of period .......................    $   8,354     $  25,917     $ 15,441
                                                                      =========     =========     ========
Supplemental cash flow disclosures:
   Cash paid for interest ........................................    $     333     $     222     $    192
                                                                      =========     =========     ========
Non-cash transactions:
   Issuance of Common Stock for notes receivable .................    $      --     $     285     $  1,660
                                                                      =========     =========     ========
   Cancellation of notes receivable related to forfeited
     unvested restricted Common Stock ............................    $     177     $     216     $     92
                                                                      =========     =========     ========
   Forgiveness of stockholder notes receivable ...................    $     752     $      --     $     --
                                                                      =========     =========     ========
   Equipment acquired through capital lease obligations ..........    $      --     $      --     $    136
                                                                      =========     =========     ========
   Stock proceeds from sale of MarketMaker assets ................    $   7,846     $      --     $     --
                                                                      =========     =========     ========
   Unearned compensation charge (forfeitures); net ...............    $  (1,003)    $      --     $  2,854
                                                                      =========     =========     ========
Acquired net assets associated with acquisitions included:
   Fair value of tangible assets .................................    $      --     $   3,648     $    360
   Fair value of existing products and core technology ...........           --         5,000        1,547
   Acquired in-process research and development ..................           --           230        1,840
   Goodwill, customer base and in-place workforce ................           --        86,965        4,266
   Fair value of liabilities assumed .............................           --        (5,363)      (1,951)
                                                                      ---------     ---------     --------
                                                                      $      --     $  90,480     $  6,062
                                                                      =========     =========     ========
</TABLE>

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



                                      F-6
<PAGE>   50
                              CALICO COMMERCE, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

THE COMPANY

         Calico Commerce, Inc. ("Calico" or the "Company") was incorporated on
April 14, 1994 as an S-corporation. In May 1995, the Company was reorganized as
a C-corporation under California law. In September 1999, the Company was
reincorporated as a Delaware corporation.

         Calico Commerce, Inc., headquartered in San Jose, California, provides
software and services that enable companies to interact directly with their
customers over the Internet, intranets, extranets, and corporate networks, and
accessed through desktop and mobile computers and retail kiosks to improve the
interactive buying and selling of complex products and services.

         We derive revenue principally from the license of our Calico eSales
Suite of products and the delivery of associated implementation and support
services. The mix of products and services sold varies by customer, and
follow-on sales typically reflect an expansion of the use of our products within
the customer's business, rather than a migration to different products. To date,
our sales have been primarily within the computer hardware and network and
telecommunications equipment industries.

LIQUIDITY

        The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
incurred substantial losses and negative cash flows from operations in every
fiscal period since inception. For the year ended March 31, 2001 the Company
incurred a loss from operations of $143.0 million and negative cash flows from
operations of $51.2 million. As of March 31, 2001, the Company had an
accumulated deficit of $198.8 million.

         The Company continues to face significant risks associated with
successful execution of its business strategy. These risks include, but are not
limited to, technology and product development, introduction and market
acceptance of products and services, changes in the marketplace, liquidity,
competition from existing and new competitors which may enter the marketplace,
retention of key personnel, and pending litigation.

         The Company requires significant capital to implement its strategy, to
adequately address the appropriate target markets and to generate sales demand
for its current and planned future products and services. In addition, the
Company's liquidity could be adversely impacted by litigation referred to in
Note 12-Commitments and Contingencies.

         At March 31, 2001, the Company was not in compliance with all of the
financial covenants on an installment note, due to larger than expected net
operating losses. The Company has classified this note payable as current and
due on demand.

        The Company expects operating losses and negative cash flows from
operations to continue for the foreseeable future. These conditions plus the
foregoing circumstances raise substantial doubt about the Company's ability to
continue as a going concern. To reduce its expenditures, the company recently
restructured in several areas, including reduced staffing, expense management
and curtailed capital spending. For example, in the six months ended June 30,
2001, the company reduced our workforce by approximately 50% in order to reduce
costs. However, as these actions will not be sufficient for the company to
obtain a positive cash flow, it plans to further reduce expenditures and
operating costs, including significant workforce reductions in July. If the
Company is unable to substantially increase revenues, reduce expenditures and
collect upon accounts receivable, or if it incurs unexpected expenditures, or is
unable to liquidate its holdings in Digital River common stock on a timely basis
and at an acceptable price, then it will need to reduce expenses further through
further work force reductions and other cost cutting measures, and raise
additional funds in order to continue as a going concern. There can be no
assurance that additional funding will be available on favorable terms or at
all. If additional funding is not available when needed, the Company may be
unable to continue as a going concern and achieve its intended business
objectives. The consolidated financial statements do not include any adjustments
that may result from this uncertainty.

REINCORPORATION

         In September 1999, the Company reincorporated in the State of Delaware.
As a result of the reincorporation, the Company is authorized to issue
150,000,000 shares of $0.001 par value Common Stock and 15,000,000 shares of
$0.001 par value Preferred Stock. The Board of Directors has the authority to
issue the undesignated Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions


                                      F-7
<PAGE>   51
                              CALICO COMMERCE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

thereof. Share and per share information for the years ended March 31, 2000 and
1999 have been retroactively adjusted to reflect the reincorporation.

PRINCIPLES OF CONSOLIDATION

         The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.

USE OF ESTIMATES

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires the
Company's management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

CASH AND CASH EQUIVALENTS

         The Company considers all highly liquid investments with an original or
remaining maturity at the date of purchase of three months or less to be cash
equivalents. Cash and cash equivalents consist of cash on deposit with banks,
high quality money market funds and commercial paper.

RESTRICTED CASH

        The Company has issued an $800,000 letter of credit to one of its
landlords whereby the Company granted the landlord a security interest and
limited powers of attorney over certain certificates of deposit. The
certificates of deposit serve as collateral supporting a lease for certain
facilities. The letter of credit is callable if the Company defaults on its
lease. The letter of credit may be reduced by amendment in increments of
$200,000 on each anniversary date of the lease. As of March 31, 2001, $800,000
remained restricted; $400,000 of which has been classified as long-term
restricted cash and $400,000 has been classified as short-term restricted cash.

        In March of 2001, the Company agreed with one of its lenders to maintain
a money market cash balance of $750,000 as collateral against its installment
notes payable in favor of the lender. These notes were originally collateralized
with equipment and intellectual property that was subsequently sold to Digital
River in conjunction with the Company's sale of its MarketMaker product line.
This balance due under the notes has been classified as long-term restricted
cash at March 31, 2001.

         In January of 2001, the Company placed $300,000 in escrow for the
acquisition of preferred stock in a private company, the financing for which had
not closed as of the year end.


                                      F-8


<PAGE>   52
                              CALICO COMMERCE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INVESTMENTS

         The Company's investments consist primarily of certificates of deposit,
auction rate municipal bonds, corporate and United States government bonds,
municipal bonds, commercial paper and equity securities.

         Management determines the appropriate classification of investment
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. At March 31, 2001, all marketable investment securities were
designated as available-for-sale. Available-for-sale securities are carried at
fair value, using available market information and appropriate valuation
methodologies, with unrealized gains and losses reported in stockholders' equity
(deficit).

         The Company periodically evaluates these investments for
other-than-temporary impairment based on the investee business prospects,
financial condition, subsequent financings, liquidity and comparable public
company market values. Realized gains and losses and declines in value judged to
be other-than-temporary on available-for-sale securities are included in the
statement of operations. The cost of securities is based on the specific
identification method. Interest and dividends on securities classified as
available-for-sale are included in interest income.

         In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", the Company
uses the cost method to account for investments in which it holds a minority
interest and does not exercise significant influence.

CONCENTRATION OF CREDIT RISK AND BUSINESS RISK

         Financial instruments which potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents, accounts
receivable and other current assets. The Company by policy and practice
maintains its cash and cash equivalents with financial institutions the Company
believes are of high credit quality. Deposits with these financial institutions
may exceed the amount of insurance provided on such deposits. The Company has
not experienced any losses on its deposits of cash and cash equivalents. The
Company generally requires no collateral from its customers. To reduce its risk,
the Company periodically reviews the credit worthiness of its customers and
establishes reserves for potential credit losses. To date such losses have been
within management's estimations.

         At March 31, 2001, one customer accounted for 13% of gross accounts
receivable. At March 31, 2000 one customer represented 11% of gross accounts
receivable.

FAIR VALUE OF FINANCIAL INSTRUMENTS

         The Company's financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities are
carried at cost, which approximates their fair value because of the short-term
maturity of these instruments. Notes payable are carried at cost, which
approximates fair value due to the proximity of the implicit rate of these
financial instruments and the prevailing market rates for similar instruments.

PROPERTY AND EQUIPMENT

         Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets;
generally three to five years. The cost of equipment acquired under a capital
lease is amortized over the shorter of the life of the lease, or the estimated
useful life of the assets. Maintenance and repairs are charged to operations as
incurred and major improvements are capitalized. The cost of assets retired or
otherwise disposed of and the accumulated depreciation thereon are removed from
the accounts with any gain or loss realized upon sale or disposal credited or
charged to operations, respectively.


                                      F-9
<PAGE>   53
                              CALICO COMMERCE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INTANGIBLE ASSETS

         Identifiable intangible assets result from the application of the
purchase method of accounting for the Company's acquisitions and are composed of
the unamortized identifiable assets including assembled workforce, customer base
and acquired technology. Goodwill represents the unamortized portion of the
excess of the purchase price of acquired businesses over the fair value of the
identifiable net assets acquired and is amortized using the straight-line method
over estimated useful lives ranging from three to four years. Acquired in-place
workforce and customer base is amortized over the period of benefit of three
years. Acquired existing products and core technology have been amortized over
the period of benefit ranging from seven to 36 months and are classified as a
component of cost of license revenue.

VALUATION OF LONG-LIVED ASSETS

         The Company periodically evaluates the carrying value of long-lived
assets and certain identifiable intangibles for impairment, when events and
circumstances indicate that the carrying amount of an asset may not be
recoverable. Factors considered important which could trigger an impairment
review include, but are not limited to significant changes in the manner of use
of the acquired assets or the strategy for the Company's overall business,
significant negative industry or economic trends, a significant decline in the
Company's stock price for a sustained period, and the Company's market
capitalization relative to net book value. When the Company determines that the
carrying value of goodwill may not be recoverable based on the existence of one
or more of the above indicators of impairment, the Company measures any
impairment based on a projected discounted cash flow method using a discount
rate commensurate with the risk inherent in the Company's current business
model. An impairment loss is recognized whenever the evaluation demonstrates
that the carrying amount of a long-lived asset is not recoverable (Note 4 --
Balance Sheet Components and Note 16 -- Impairment of Long-Lived Assets).

FOREIGN CURRENCY TRANSLATION

         The Company considers the local currency to be the functional currency
for all of its foreign operations. Assets and liabilities recorded in foreign
currencies are translated at the exchange rate on the balance sheet date.
Revenue and expenses are translated at average rates of exchange prevailing
during the period. Translation adjustments are charged or credited to other
comprehensive income. Gains and losses on foreign currency transactions are
included in non-operating income and expense.

REVENUE RECOGNITION

         Revenues are derived from software licenses and related services, which
include implementation and integration, technical support, training and
consulting. For contracts with multiple elements, and for which vendor-specific
objective evidence of fair value for the undelivered elements exists, revenue is
recognized for the delivered elements based upon the residual contract value as
prescribed by Statement of Position No. 98-9, "Modification of SOP No. 97-2 with
Respect to Certain Transactions".

         Revenue from license fees is recognized when persuasive evidence of an
agreement exists, delivery of the product has occurred, no significant Company
obligations with regard to implementation or integration exist, the fee is fixed
or determinable and collectibility is probable. Arrangements for which the fees
are not deemed probable for collection are recognized upon cash collection.
Arrangements for which the fees are not deemed fixed or determinable are
recognized in the period they become due.

         Services revenue primarily comprises revenue from consulting fees,
maintenance contracts and training. Services revenue from consulting and
training is recognized as the service is performed.

         Maintenance contracts include the right to unspecified upgrades and
ongoing support. Maintenance revenue is deferred and recognized on a
straight-line basis as services revenue over the life of the related contract,
which is typically one year.

         License and services revenue on contracts involving significant
implementation, customization or services which are essential to the
functionality of the software is recognized over the period of each engagement,
primarily using the percentage-of-completion method. Labor hours incurred is
generally used as the measure of progress towards completion. Revenue for these
arrangements is classified as license revenue and services revenue based upon
our estimates of fair value for each element and recognizes the revenue based on
the percentage-of-completion ratio for the arrangement. A provision for
estimated losses on engagements is made in the period in which the loss becomes
probable and can be reasonably estimated.

                                      F-10
<PAGE>   54
                              CALICO COMMERCE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         The Company has accumulated relevant information from contracts to use
in determining the availability of vendor-specific objective evidence and
believes that such information complies with the criteria established in
Statement of Position 97-2 as follows:

         -        Customers are required to pay separately for annual
                  maintenance. Future renewal rates are included as a term of
                  the contracts. The Company uses the renewal rate as
                  vendor-specific objective evidence of fair value for
                  maintenance.

         -        The Company charges standard hourly rates for consulting
                  services based upon the nature of the services and experience
                  of the professionals performing the services, and such
                  services are separately priced in contracts.

         -        For training, the Company charges standard course rates for
                  each course based upon the duration of the course, and such
                  courses are separately priced in contracts. The Company has a
                  history of selling such courses separately.

         Customer billing occurs in accordance with contract terms. Customer
advances and amounts billed to customers in excess of revenue recognized are
recorded as deferred revenue. Amounts recognized as revenue in advance of
billing (typically under percentage-of-completion accounting) are recorded as
unbilled receivables.

         The Company recognizes revenues on a gross basis pursuant to Emerging
Issues Task Force ("EITF") No. 99-19 "Reporting Revenue Gross as a Principal
versus Net as an Agent."

RESEARCH AND DEVELOPMENT COSTS

         Expenditures for research and development are charged to expense as
incurred. Under Statement of Financial Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed"
certain software development costs are capitalized after technological
feasibility has been established. Development costs incurred in the period
between achievement of technological feasibility, which the Company defines as
the establishment of a working model and until the general availability of such
software to customers, have been insignificant. Accordingly, the Company has not
capitalized any software development costs to date.

STOCK-BASED COMPENSATION

        The Company accounts for stock-based employee compensation arrangements
in accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25") and complies with the
disclosure provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under APB No. 25,
compensation expense is based on the difference, if any, on the date of the
grant, between the fair value of the Company's stock and the exercise price of
the option.

         Unearned compensation is amortized and expensed in accordance with
Financial Accounting Standards Board ("FASB") Interpretation No. 28. ("FIN 28")
The Company accounts for stock issued to non-employees in accordance with the
provisions of SFAS No. 123 and EITF No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services."

         The Company uses the Black-Scholes option pricing model to value
options granted to non-employees.

                                      F-11
<PAGE>   55
                              CALICO COMMERCE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

ADVERTISING EXPENSE

         Advertising costs are generally expensed as incurred. Advertising costs
totaled $3.6 million, $842,000, and $339,000 during the years ended March 31,
2001, 2000, and 1999, respectively.

SEGMENT AND GEOGRAPHIC INFORMATION

         In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." This
Statement establishes standards for the way companies report information about
operating segments in annual financial statements. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. In accordance with the provisions of SFAS No. 131, the Company has
determined that it does not have separately reportable operating segments. The
Company operates in one principal business segment across domestic and
international markets.

INCOME TAXES

         Income taxes are accounted for using an asset and liability approach,
which requires the recognition of taxes payable or refundable for the current
year and deferred tax liabilities and assets for the future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. The measurement of current and deferred tax liabilities and assets are
based on provisions of the enacted tax law; the effects of future changes in tax
laws or rates are not anticipated. The measurement of deferred tax assets is
reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.

COMPREHENSIVE INCOME (LOSS)

         Comprehensive income (loss) is defined as a change in equity of a
company during a period from transactions and other events and circumstances
excluding transactions resulting from investments by owners and distributions to
owners. The primary difference between net loss and comprehensive income (loss)
for the Company arises from foreign currency translation adjustments and
unrealized gains/(losses) on available-for-sale securities. As of March 31,
2001, accumulated other comprehensive loss consisted of $11,000 of net
unrealized gains on securities and a net loss on foreign currency translation
adjustments of $69,000. As of March 31, 2000, the Company had $179,000 of net
unrealized losses on securities.

NET LOSS PER SHARE

         SFAS 128, "Earnings Per Share," establishes standards for computing and
presenting earnings per share. Basic earnings per share is calculated using the
weighted average number of common shares outstanding during the period. Diluted
earnings per share is computed using the weighted average number of common and
potential common shares outstanding during the period, except if anti-dilutive.
Potential commons shares used in the diluted earnings per share calculation
consist of shares issuable upon the exercise of stock options and warrants
computed using the treasury stock method.

RECLASSIFICATIONS

         Amounts for stock compensation previously reported in the statements of
operations for the year ended March 31, 2000 have been reclassified to conform
to the current presentation in the Company's fiscal 2001 statement of
operations. The reclassification had no effect on loss from operations as
previously reported.

RECENT ACCOUNTING PRONOUNCEMENTS

         In June 1998,the Financial Accounting Standards Board issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 established accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. In July 1999, the Financial Accounting
Standards Board issued SFAS No 137, "Accounting with


                                      F-12
<PAGE>   56
                              CALICO COMMERCE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Derivative Instruments and Hedging Activities Deferral of the Effective Date of
FASB Statement 133" ("SFAS 137"). SFAS 137 deferred the effective date of until
the first fiscal quarter of all fiscal years beginning after June 15, 2000. The
Company has adopted SFAS 133 in its quarter ended June 30, 2001. The Company has
not engaged in hedging activities or invested in derivative instruments and
accordingly the implementation of SFAS 133 has not had a material effect on its
financial statements.

NOTE 2 -- ACQUISITIONS:

CONNECTINC.COM

         On January 31, 2000, the Company completed the acquisition of
ConnectInc.com "Connect", a provider of technology and services that dynamically
connect buying and selling companies over the Internet. Under the terms of the
Agreement and Plan of Merger dated November 19, 1999, among the Company Connect
and Calico Acquisition Corporation, approximately 1.4 million shares of Calico
Common Stock were issued or reserved for issuance for all outstanding shares,
options and warrants of Connect. The acquisition was accounted for using the
purchase method of accounting and, accordingly, the net assets and results of
operations of Connect have been included in the Company's consolidated financial
statements since the acquisition date.

         The purchase consideration included 1,206,363 shares of Common Stock
valued at approximately $79,741,000. In addition, the company assumed all
outstanding options and warrants of Connect. Upon the acquisition, these options
and warrants converted to options and warrants to acquire an aggregate of
219,717 shares of common stock and warrants of the Company and had an average
exercise price of $20.77 per share. The Company used the Black-Scholes option
pricing model to determine the fair value of the assumed options and warrants,
based upon the following assumptions: (i) risk free rate of 5.6% ; (ii) average
expected life of 2.5 years; (iii) expected volatility of 75%; and (iv) no
dividends expected to be paid on the outstanding shares. The fair value of the
stock options and warrants of approximately $10,772,000 was included as a
component of the purchase price.

         The total purchase price of $90,480,000 was allocated to assets
acquired, including tangible and intangible assets, and liabilities assumed,
based on their respective estimated fair values at the acquisition date.

The total purchase price was allocated as follows (in thousands):

<TABLE>
<S>                                                                    <C>
Fair value of tangible assets ....................................     $  3,648
Fair value of existing products and core technology ..............        5,000
Acquired in-process research and development .....................          230
Goodwill, customer base and in-place workforce ...................       86,965
Fair value of liabilities assumed ................................       (5,363)
                                                                       --------
                                                                       $ 90,480
                                                                       ========
</TABLE>

FIRSTFLOOR SOFTWARE, INC.:

         The Company completed the acquisition of all outstanding capital stock
of FirstFloor on August 21, 1998. The transaction was completed pursuant to the
Agreement and Plan of Reorganization, dated as of June 23, 1998 among the
Company, Calico Acquisition Corporation, FirstFloor and certain stockholders of
Calico and certain shareholders of FirstFloor. The acquisition was accounted for
using the purchase method of accounting and, accordingly, the net assets and
results of operations of FirstFloor have been included in the Company's
consolidated financial statements since the acquisition date.

         The purchase consideration included 1,248,423 shares of Series D
Mandatorily Redeemable Convertible Preferred Stock valued at approximately
$5,690,000. In addition, all of the outstanding stock options granted under the
FirstFloor 1993 Stock Option Plan were converted into stock options to purchase
47,203 shares of the Company's Series D Mandatorily Redeemable Convertible
Preferred Stock at $4.558 per share. The Black-Scholes option pricing model was
used to determine the fair value of the converted options. The fair value of the
stock


                                      F-13
<PAGE>   57
                              CALICO COMMERCE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

options, of approximately $122,000, was included as a component of the purchase
price. The Company also incurred approximately $250,000 in acquisition expenses.

         The total purchase price of $6,062,000 was allocated to assets
acquired, including tangible and intangible assets, and liabilities assumed,
based on their respective estimated fair values at the acquisition date. The
estimate of fair value of the net assets acquired is based on an independent
appraisal and management estimates.

         The total purchase price was allocated as follows (in thousands):

<TABLE>
<S>                                                                     <C>
Fair value of tangible assets .....................................     $   360
Fair value of existing products and core technology ...............       1,547
Acquired in process research and development ......................       1,840
Goodwill ..........................................................       4,266
Fair value of liabilities assumed .................................      (1,951)
                                                                        -------
                                                                        $ 6,062
                                                                        =======
</TABLE>

         These acquisitions were structured as a tax free exchange of stock,
therefore, the differences between the recognized fair values of acquired net
assets, and their historical tax bases are not deductible for tax purposes.
Accordingly, a deferred tax liability has been recognized for the differences
between the assigned value of intangible assets (excluding goodwill) for book
purposes and the tax basis of such assets in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".

PRO FORMA RESULTS (UNAUDITED)

         The following unaudited pro forma summary results presents the
Company's consolidated results of operations for the year ended March 31, 2000
and 1999 as if the acquisitions of Connect and FirstFloor had been consummated
at the beginning of each period. The results of operations of Connect for its
year ended December 31, 1998 have been included in the unaudited pro forma
summary year ended March 31, 1999. The results of operations of Connect for the
period from April 1, 1999 through the date of acquisition (January 31, 2000)
have been included in the unaudited pro forma summary results for the year ended
March 31, 2000. The unaudited results of operations of Connect for the three
months ended March 31, 1999 excluded from the unaudited pro forma results are as
follows(in thousands): revenues $2,026, net income $274 and net income per share
$0.02. The pro forma consolidated results of operations include certain pro
forma adjustments, including the amortization of intangible assets.

<TABLE>
<CAPTION>
                                                          Year ended March 31,
                                                         ----------------------
                                                           2000          1999
                                                         --------      --------
                                                          (in thousands except
                                                           per share amounts)
<S>                                                      <C>           <C>
Net revenues .......................................     $ 40,339      $ 28,215
Net loss ...........................................      (58,524)      (53,736)
Net loss per share, Basic and diluted ..............        (2.73)        (2.45)
</TABLE>

         The pro forma results are not necessarily indicative of those that
would have actually occurred had the acquisitions taken place at the beginning
of the periods presented and should not be construed as being a representation
of future operating results.


                                      F-14
<PAGE>   58
                              CALICO COMMERCE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3 --- INVESTMENTS

         The carrying amount of the Company's investments are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                  Net         Other Than
                                                Cost           Unrealized      Temporary     Estimated
                                                Basis        Gains (Losses)   Impairment     Fair Value
                                               --------      --------------   -----------    ----------
<S>                                            <C>           <C>              <C>            <C>
March 31, 2001
SHORT-TERM INVESTMENTS:
    Due within one year:
    Corporate bonds                            $  7,504          $   11            $--         $ 7,515
    U.S. Government bonds                         9,050              --             --           9,050
    Digital River equity securities(1)            7,846              --             --           7,846
                                               --------          ------        -------         -------
                                               $ 24,400          $   11            $--         $24,411
                                               ========          ======        =======         =======
LONG-TERM INVESTMENTS:
    Due in greater than one year:
    Equity securities                          $  1,600          $   --        $(1,350)         $  250
                                               ========          ======        =======         =======
March 31, 2000
SHORT-TERM INVESTMENTS:
    Due within one year:
    Corporate bonds                            $ 16,141          $ (147)           $--         $15,994
    Government bonds                             28,744             (15)            --          28,729
    U.S. Government bonds                         5,000              --             --           5,000
                                               --------          ------        -------         -------
                                               $ 49,885          $ (162)           $--         $49,723
                                               ========          ======        =======         =======
LONG-TERM INVESTMENTS:
    Due in greater than one year:
    Corporate bonds                               3,294             (17)            --           3,277
    Equity securities                             1,500              --             --           1,500
                                               --------          ------        -------         -------
                                               $  4,794          $  (17)           $--         $ 4,777
                                               ========          ======        =======         =======
</TABLE>

(1)   These securities contain restrictions on the percentage that can be sold
      by the Company during certain periods. The Company is restricted to
      selling no greater than 40% of the total shares during the period of March
      20, 2001 to June 20, 2001 and 80% from the period of March 20, 2001 to
      September 20, 2001. The Company is also limited to selling no more than
      175,000 shares within a consecutive five-day trading period (See Note 14
      -- Sale of Product Line).

NOTE 4 -- BALANCE SHEET COMPONENTS (IN THOUSANDS):

<TABLE>
<CAPTION>
                                                              MARCH 31,
                                                        -----------------------
                                                          2001           2000
                                                        --------       --------
                                                            (in thousands)
<S>                                                     <C>            <C>
ACCOUNTS RECEIVABLE, NET:
   Accounts receivable ...........................      $  3,432       $  9,411
   Unbilled receivables ..........................           850          2,077
   Allowance for doubtful accounts ...............        (1,700)          (659)
                                                        --------       --------
                                                        $  2,582       $ 10,829
                                                        ========       ========
</TABLE>

         Write offs of accounts receivable against the allowance for doubtful
accounts totaled $162,000, $102,000, and $121,000 for the years ended March 31,
2001, 2000, and 1999, respectively.



                                      F-15
<PAGE>   59
                              CALICO COMMERCE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
                                                                  MARCH 31,
                                                              ------------------
                                                               2001        2000
                                                              ------      ------
                                                                (in thousands)
<S>                                                           <C>         <C>
OTHER CURRENT ASSETS:
   Deposits ............................................      $  530      $   39
   Prepaid expenses ....................................       1,172         902
   Interest receivable .................................         225         504
   Due from former employee, net of reserve ............         225         450
   Other ...............................................         297         673
                                                              ------      ------
                                                              $2,449      $2,568
                                                              ======      ======
</TABLE>

<TABLE>
<CAPTION>
                                                                 MARCH 31,
                                                           --------------------
                                                             2001        2000
                                                           -------      -------
                                                               (in thousands)
<S>                                                        <C>          <C>
PROPERTY AND EQUIPMENT, NET:
   Computer equipment and software ...................     $ 7,448      $ 7,246
   Furniture, fixtures and leasehold improvements ....       1,033        1,126
                                                           -------      -------
                                                             8,481        8,372
   Less: Accumulated depreciation and amortization ...      (3,837)      (3,910)
                                                           -------      -------
                                                           $ 4,644      $ 4,462
                                                           =======      =======
</TABLE>
         Depreciation and amortization expense for the years ended March 31,
2001, 2000, and 1999 totaled $3.0 million, $1.9 million, and $1.6 million,
respectively. Property and equipment includes $150,000, $944,000 and $700,000 of
computer and office equipment under capital leases at March 31, 2001, 2000 and
1999, respectively. Accumulated depreciation of assets under capital leases
totaled $77,500, $587,000 and $360,000 at March 31, 2001, 2000 and 1999,
respectively.

<TABLE>
<CAPTION>
                                                                   MARCH 31,
                                                               -----------------
                                                               2001      2000
                                                               ----    --------
                                                               (in thousands)
<S>                                                            <C>     <C>
INTANGIBLE AND OTHER ASSETS, NET:
   Existing and core technology ...........................    $ --    $  6,547
   Goodwill ...............................................      --      88,033
   In-place workforce and customer base ...................      --       2,730
   Deposits................................................     190         184
                                                               ----    --------
                                                                190      97,494
   Less Accumulated amortization ..........................      --      (7,910)
                                                               ----    --------
                                                                190      89,584
                                                               ====    ========
</TABLE>

         Amortization expense for the years ended March 31, 2001, 2000, and 1999
totaled $31.0 million, $6.6 million, and $1.3 million, respectively.

         Total intangible assets decreased significantly during fiscal 2001 due
to the Company's sale of its Market Maker product line, which included net
intangible assets totaling $57 million. (Note 14 -- Sale of Product Line.) In
addition, as part of the Company's impairment analysis in the fourth quarter of
fiscal 2001, a $1.4 million impairment charge was recorded to reduce goodwill
and other intangible assets to $0 at March 31, 2001 (Note 16 -- Impairment of
Long-Lived Assets).

<TABLE>
<CAPTION>
                                                                  MARCH 31,
                                                              ------------------
                                                               2001       2000
                                                              -------    -------
                                                                (in thousands)
<S>                                                           <C>        <C>
ACCRUED LIABILITIES:
   Accrued compensation and benefits .....................    $ 2,198    $ 1,973
   Accrued commissions ...................................        806      2,047
   Accrued trade liabilities .............................      4,292      4,972
   Employee Stock Purchase Plan withholdings .............        371      1,271
   Accrued restructuring costs ...........................        805         --
   Other accrued liabilities .............................      2,715      1,378
                                                              -------    -------
                                                              $11,187    $11,641
                                                              =======    =======
</TABLE>
                                      F-16

<PAGE>   60
                              CALICO COMMERCE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5 -- BORROWINGS:

NOTES PAYABLE

         Notes payable consist of amounts payable to equipment financing
companies and banks. All are collateralized by the underlying assets as follows
(in thousands):

<TABLE>
<CAPTION>
                                                                                      MARCH 31,
                                                                                 ---------------------
                                                                                   2001         2000
                                                                                 --------     --------
<S>                                                                              <C>          <C>
7% note; principal and interest payable monthly; matures June 2000 ..........    $     --     $     86
7% note; principal and interest payable monthly; matures August 2000 ........          --           52
7% note; principal and interest payable monthly; matures October 2000 .......          --           31
Bank prime (8.0% at March 31, 2001) plus 0.5% note; principal and
  interest payable monthly; matures March 2001 ..............................          --          112
Bank prime (8.0% at March 31, 2001) plus 0.5% note; principal and
  interest payable monthly; matures May 2001 ................................           6           66
Bank prime (8.0% at March 31, 2001) plus 0.5% note; principal and
  interest payable monthly; matures September 2001 ..........................          49          132
Bank prime (8.0% at March 31, 2001) plus 0.5% note; principal and
  interest payable monthly; matures February 2002 ...........................         107          224
Bank prime (8.0% at March 31, 2001) plus 0.5% note; principal and
  interest payable monthly; matures November 2002 ...........................         556          889
Bank prime (8.0% at March 31, 2001) plus 0.5% note; principal and
  interest payable monthly; matures December 2002 ...........................         467          733
Bank prime (8.0% at March 31, 2001) plus 0.5% note; principal and
  interest payable monthly; matures March 2003 ..............................         238          343
Bank prime (8.0% at March 31, 2001) plus 0.5% note; Principal and
  interest payable monthly; matures June 2003 ...............................         400           --
8.8% note; principal and interest payable monthly; matures March 2003 .......           6           --
                                                                                 --------     --------
                                                                                    1,829        2,668
   Less: current portion of notes payable ...................................      (1,826)      (1,255)
                                                                                 --------     --------
   Notes Payable, non-current ...............................................    $      3     $  1,413
                                                                                 ========     ========
</TABLE>

         In September 1999, Calico entered into a commitment with a bank to
issue variable rate installment notes in connection with a proposed $3.0 million
equipment financing credit line expiring June 30, 2000. This commitment was
finalized in October 1999. Each advance above bears interest at the bank's prime
rate plus 0.5% per year, with the principal to be repaid in 36 equal monthly
installments. As of March 31, 2000, the bank had made three advances totaling
$2.1 million under this commitment, and advanced an additional $515,000 on June
30, 2000.

         Under the bank prime plus 0.5% notes above, the Company is required to
meet certain quarterly financial tests, including minimum operating results and
certain liquidity, leverage and debt service ratios. At March 31, 2001, the
Company was not in compliance with all of the financial covenants, due to larger
than expected net operating losses. The Company has classified these notes
payable as current & due on demand.

         In March of 2001, the Company entered into an agreement with one of its
lenders which requires the Company to maintain a money market cash balance of
$750,000 as collateral against the installment notes payable described above.
These notes were originally collateralized with equipment and intellectual
property that was subsequently sold in conjunction with the Company's sale of
its Market Maker product (See Note 14 -- Sale of Product Line). This cash
balance has been classified as restricted cash at March 31, 2001.


                                      F-17
<PAGE>   61
                              CALICO COMMERCE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         Future minimum principal payments under the notes at March 31, 2001 are
as follows (in thousands):

<TABLE>
<CAPTION>
                                                                   YEAR ENDING
                                                                    MARCH 31
                                                                   -----------
<S>  <C>                                                           <C>
     2002...................................................         $1,048
     2003...................................................            711
     2004...................................................             70
     2005...................................................             --
     2006...................................................           --
                                                                     ------
                       Total payments.......................         $1,829
                                                                     ======
</TABLE>

NOTE 6 -- INCOME TAXES

         The Company's pretax income (loss) from operations for the fiscal years
ended March 31, 2001, 2000 and 1999 consisted of the following components (in
thousands):

<TABLE>
<CAPTION>
                                                         MARCH 31,
                                            -----------------------------------
                                               2001         2000         1999
                                            ---------     --------     --------
<S>                                         <C>           <C>          <C>
Domestic ...............................    $(141,592)    $(28,589)    $(15,261)
Foreign ................................          897          788           --
                                            ---------     --------     --------
                                            $(140,695)    $(27,801)    $(15,261)
                                            =========     ========     ========
</TABLE>

         The provision for income taxes for the year ended March 31, 2001 is
comprised of international income taxes on the Company's foreign sales
subsidiaries as follows:

<TABLE>
<CAPTION>
                                                           MARCH 31,
                                                --------------------------------
                                                2001          2000          1999
                                                ----          ----          ----
<S>                                             <C>           <C>           <C>
Current:
Federal                                         $ --          $ --          $ --
State                                             --            --            --
Foreign                                          634            --            --
                                                 ---          ----          ----
  Total Current                                 $634          $ --          $ --
                                                 ---          ----          ----
Deferred:
Federal                                         $ --          $ --          $ --
State                                             --            --            --
Foreign                                           --            --            --
                                                 ---          ----          ----
   Total Deferred                               $ --          $ --          $ --
                                                 ---          ----          ----
Total Provision                                 $634          $ --          $ --
                                                 ===          ====          ====
</TABLE>

         At March 31, 2001, the Company had approximately $100.7 million of
federal and $20.7 million of state net operating loss carryforwards available to
offset future taxable income which expire in varying amounts beginning in 2009
and 2003, respectively. At March 31, 2001, the Company had approximately $1.9
million of federal and $2.0 million of state research and development credit
carryforwards available to offset future taxable income some of which expire in
varying amounts beginning in 2009 and indefinitely, respectively. Additionally,
the Company has approximately $1.0 million of other credit carryforwards which
expire in varying amounts beginning in 2003. Under the Tax Reform Act of 1986,
the amounts of and benefits from net operating loss carryforwards may be
impaired or limited in certain circumstances. Events which cause limitations in
the amount of net operating losses that the Company may utilize in any one year
include, but are not limited to, a cumulative ownership change of more than 50%,
as defined, over a three year period.


                                      F-18
<PAGE>   62
                              CALICO COMMERCE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         Deferred taxes are composed of the following (in thousands):

<TABLE>
<CAPTION>
                                                                       MARCH 31,
                                                          ----------------------------------
                                                            2001         2000         1999
                                                          --------     --------     --------
Deferred tax assets:
<S>                                                       <C>          <C>          <C>
   Depreciation and amortization .....................    $    240     $    694     $    250
   Other accruals and liabilities ....................       3,799        4,480        3,146
   Net operating loss and credit carryforwards .......      40,385       20,172        5,399
                                                          --------     --------     --------
                                                            44,424       25,346        8,795
   Less: Valuation allowance .........................     (44,424)     (22,054)      (8,795)
                                                          --------     --------     --------
                                                          $     --     $  3,292     $     --
                                                          ========     ========     ========
Deferred tax liabilities:
   Non-deductible intangible assets ..................    $     --     $  3,292     $    531
   Depreciation ......................................          --           --           --
                                                          --------     --------     --------
                                                          $     --     $  3,292     $    531
                                                          ========     ========     ========
</TABLE>

         The valuation allowance increased by $23.4 million during 2001 and
$13.3 million in 2000.

         For financial reporting purposes the Company has incurred a loss in
each period since its inception. Based on the available objective evidence,
including the Company's history of losses, management believes it is more likely
than not that the net deferred tax assets will not be fully realizable.
Accordingly, the Company has provided a full valuation allowance against its net
deferred tax assets at March 31, 2001, 2000 and 1999. The Company's operating
losses are generated domestically and amounts attributable to its foreign
operations have been insignificant for all periods presented.

         Reconciliation between the amount of income tax benefit determined by
applying the applicable U.S. statutory income tax rate to pre-tax loss is as
follows:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED MARCH 31,
                                                               -----------------------
                                                               2001      2000     1999
                                                               ----      ----     ----
<S>                                                            <C>       <C>      <C>
Federal statutory rate......................................   (34)%     (35)%    (35)%
State tax, net of federal impact............................    (6)       (6)      (6)
Sale of MarketMaker product line...........................     14        --       --
Provision for valuation allowance on deferred tax assets....    16        26       26
Other Permanent differences.................................    10        15       15
                                                               ---       ---      ---
                                                                --%       --%      --%
                                                               ===       ===      ===
</TABLE>

NOTE 7 -- MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:

         As of the closing of the Company's initial public offering, all of the
Preferred Stock outstanding was converted into an aggregate of 15,632,000 shares
of Common Stock at a conversion ratio of one to one.

MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK OPTIONS AND WARRANTS

         In connection with certain financing arrangements, the Company issued
warrants to purchase shares of the Company's Mandatorily Redeemable Convertible
Preferred Stock to a capital lessor and lender. These warrants were immediately
exercisable after issuance. The Company estimated the fair value of the warrants
using the Black-Scholes option pricing model. The Company records the expense
related to the warrants over the life of the associated financing instrument as
additional interest expense. The following table summarizes the outstanding
warrants:


                                      F-19


<PAGE>   63
                              CALICO COMMERCE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
                                                 DATE OF                    EXERCISE    ESTIMATED     FISCAL YEAR
                                                  GRANT            SHARES    PRICE      FAIR VALUE   OF EXPIRATION
                                              -------------        ------   --------    ----------   -------------
<S>                                           <C>                  <C>      <C>         <C>          <C>
Series A Preferred Stock warrants.......      December 1995        42,000     $0.67      $10,000         2003
Series B Preferred Stock warrants.......      January 1997         34,999      1.60       25,000         2005
Series B Preferred Stock warrants.......        June 1997          56,250      1.60       53,000         2008
</TABLE>

         These warrants were converted into Common stock warrants on a
one-for-one ratio on October 6, 1999.

         In connection with the acquisition of FirstFloor in August 1998, the
Company exchanged the options granted under the FirstFloor 1993 Stock Option
Plan into options to purchase 47,203 shares of Company's Series D Mandatorily
Redeemable Convertible Preferred Stock. These options had a weighted average
exercise price of $2.63 per share. At October 6, 1999, 24,000 of such options
were outstanding with a weighted average exercise price of $2.57 per share.
These options were converted into Common Stock options on October 6, 1999. The
options expire upon the earlier of the respective employee termination or 10
years from grant date. (See Note 2 -- Acquisitions)

NOTE 8 - COMMON STOCK:

         The Company's Certificate of Incorporation, as amended, authorizes the
Company to issue 150,000,000 shares of $0.001 par value Common Stock.

         On October 6, 1999, the Company registered and sold 4,600,000 common
shares in an initial public offering (`IPO') at $14.00 per share, including
600,000 shares sold in connection with the exercise of the underwriters over
allotment. Simultaneously with the closing of the IPO, the Company sold
1,843,200 shares of common stock in private placements at $13.02 per share.
Total net proceeds were approximately $81.7 million, after underwriting fees of
$3.9 million and $2.2 million of other estimated offering expenses.

         Certain Common Stock option holders have the right to exercise unvested
options, subject to a repurchase right held by the Company, in the event of
voluntary or involuntary termination of employment of the stockholder. As of
March 31, 2001, approximately 227,000 shares of outstanding Common Stock were
subject to repurchase by the Company at their original exercise price. Of the
227,000 shares of unvested restricted Common Stock repurchaseable, 225,000 are
available for reissuance under the 1997 Stock Option Plan.

COMMON STOCK WARRANTS

         In September 1999, in connection with an equipment lease financing
arrangement, the Company issued warrants to purchase 5,263 shares of common
stock to the financier. The fair value of the warrants will be recognized as
interest expense over the life of the associated financing instrument. The
warrants were immediately vested and exercisable upon issuance and has a three
year term.

        In December 1999, we entered into license, maintenance and services
agreements with a business partner. Concurrently with the license agreement, we
issued a common stock warrant to the business partner to purchase 4,108 shares
of our common stock at 85% of the average market price for the 20 consecutive
business days commencing 39 days before the date of grant, which was $46.37. The
warrant vested immediately and had a three year term. The warrant was valued at
$118,000.

        In March 2000, we entered into further license, maintenance and service
agreements with this business partner. Concurrently with the license agreement,
we issued a common stock warrant to the business partner to purchase 5,475
shares of our common stock at 85% of the average market price for the 20
consecutive business days commencing 30 days before the date of grant, which was
$31.051. The warrant vested immediately and had a three year term. The warrant
was valued at $115,000.


         In June 2000 and December 2000, in connection with sales transactions,
the Company issued warrants to purchase 5,395, 50,000, and 50,000 shares,
respectively, of common stock to customers. These warrants were immediately
exercisable after issuance. The fair value of the warrants of $60,000 has been
recorded in the Statement of operations as a reduction in revenue in the year
ended March 31, 2001.

         The Company estimated the fair value of the warrants, using the Black
Scholes option pricing model, at the date of grant and the following
assumptions: Risk free rate of 5.50% - 6.80%, no expected dividends and 75%
volatility.


                                      F-20
<PAGE>   64
                              CALICO COMMERCE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
                                             Exercise     Estimated    Fiscal Year
Date of Grant                     Shares      Price      Fair Value   of Expiration
-------------                     ------     --------    ----------   -------------
<S>                               <C>        <C>         <C>          <C>
September 1999                     5,263      $ 9.50       $ 30,000        2002
December 1999                      4,108       45.05        118,000        2002
March 2000                         5,475       31.05        115,000        2003
June 2000                          5,395       12.60         27,450        2002
December 2000                     50,000        1.50         13,600        2003
December 2000                     50,000        1.00         18,950        2003
</TABLE>

         As of March 31, 2001, the Company had reserved shares of Common Stock
for future issuance as follows (in thousands):

<TABLE>
<CAPTION>
                                                              March 31,
                                                                2001
                                                              --------
<S>                                                           <C>
          Exercise of options under stock option plans          15,115
          Exercise of warrants                                 120,233
                                                              --------
                                                               135,348
                                                              ========
</TABLE>

NOTE 9 -- EMPLOYEE BENEFIT PLANS:

401(k) SAVINGS PLAN

         The Company sponsors a 401(k) defined contribution plan covering
eligible employees who elect to participate. The Company may elect to contribute
matching and discretionary contributions to the plan; however, no contributions
were made by the Company since the inception of the plan.

STOCK OPTION PLANS

         In July 1995 and April 1997, the Board of Directors adopted the 1995
Stock Option Plan and 1997 Stock Option Plan, respectively, (collectively, the
"Plans") which provide for the issuance of incentive and non-statutory stock
options to employees, officers, directors, and consultants of the Company. The
Company has reserved 15,150,000 shares of Common Stock for issuance under the
Plans. The share reserve will automatically be increased on the first day of
each fiscal year beginning on or after April 1, 2001 by an amount equal to 5% of
the number of shares of the Company's Common Stock which were issued and
outstanding on the last day of the preceding fiscal year.

         In March 2000, the Board of Directors adopted the 2000 Non-Statutory
Stock Option Plan, which provides for the issuance of non-statutory stock
options to employees of the Company who are not executive officers or directors.
The Plan provide for 25% acceleration of vesting of any unvested shares upon a
Change in Control. The Board may provide for different acceleration of vesting
in individual agreements. The Company has reserved 3,000,000 shares of Common
Stock for issuance under this Plan.

         Options under the Plans are generally for periods not to exceed ten
years, and must be issued at prices not less than 100% and 85%, for incentive
and non-statutory stock options, respectively, of the estimated fair value of
the underlying shares of Common Stock on the date of grant as determined by the
Board of Directors. Options granted to stockholders who own greater than 10% of
the outstanding stock are for periods not to exceed five years, and must be
issued at prices not less than 110% of the estimated fair value of the
underlying shares of Common Stock on the date of grant. The plan provides for
grants of immediately exercisable options, however, the Company has the right to
repurchase any unvested Common Stock upon termination of employment at the
original exercise


                                      F-21
<PAGE>   65
                              CALICO COMMERCE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

price. Options become exercisable at such times and under such conditions as
determined by the Board of Directors. Options generally vest over two to four
years. The Board of Directors has determined that no further options will be
granted under the 1995 Option Plan.

         In December 1998, the Company granted immediately exercisable options
to a charitable organization to purchase 15,000 shares of Common Stock at an
exercise price of $4.50 per share. The Company recorded a charge associated with
these options of $45,000, measured using the Black-Scholes option pricing model,
which is included in the total stock compensation charge for the year ended
March 31, 1999.

EMPLOYEE STOCK PURCHASE PLAN

         In Fiscal 2000, the Board of Directors adopted and the stockholders
approved, the 1999 Employee Stock Purchase Plan (the "Purchase Plan"). There are
750,000 shares of Common Stock reserved for issuance under the Purchase Plan, of
which 122,017 were issued on April 30, 2000 and 137,787 shares were issued on
October 31, 2000. Employees generally will be eligible to participate in the
Purchase Plan if they are customarily employed by the Company for more than 20
hours per week and more than five months in a fiscal year. Under the Purchase
Plan, eligible employees may select a rate of payroll deduction up to 15% of
their compensation, but may not purchase more than 750 shares on any purchase
date or stock having a value measured at the beginning of the offering period
greater than $25,000 in any calendar year. The first Offering Period commenced
on the October 6, 1999, will run for approximately 24 months and will be divided
into four consecutive purchase periods of approximately six months. Offering
Periods and Purchase Periods thereafter will begin on May 1 and November 1 of
each year. The price at which the Common Stock is purchased under the Purchase
Plan is 85% of the lower of the fair market value of the Company's Common Stock
on the first day of the applicable Offering Period or on the last day of that
Purchase Period.


                                      F-22
<PAGE>   66
                              CALICO COMMERCE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         The following table summarizes stock option activity under the Plans
and non-plan options (shares in thousands):

<TABLE>
<CAPTION>
                                                           OPTIONS OUTSTANDING
                                                    ----------------------------------
                                                                              WEIGHTED
                                                     OPTIONS                  AVERAGE
                                                    AVAILABLE      NUMBER     EXERCISE
                                                    FOR GRANT    OF OPTIONS    PRICE
                                                    ---------    ----------   --------
<S>                                                 <C>          <C>          <C>
Balance at March 31, 1998.......................         854        1,940      $0.49
Additional shares authorized....................       6,465           --         --
Options granted.................................      (3,688)       3,688       4.59
Repurchase of restricted Common Stock...........         466           --       0.23
Options exercised...............................          --       (1,526)      1.19
Options cancelled...............................         605         (605)      0.69
                                                      ------       ------
Balance at March 31, 1999.......................       4,702        3,497       4.47

Additional shares authorized....................       3,292           --         --
Options granted.................................      (3,783)       3,783      11.95
Options assumed in acquisition..................        (220)         220      19.55
Preferred options converted.....................         (24)          24       2.54
Repurchase of restricted Common Stock...........         488           --       0.44
Options exercised...............................          --         (584)      3.26
Options cancelled...............................         651         (651)      7.93
                                                      ------       ------
Balance at March 31, 2000.......................       5,106        6,289       9.28

Additional shares authorized....................       3,800           --         --
Options granted.................................      (7,761)       7,761       7.89
Repurchase of restricted Common Stock...........         274           --       0.78
Options exercised...............................          --         (354)      4.36
Options cancelled...............................       5,520       (5,520)      9.96
                                                      ------       ------
Balance at March 31, 2001.......................       6,939        8,176     $ 7.75
                                                      ======       ======
</TABLE>

         The following table summarizes the information about stock options
outstanding and exercisable as of March 31, 2001 (shares in thousands):

<TABLE>
<CAPTION>
                                        OPTIONS OUTSTANDING                           OPTIONS VESTED
                          ------------------------------------------------            AND EXERCISABLE
                                             WEIGHTED                            --------------------------
                                              AVERAGE            WEIGHTED                          WEIGHTED
                                             REMAINING           AVERAGE                           AVERAGE
RANGE OF                     NUMBER         CONTRACTUAL          EXERCISE          NUMBER          EXERCISE
EXERCISE PRICES           OUTSTANDING       LIFE (YEARS)          PRICE          OUTSTANDING        PRICE
---------------           -----------       ------------         --------        -----------       --------
<S>                       <C>               <C>                  <C>             <C>                <C>
$0.07 - $0.50...........       115               5.8              $ 0.24             115            $ 0.24
 0.59 -  0.59...........       805               9.7                0.59             115              0.59
 0.59 -  1.25...........       982               9.6                1.23              35              0.94
 1.73 -  4.50...........       613               7.2                3.34             495              3.23
 5.81 -  5.81...........     1,374               9.4                5.81             407              5.81
 5.88 -  7.83...........       784               8.4                7.05             277              7.75
 9.50 -  9.50...........     1,349               8.2                9.50             913              9.50
10.70 - 15.43...........       944               8.6               11.85             407             11.84
16.56 - 16.56...........     1,132               9.1               16.56             120             16.56
27.78 - 57.10...........        78               8.8               42.22              34             41.75
                             -----                                                 -----
                             8,176               8.8              $ 7.75           2,918            $ 7.95
                             =====                                                 =====
</TABLE>


                                      F-23
<PAGE>   67
                              CALICO COMMERCE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         At March 31, 2000, and 1999, approximately 1,143,000 and 385,000
options were vested and exercisable at a weighted average exercise price per
share of $6.80 and $1.80, respectively.


                                      F-24
<PAGE>   68
\                             CALICO COMMERCE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FAIR VALUE DISCLOSURE

         The Company calculated the fair value of each option grant on the date
of grant using the Black-Scholes option pricing model as prescribed by SFAS No.
123 with the following underlying assumptions:

<TABLE>
<CAPTION>
                                                     STOCK OPTION PLANS                     EMPLOYEE STOCK
                                                    YEAR ENDED MARCH 31,                     PURCHASE PLAN
                                                ----------------------------         ----------------------------
                                                2001        2000        1999         2001        2000        1999
                                                ----        ----        ----         ----        ----        ----
<S>                                             <C>         <C>         <C>          <C>         <C>         <C>
Stock option plans:
  Dividend yield........................          --%         --%         --%          --%         --%        --%
  Expected volatility...................         198%         75%         --%         198%         75%        --%
  Average risk free interest rate.......        4.46%       6.33%       4.72%        4.46%       6.33%        --%
  Expected life (in years)..............           3           4           4            2           2         --
  Weighted average fair value of
   options granted......................        $7.61       $5.05       $1.22        $3.84       $4.06       $--
</TABLE>

PRO FORMA NET LOSS (UNAUDITED)

         For purposes of pro forma disclosures, the estimated fair value of the
options are amortized into expense over the option's vesting period using the
accelerated vesting method. Had the Company recorded compensation based on the
estimated grant date fair value, as defined by SFAS No. 123, for awards granted
under its Plans, the Company's net loss would have been increased to the pro
forma amounts below for the fiscal years ended March 31, 2001, 2000 and 1999,
respectively, (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                            YEAR ENDED MARCH 31,
                                                 -----------------------------------------
                                                    2001           2000             1999
                                                 ---------        --------        --------
                                                                 (UNAUDITED)
<S>                                              <C>              <C>             <C>
Net loss as reported.........................    $(141,329)       $(27,801)       $(15,261)
Pro forma net loss...........................     (162,507)        (34,044)        (16,207)
Net loss per share as reported...............        (4.09)          (1.36)          (2.25)
Pro forma net loss per share.................        (4.71)          (1.66)          (2.41)
</TABLE>

         Additional option grants are expected to be made each year.
Accordingly, the above pro forma disclosures are not representative of the pro
forma effects of option grants on reported net income (loss) for future years.

UNEARNED STOCK-BASED COMPENSATION

         In connection with certain stock option grants during the years ended
March 31, 2001, 2000 and 1999, the Company recorded unearned compensation for
the estimated difference between the exercise price of the options and their
deemed fair value totaling $0, $0, and $2,854,000, respectively, which is being
amortized over the four year vesting period of the options using the method per
FIN 28. Amortization of unearned compensation totaled $218,000, $1,551,000, and
$2,041,000 for the years ended March 31, 2001, 2000 and 1999, respectively. The
remaining unearned compensation will be amortized in 2002.


                                      F-25
<PAGE>   69
                              CALICO COMMERCE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10 --- NET LOSS PER SHARE

         The following table sets forth the computation of basic and diluted net
loss per share for the periods indicated (in thousands, except per share
amounts):

<TABLE>
<CAPTION>
                                                                        Year Ended March 31,
                                                               ------------------------------------
                                                                  2001         2000         1999
                                                               ---------     --------     --------
<S>                                                            <C>           <C>          <C>
Numerator:
  Net loss ................................................    $(141,329)    $(27,801)    $(15,261)
                                                               =========     ========     ========
Denominator:
  Weighted average shares .................................       35,160       22,352       10,392
  Weighted average unvested shares of
   common stock subject to repurchase .....................         (635)      (1,902)      (3,617)
                                                               ---------     --------     --------
  Denominator for basic and diluted calculation ...........       34,525       20,450        6,775
                                                               =========     ========     ========
Net loss per share:
  Basic and diluted .......................................    $   (4.09)    $  (1.36)    $  (2.25)
                                                               =========     ========     ========
</TABLE>

         During 2001, 2000, and 1999, there were 8.3 million, 7.8 million, and
20.0 million respectively, weighted average potential common shares that were
excluded from the determination of diluted net loss per share, as the effect is
anti-dilutive.

NOTE 11 -- RELATED PARTY TRANSACTIONS:

         In exchange for the issuance of Common Stock upon the exercise of
options in the years ended March 31, 2000 and 1999, the Company received notes
receivable from certain employees of the Company which bear simple interest at
various rates ranging from 5.54% to 6.65% per annum. The notes, which are
collateralized by the underlying shares of Common Stock, are full recourse and
mature on various dates through fiscal 2002.

         During fiscal 2001, two of these notes were renegotiated and portions
of the notes forgiven. One note receivable in the amount of $65,000, including
accrued interest, was renegotiated for a cash payment of $10,000. The remaining
$55,000 of the note was forgiven and recorded as an expense in fiscal year 2001.
The second note renegotiated was in the amount of $404,000, including accrued
interest. The note holder agreed to perform services without compensation in
exchange for reducing the note principal. The remaining $388,000 of the note was
forgiven and recorded as an expense in fiscal year 2001. In addition, a third
stockholder note in the amount of $309,000, including accrued interest, was
forgiven during fiscal 2001. The entire amount of the note was recorded as an
expense for the year ended March 31, 2001.

         In March 2000, the Company advanced $450,000 to an employee for a home
loan and received a note receivable which bears simple interest at a rate of
6.45%. The note, which is secured by all of the employee's assets including
vested and unvested stock options granted to the employee and any proceeds, was
due November 30, 2000. During fiscal 2001, the maturity date on this note was
extended to November 30, 2001. A reserve in the amount of $225,000 has been
recorded against this receivable.

         In October 2000, the Company advanced $60,000 to an employee in
exchange for an unsecured note receivable bearing simple interest at a rate of
6.3%. At March 31, 2001, this note was forgiven and expensed as compensation.

NOTE 12 -- COMMITMENTS AND CONTINGENCIES:

CAPITAL LEASES

         At March 31, 2001 and 2000, the Company was obligated under various
capital leases for equipment which were capitalized at the present value of
future minimum lease payments. Interest in connection with these leases was
approximately $31,000, $64,000, and $64,000 for the years ended March 31, 2001,
2000, and 1999, respectively.


                                      F-26
<PAGE>   70
         In connection with the FirstFloor acquisition, the Company assumed an
equipment financing agreement entered into in March 1997 which provides for the
lease of office equipment of up to $360,000, in one or more leases. Each lease
is repayable over 36 months and is secured by a first priority security interest
in certain assets of the Company. At March 31, 2001, the fair value of office
equipment purchased under this agreement totaled $15,000.

         In connection with the Connect acquisition, the Company assumed an
equipment financing agreement entered into in January 2000 which provides for
the lease of office equipment of up to $230,000, in one or more leases. Each
lease is repayable over 36 months and is secured by a first priority security
interest in certain assets of the Company. In March of 2001, the assets under
this agreement were transferred in conjunction with the sale of the Company's
MarketMaker product, with the agreement obligation remaining with the Company.

         Future minimum payments under capital leases at March 31, 2001 are as
follows (in thousands):

<TABLE>
<CAPTION>
         Year
         ----
<S>      <C>                                                    <C>
         2002................................................   $ 124
         2003................................................      30
         2004................................................      --
         2005................................................      --
         2006................................................      --
                                                                -----
              Total minimum lease obligations................     154
          Less:  Amount representing interest................     (21)
                                                                -----
          Present value of minimum lease obligations.........     133
          Less:  Current portion.............................    (104)
                                                                -----
          Capital lease obligations, non-current.............   $  29
                                                                =====
</TABLE>

OPERATING LEASES

         The Company leases office space and equipment under certain
non-cancelable operating leases expiring through the year 2005. Total rent
expense was $3.8 million, $1.4 million, and $1.1 million for the years ended
March 31, 2001, 2000, and 1999, respectively.

         As part of its restructuring plan, the Company has subleased a portion
of its excess space in three locations. These subleases range from terms of one
to four years.

         Future minimum payments under non-cancelable operating leases at March
31, 2001 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                             Net
                                                      Minimum  Sublease    Minimum
Year                                                  Rentals   Rentals    Rentals
----                                                  -------  --------    -------
<S>                                                   <C>       <C>         <C>
2002.............................................     $ 2,908   $(1,185)    $1,723
2003.............................................       2,749    (1,227)     1,522
2004.............................................       2,569      (265)     2,304
2005.............................................       2,543      (182)     2,361
2006.............................................       1,102      (157)       945
                                                      -------   -------     ------
          Total minimum lease obligations........     $11,871   $(3,016)    $8,855
                                                      =======   =======     ======
</TABLE>


                                      F-27
<PAGE>   71
                              CALICO COMMERCE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

LETTER OF CREDIT

        The Company has issued an $800,000 letter of credit to one of its
landlords whereby the Company granted the landlord a security interest and
limited powers of attorney over certain certificates of deposit. The
certificates of deposit serve as collateral supporting a lease for certain
facilities. The letter of credit is callable if the Company defaults on its
lease. The letter of credit may be reduced by amendment in increments of
$200,000 on each anniversary date of the lease.

PURCHASE COMMITMENTS

         In September of 1999, the Company entered into an agreement with a
professional services company to procure consulting services. Under this
purchase agreement, the Company agreed to engage the professional service
company to provide a minimum of $1 million of consulting services over the
following 18 month period, ending March 2001. The services provided to the
Company were priced reflecting a customary discount from the provider's standard
rates. As of March 31, 2001, there was $165,000 remaining under this purchase
obligation. The Company is in the process of negotiating an extension of the
term.

CONTINGENCIES

SECURITIES CLASS ACTIONS

         Beginning in March, 2001, a number of complaints were filed in the
Southern District of New York seeking an unspecified amount of damages on behalf
of an alleged class of persons who purchased shares of our common stock between
the date of our initial public offering and the end of June, 2000. The
complaints name as defendants the Company and certain of its current and former
directors and officers, and several underwriters of the Company's initial public
offering. Plaintiffs allege, among other things, that the Company's prospectus,
incorporated in the Registration Statement on Form S-1 filed with the Securities
and Exchange Commission was materially false and misleading because it failed to
disclose that the investment banks which underwrote the Company's initial public
offering of securities, and others received undisclosed and excessive brokerage
commissions, and required investors to agree to buy shares of our securities
after the initial public offering was completed at predetermined prices as a
precondition to obtaining initial public offering allocations. The plaintiffs
further allege that these actions artificially inflated the price of the
Company's common stock after the initial public offering. On June 12, 2001 all
class action complaints were ordered to be consolidated. The Company and the
other defendants will be required to respond to a consolidated amended complaint
at the end of August, 2001.

NOTE 13 -- INFORMATION CONCERNING BUSINESS SEGMENTS:

         The Company operates in a single industry segment. The Company does not
have separate operating segments for which discrete financial statements are
prepared. The Company's management makes operating decisions and assesses
performance primarily based upon product revenues and related gross margins.
Revenue is attributed based upon the geographic location of the customer.


                                      F-28
<PAGE>   72
                              CALICO COMMERCE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         Information regarding geographic areas for the years ended March 31,
2001, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                    YEAR ENDED MARCH 31,
                                               ---------------------------------
                                                2001         2000         1999
                                               -------      -------      -------
<S>                                            <C>          <C>          <C>
Revenues:
United States ...........................      $22,049      $31,155      $20,108
European Countries ......................        6,650        3,594        1,276
Other foreign countries .................        1,035          875           29
                                               -------      -------      -------
                                               $29,734      $35,624      $21,413
                                               =======      =======      =======
</TABLE>

<TABLE>
<CAPTION>
                                                           MARCH 31,
                                               ---------------------------------
                                                 2001         2000         1999
                                               -------      -------      -------
<S>                                            <C>          <C>          <C>
Long-Lived Assets:
United States ...........................      $ 4,023      $ 4,408      $ 2,532
International ...........................          621           54           --
                                               -------      -------      -------
                                               $ 4,644      $ 4,462      $ 2,532
                                               =======      =======      =======
</TABLE>

         The following table sets forth customers comprising 10% or more of the
Company's net revenue for each of the periods indicated:

<TABLE>
<CAPTION>
                                                YEAR ENDED MARCH 31,
                                             -------------------------
            CUSTOMER                         2001      2000       1999
            --------                         ----      ----       ----
<S>                                          <C>       <C>        <C>
A..................................           --        17%        --%
B..................................           --        14         --
C..................................           --        --         22
D..................................           --        --         13
</TABLE>

NOTE 14 ---  SALE OF PRODUCT LINE

         On March 20, 2001, the Company completed a sale of the intangible and
capital assets related to its Market Maker product line to Digital River, Inc.
The Market Maker product had been acquired by the Company in January of 2000 via
its acquisition of Connect. Under the terms of the asset purchase agreement
between the Company and Digital River, the Company received 1.6 million shares
of Digital River common stock, valued at $7.9 million on the date of sale.

         The asset purchase agreement restricts the percentage of shares that
can be sold by the Company during certain periods. The Company is restricted to
selling no greater than 40% of the total shares during the period of March 20,
2001 to June 20, 2001 and 80% from the period of March 20, 2001 to September 20,
2001. The Company is also limited to selling no more than 175,000 shares within
a consecutive five-day trading period.

         The Company has accounted for the Digital River marketable securities
as available-for-sale securities pursuant to SFAS 115.



                                      F-29

<PAGE>   73
                              CALICO COMMERCE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The calculation of the loss on the sale was determined as follows (in
thousands):

<TABLE>
<S>                                                                       <C>
Fair value marketable securities received...............................  $   7,846
Book value equipment, intangible assets and deferred revenue............    (56,807)
Transaction costs.......................................................       (706)
                                                                           --------
     Loss on sale.......................................................   $(49,667)
                                                                           ========
</TABLE>

         Included within the Company's revenues for the years ended March 31,
2001, 2000 and 1999 was $9.3 million, $2.2 million and $0 respectively in
relation to the Market Maker product line. Included within the Company's net
losses for the years ended March 31, 2001, 2000 and 1999, were $37.8 million,
$6.6 million, and $0, respectively, of net losses attributed to the
Market Maker product line (unaudited).

NOTE 15 --- RESTRUCTURING OF OPERATIONS

         On January 24, 2001, the Company announced a strategic restructuring
plan, designed to reduce operating expenses. In connection with the
restructuring, the Company reduced its workforce by 36 employees, and
significantly reduced its use of outside contract labor. The Company also made
provisions for reductions in office space and the disposal of related assets.


                                      F-30
<PAGE>   74
                              CALICO COMMERCE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         The total amount of the restructuring charge was $1.4 million. The
restructuring charge is comprised of $590,000 in employee-related expenses for
employee terminations, $749,000 of estimated expenses for facilities-related
charges which relate to non-cancelable operating leases for abandoned office
space, and $24,000 for the disposal of certain excess capital equipment. Of
these amounts, $1.3 million were cash-related charges, and $24,000 were non-cash
charges.

         All employees were notified of their terminations during the fourth
quarter. The workforce reductions consisted of both current positions and
attrition. Severance-related payments totaled approximately $373,000 through
March 31, 2001, with a remaining $217,000 to be expended through September 2001.
The focus of the personnel reduction was in the United States, in the sales and
marketing and professional services organizations, which were reduced by 22 and
12 positions, respectively.

         As of March 31, 2001, the Company had incurred costs totaling
approximately $557,000 related to the restructuring, which required $533,000 in
cash expenditures. The remaining reserve related to this restructuring was
approximately $805,000, which is included in accrued liabilities and relates
primarily to facilities charges and remaining severance payments.

         The following table lists the components of the January 2001
restructuring charge for the year ended March 31, 2001 (in thousands):

<TABLE>
<CAPTION>
                                                       EXCESS
                                    EMPLOYEE       FACILITIES AND
                                     COSTS            EQUIPMENT          TOTAL
                                    --------       --------------       -------
<S>                                  <C>               <C>               <C>
Initial reserve established......    $ 590             $ 772             $1,362
Cash paid........................     (373)             (160)              (533)
Non-cash charges.................       --               (24)               (24)
                                     -----             -----             ------
Balance at March 31, 2001........    $ 217             $ 588             $  805
                                     =====             =====             ======
</TABLE>

NOTE 16 -- IMPAIRMENT AND LOSS ON DISPOSAL OF LONG-LIVED ASSETS

         As part of the Company's review of its fourth quarter financial
results, an impairment assessment of its long-lived assets was performed. The
assessment was performed primarily due to the significant decline in the
Company's stock price, the overall decline in industry growth rates and the
Company's lower fourth quarter and projected fiscal 2002 operating results. As a
result, an impairment charge aggregating $3.8 million was recorded in the fourth
quarter of fiscal 2001, as described below.

         The Company recorded a $1.4 million impairment charge to adjust
goodwill and other intangible assets and deferred costs associated with its
acquisition of First Floor Software, Inc. to $0, which approximated its
estimated fair value. The estimate of fair value was based upon the discounted
estimated cash flows for the Company for the succeeding three years using a
discount rate of 25%. The assumption supporting the estimated cash flows and
discount rate reflect management's best estimate. The discount rate was
primarily based upon the weighted average cost of capital for comparable
companies.

         Due to the large amount of excess computer equipment on hand at March
31, 2001, primarily resulting from the reduction in force of January 2001, an
assessment of the carrying value of property and equipment was performed. All
excess capital equipment (i.e. no longer in service) was reduced to its residual
value based on published resale information and assets determined not to have
any significant resale value were written off. As a result, an impairment charge
of $1.1 million was recorded in the fourth quarter of fiscal 2001.

         In addition, during the fourth quarter of fiscal 2001, the Company
determined that certain of its investments had suffered an other-than temporary
decline in value and accordingly recognized a loss of $1.3 million on the
write-down of those investments to their fair value.

NOTE 17 --- SUBSEQUENT EVENTS

         On April 11, 2001, the Company announced a strategic restructuring plan
designed to further reduce operating expenses. In connection with the
restructuring, the Company plans to reduce its workforce by 90 full-time
positions. This restructuring will reduce its North American organization by 64
positions, its European organization by 8 positions and its India organization
by 18 positions. Functional areas most impacted by this reduction were research
and development and sales and marketing.

         The total amount of the restructuring charge is estimated at $630,000.
The charge relates entirely to employee severance costs. All expenses are
cash-related and are expected to be completed by September 2001.




                                      F-31
<PAGE>   75
                              CALICO COMMERCE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 18 -- QUARTERLY FINANCIAL DATA (UNAUDITED)

         The Company intends to restate the financial results of its first,
second and third quarters of its fiscal year as a result of the conclusion of an
investigation performed at the request of the Audit Committee of its Board of
Directors.

         Adjustments to the Company's reported first, second and third quarter
results for the fiscal year 2001 were as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                    First      Second    Third
                                                                                   Quarter     Quarter   Quarter      Total
                                                                                   -------     -------   -------     -------
                                                                                                (in thousands)
<S>                                                                                <C>         <C>       <C>         <C>
Matters impacting revenues:
     Revenue from two reciprocal/barter transactions for which the Company
     believes there is insufficient contemporaneous evidence which supports
     the expectation that the software received would be deployed ............     $(1,132)     $ (51)     $(51)     $(1,234)

     Revenue from a licensing transaction for which revenue was recognized and
     it was subsequently determined that the majority of the revenue
     should have been recorded in later quarters .............................        (320)        80        80         (160)

     Revenue from transactions for which no revenue will be recognized due to
     the fact that they were contingent upon future events, or had rights to
     return the software that were contained in side agreements or oral
     understandings ..........................................................        (413)      (934)      (55)      (1,402)
                                                                                   -------      -----      ----      -------
                                                                                   $(1,865)     $(905)     $(26)     $(2,796)

  Matters impacting costs and expenses:
     Miscellaneous selling, general and administrative Expense adjustments ...          --         22       125          147
                                                                                   -------      -----      ----      -------
                                                                                   $(1,865)     $(883)     $ 99      $(2,649)
                                                                                   =======      =====      ====      =======
</TABLE>

         In addition to the above adjustments, reclassifications were made in
the first, second and third quarters between cost of services and operating
expenses based upon an extensive analysis of the Company's cost of providing
professional services to its customers.


                                      F-32
<PAGE>   76
                              CALICO COMMERCE, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


QUARTERLY RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
2000                                                 First       Second        Third        Fourth
                                                    -------      -------      -------      --------
                                                         (in thousands except per share amounts)
<S>                                                 <C>          <C>          <C>          <C>
Net revenues ..................................     $ 7,433      $ 8,176      $ 8,720      $ 11,295
Gross profit ..................................       4,584        4,424        5,153         5,865
Loss from operations ..........................      (4,794)      (6,531)      (6,728)      (12,110)
Net loss ......................................      (4,723)      (6,465)      (5,657)      (11,029)
Net loss per share -- basic and diluted .......     $  (.52)     $  (.69)     $  (.19)     $   (.33)
</TABLE>


<TABLE>
<CAPTION>
2001                                        First                      Second                      Third
                                   ------------------------   -------------------------    ------------------------
                                   As Reported  As Restated   As Reported   As Restated    As Reported  As Restated    Fourth
                                   -----------  -----------   -----------   -----------    -----------  -----------   --------
                                                                     (in thousands except per share amounts)
<S>                                <C>          <C>           <C>           <C>            <C>          <C>           <C>
Net revenues ..................     $ 12,580      $ 10,715      $  9,077      $  8,172      $  5,528      $  5,502    $  5,345
Gross profit (loss) ...........        6,518         4,802         2,099         1,603          (357)          276       1,432
Loss from operations ..........      (14,930)      (16,795)      (22,562)      (23,445)      (26,579)      (26,480)    (76,882)
Net loss ......................      (13,819)      (15,684)      (21,615)      (22,498)      (26,144)      (26,045)    (77,102)
Net loss per share -- basic
  and Diluted .................     $   (.41)     $   (.46)     $   (.63)     $   (.65)     $   (.75)     $   (.75)   $  (2.20)
</TABLE>


                                      F-33

<PAGE>   77

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
    No.                                  Description
    ---                                  -----------
<S>             <C>
    2.1*        Agreement and Plan of Reorganization dated as of June 23, 1998
                by and among Calico Technology, Inc., Calico Acquisition
                Corporation, FirstFloor Software, Inc., Certain Shareholders of
                FirstFloor Software, Inc., and Certain Shareholders of Calico
                Technology, Inc.

    2.2*        Form of Agreement and Plan of Merger between Calico Technology,
                Inc., a California corporation, and Calico Commerce, Inc., a
                Delaware corporation

    2.3**       Agreement and Plan of Merger dated as of November 19, 1999 by
                and between Calico Commerce, Inc., ConnectInc.com, Co., and
                Calico Acquisition, Inc.

    2.4***      Asset Purchase Agreement, dated March 20, 2001, by and between
                Calico, ConnectInc.com, Co. and Digital River, Inc.

    3.1*        Certificate of Incorporation

    3.2*        Bylaws

   10.1*        Office Lease between Metropolitan Life Insurance Company and
                Calico Commerce, Inc. dated as of August 18, 1999

   10.2*        1997 Stock Option Plan and forms of agreements thereunder

   10.3*        1995 Stock Option Plan and forms of agreements thereunder

   10.4*        1999 Employee Stock Purchase Plan

   10.5*        Form of Indemnity Agreement for directors and officers

   10.6*        Investors' Rights Agreement, dated as of May 26, 1995, as
                amended, among Calico Technology, Inc. William G. Paseman, and
                the persons identified on the schedules attached thereto

   10.8*        Four Variable Rate Installment Notes between Calico Technology,
                Inc. and Comerica Bank -- California

   10.9*        Common Stock Purchase Agreement dated September 3, 1999 between
                Calico Commerce, Inc. and Dell U.S.A., L.P.

   10.10*       Letter Agreement between Andersen Consulting LLP and Calico
                Commerce, Inc. dated September 17, 1999

   10.11*       Common Stock Purchase Agreement dated September 29, 1999 between
                Calico Commerce, Inc. and AC II Technology (ACT II) B.V.

   10.12*       Amendment Number Nine to Investors' Rights Agreement dated
                September 28, 1999

   10.13****    2000 Non-officer Stock Option Plan

   10.14+****   Software License Agreement dated April 27, 1999, as amended
                October 28, 1999, between Calico Commerce, Inc. and WebXpress, A
                BEA Company

</TABLE>
<PAGE>   78
<TABLE>
<CAPTION>
    No.                                  Description
    ---                                  -----------
<S>             <C>
   10.15+       Second Amendment, dated April 28, 2000, and Third Amendment,
                dated March 15, 2001, to Software License Agreement between
                Calico Commerce, Inc. and WebXpress, A BEA Company

   10.16        Security Agreement by and between Calico Commerce, Inc. and
                Comerica Bank - California, dated March 16, 2001

   10.17        Common Stock Warrant issued to Anjes, Inc. dated December 28,
                2000

   10.18        Common Stock Warrant issued to Hefei Xin Hua Hai electronics
                Limited dated December 28, 2000

   10.19+       Letter of Agreement Regarding Financial Services Proposal by and
                between Calico Commerce, Inc. and David Powell, Inc. dated
                February 22, 2001

   21.1         List of Subsidiaries

   23.1         Consent of PricewaterhouseCoopers LLP, Independent Accountants
</TABLE>

*      Incorporated herein by reference to Calico's Registration Statement on
       Form S-1, as amended (File No. 333-82907)

**     Incorporated herein by reference to Calico's Current Report on Form 8-K
       filed November 29, 1999

***    Incorporated herein by reference to Calico's Current Report on Form 8-K
       filed April 4, 2001

****   Incorporated by reference to Calico's Annual Report on Form 10-K filed
       June 29, 2000

+      Confidential treatment has been requested for certain portions of this
       exhibit. The omitted portions have been separately filed with the
       Commission