<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 20-F
  (Mark One)

      [ ]   Registration statement pursuant to Section 12(b) or 12(g) of the
            Securities Exchange Act of 1934

                                      or

      [x]   Annual report pursuant to Section 13 or 15(d) of the Securities
            Exchange Act of 1934

            For the fiscal year ended December 31, 2000

                                       or

      [ ]   Transition report pursuant to Section 13 or 15(d) of the Securities
            Exchange Act of 1934

            For the transition period from _____ to ______

                       Commission file number: 000-30688

                   INTERSHOP COMMUNICATIONS AKTIENGESELLSCHAFT
         -------------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

                                     Germany
         -------------------------------------------------------------
                 (Jurisdiction of Incorporation or Organization)

                                Amsinckstrasse 57
                                 D-20097 Hamburg
                           Federal Republic of Germany
         -------------------------------------------------------------
                    (Address of Principal Executive Offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
           Title of Each Class          Name of Each Exchange On Which Registered
           -------------------          -----------------------------------------
<S>                                     <C>
                None
</TABLE>

Securities registered or to be registered pursuant to Section 12(g) of the Act:

                                      None
                                (Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:

                American Depositary Shares, each representing 1/2
                    of a Bearer Ordinary Share, no par value
         -------------------------------------------------------------
                                (Title of Class)

Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.

                        88,003,016 Bearer Ordinary Shares

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 which financial statement item the registrant has elected
to follow:

                          Item 17 [ ]      Item 18 [x]
<PAGE>   2
                                TABLE OF CONTENTS

<TABLE>
<S>       <C>                                                                                   <C>
                                               PART I

Item 1.   Identity of Directors, Senior Management and Advisors................................    3

Item 2.   Offer Statistics and Expected Timetable..............................................    3

Item 3.   Key Information......................................................................    3

Item 4.   Information on the Company...........................................................   16

Item 5.   Operating and Financial Review and Prospects.........................................   23

Item 6.   Directors, Senior Management and Employees...........................................   30

Item 7.   Major Shareholders and Related Party Transactions....................................   36

Item 8.   Financial Information................................................................   37

Item 9.   The Offer and Listing................................................................   38

Item 10.  Additional Information...............................................................   40

Item 11.  Quantitative and Qualitative Disclosures About Market Risk...........................   49

Item 12.  Description of Securities Other than Equity Securities...............................   50

                                               PART II

Item 13.  Defaults, Dividend Arrearages and Delinquencies......................................   50

Item 14.  Material Modifications to the Rights of Security Holders and Use of Proceeds.........   50

Item 15.  Reserved.............................................................................   51

Item 16.  Reserved.............................................................................   51

                                               PART III

Item 17.  Financial Statements.................................................................   51

Item 18.  Financial Statements.................................................................   51

Item 19.  Exhibits.............................................................................   52

Item 20.  Index to Consolidated Financial Statements...........................................  F-1
</TABLE>


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<PAGE>   3
                       CERTAIN DEFINITIONS AND CONVENTIONS

         In this Annual Report on Form 20-F, unless the context indicates
otherwise, the terms "we," "us," "our" and similar terms, as well as references
to "INTERSHOP AG," mean INTERSHOP Communications Aktiengesellschaft, a German
stock corporation.

         All share and per share data have been restated to reflect INTERSHOP
AG's 5-for-1 forward stock split effective August 2000.

         References to "$" and "Dollars" are to U.S. dollars. With the
introduction of the euro on January 1, 1999, we have elected to present our
consolidated financial statements in euros in this report. Percentages and
certain amounts contained herein have been rounded for ease of presentation. Any
discrepancies in any table between totals and the sums of amounts listed are due
to rounding.

                   SAFE HARBOR STATEMENT UNDER THE SECURITIES
                          LITIGATION REFORM ACT OF 1995

         This Annual Report on Form 20-F contains statements that qualify as
"forward-looking statements" under the Securities Litigation Reform Act of 1995.
These forward-looking statements include statements about topics such as our
plans for product development and expectations about future financial
performance. The forward-looking statements contained in this Annual Report on
Form 20-F involve known and unknown risks, uncertainties and other factors that
may cause our or our industry's actual results, levels of activity, performance
or achievements to be materially different from the future results, levels of
activity, performance or achievements expressed or implied by these statements.
These factors include, among other things, those discussed under "Key
Information - Risk Factors" and elsewhere in this Annual Report on Form 20-F.
All forward-looking statements in this Annual Report on Form 20-F are based on
information available to us on the date hereof, and we assume no obligation to
update any such forward-looking statements.

         Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. You should not place undue
reliance on these forward-looking statements.

                                     PART I

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

         Not applicable.

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE

         Not applicable.


ITEM 3.  KEY INFORMATION

                      SELECTED CONSOLIDATED FINANCIAL DATA

The consolidated statement of operations data for the fiscal years ended
December 31, 1998, 1999 and 2000, and the consolidated balance sheet data as at
December 31, 1999 and 2000, are derived from our consolidated financial
statements, which have been audited by Arthur Andersen
Wirtschaftsprufungsgesellschaft Steuerberatungsgesellschaft mbH, independent
public accountants, and are included elsewhere in this report. Financial data as
at and for the year ended December 31, 1996 represents information for INTERSHOP
Communications GmbH. Financial data as at and for the year ended December 31,
1997 represents information for INTERSHOP Communications, Inc. All prior year
balances have been restated from Deutsche marks into euros using the exchange
rate as at January 1, 1999 of DM 1.95583 = euro 1. Our restated financial
statements into euros depict the same trends as would be presented


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<PAGE>   4
if they had continued to be presented in Deutsche marks. However, our restated
financial statements will not be comparable to financial statements for periods
prior to January 1, 1999 in euro of other companies that previously reported
their financial information in a currency other than Deutsche marks.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                (IN THOUSANDS OF EUROS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                            FOR THE YEAR ENDED DECEMBER 31,
                                                -------------------------------------------------------
                                                 1996        1997        1998        1999        2000
                                                ------     -------     -------     -------     --------
<S>                                              <C>       <C>         <C>         <C>         <C>
REVENUES
   Licenses                                         25       2,947      11,295      29,534       74,068
   Services, maintenance and
     other revenue                                 446       2,088       6,577      16,732       48,926
                                                ------     -------     -------     -------     --------
     Total revenues                                471       5,035      17,872      46,266      122,994

COST OF REVENUES
   Licenses                                         85         442       1,742       4,786        5,289
   Services, maintenance and
     other revenue                                 483       2,245       3,766       8,465       43,453
                                                ------     -------     -------     -------     --------
     Total costs of revenues                       568       2,687       5,508      13,251       48,742

GROSS PROFIT                                       (97)      2,348      12,364      33,015       74,252
OPERATING EXPENSES
   Research and development                        298       1,006       4,368       7,115       10,191
   Sales and marketing                           1,069       4,705      18,368      34,771       75,743
   General and administrative                      790       3,454       6,729      11,206       27,590
   Legal settlement costs                           --          --       1,866          --           --
   Amortization of acquired
     intangible assets                              --          --          --          --        1,477
                                                ------     -------     -------     -------     --------
     Total operating expenses                    2,157       9,165      31,331      53,092      115,001

OPERATING LOSS                                  (2,254)     (6,817)    (18,967)    (20,077)     (40,749)
OTHER INCOME (EXPENSE)                              --
   Interest income                                  --         122         968         515        1,591
   Interest expense                                (66)       (292)       (797)        (42)        (571)
   Other income                                     --         (28)      1,488       1,215          806
     Total other income                            (66)       (198)      1,659       1,688        1,826
                                                ------     -------     -------     -------     --------
NET LOSS                                        (2,320)     (7,015)    (17,308)    (18,389)     (38,923)

ACCRETION OF REDEEMABLE PREFERRED STOCK             --        (149)       (220)         --           --
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS        --      (7,164)    (17,528)    (18,389)     (38,923)
BASIC AND DILUTED NET LOSS PER SHARE                --       (0.24)      (0.38)      (0.23)       (0.46)
SHARES USED IN COMPUTING BASIC AND DILUTED
  NET LOSS PER SHARE                                --      30,170      45,965      79,883       84,134

</TABLE>


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<TABLE>
<CAPTION>
                                                         AS AT DECEMBER 31,
                                        -------------------------------------------------------
                                         1996        1997        1998        1999        2000
                                        ------     -------     -------     -------     --------
<S>                                     <C>        <C>         <C>         <C>         <C>
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents                  214       5,058      34,185      12,065       84,062
Working capital                            224         (82)     31,709      10,020      121,188
Total assets                             1,586      10,731      47,221      53,789      209,455
Long-term liabilities                    1,713       6,945       1,978         240          159
Accumulated deficit                     (2,324)     (9,489)    (27,017)    (45,406)     (84,329)
Total shareholders' equity (deficit)    (2,314)     (9,593)     34,225      22,864      173,968
</TABLE>

         From inception to December 31, 1996, each of our predecessor companies
reported their consolidated financial statements in Deutsche marks (DM). In
fiscal 1997, our immediate predecessor company INTERSHOP Communication, Inc.
("U.S., Inc."), currently our subsidiary (but the parent company in that year),
reported its consolidated financial statements in U.S. dollars. These financial
statements were then restated and presented in DM after INTERSHOP AG acquired
the majority of the outstanding shares of U.S., Inc. during fiscal 1998. With
the introduction of the euro (E) on January 1, 1999, we have elected to present
the accompanying consolidated financial statements in euro. Accordingly, the
Deutsche mark consolidated financial statements for each period presented have
been restated into euro using the Deutsche mark/euro exchange rate as at
January 1, 1999 of DM 1.95583 = euro 1. Our restated financial statements in
euro depict the same trends as would have been presented if we had continued to
present our consolidated financial statements in Deutsche marks. The
consolidated financial statements will, however, not be comparable to financial
statements for periods prior to January 1, 1999 in euro of other companies that
previously reported their financial information in a currency other than
Deutsche marks.

EXCHANGE RATES

         The following table sets forth, for the years 1996, 1997 and 1998, the
average, high, and low noon buying rates for converting Deutsche marks to U.S.
dollars, expressed in Deutsche marks per U.S. dollar, and for the years 1999 and
2000, the average, high and low noon buying rate for converting euros to U.S.
dollars, expressed in euros per dollar. Effective January 1, 1999, the euro was
introduced in the 11 member states of the European Union currently participating
in the European Monetary Union, known as the EMU, as a common legal currency
among those states for "paperless" transactions, pending the substitution of
euro bank notes and coins for the national currencies of the participating
member states between January 1, 2002 and July 1, 2002. Effective July 1, 2002,
the euro will be the official legal tender for the participating member states,
and the national currencies of those member states will be withdrawn from
circulation. The fixed exchange rate for Deutsche marks converted to euros is DM
1.95583 = euro 1. We do not represent that the Deutsche mark or euro amounts
shown below could be or could have been converted into U.S. dollars at any
particular rate or at all. The period average is the average of the noon buying
rates on the last business day of each full calendar month during the relevant
period.

<TABLE>
<CAPTION>
YEAR                                        AVERAGE           HIGH            LOW
----                                        --------        --------        --------
<S>                                         <C>             <C>             <C>
1996.....................................   DM  1.50        DM  1.57        DM  1.43
1997.....................................   DM  1.73        DM  1.87        DM  1.54
1998.....................................   DM  1.76        DM  1.86        DM  1.56
1999.....................................   E 0.9445        E 0.8466        E 0.9984
2000.....................................   E 1.0861        E 0.9676        E 1.2092
</TABLE>


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<PAGE>   6
<TABLE>
<CAPTION>
MONTH                                                           HIGH      LOW
-----                                                          ------    ------
<S>                                                            <C>       <C>
2000
December                                                       0.9388    0.8755

2001
January                                                        0.9535    0.9181
February                                                       0.9395    0.9057
March                                                          0.9324    0.8722
April                                                          0.8941    0.8846
May                                                            0.9003    0.8440
June (through June 15, 2001)                                   0.8993    0.8422
</TABLE>

         On June 15, 2001, the noon buying rate for converting dollars to euros
was U.S. $0.8497 per euro 1.00.

                                  RISK FACTORS

THE MARKET FOR OUR PRODUCTS AND SERVICES IS RAPIDLY CHANGING. IF OUR PRODUCTS
AND SERVICES DO NOT GAIN OR RETAIN ACCEPTANCE IN THIS MARKET, WE MAY NOT
GENERATE SUFFICIENT REVENUES TO SUSTAIN OUR BUSINESS.

         The market for products and services that enable businesses to sell
over the Internet is new and evolving. Therefore, demand for and acceptance of
recently introduced products and services like ours is uncertain. We are
particularly susceptible to this risk because our current growth strategy
includes increasing our focus on products designed to serve individual
enterprises in addition to ASPs. In particular, our Enfinity product is targeted
at mid-size to large enterprises. If this product does not achieve market
acceptance, we may not be able to grow our business. In addition, the market for
our products and services may not develop sufficiently to meet our revenue
goals. Specifically, our products and services may not be perceived as superior
to other products and services, may not meet our customers' needs or may not
prompt recommendations to other potential customers.

WE CANNOT GUARANTEE THAT A VIABLE MARKET FOR OUR PRODUCTS AND SERVICES WILL
DEVELOP.

         Our products and services facilitate online commerce and communication
over public and private networks. The market for these products and services is
in its early stages of development and is rapidly evolving. A viable market may
fail to emerge or be sustainable. We cannot predict the level of demand for and
market acceptance of our products and services, especially because acquisition
of our products and services requires a large capital or other significant
resource commitment. If the market for our products and services does not
continue to mature, we will be unable to successfully execute our business plan.
Adoption of electronic commerce and knowledge management, particularly by those
individuals and companies that have historically relied upon traditional means
of commerce and communication, will require a broad acceptance of new and
different methods of conducting business and exchanging information. Our future
revenues and profits will substantially depend on the Internet being accepted
and widely used for commerce and communication. If Internet commerce does not
continue to grow or grows more slowly than expected, our future revenues and
profits may not meet our expectations or those of analysts. In the emerging
marketplace of Internet commerce, our products and services involve an
innovative approach to the conduct of online business. As a result, intensive
marketing and sales efforts may be necessary to educate prospective customers
regarding the uses and benefits of our products and services, thereby generating
demand. Companies that have already invested substantial resources in other
methods of conducting business may be reluctant to adopt a now approach that may
replace, limit or compete with their existing systems. Similarly, purchasers
with established patterns of commerce may be reluctant to alter those patterns
or may otherwise resist providing the personal data necessary to support our
consumer profiling capability. In addition, the security and privacy concerns of
existing and potential online purchasers may inhibit the growth of online
business generally and the market's acceptance of our products and services in
particular. Accordingly, a viable market for our products and services may not
emerge or be sustainable.


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<PAGE>   7
OUR BUSINESS MAY SUFFER IF THE INTERNET INFRASTRUCTURE IS UNABLE TO EFFECTIVELY
SUPPORT THE GROWTH IN DEMAND PLACED ON IT.

         Our success will depend, in large part, upon the maintenance and
development of the Internet infrastructure, such as reliable network backbones
with the necessary speed, data capacity and security, and the timely development
of enabling products such as high speed modems, for providing reliable Internet
access and services and improved content. We cannot assure you that the Internet
infrastructure will continue to effectively support the demands placed on it as
the Internet continues to experience increased numbers of users, frequency of
use and increased bandwidth requirements. Even if the necessary infrastructure
or technologies are developed, we may have to spend considerable amounts of
money to adapt our solutions accordingly. Furthermore, the Internet has
experienced a variety of outages and other delays due to damage to portions of
its infrastructure. These outages and delays could impact the Internet sites of
customer's using our products and services.

OUR BUSINESS MAY BE HARMED BY OVERALL ECONOMIC AND MARKET CONDITIONS.

         There exists the potential for a continued downturn in general economic
and market conditions. Various segments of the software industry have
experienced significant economic downturns characterized by decreased product
demand, price erosion, work slowdowns and layoffs. Recently, concerns have
increased throughout the technology industry regarding a continuing economic
slowdown and negative growth predictions for the remainder of the calendar year
2001 and beyond. Moreover, there is increasing uncertainty in the enterprise
software market attributed to many factors, including global economic conditions
and strong competitive forces. Our future license fee revenue and results of
operations may experience substantial fluctuations from period to period as a
consequence of these factors, and such conditions may affect the timing of
orders from major customers and other factors affecting capital spending.
Although we have a diverse client base, we have targeted a number of vertical
markets. As a result, any economic downturns in general or in our targeted
vertical markets would have a material adverse effect on our business, operating
results, cash flows or financial condition.

WE HAVE INCURRED NET LOSSES IN THE PAST AND EXPECT TO INCUR THEM IN THE
IMMEDIATE FUTURE. IF WE CONTINUE TO INCUR NET LOSSES FOR A PERIOD LONGER THAN
ANTICIPATED, WE MAY BE UNABLE TO CONTINUE OPERATIONS.

         While we have had two consecutive quarters of profitability in the
first and second fiscal quarters of 2000, we have incurred net losses the past
three years and expect to experience operating losses in the future. Factors
that may negatively impact our future profitability include our high levels of
expenditures in sales and marketing to support product launches, potential
decreases in revenues if these product launches are unsuccessful and our high
ongoing levels of research and development expenses. If we fail to sustain
profitability, we may be unable to continue our operations.

OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS WHICH
COULD HARM OUR BUSINESS AND CAUSE THE PRICE OF OUR BEARER ORDINARY SHARES AND
ADSS TO FALL.

         We expect to experience significant fluctuations in our future
quarterly operating results that may be caused by many factors. These factors
include:

         -    the size and the timing of orders in one quarter or from quarter
              to quarter and the fact that the majority of our sales in any
              given quarter historically occur in the last few weeks of the
              quarter;

         -    our ability to implement our software solutions within a given
              quarter and the timing of our customers' acceptance of our
              products;

         -    the potential for delay or deferral of customer implementations of
              our software and changes in customer budgets;

         -    increases in our operating expenses as we continue to expand our
              product line and fund greater levels of research and development;


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<PAGE>   8
         -    our pricing and mix of products and services sold;

         -    the relatively long sales cycles for some of our products;

         -    changes in our pricing policies or those of our competitors;

         -    introduction of new products or product enhancements by our
              competitors;

         -    our historic tendency to have larger sales revenues in the fourth
              calendar quarter; and

         -    our large percentage of European sales which are adversely
              affected in the third calendar quarter of each year due to reduced
              business activities in the summer months.

         Our business and, therefore, the market price of our bearer ordinary
shares and ADSs could be subject to significant fluctuations in response to
quarter-to-quarter variations in our operating results and other events or
factors.

WE FACE INTENSE AND INCREASING COMPETITION IN THE MARKET FOR ELECTRONIC COMMERCE
SOFTWARE APPLICATIONS, AND OUR FAILURE TO COMPETE SUCCESSFULLY COULD DECREASE
OUR REVENUES.

         The market for our products and services is intensely competitive,
evolving and subject to rapid technological change. Since there are relatively
low barriers to entry in the market for electronic commerce applications,
competition from other established and emerging companies may develop in the
future. We expect competition to intensify as current competitors expand their
product offerings and new competitors enter the market. Increased competition is
likely to result in price reductions, lower average sales prices, reduced
margins, longer sales cycles and loss of market share, any of which could harm
our business, operating results or financial condition.

         Many of our competitors have, and new potential competitors may have,
longer operating histories, significantly greater financial, technical,
marketing and other resources than we do, more experience in developing
electronic commerce software, larger technical staffs, larger customer bases,
more established distribution channels, and greater brand recognition than we
do. In addition, many of our competitors have well-established relationships
with our current and potential customers, especially in the U.S., and have
extensive knowledge of our industry. In the past, we have lost potential
customers to competitors for various reasons, including lower prices and other
incentives not matched by us. Current and potential competitors have established
or may establish cooperative relationships among themselves or with third
parties to increase the ability of their products to address customer needs. As
a result, it is possible that new competitors or alliances among competitors may
emerge and rapidly acquire significant market share. We also expect that
competition may increase as a result of industry consolidations.

         Our current direct competitors break into the following categories:

         -    Other electronic commerce software companies: We compete with
              software application vendors including BroadVision, Art Technology
              Group, and Blue Martini; and

         -    Established software technology companies: We also compete against
              companies such as Microsoft, IBM and Oracle which each offer
              electronic commerce software and may try to increase their share
              of this market.

         Our current indirect competitors include:

         -    Electronic commerce online services: This category is comprised of
              Yahoo! Stores, iMall and others. These online services focus on
              hosting small business sites and compete directly with our ASP
              customers in the low-end merchant market; and


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<PAGE>   9
         -    Other software vendors: This group includes electronic commerce
              vendors such as Commerce One and Ariba plus Internet content
              management and personalization firms such as Vignette and Net
              Perceptions, BEA Systems and Netscape.

         Our potential future competitors could also include:

         -    Enterprise software companies. Large vendors of enterprise
              software, such as Baan, SAP, i2 Technologies, JD Edwards and
              Siebel, may enter the electronic commerce market.

         We cannot assure you that we will be able to compete successfully
against current or future competitors, or that competitive pressures will not
reduce our future revenues.

IF WE FAIL TO INTRODUCE NEW PRODUCTS AND ENHANCE EXISTING ONES, OUR COMPETITIVE
POSITION AND FUTURE BUSINESS PROSPECTS COULD BE HARMED.

         To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our products and services. The
Internet and the market for electronic commerce software are characterized by
rapid technological change, changes in user requirements and preferences,
frequent introductions of new products and services embodying new technologies
and the emergence of new industry standards and practices that could render our
technology and products obsolete. Consequently, we cannot predict the life
cycles of our products. Further, we may be unsuccessful or experience delays in
developing, acquiring or marketing new or enhanced products or services. Our
success will depend, in part, on our ability to both internally develop and
license leading technologies to enhance our existing products and services and
develop new products and services. We must continue to address the increasingly
sophisticated and varied needs of our customers and respond to technological
advances and emerging industry standards and practices on a cost-effective and
timely basis. In addition, as we continue to increase our focus on providing
products and services directly to individual enterprises, as opposed to ASPs, we
will face additional concerns that could hinder our ability to respond in a
timely manner to changes in market demand. These concerns include trying to
accommodate the requirements of a larger pool of customers with more specialized
needs and responding to the dynamics of a different market with different
product cycles. The development of our proprietary technology involves
significant technical and business risks. We may fail to use new technologies
effectively or to adapt our proprietary technology and systems to customer
requirements or emerging industry standards. If we are unable to adapt to
changing market conditions, client requirements or emerging industry standards,
we may not be able to increase our revenues and expand our business. Any delay
or failure in implementing or marketing new or enhanced products or services
could harm our competitive position and our future business prospects.

LENGTHY SALES AND IMPLEMENTATION CYCLES COULD CAUSE DELAYS IN REVENUE GROWTH.

         The period between our initial contact with a potential customer and
the purchase of our products and services is often long and subject to delays
associated with the lengthy budgeting and approval process of our customers.
Therefore, the historic sales cycle associated with the license and
implementation of many of our products has been lengthy and beyond our control.
As we continue to launch new products and increase our focus on providing
products and services directly to individual enterprises, as opposed to ASPs,
the length of these sales cycles could be increased temporarily or permanently.
These delays may have a negative impact on the timing of our revenues and, if
they occur, may be expected to cause our operating results to vary significantly
from quarter to quarter.

OUR FUTURE REVENUES DEPEND ON THIRD PARTIES WHO MARKET, SELL AND DEPLOY OUR
PRODUCTS.

         We rely on third parties to market and deploy our products. In
addition, our customers rely on professional services organizations, such as
consulting firms, systems integrators and design firms to assist with the
development, integration and implementation of our products. If we cannot
adequately train a sufficient number of these firms in the use of our products
or if for any reason a large number of them support or promote competing
products or technologies, our business might be seriously harmed. Many of these
relationships are not subject to formal agreements and none of these firms is
under any obligation to provide services to us or our customers. If we fail to


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<PAGE>   10
develop and maintain relationships with leading consulting firms, system
integrators, ASPs and design firms, our ability to successfully market, sell and
deploy our products could be reduced.

WE HAVE A LIMITED OPERATING HISTORY, AND OUR SUCCESS MAY BE LIMITED BY FACTORS
OFTEN ENCOUNTERED BY COMPANIES WITH A LIMITED OPERATING HISTORY.

         We have only been selling some of our products and services or their
predecessor versions for 9 years. Our original predecessor company, NetConsult
Computersysteme GmbH, was founded in 1992, and we were incorporated in our
current form under German law on April 23, 1998. Accordingly, we have only a
limited operating history. Factors that may negatively impact our future
profitability include our high levels of expenditures in sales and marketing to
support upcoming product launches, potential decreases in revenues if these
product launches are unsuccessful and our high ongoing levels of research and
development expenses. Each or all of these factors could limit our success.

A BREACH OF OUR ELECTRONIC COMMERCE SECURITY MEASURES COULD REDUCE FUTURE DEMAND
FOR OUR PRODUCTS AND SERVICES.

         A requirement of the continued growth of electronic commerce and
communications is the secure transmission of confidential information over
public networks. We rely on a combination of a secure socket layer, the most
common encryption standard used on the Internet, and digital encryption
standard, which is commonly used for the encryption of financial information, to
provide the security necessary for the secure transmission of our customers'
data. A third party who is able to circumvent our security measures could
misappropriate proprietary information or interrupt our operations. Any such
compromise or elimination of our security could reduce future demand for our
products and services. In addition, we may be required to expend significant
capital and other resources to protect against such security breaches or to
address problems they may cause. Finally, since our activities involve the
storage and transmission of proprietary information, such as credit card
numbers, security breaches could damage our reputation and expose us to a risk
of loss or litigation and possible liability.

OUR DISTRIBUTION STRATEGY DEPENDS, IN PART, ON ASPs. IF THEY ARE UNABLE TO SELL
THEIR SERVICES WHICH ARE BASED ON OUR PRODUCTS, DEMAND FOR OUR PRODUCTS MAY
DECREASE.

         Our distribution strategy relies primarily upon relationships with
ASPs, such as EarthLink, Inc., and value added resellers. ASPs maintain and
manage Internet servers on which they provide electronic commerce sites to
merchants who wish to sell their products or services over the Internet. Sales
to ASPs represented 51% of our net revenues in 1998, 36% in 1999 and 28% in
2000. If the ASPs are unable to sell services which are based on our products to
their customers, the demand for our products by the ASPs could decrease
substantially and our licensing revenues from ASPs could decrease
proportionally.

WE DEPEND ON THIRD PARTIES FOR LICENSED TECHNOLOGY THAT WE MIGHT NOT BE ABLE TO
OBTAIN FROM OTHER SOURCES.

         We rely on certain technology that we license from third parties,
including database software from Sybase, Persistence Software and Sun
Microsystems, and other software that is integrated with our software, to
perform key functions. Our third-party technology licenses may not continue to
be available to us on commercially reasonable terms or at all. The loss or
inability to maintain any of these technology licenses could prevent use of our
products and services until equivalent technology, if available, is identified,
licensed and integrated. Further, we cannot assure you that we will be able to
acquire new third party licenses that may be necessary for our business.

LOSING SOME OR ALL OF OUR KEY PERSONNEL COULD HARM OUR ABILITY TO MANAGE OUR
BUSINESS.

         Our business depends substantially on the performance of our executive
officers and key employees, especially our chief executive officer, Stephan
Schambach, and our chief operating officer, Wilfried Beeck. We are dependent
upon our ability to retain and motivate high quality personnel, especially for
our management and development teams. Losing the services of any of our
executive officers or other key employees could seriously harm our business,
operating results and financial condition.


                                       10
<PAGE>   11
         Our future success and ability to expand operations also depends upon
our ability to identify, hire, train and retain other highly qualified technical
and managerial personnel. Competition for top personnel is intense as these
personnel are in limited supply, and we might not be able to hire or retain
sufficient numbers of other highly qualified technical and managerial personnel
to support our business.

CURRENCY FLUCTUATIONS IN THE VARIOUS MARKETS IN WHICH WE DO BUSINESS MAY
NEGATIVELY AFFECT OUR OVERALL OPERATING RESULTS, WHICH ARE REPORTED IN EUROS.

         We conduct many of our operations through subsidiaries in several
countries, primarily Germany, the United Kingdom, the U.S., France and Sweden.
The operating and financial results of our subsidiaries are reported in the
relevant foreign currencies and then translated into euros at the applicable
foreign currency exchange rates for inclusion in our consolidated financial
statements. The exchange rates between these currencies and the euro may
fluctuate. We have not entered into any hedging or other arrangements for the
purpose of guarding against the risk of currency fluctuations. Therefore, the
translation effect of such fluctuations may have a harmful effect on our results
of operations and financial position as reported in euros. In general,
appreciation of the local currencies relative to another currency has an adverse
effect on revenues and operating income denominated in that currency, while
depreciation of the local currencies has a positive effect on revenues and
operating income denominated in the local currencies.

IF WE FAIL TO MEET THE CHALLENGES ASSOCIATED WITH MANAGING AND GROWING OUR
INTERNATIONAL OPERATIONS, OUR BUSINESS MAY SUFFER.

         Our products are currently marketed in over 31 countries in Europe,
North America, South America, Africa and the Asia/Pacific regions. Our future
revenue growth depends upon the successful continued expansion of our sales,
marketing, support and service organizations, through direct or indirect
channels, in the countries in which we are located. In maintaining our
international strategy, we face several additional risks which include:

         -    uncertainty of market acceptance in new regions due to language,
              cultural or other factors;

         -    lower levels of Internet usage and electronic commerce usage in
              the countries outside of the U.S. and Europe;

         -    unexpected changes and differences in regulatory requirements,
              particularly as applied to electronic commerce;

         -    our inability to manage our international growth, which we began
              before we were able to firmly establish our business model or
              infrastructure in a single market or a small number of markets;

         -    difficulty in collecting accounts receivable in some
              jurisdictions;

         -    export controls relating to encryption technology and other export
              restrictions, or tariffs and other trade barriers;

         -    difficulties in staffing and managing foreign operations;

         -    political and economic instability;

         -    fluctuations in currency exchange rates or reduced protection for
              intellectual property rights in some countries;

         -    seasonal reductions in business activity during the summer months
              in Europe and certain other parts of the world;

         -    potentially adverse tax consequences; and


                                       11
<PAGE>   12
         -    our ability to find and develop relationships with international
              companies.

         If we are unable to manage the potential effects of any of these risks,
we may not be able to grow our business in the future.

OUR CUSTOMER BASE IS CONCENTRATED AND OUR SUCCESS DEPENDS ON OUR ABILITY TO
RETAIN CERTAIN EXISTING CUSTOMERS.

         Deutsche Telekom, accounted for approximately 23% of our net sales for
the year ended December 31, 1998, and 9% for the year ended December 31, 1999
and 3% for the year ended December 31, 2000. Our top ten customers accounted for
approximately 41% of net sales for the year ended December 31, 1998, 31% of net
sales for the year ended December 31, 1999 and 27% of net sales for year ended
December 31, 2000. We expect to continue to derive a significant portion of our
revenues from sales to a limited number of customers. The loss or a substantial
decrease in the volume of orders from Deutsche Telekom or any of our other top
customers may harm our business.

INTEGRATION MANAGEMENT OF PERSONNEL AND OPERATIONS RELATING TO OUR PREVIOUS OR
FUTURE ACQUISITIONS MAY DISRUPT OUR BUSINESS AND MANAGEMENT.

         We acquired two companies during fiscal year 2000, and we may not be
able to successfully assimilate the additional personnel, operations, acquired
technology and products into our business. In particular, we will need to
assimilate and retain key professional services, sales, engineering and
marketing personnel. Key personnel from the acquired companies have in certain
instances decided, and they may in the future decide, to pursue other
opportunities. In addition, it may be necessary to integrate products of these
companies with our technology, and it is uncertain whether we may accomplish
this easily or at all. These integration difficulties could disrupt our ongoing
business, distract management and employees or increase expenses. Acquisitions
are inherently risky, and we may also face unexpected costs, which may adversely
affect operating results in any quarter.

         Due to these and other factors, we may not meet expectations of
securities analysts or investors with respect to revenues or other operating
results of the combined company, which could adversely affect our stock price.

IF WE ACQUIRE ADDITIONAL COMPANIES, PRODUCTS OR TECHNOLOGIES, WE MAY FACE RISKS
SIMILAR TO THOSE FACED IN OUR OTHER ACQUISITIONS.

         We may continue to make other investments in complementary companies,
products or technologies. We may not realize the anticipated benefits of any
other acquisition or investment. If we acquire another company, we will likely
face the same risks, uncertainties and disruptions as discussed above with
respect to our other acquisitions. In addition, our profitability may suffer
because of acquisition-related costs or amortization costs for acquired goodwill
and other intangible assets.

WE ARE SUBJECT TO NUMEROUS TAXING AUTHORITIES WHICH COULD LEVY TAX ASSESSMENTS
AGAINST US FOR PRIOR YEARS.

         Since some of our subsidiaries operate outside of the U.S., we are
subject to the jurisdiction of numerous foreign tax authorities. These tax
authorities monitor the income generated in their jurisdictions and regulate
various corporate transactions, including intercompany transfers. We cannot
assure you that intercompany transfers and various corporate transactions will
not be challenged by foreign tax authorities or that such challenges will not
harm our business.

TAXES ON TRANSACTIONS ON THE INTERNET BEING CONSIDERED BY THE U.S. AND OTHER
JURISDICTIONS COULD SLOW THE GROWTH OF ELECTRONIC COMMERCE AND, THEREFORE, HARM
OUR BUSINESS.

         Tax authorities on the international, federal, state and local levels
are currently reviewing the appropriate tax treatment of companies engaged in
commerce over the Internet. New U.S. state tax regulations may subject us to
additional state sales, income and other taxes. A U.S. federal law has placed a
temporary moratorium on certain types of taxation on Internet companies. This
moratorium is schedule to expire in August 2001. The moratorium


                                       12
<PAGE>   13

may be extended, but at this time it is unclear whether or under what terms and
conditions an extension of the moratorium will take place. If sales, income or
other types of taxes over the Internet are imposed, those taxes would likely
increase our cost of doing business.

NEW AND EXISTING LAWS COULD EITHER DIRECTLY RESTRICT OUR BUSINESS OR INDIRECTLY
AFFECT OUR BUSINESS BY LIMITING THE GROWTH OF INTERNET COMMERCE.

         The adoption of any laws or regulations that restrict our methods of
doing business or limit the growth of the Internet could decrease demand for our
products and services and increase our cost of doing business. In particular,
the U.S. government regulates the export of technology, including encryption
technology, which our products incorporate. Export regulations, either in their
current form or as may be subsequently enacted, may limit our ability to
distribute our software outside the U.S. Any revocation or modification of our
export authority or adoption of new laws or regulations relating to the export
of software and encryption technology could limit our international operations.
The unlawful export of our software could also harm our reputation. Although we
take precautions against unlawful export of their software, the global nature of
the Internet makes it difficult to effectively control the distribution of
software.

WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS.

         Our success depends, in part, upon our proprietary technology and other
intellectual property rights. To date, we have relied primarily on a combination
of copyright, trade secret and trademark laws, and nondisclosure and other
contractual restrictions on copying and distribution to protect our proprietary
technology. We cannot assure you that our means of protecting our intellectual
property rights in the U.S. or abroad will be adequate or that others, including
our competitors, will not use our proprietary technology without our consent.

WE MAY FACE INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS THAT ARE COSTLY TO
RESOLVE.

         We cannot assure you that third parties will not claim that our current
or future products and services infringe upon their intellectual property
rights. For example, the U.S. Patent and Trademark Office has granted, and may
continue to grant, patents for inventions that represent traditional methods of
doing business, but adapted for use on the Internet. If a claim of patent
infringement by any company were made against us, we would likely incur
significant expenses in defending against the claim, which could harm our
business. In addition, if a claim of infringement is made against us and we are
not successful in defending against the claim, we could be liable for
substantial damages. We may also be required to make royalty payments, which
could be substantial, to the holder of the patent rights. These events could
harm our business and limit our prospects for growth.

         From time to time, other third parties may assert exclusive patent,
copyright, trademark and other intellectual property fights to technologies that
are important to us. In addition, third parties may assert claims or initiate
litigation against us or our manufacturers, suppliers or customers with respect
to existing or future products, trademarks or other proprietary fights.

         We are obligated under certain agreements to indemnify other parties
and our customers as a result of claims that we infringe on the proprietary
rights of third parties. If we are required to indemnify parties under these
agreements, our operating results could be harmed.

WE MAY NOT BE ABLE TO SECURE NECESSARY FUNDING IN THE FUTURE OR MAY ONLY BE ABLE
TO DO SO AT TERMS DISADVANTAGEOUS TO US OR OUR CURRENT SHAREHOLDERS.

         We require substantial working capital to fund our business. With the
exception of two consecutive quarters of profitability in the six months ended
June 30, 2000, we have had significant operating losses and negative cash flow
from operations since inception and expect that this may continue in the future.
Our capital requirements depend on several factors, including the rate of market
acceptance of our products and services, the ability to expand our customer
base, our ability to control costs and other factors. If capital requirements
vary materially from those currently planned, we may require additional
financing sooner than anticipated. If additional funds are raised through the
issuance of equity securities, the percentage ownership of our shareholders will


                                       13
<PAGE>   14
be reduced, shareholders may experience additional dilution or such equity
securities may have rights, preferences or privileges senior to those of the
holders of our bearer ordinary shares and ADSs. Additional financing may not be
available when needed on terms favorable to us or at all. If adequate funds are
not available or are not available on acceptable terms, we may be unable to
develop new or enhance our products and services, take advantage of future
opportunities or respond to competitive pressures.

CONCENTRATION OF OWNERSHIP OF OUR BEARER ORDINARY SHARES AND ADSs MAY LIMIT THE
VALUE OF OUR BEARER ORDINARY SHARES AND ADSs.

         Stephan Schambach, our Chief Executive Officer, is not currently a
direct shareholder of INTERSHOP AG. However, both he and Burgess Jamieson hold
shares in U.S., Inc. which may be converted into the bearer ordinary shares of
INTERSHOP AG. In the event that all shares in U.S., Inc. were converted into our
bearer ordinary shares, Mr. Schambach would own approximately 12.30% of our
capital stock and Messrs. Schambach and Jamieson together would own
approximately 13.42% of our capital stock. In this event, Messrs. Schambach and
Jamieson, along with other members of our supervisory board, management board
and executive officers, would own approximately 25.59% of our capital stock. As
a result, this group of shareholders will be able to exercise significant
influence over all matters requiring shareholder approval, If some or all of
this group of shareholders choose to act or vote together, they will have the
power to control matters requiring shareholder approval, including supervisory
board elections, amendments to our articles of association and approval of
significant corporate transactions like mergers or sales of all of our assets.
This concentration of ownership may have the effect of discouraging third
parties from making a tender offer or bid to acquire us at a price per share
that is above the then-current market price and thereby limit the value of the
bearer ordinary shares or ADSs to you.

WE COULD BE SUBJECT TO POTENTIAL PRODUCT LIABILITY CLAIMS AND COULD BE FORCED TO
PAY DAMAGES ON THOSE CLAIMS.

         Software products as complex as ours may contain undetected errors or
defects when first introduced or when new versions are released. Customers or
third parties might detect other errors once they have started using our
software. They might also use our software for purposes for which it was not
intended. Our license agreements with customers and distribution partners often
contain provisions designed to limit our exposure to potential product liability
claims, such as disclaimers of warranties and limitations on liability for
special, consequential and incidental damages. In addition, our contracts often
limit the amounts recoverable by others for damages to the amounts paid to us by
the customer for the product or service which gives rise to the claim. Although
we have been subject to no such claims as of the date of this prospectus, the
continued sale and support of our products may result in our being subject to
those claims. However, customers who bring liability claims may seek damages
beyond the scope of these contracts and subject us to losses which may not be
covered by our product liability insurance. If we were required to pay those
damages, our operating margins would be reduced.

CERTAIN ANTITAKEOVER PROVISIONS UNDER GERMAN LAW AND IN OUR ARTICLES OF
ASSOCIATION MAY DISCOURAGE ACQUISITIONS OF US THAT MAY BE BENEFICIAL TO YOU.

         We are subject to the Takeover Code of the Exchange Expert Commission
of the German Federal Ministry of Finance. These provisions, along with the
provisions of our articles of association, may have the effect of deterring
hostile takeovers or delaying or preventing changes in our control or
management. As a result, transactions that would award you a premium for your
bearer ordinary shares or ADSs over the current market prices may not be
completed. In addition, these provisions may limit your ability to approve
transactions that you believe to be in your best interest.

OUR RESULTS OF OPERATIONS MAY BE HARMED BY THE OUTCOME OF ONE OR MORE PENDING
LEGAL MATTERS.

         INTERSHOP AG is a defendant in various legal matters arising in the
normal course of business. It is possible that an adverse ruling in any such
matter individually, or some or all of the matters collectively, may have a
materially adverse effect on our results of operations. Currently, we are
involved in the following legal matters:

         -    At the beginning of 2001, several securities class action lawsuits
              were filed in the U.S. against INTERSHOP AG, our management board
              members and certain other officers and the underwriters of our
              September 2000


                                       14
<PAGE>   15
              public offering. The complaints allege that the defendants made
              material misrepresentations and omissions of material facts
              concerning our business performance. The complaints seek an
              unspecified amount of damages.

         -    The German Federal Supervisory Office for Securities Trading
              (Bundesaufsichtsamt fur den Wertpapierhandel - BAWe) announced in
              January 2001 that it had initiated an investigation regarding a
              possible violation of the duty to disclose material information in
              connection with the release on January 2, 2001 of INTERSHOP AG's
              Preliminary results for 2000. BAWe has handed this case over to
              the public prosecutor in Hamburg and the prosecutor's office in
              Hamburg initiated an investigation into complaints about stock
              price manipulations in May of 2001. We are cooperating with these
              investigations and, to our knowledge, have never previously been
              the subject of such investigations.

         -    In January 2001, a U.S. company filed a suit in federal district
              court in Delaware against U.S., Inc., claiming violation of
              certain patent rights. The complaint seeks compensation for
              damages based on the alleged patent infringements.

RISING ENERGY COSTS AND POWER SYSTEM SHORTAGES IN CALIFORNIA MAY RESULT IN
INCREASED OPERATING EXPENSES, REDUCED NET INCOME AND HARM TO OUR OPERATIONS DUE
TO POWER LOSS.

         California is currently experiencing an energy crisis and has recently
experienced significant power shortages. As a result, energy costs in
California, including natural gas and electricity, may rise significantly over
the next several months relative to the rest of the U.S. Because our principal
operating facilities are located in California, our operating expenses may
increase significantly if this trend continues. In addition, a sustained or
frequent power failure could disrupt our operations and the operations of our
third party service providers, which would limit our ability to provide our
products and services to our customers, harming our customer relationships, and
having an adverse effect on our operating results.

THE PRICE OF YOUR ADSs MAY FLUCTUATE DRAMATICALLY AND YOUR INVESTMENT IN OUR
ADSS COULD SUFFER A DECLINE IN VALUE.

         The worldwide equity markets in recent years, and in particular the
market for Internet stocks, have experienced extreme price and volume
fluctuations. This market volatility affects the market prices of the stock of
many high technology and Internet companies and is often unrelated or
disproportionate to the operating performance of these companies. In addition,
negative changes in financial estimates of our performance by securities
analysts could cause volatility in the price of our ADSs. These fluctuations, as
well as general economic and market conditions, may negatively affect the market
price for our bearer ordinary shares and ADSs without regard to any changes in
our results of operations or financial condition.

         The trading price of our common stock has been and is likely to
continue to be highly volatile. Our stock price is subject to wide fluctuations
in response to a variety of factors, including:

         -    quarterly variations in operating results;

         -    announcements of technological innovations;

         -    announcements of new software or services by us or our
              competitors;

         -    changes in financial estimates by securities analysts; or

         -    other events or factors that are beyond our control.

FUTURE SALES OF OUR SHARES MAY CAUSE OUR SHARE PRICES TO DECLINE.

         If our shareholders sell substantial amounts of our bearer ordinary
shares, including any bearer ordinary shares issued upon the exercise of
outstanding options and warrants, in the public market, the market price of our
ADSs could fall. In addition, these sales could create the perception to the
public of difficulties or problems with our products and services. As a result,
these sales also might make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that we deem
appropriate.


                                       15
<PAGE>   16
ITEM 4. INFORMATION ON THE COMPANY

                     HISTORY AND DEVELOPMENT OF THE BUSINESS

         INTERSHOP AG is the successor to both Intershop Communications, Inc.
("U.S., Inc.") and Intershop Communications GmbH ("GmbH"). GmbH was originally
founded in 1992 as "NetConsult Computersysteme GmbH," a German limited liability
company, later re-named "NetConsult Communications GmbH." In March 1996,
NetConsult Communications GmbH established a wholly owned subsidiary, NetConsult
Communications, Inc., a Delaware corporation. These companies were subsequently
re-named "Intershop Communications GmbH" and "Intershop Communications, Inc.,"
respectively.

         In December 1996, U.S., Inc. entered into a share exchange agreement
with GmbH to acquire 100% of GmbH's outstanding shares. The holders of GmbH's
common shares received common shares in U.S., Inc. Holders of existing debt
(worth approximately E1.1 million) and capital (worth approximately E200,000) in
GmbH, totaling approximately E1.3 million, received 6,720,000 shares of
preferred stock in U.S., Inc. The fair value of the preferred stock issued was
equal to the carrying value of the debt and capital for which it was exchanged.
The share exchange did not alter the relative ownership interest of the parent
company. Upon completion of the transaction, U.S., Inc. became the parent
company of GmbH and our other subsidiaries.

         On June 23, 1998, the holders of 79.26% of the shares of U.S., Inc.
exchanged their shares of preferred and common stock of U.S., Inc., totaling
20,591,348 shares, into 61,729,050 shares of INTERSHOP AG. As a result of this
transaction, U.S., Inc. became a majority-owned subsidiary of the INTERSHOP AG,
with INTERSHOP AG holding 79.26% of U.S., Inc. Two stockholders, including
Stephan Schambach, our founder and Chief Executive Officer, and Burgess Jamieson
did not contribute all of their shares of U.S., Inc. due to certain tax
considerations. As at December 31, 2000, we held 82.5% of U.S., Inc.'s
outstanding common stock and Messrs. Schambach and Jamieson held 16.0% and 1.5%,
respectively, of U.S., Inc.'s outstanding common stock. These two stockholders
are entitled to exchange their shares in U.S., Inc. for shares in INTERSHOP AG
at a ratio of 1:3, using conditional capital specifically approved for this
purpose. The instruments held by these individuals are considered to be part of
the majority interest in INTERSHOP AG given the related party nature of the
holdings, their conversion rights and their probable conversion, given the fact
that they are subject to repurchase at US $0.01 per share if not converted by
2004. Accordingly, the cost basis of such shares is included in additional
paid-in capital in the our consolidated financial statements. Conversions of
U.S., Inc. shares to INTERSHOP AG shares subsequent to the initial conversion in
June 1998 are treated as an increase to the stated value of the common stock and
a corresponding decrease to additional paid-in capital. During the year ended
December 31, 1999, Messrs. Schambach and Jamieson converted 744,500 common
shares of U.S., Inc. into 2,233,500 shares of INTERSHOP AG. During the year
ended December 31, 2000, these stockholders converted 93,333 common shares of
U.S., Inc. into 280,000 shares of the INTERSHOP AG. As of December 31, 2000,
Mr. Schambach did not hold any shares of INTERSHOP AG and therefore was not a
direct shareholder of our Company. As at December 31, 2000, Messrs. Schambach
and Jamieson held 4,548,167 shares in U.S., Inc., and these shares are
convertible into 13,644,500 shares of INTERSHOP AG at any time. If Messrs.
Schambach and Jamieson converted their remaining shares on December 31, 2000,
they would have owned approximately 13.4% of INTERSHOP AG.

         In July 2000, we acquired Owis GmbH of Ilmenau, Germany, a company
specializing in the development of tools for object-oriented software
engineering. Through this acquisition, we gained 90 employees, 70 of whom are
software engineers with specialized skills and project experience in the field
of object-oriented software engineering. The purchase price of approximately
E4.9 million was paid half in cash and half in shares of INTERSHOP AG. In
December 2000, we also acquired 100% of Subotnic GmbH, a specialist developer of
content management software headquartered in Berlin. The purchase price of
approximately E20.3 million was paid in shares of INTERSHOP AG. In December
2000, Subotnic was merged with Intershop Software Entwicklungs GmbH and
integrated into the product development group.

                           DESCRIPTION OF THE BUSINESS

OVERVIEW

         INTERSHOP AG is a global provider of e-business software solutions,
with operations in the U.S., Asia and Europe. We offer software solutions that
enable businesses to sell their products and services over the Internet.


                                       16
<PAGE>   17
We target both businesses that sell their own products and services online, and
businesses such as ASPs and online marketplaces (i.e. companies that sell and/or
lease software solutions and services). Our software provides both basic
electronic commerce functionality and advanced features, including intelligent
merchandising capabilities, workflow processing and seamless channel
integration. Our products are designed to support a wide range of business
models, from basic business-to-consumer and business-to-business models to more
advanced business models, including online marketplaces. With the recent
unveiling of our enterprise industry and cross-industry business solutions, we
enable global enterprises to optimize profit margins and strengthen key business
relationships. Our industry-specific solutions are designed to meet the
e-business needs of certain vertical markets - markets in which we have
successful, established customers, including automotive, high-tech and
engineering, retail and consumer packaged goods. Our products allow us to serve
not only our customers' electronic commerce needs today, but will also provide a
seamless upgrade path to allow them to engage in the emerging electronic
commerce business models of tomorrow. In addition, our software works in
conjunction with a company's existing technology infrastructure, enabling
transactions between suppliers, distributors and customers. Our software
provides our customers with the following features and benefits:

INTERSHOP AG BUSINESS CONCEPTS

         Our key business concepts are:

         -    We offer a solution for any commerce model;

         -    We have an e-business platform plus packaged components; and

         -    We offer solution bundles for key vertical markets.

         SOLUTIONS FOR ANY COMMERCE MODEL

         Ultimately, INTERSHOP AG allows organizations to extend their
enterprises to involve customers, suppliers, partners, distributors,
marketplaces, financial services partners, insurers -- anyone that might play a
role in the organization's business processes.

         While it is important to extend the enterprise to enable one business
to work with another, the real value comes from interconnectedness of several
businesses. An organization using our solution can link multiple parties, even
if these partners are not using our solution.


                                       17
<PAGE>   18
<TABLE>
<CAPTION>
CATEGORY                  BUSINESS MODEL                                  DESCRIPTION
--------                  --------------                                  -----------
<S>                  <C>                            <C>
Sell direct          Sell direct to consumers       Selling products and services to consumers via online
                                                    storefront

                     Sell direct to businesses      Selling products and services to other businesses via
                                                    online electronic commerce site

Sell indirect        Affiliate selling              Supporting the ability to seamlessly and automatically sell
                                                    via portals and affiliate sites

                     Electronic commerce enabled    Sponsoring online e-commerce communities for
                     channel                        brick-and-mortar distribution channel partners,
                                                    enabling them to engage in electronic commerce while
                                                    reducing channel conflict with existing vendors

                     Selling on marketplaces        Supporting the ability to seamlessly and automatically sell
                                                    via online marketplaces and business-to-business portals

Enable merchants     Store hosting                  Supporting the hosting of a large number of electronic
                                                    commerce sites from a central location

                     Application hosting            Supporting high-end electronic commerce outsourcing
                                                    functionality, including integration with sophisticated
                                                    business systems, such as electronic resource planning
                                                    and enterprise financials

Enable
 marketplaces        Aggregation                    Supporting an online marketplace by aggregating
                                                    products from a large number of sellers onto a
                                                    single marketplace

                     Auction                        Enabling an online marketplace with auction pricing
                                                    functionality

                     Procurement                    Supplying functionality specific to procurement, such as
                                                    organizational approvals

                     Exchange                       Enabling an online marketplace with bid/ask pricing
                                                    functionality

                     Commerce Community             Supporting the hosting of a community of related
                                                    electronic commerce sites from a central location with
                                                    community features, such as shared shopping baskets
</TABLE>

         SOLID E-BUSINESS PLATFORM PLUS PACKAGED COMPONENTS

         INTERSHOP AG's approach with our Enfinity product is to provide a
scalable and flexible e-business platform, combined with packaged components
that simplify application development and implementation easier. Our scalable
platform positions our solution against infrastructure players such as BEA
Systems, Art Technology Group, and IBM. Our packaged components positions our
solution against e-commerce application vendors such as Blue Martini and
Broadvision.

         SOLUTION BUNDLES FOR KEY VERTICAL MARKETS

         INTERSHOP AG's industry-specific solutions are designed to meet the
e-business needs of certain vertical markets - markets in which we have
successful, established customers, including automotive, high-tech and
engineering, retail and consumer packaged goods. Our solutions focus on the
weaknesses of suppliers and specific vertical industries. We have developed the
vertical expertise and deep understanding of specific industries and their
applications, and have built its solution bundles with these unique requirements
in mind.


                                       18
<PAGE>   19
PRODUCTS AND SERVICES

         INTERSHOP AG provides a comprehensive array of software products and
related services. Our products enable businesses that sell their own products
and services online to run their own electronic commerce sites and sell in new
and innovative ways, such as through marketplaces and online portals. Further,
our products allow ASPs and online marketplaces to facilitate online selling by
hosting sites for other businesses and by developing online marketplaces, which
bring buyers and sellers together in a virtual environment. We supplement our
products with consulting and customer services throughout the process of
implementation and ongoing maintenance.

         Products

         Our products are designed to work individually or in conjunction with
one another in order to address customers' specific needs and particular
business model. The table below provides additional details on our products:

<TABLE>
<CAPTION>
PRODUCT                      DESCRIPTION                   BUSINESS MODELS SUPPORTED         TARGET CUSTOMER
-------                      -----------                   -------------------------         ---------------
<S>              <C>                                       <C>                             <C>
Enfinity         An advanced e-business platform,          -    Sell direct                Large enterprises
                 developed to meet the diverse needs       -    Sell indirect              Online marketplaces
                 of global enterprises, whether            -    Enable marketplaces        Internet retail companies
                 for a dynamic direct-to-customer
                 e-business site or a more complex,
                 multi-channel solution

Merchant         Sophisticated sites for small- to         -    Enable merchants           ASPs
                 medium-sized businesses hosted            -    Sell indirect
                 on individuals' servers

Hosting          Sophisticated sites for small- to         -    Enable merchants           ASPs
                 medium-sized businesses that              -    Sell indirect
                 share a single server

ePages           Entry-level storefronts for               -    Enable merchants           ASPs
                 small businesses                          -    Sell indirect
</TABLE>

         Our products include key components from third-party software vendors,
including database software, application servers and search engines. In most
cases, the software supplier has the right to terminate its supplier agreement
in the event we materially breach the license agreement.

         Services

         We support our software products with a full set of services, including
consulting services, customer support and training. We provide these services
directly and through a network of more than 600 affiliated service providers.
The table below details the services we provide:

<TABLE>
<CAPTION>
SERVICE                                       PRINCIPAL ATTRIBUTES
-------                                       --------------------
<S>                             <C>
Technical support
  packages                      Variety of technical support packages such as
                                "per incident" and annual support contracts which
                                include free upgrades and limitless inquiries

Training                        and product education Comprehensive series of
                                classes to provide the knowledge and skills to
                                successfully deploy, use and maintain our
                                products and solutions

Consulting services             Assessment of electronic commerce business models,
                                marketing plans and technical needs
</TABLE>


                                       19
<PAGE>   20

<TABLE>
<S>                             <C>
Software development            Deployment of technology into customer systems and
                                integration into existing enterprise resource planning
                                and infrastructure systems

Outsourced project management   Evaluation, execution, testing and roll-out of projects
</TABLE>

SALES AND MARKETING

         Sales

         INTERSHOP AG sells its products through a network of worldwide sales
and distribution offices located in North America, Europe, Asia and Australia.
We sell directly through an internal sales force and we also sell indirectly
through a network of more than 600 channel partners worldwide. Our partner
programs cover the complete enabling cycle of a project (market, sell,
integrate, implement & maintain). We are committed to our channel partners and
have dedicated employees within all project-related functions (marketing,
sales, consulting, support, training, R&D) to keep our partners informed,
involved and provided with the necessary knowledge and tools to implement
world-class e-business solutions. The majority of our software license sales are
influenced by our channel partners and delivered by one of these channel
partners. We intend to continue to increase both our direct and indirect sales
channels.


         Marketing

         Our marketing efforts include identifying appropriate target customers
for our products, building appropriate sales and distribution channels to get
our products to those customers, promoting and advertising our products in order
to create brand awareness among those customers, and pricing our products so
that they are consistent with customer expectations. Within the enterprise
market, we target the key business decision makers, including the chief
executive officer, vice-president of marketing, vice-president of sales, line of
business owners, chief information officer and directors of electronic commerce.
Within the ASP market, we target product managers and product line managers
responsible for the electronic commerce line of business.

RESEARCH AND DEVELOPMENT

         Our research and development organization has eight teams which share
information amongst themselves in order to more efficiently resolve a similar
problem and provide comprehensive solutions. Our product development activities
are conducted in large part through our operations in Jena, Germany, but are
coordinated closely with our product management resources located in San
Francisco, California.

         Our software and Internet applications development teams include a
number of key employees who have developed Internet applications and services
and have extensive experience with Java programming. Our research and
development team is working with the leading technologies and standards,
including XML, Enterprise Java Beans, Java Server Pages and LDAP, to help ensure
our software applications are compatible with the newest electronic commerce
technology.

         In developing updates of our standard software to meet our customers'
needs, we take into account experience gathered in our support to our existing
customers. In addition, the research and development groups in Jena, Germany
focus on the continuous development of existing products, as well as development
of next generation products, by anticipating the upcoming demands for electronic
commerce software. Following the development stage, enhancements to the existing
products and the next generation products are tested by a separate group of
programmers with expertise and experience in locating defects and "bugs."

         We expect that most of our enhancements to existing and future products
will be developed internally. However, we currently license certain
externally-developed technologies and will continue to evaluate
externally-developed technologies to integrate with our solutions. These
externally developed technologies, if


                                       20
<PAGE>   21
suffering from defects, quality issues or the lack of product functionality
required to make our solutions successful in the marketplace, may seriously
impact and harm our business.

INTELLECTUAL PROPERTY AND OTHER RIGHTS

         We depend on our ability to develop and maintain the proprietary
aspects of our technology. To protect our proprietary technology, we rely
primarily on a combination of contractual provisions, confidentiality
procedures, trade secrets and patent, copyright and trademark laws.

         We license rather than sell our products and require our customers to
enter into license agreements, which impose restrictions on their ability to
utilize the software. In addition, we seek to avoid disclosure of our trade
secrets through a number of means, including but not limited to, requiring those
persons with access to our proprietary information to execute confidentiality
agreements with us and restricting access to our source code. We seek to protect
our software, documentation and other written materials under trade secret and
copyright laws, which afford only limited protection. We currently have several
U.S. and EEC patent applications pending.

         "INTERSHOP" is a registered trademark in the U.S. and Germany. We also
hold trademarks in several other jurisdictions. In addition, "INTERSHOP" and the
INTERSHOP logo are registered as trademarks in other foreign countries. We also
have filed applications to register these trademarks in several countries. We
have filed trademark applications in the U.S. for "Creating the Digital
Economy." The above mentioned trademark applications are subject to review by
the applicable governmental authority, may be opposed by private parties and may
not issue.

         In 1998, we entered into a settlement agreement with the Swiss company
INTERSHOP Holding AG which limits our use of the name "INTERSHOP" as part of our
business name and of our various trademarks and product names. We do not
consider these restrictions to have a material adverse effect on our present and
future business activities. The restrictions are designed to avoid confusion of
the Swiss company with INTERSHOP AG. In particular, as part of the settlement
arrangement, we may not set up operations in Switzerland using "INTERSHOP" as a
business name or as part of a business name, nor use "INTERSHOP" as a formal
business name without an addition such as "Communications."

EMPLOYEES

         As at December 31, 2000, we had a total of 1,218 employees, including
243 in research and development, 385 in sales and marketing, 380 in customer
support, professional services and training and 210 in administration and
finance. Of these employees, 256 were located in the U.S. and 962 were located
outside the U.S. None of our employees is represented by a collective bargaining
agreement, nor have we experienced any work stoppages. We consider our relations
with our employees to be good.

GOVERNMENTAL REGULATION

         The laws governing Internet transactions remain largely unsettled. The
adoption or modification of laws or regulations relating to the Internet could
harm our business, operating results and financial condition by increasing our
costs and administrative burdens. It may take years to determine whether and how
existing laws such as those governing intellectual property, privacy, libel,
consumer protection and taxation apply to the Internet. Laws and regulations
directly applicable to communications or commerce over the Internet are becoming
more prevalent. We must comply with new regulations in both Europe and the U.S.,
as well as any regulations adopted by other countries where we do business. The
growth and development of the market for online commerce may prompt calls for
more stringent consumer protection laws, both in the U.S. and abroad, as well as
new laws governing the taxation of electronic commerce.

         Our software products are sold by U.S., Inc. and by its subsidiaries.
The software products currently sold and distributed by U.S., Inc. do not
contain any encryption technology which is subject to U.S., German or European
Union export controls. However, this may change in the future. Export controls
either in their current form or as may be subsequently enacted, may delay the
introduction of new products or limit our ability to distribute products


                                       21
<PAGE>   22
outside of the U.S. or electronically. While we intend to take precautions
against unlawful exportation, the global nature of the Internet makes it
difficult to effectively control the distribution of our products. In addition,
governmental legislation or regulation may further limit levels of encryption or
authentication technology. Further, various countries regulate the import of
certain encryption technology and have adopted laws relating to personal privacy
issues which could limit our ability to distribute products in those countries.

                     ORGANIZATIONAL STRUCTURE OF OUR COMPANY

         INTERSHOP AG is a holding company that directly and indirectly owns 13
subsidiaries that conduct all of our business worldwide. We were incorporated in
our current form under German law on April 23, 1998. Our original predecessor
company, which was founded in 1992 as NetConsult Computersysteme GmbH, is now
called Intershop Communications GmbH and is currently one of our subsidiaries.
The following table lists our significant subsidiaries:


<TABLE>
<CAPTION>
SUBSIDIARY                                                               OWNERSHIP %
----------                                                               -----------
<S>                                                                      <C>
Intershop Communications, Inc., San Francisco, U.S.                          82.5
Intershop Communications GmbH, Jena                                           100
Intershop Software Entwicklungs GmbH, Jena                                    100
Intershop Communications Ventures GmbH, Hamburg                               100
Intershop (U.K.) Ltd., London, United Kingdom                                 100
Intershop Communications S.a.r.l., Paris, France                              100
Intershop Communications AB, Stockholm, Sweden                                100
Intershop Communications Hong Kong Co. Ltd., Hong Kong, China                 100
Intershop Communications Singapore Pte. Ltd., Singapore                       100
Intershop Communications Australia Pte Ltd., Sydney, Australia                100
Intershop Communications Taiwan Co. Ltd., Taipei, Taiwan                      100
Intershop Communications Korea Co. Ltd., Seoul, Korea                         100
Intershop Communications K.K., Tokyo, Japan                                   100
</TABLE>

                         PROPERTY, PLANTS AND EQUIPMENT

         All of our facilities in the U.S. and Europe are leased from third
parties. Our principal U.S. sales, marketing, customer service and
administrative office occupies approximately 39,522 square feet in San
Francisco, California. Our principal European sales, marketing and
administrative office occupies approximately 11,366 square feet in Hamburg,
Germany and our principal research, development and European customer support
offices occupy approximately 12,873 square feet in Jena, Germany. We also
maintain professional services operations which occupy approximately 3,400
square feet in Stuttgart, Germany and 5,800 square feet on Long Island, New
York. In addition, we also lease sales and support offices in the metropolitan
areas of Boston, Chicago, Seoul, Hong Kong, London, New York, Paris, Stockholm,
Sydney and Dubai.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

OVERVIEW

         INTERSHOP AG is a global provider of electronic commerce software
applications that enable businesses to sell their products and services over the
Internet. Our products can be integrated with existing business systems to allow
our customers to sell goods and services over the Internet without replacing
their existing business systems. The merchandising capabilities of our products,
such as customer profiling and cross-selling, help our customers to increase
their sales revenues. We also provide professional services for our customers to
assist in the installation and ongoing maintenance of our software applications.
We began marketing electronic commerce software in 1992


                                       22
<PAGE>   23
in Jena, Germany and introduced our current product line in March 1998 and
derive most of our revenues through licensing of our software products.

         We have previously prepared and reported our consolidated financial
statements in Deutsche marks. With the introduction of the euro on January 1,
1999, we elected to present the accompanying consolidated financial statements
in euros. Accordingly, the Deutsche mark consolidated financial statements for
each period presented have been restated into euros using the Deutsche mark/euro
exchange rate as at January 1, 1999 of euro 1 = DM 1.95583. Our restated euro
financial statements depict the same trends as would have been presented if we
had continued to present our consolidated financial statements in Deutsche
marks. The consolidated financial statements will, however, not be comparable to
the euro financial statements of other companies that previously reported their
financial information in currency other than Deutsche marks.

SOURCES OF REVENUES AND REVENUE RECOGNITION POLICY

         To date, we have generated revenues principally from the sale of
licenses of our software products and by providing related professional services
including consulting, implementation, technical support, maintenance and
training. We generally license our products to customers on a "right to use"
basis pursuant to a perpetual license. Our license agreements are generally in
the same standard form, although each license may be individually negotiated and
may contain variations. Our licenses are generally non-transferable or, if
transferable, any transfer is subject to our reasonable approval. The standard
end-user license agreement provides for an initial license fee based on the
number and types of electronic commerce sites or computers involved. Additional
license fees are charged when the number of electronic commerce sites or servers
exceeds the number covered by the initial license fee.

         We recognize product license revenues when all of the following
conditions are met:

         -    we have a non-cancelable license agreement with the customer;

         -    we have delivered the software product to the customer;

         -    the amount of fees to be paid by the customer is fixed or
              determinable; and

         -    the collection of these fees is probable.

         In instances where we provide services that significantly alter the
features and functionality of our software, we recognize the license and related
service revenues based on the percentage of completion as our work progresses.

         Our remaining revenues are primarily attributable to service revenues,
which include revenues generated from consulting, customer support and training
activities. Customers may purchase implementation services from us, but we
expect to rely increasingly on third-party consulting entities to deliver these
services directly to our customers.

         We bill professional services either on a time-and-materials basis or
on a fixed-price basis. We recognize professional services fees billed on a
time-and-materials basis as the services are performed. We recognize
professional services fees on fixed-price arrangements as our work progresses,
based on our estimate of the work completed.

         We also enter into support agreements with customers in which we agree
to provide technical support and software updates. We recognize revenues from
these agreements as service revenues over the term of the agreement, which is
typically one year.

         The costs associated with our license revenues include royalty payments
to third parties for integrated technology, the costs of manuals and product
documentation, production media used to deliver our products and shipping costs,
including the costs associated with the electronic transmission of software to
new customers. Our costs of maintenance and service revenues includes salaries
and related expenses for our customer support,


                                       23
<PAGE>   24
implementation and training services organizations, costs of third parties
contracted to provide consulting services to customers and an allocation of our
facilities, communications and depreciation expenses.

         Our operating expenses are classified according to the nature of the
expenditure. The three general categories are: (1) research and development,
(2) sales and marketing and (3) general and administrative. Costs for overhead
and facilities are allocated based on a headcount and applied against each
category that uses the overhead and facilities services.

         Although revenues increased in each of the past three years, we
incurred significant costs to develop our technology and products and to recruit
and train personnel for our engineering, sales, marketing, professional services
and administrative departments. As a result, with the exception of the two
quarterly periods ended March 31, 2000 and June 30, 2000, we incurred
significant losses for the past four years, and for the year ended December 31,
2000, had an accumulated deficit of E84.3 million. We intend to continue to
invest in sales, marketing and research and development. We therefore expect to
incur operating losses in the future.

         Our limited operating history makes predicting future operating results
very difficult. We believe that period-to-period comparisons of our operating
results should not be relied upon as predictive of our future performance.
Although we have experienced significant percentage growth in revenues in recent
periods, we do not believe that prior growth rates are sustainable or indicative
of future operating results. Our prospects must be considered in light of the
risks, expenses and difficulties encountered by companies at an early state of
development, particularly companies in new and rapidly evolving markets. We may
not be successful in addressing these risks and difficulties.

FISCAL YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000

REVENUES

         Licenses. License revenues were E11.3 million in fiscal 1998, E29.5
million in fiscal 1999 and E74.1 million in fiscal 2000, representing increases
of 161% from fiscal 1998 to fiscal 1999 and 151% from fiscal 1999 to fiscal
2000. The increase in license revenues from fiscal 1998 to fiscal 1999 is
attributable to increased sales to new customers. The increase in license
revenues from fiscal 1999 to fiscal 2000 is attributable to the introduction of
our Enfinity product and our geographic expansion.

         Service, maintenance and other revenues. Service, maintenance and other
revenues were E6.6 million for fiscal 1998, E16.7 million for fiscal 1999 and
E48.9 million for fiscal 2000, representing increases of 153% from fiscal 1998
to fiscal 1999 and 193% from fiscal 1999 to fiscal 2000. Service revenues from
professional services consulting fees were E5.6 million for fiscal 1998, E11.3
million for fiscal 1999 and E35.8 million for fiscal 2000. Service revenues from
software maintenance and support agreements were E0.7 million for fiscal 1998,
E4.0 million for fiscal 1999 and E8.1 million for fiscal 2000. Other revenues
were E0.3 million for fiscal 1998, E1.4 million for fiscal 1999 and E5.1 million
for fiscal 2000. The increases both from fiscal 1998 to fiscal 1999 and from
fiscal 1999 to fiscal 2000 in service, maintenance and other revenues are
primarily attributable to the increased licensing activity described above,
which has resulted in increased revenues from customer implementations and
maintenance contracts.

         Revenues by Region. Europe contributed revenue totaling E11.97 million
for fiscal 1998, E27.9 million for fiscal 1999 and E75.5 million for fiscal 2000
representing 67%, 60% and 61% of global revenues, respectively. The decrease in
the European to global revenue ratio from fiscal 1998 to fiscal 1999 was
attributable to the expansion of our sales and marketing presence in the U.S.
The increase in the European to global revenue ratio from fiscal 1999 to fiscal
2000 was attributable to the overall decline in the U.S. and Asian economies,
particularly during the end of fiscal 2000. Asia contributed revenue totaling
E7.9 million for fiscal 2000 representing 7% of global revenues despite a
slowdown in the market for e-business solutions in the final quarter of the
year. Fiscal 2000 was our first full year of operations in Asia after entering
the market in the fall of 1999. The U.S. contributed revenue totaling E5.9
million for fiscal 1998, E18.4 million for fiscal 1999 and E39.6 million for
fiscal 2000 representing 33%, 40% and 32% of global revenues, respectively. The
increase in the U.S. to global revenue ratio from fiscal 1998 to fiscal 1999 was
attributable to the expansion of our sales and marketing presence in the U.S.
The decrease in the U.S. to global revenue ratio from fiscal 1999 to fiscal 2000
was attributable to the overall


                                       24
<PAGE>   25
decline in the U.S. economy, particularly during the end of fiscal 2000. Towards
the end of fiscal 2000, our U.S. business was hit by a reluctance of many
companies to make IT investments in view of the worsening overall economic
outlook, coupled with our weaker market penetration compared to our U.S.
competitors. As a result, revenues in the U.S. were considerably lower than
planned in fiscal 2000.

COST OF REVENUES

         Licenses. Cost of revenues includes product license costs which include
royalties to third party software vendors for software embedded in our product
suite, as well as documentation and other informational media associated with
our products. Cost of license revenues was E1.7 million for fiscal 1998, E4.8
million for fiscal 1999 and E5.3 million for fiscal 2000. The increases both
from fiscal 1998 to fiscal 1999 and from fiscal 1999 to fiscal 2000 are
attributable to the increases in royalties paid to third parties from the
increase in license revenues.

         Service, maintenance and other revenues. Cost of service, maintenance
and other revenues include salary and other related costs for our professional
services and support staff, as well as third party contractor expenses. Total
headcount in our professional services, training and support departments was 104
at December 31, 1998, 175 at December 31, 1999 and 380 at December 31, 2000.
Cost of service, maintenance and other revenues was E3.8 million for fiscal
1998, E8.5 million for fiscal 1999 and E43.4 million for fiscal 2000. The
increases both from fiscal 1998 to fiscal 1999 and from fiscal 1999 to fiscal
2000 are attributable to increases in the number of employees providing
implementation, training and technical support services.

GROSS PROFIT

         Gross profit was E12.4 million for fiscal 1998, E33.0 million for
fiscal 1999 and E74.2 million for fiscal 2000. The increases both from fiscal
1998 to fiscal 1999 and from fiscal 1999 to fiscal 2000 are attributable to the
growth in our customer base as well as the increase in license sales from the
introduction of our Enfinity product.

         Gross margin percentages are impacted by product mix and variable labor
costs. Fixed costs and variable material costs have a minimal impact on gross
margin. Gross margins on service, maintenance and other revenues was 43%, 49%
and 11% in fiscal 1998, fiscal 1999 and fiscal 2000, respectively. The increase
in gross margin from fiscal 1998 to fiscal 1999 is attributable to higher
utilization rates in our consulting services. The decrease in gross margin from
fiscal 1999 to fiscal 2000 is attributable to lower utilization rates and
greater overhead expenses within our consulting services.

OPERATING EXPENSES

         Research and development. Research and development expenses were E4.4
million for fiscal 1998, E7.1 million for fiscal 1999 and E10.2 million for
fiscal 2000. The increases both from fiscal 1998 to fiscal 1999 and from fiscal
1999 to fiscal 2000 are attributable to increases in the number of research and
development personnel. Total headcount in our research and development
department was 51 at December 31, 1998, 112 at December 31, 1999 and 243 at
December 31, 2000. As a percentage of total revenue, research and development
expenses were 24.4%, 15.4% and 8.3% of total revenue in fiscal years 1998, 1999
and 2000, respectively. The declines in the research and development expense to
total revenue ratio from both fiscal 1998 to fiscal 1999 and from fiscal 1999 to
fiscal 2000 are attributable to faster rate of growth of total revenue compared
to the growth in research and development expenses.

         Sales and marketing. Sales and marketing expenses were E18.4 million
for fiscal 1998, E34.8 million for fiscal 1999 and E75.7 million for fiscal
2000. The increases both from fiscal 1998 to fiscal 1999 and from fiscal 1999 to
fiscal 2000 are attributable to the increase in number of sales and marketing
employees and the increase in marketing program expenses. Total headcount in our
marketing department was 44 at December 31, 1998, 78 at December 31, 1999 and
118 at December 31, 2000. Marketing expense were E3.8 million for fiscal 1998,
E13.2 million for fiscal 1999 and E31.1 million for fiscal 2000. As a percentage
of total revenue, sales and marketing expenses were 102.7%, 75% and 61.5% of
total revenue in fiscal 1998, 1999 and 2000, respectively. The declines in the
sales and marketing expense to total revenue ratio from both fiscal 1998 to
fiscal 1999 and from fiscal 1999 to fiscal 2000 are attributable to the faster
rate of growth of total revenue compared to the growth in sales and marketing
expenses.


                                       25
<PAGE>   26
        General and administrative. General and administrative expenses were
E6.7 million for fiscal 1998, E11.2 million for fiscal 1999 and E27.6 million
for fiscal 2000. The increases both from fiscal 1998 to fiscal 1999 and from
fiscal 1999 to fiscal 2000 are attributable to the increase in the number of
administrative personnel. The number of administrative personnel was 49 at
December 31, 1998, 78 at December 31, 1999 and 210 at December 31, 2000. We
believe that general and administrative costs should not increase as we are now
able to realize economies of scale within the organization. As a percentage of
total revenue, general and administrative expenses were 37.6%, 24% and 22% of
total revenue in fiscal 1998, 1999 and 2000, respectively. The declines in the
general administration expense to total revenue ratio both from fiscal 1998 to
fiscal 1999 and from fiscal 1999 to fiscal 2000 are attributable to the faster
rate of growth of total revenue compared to the growth in general and
administrative expenses.

OTHER INCOME (EXPENSE), NET

        Other income (expense), net consists of interest income, interest
expense and other non-operating expenses. Other income, net was E1.7 million for
fiscal 1998, E1.7 million for fiscal 1999 and E1.8 million for fiscal 2000.
Included in other income (expense), net are employment-related German government
subsidies. We are under no obligation to repay any amounts subsidized by the
German government for employment related expenses and we do not expect ever to
repay such subsidies.

PROVISION FOR INCOME TAXES

        From inception through December 31, 2000, we incurred net losses for
U.S. federal and state tax purposes and have not recognized any tax provision or
benefit. Given our losses incurred and the difficulty in accurately forecasting
our future results, management does not believe that the realization of the
related deferred income tax asset meets the criteria required by generally
accepted accounting principles. Therefore, we have recorded a 100% valuation
allowance against the deferred income tax asset. See Note 11 of the Notes to our
consolidated financial statements included elsewhere in this report for a
description of the components of the deferred income tax asset.

LIQUIDITY AND CAPITAL RESOURCES

        Since our inception in April 1998, we have financed our operations
through private placements of preferred stock and bridge loans from investors as
well as funds raised from our initial public offering in Germany in July 1998
and a public offering of American Depositary Shares in the U.S. in September
2000. As at December 31, 2000, we had E111.6 million in cash, cash equivalents
and marketable securities and E121.1 million in working capital. Based on our
strong cash position and the restructuring efforts both implemented and proposed
to reduce operating expenses and increase organizational effectiveness,
management believes that the capital resources on hand are sufficient to fund us
through to profitability.

        Net cash used in operating activities was E21.0 million in fiscal 1998,
E24.4 million in fiscal 1999 and E41.9 million in fiscal 2000. Net cash flows
used in operating activities in fiscal 1998, fiscal 1999 and in fiscal 2000
reflect net losses and, to a lesser extent, the increase in accounts receivable
from increased revenues.

        Net cash used in investing activities was E3.8 million in fiscal 1998,
E7.5 million in fiscal 1999 and E49.4 million in fiscal 2000. Cash used in
investing activities primarily reflects purchases of property and equipment in
each period and the purchase of marketable securities in fiscal 2000.
Additionally, the increase in fiscal 2000 can be attributed to the E3.036
million cash used in the acquisition of Owis GmbH.

        Net cash provided by financing activities was E52.7 million in fiscal
1998, E9.8 million in fiscal 1999 and E161.8 million in fiscal 2000. In fiscal
1998, these cash flows reflect primarily the proceeds from the public sale of
common stock of E52.1 million in July 1998. In fiscal 1999, financing cash flows
were primarily proceeds from a loan from a shareholder for E7.0 million. In
fiscal 2000, financing cash flows were primarily proceeds from the sale of
common stock of E112.0 million in September 2000.

        Capital expenditures, net of capital leases, were E3.3 million in fiscal
1998, E3.6 million in fiscal 1999 and E20.6 million in fiscal 2000. Our capital
expenditures consisted of purchases of resources to manage our operations,


                                       26
<PAGE>   27

including computer hardware and software, office furniture and equipment and
leasehold improvements. We expect that our capital expenditures will decline in
fiscal 2001. Since our inception, we have generally funded capital expenditures
either through the use of working capital or with capital leases.

        During fiscal 2000, we experienced a significant growth in our operating
expenses, in particular an increase of E3.1 million from fiscal 1999 to fiscal
2000 in research and development and an increase of E41 million from fiscal 1999
to fiscal 2000 in sales and marketing expenses. As a result, we anticipate that
operating expenses will constitute a material use of our cash resources. We
believe that our current resources will be sufficient to meet our near-term
working capital and operating resource expenditure requirements.

        Future operating lease commitments include facilities and certain
furniture and equipment under operating leases. As at December 31, 2000, the
future minimum annual lease payments are as follows:

<TABLE>
<CAPTION>
      Year Ended December 31               Minimum annual lease payment (in euros)
      ----------------------               ---------------------------------------
<S>                                                    <C>
               2001                                     9.520 million
               2002                                     9.108 million
               2003                                     7.793 million
               2004                                     6.849 million
               2005                                     6.875 million
         Subsequent years                              29.306 million
               Total                                   69.451 million
</TABLE>

        Total deferred revenue was E6.807 million in 1998, E8.763 million in
1999 and E6.976 million in 2000. The increase in deferred revenue from fiscal
1998 to fiscal 1999 is attributable to an increase in the number of support
maintenance contracts. The decline in deferred revenue from fiscal 1999 to
fiscal 2000 is largely attributable to a license agreement for E10 million
in which fees were received in cash in June 1997. Revenues from this agreement
were deferred and recognized as revenue over a three year period ending in
fiscal 2000. E3.4 million, E4.2 million and E2.4 million revenue were recognized
in fiscal years 1998, 1999 and 2000, respectively.

        Allowance for doubtful accounts were E0.443 million in fiscal 1998,
E1.614 million in fiscal 1999 and E5.181 million in fiscal 2000. The increase in
doubtful accounts over this period is attributable to the increase in gross
trade accounts receivables of E6.329 million in 1998, E24.947 million in 1999
and E42.165 million in 2000. In addition, the increase in the allowance for
doubtful accounts from fiscal 1999 to fiscal 2000 is attributable to collection
difficulties with the trade receivables from dot com customers who faced cash
flow problems and reductions in capital funding in late 2000.

        Goodwill resulting from the acquisitions of Owis Software GmbH in July
2000 and Subotnic GmbH in December 2000 combined to total E25.428 million in
fiscal 2000. The goodwill arising from these transactions will be depreciated
over a three period. In fiscal 2000, E1.477 million in amortization of acquired
intangible assets was recorded. Through the acquisitions of Owis and Subotnic,
we gained 137 employees. These companies were both early stage software
development companies with negligible revenues. As a result, the following
unaudited pro forma financial present results as if the acquisitions had
occurred at the beginning of the respective fiscal periods. These pro forma
results have been prepared for comparative purposes only and are not necessarily
indicative of the results of operations which actually would have resulted had
the purchases been in effect at the beginning of the respective periods.

<TABLE>
<CAPTION>
                                                           1999 (unaudited)         2000 (unaudited)
                                                           ----------------         ----------------
<S>                                                        <C>                      <C>
               Pro forma total revenue                     E  47.776 million       E 123.090 million
                  Pro forma net loss                       E(28.258) million       E(48.801) million
     Pro forma net loss per share - basic/diluted          E           (0.35)      E           (0.58)
</TABLE>


                                       27
<PAGE>   28

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

        In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
requires companies to record derivative financial instruments on the balance
sheet as assets or liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that the hedging
relationship must be highly effective in achieving offsetting changes in fair
value or cash flows. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statements No. 133," which amends SFAS No. 133 to be effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000 (or January 1,
2001 in our case). In June 2000, the FASB issued Statement No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities--an Amendment
of FASB Statement No. 133." SFAS 138 amends SFAS 133 to (a) exclude from the
scope of SFAS No. 133 nonfinancial assets that will be delivered in quantities
expected to be used or sold by a company over a reasonable period in the normal
course of business and for which physical delivery is probable, (b) permit
hedging of a benchmark interest rate, (c) allow hedging of foreign
currency-denominated assets and liabilities and (d) allow for limited hedging of
net foreign currency exposures. We have no derivative financial and commodity
instruments, forward contracts or hedging arrangements in cash and cash
equivalents. These statements should not have a material impact on the current
financial condition or results of our operations.

MARKET RISK

        The following discusses our exposure to market risk related to changes
in interest rates, foreign currency exchange rates and equity prices. This
discussion contains forward-looking statements that are subject to risks and
uncertainties. Actual results could vary materially as a result of a number of
factors including those set forth in the Risk Factors under Item 3 of this
Annual Report.

INTEREST RATE RISK

        As at December 31, 2000, we had cash, cash equivalents and marketable
securities valued at approximately E111.6 million which consists of cash and
highly liquid short-term investments with original maturities of three months or
less from the date of purchase. These investments may be subject to interest
rate risk and will decrease in value if market interest rates increase. A
hypothetical increase or decrease in market interest rates by 10% from the
market interest rates at December 31, 2000 would cause the fair value of these
short-term investments to change by an immaterial amount. Declines in interest
rates over time will, however, reduce our interest income.

FOREIGN CURRENCY EXCHANGE RATE RISK

        A significant portion of our business is conducted in currencies other
than the euro. Our international sales are primarily made through our
subsidiaries in their respective regions and are generally denominated in the
local currency. Expenses incurred by our subsidiaries are also denominated in
the local currency. Accordingly, the functional currency of our subsidiaries
is the local currency. As a consequence, period-to-period changes in the average
exchange rate in a particular currency can significantly affect revenues and
operating income denominated in that currency. In general, appreciation of the
euro relative to another currency in which we earn revenue has an adverse effect
on euro-denominated revenues and operating income, while depreciation of the
euro against such other currency has a positive effect on euro-denominated
revenues and operating income. The principal non-euro currencies in which our
subsidiaries conduct business and are subject to the risks described above are
the U.S. dollar and the British pound sterling.

EQUITY PRICE RISK

        We have limited investments in both privately- and publicly-held
companies. The cost basis of our investment in a privately-held company is
approximately E1.7 million. We regularly review the assumptions underlying the
operating performance and cash flow forecasts in assessing the carrying value of
this investment.


                                       28
<PAGE>   29

        We are exposed to market risk as it relates to changes in the market
value of our investments in publicly-held companies and marketable securities.
We have invested in these securities for purposes other than trading and have
classified them as available-for-sale. As at December 31, 2000, we had
available-for-sale marketable securities with a fair market value of
approximately E28.3 million and a cost basis of approximately E28.5 million. The
net unrealized losses of E180,000 have been recorded in a separate component of
shareholders' equity.

SUBSEQUENT EVENTS

        INTERSHOP AG has participated in a rapidly changing global e-commerce
environment in 2001. As evidenced across the high-tech and IT industries, our
business continues to be impacted by the global economic slowdown and longer
sales cycles, particularly in the U.S. and Asia. We have begun to address this
with new strategic sales partnerships, a focus on specific market segments and a
global restructuring program.

        In March 2001, we enhanced the breadth and depth of our e-business
offerings with the launch of dedicated business vertical and modular cross
industry solutions to complement our flagship Enfinity enterprise product. With
the recent unveiling of our enterprise industry and cross-industry business
solutions, we enable global enterprises to optimize profit margins and
strengthen key business relationships. Our industry-specific solutions are
designed to meet the e-business needs of certain vertical markets - markets in
which we have successful, established customers, including automotive, high-tech
and engineering, retail and consumer packaged goods. Success in extending our
product suite is essential to ensuring our survival during this current market
slowdown.

        With regards to cost reduction through restructuring, we have
consolidated several of our global operations to ensure efficiency in aligning
our corporate structure with the needs of our clients and customers as well as
the growth of the e-commerce solutions sector. As at April 30, 2001, our total
headcount was approximately 1,151 employees with 343 in sales and marketing, 226
in research and development, 397 in services and 185 in general and
administrative. Management will continue to implement its restructuring plan
which will yield further organizational efficiencies and expense reductions.

RESEARCH AND DEVELOPMENT

        Our product development activities are conducted in large part through
our operations in Jena, Germany. Our software and Internet applications
development teams include a number of key employees who have developed Internet
applications and services and have extensive experience with Java programming.
Our research and development team is working with the leading technologies and
standards, including XML, Enterprise Java Beans, Java Server Pages and LDAP, to
help ensure our software applications are compatible with the newest electronic
commerce technology.

        In developing updates of our standard software to meet our customers'
needs, we take into account experience gathered in our support to our existing
customers. In addition, the research and development groups in Jena, Germany
focus on the continuous development of existing products, as well as development
of next generation products, by anticipating the upcoming demands for electronic
commerce software. Following the development stage, enhancements to the existing
products and the next generation products are tested by a separate group of
programmers with expertise and experience in locating defects and "bugs."

        We expect that most of our enhancements to existing and future products
will be developed internally. However, we currently license certain
externally-developed technologies and will continue to evaluate
externally-developed technologies to integrate with our solutions. These
externally developed technologies, if suffering from defects, quality issues or
the lack of product functionality required to make our solutions successful in
the marketplace, may seriously impact and harm our business.


                                       29
<PAGE>   30

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Management Board

        INTERSHOP AG established its management board in April 1998. The
management board is responsible for the management of INTERSHOP AG, the exercise
of its business activities and the supervision of its property. The following
table lists the current members of the management board:

<TABLE>
<CAPTION>
     NAME                 AGE          MEMBER SINCE                 POSITION
     ----                 ---          ------------                 --------
<S>                       <C>          <C>                <C>
Stephan Schambach          30              1998           Chairman of the Management Board,
                                                          Chief Executive Officer
                                                          (Vorstandsitzender) and Co-Founder

Wilfried Beeck             41              1998           Member of the management board,
                                                          Chief Operating Officer
                                                          (Finanzvorstand) and Co-Founder
</TABLE>

Stephan Schambach. Since April 1998, Mr. Schambach has served as Chairman of the
Management Board and our Chief Executive Officer. In March 1996, Mr. Schambach
co-founded INTERSHOP Communications, Inc., our subsidiary and has since served
as both Chairman of the Management Board and Chief Executive Officer. In October
1992, Mr. Schambach co-founded NetConsult Computersysteme GmbH, our subsidiary
and a technology consulting firm and has since served as both Chairman of the
Management Board and Chief Executive Officer.

Wilfried Beeck. Since April 1998, Mr. Beeck has served as a member of the
management board and our Chief Financial Officer, and since January 2001 has
served as our Chief Operating Officer. In March 1996, Mr. Beeck co-founded
INTERSHOP Communications, Inc., our subsidiary and has since served as both a
member of the management board and its Chief Financial Officer. In October 1992,
Mr. Beeck co-founded NetConsult Computersysteme GmbH, our subsidiary and a
technology consulting firm and has since served as both a member of the
management board and its Chief Financial Officer.

        Under our articles of association, our supervisory board may adjust the
number of members of the management board at any time. Currently, there are two
members serving on the management board. The members of the management board are
appointed by the supervisory board for a term of no more than five years. The
current management board was elected for a term of five years that expires on
June 22, 2003.

        In addition to the management board, we employ the following executive
officers:

<TABLE>
<CAPTION>
     NAME                      AGE                         PRINCIPAL OCCUPATION
-----------------              --            --------------------------------------------
<S>                            <C>           <C>
Karsten Schneider              40            Senior Vice President of Strategic Alliances
Frank Gessner                  32            Senior Vice President, Engineering
Dirk Reiche                    36            Vice President, Finance
Ray Schaaf                     40            President, Americas
Dieter Neujahr                 41            Vice President, Asia/Pacific
Michael Tsifidaris             32            Vice President, Central Europe
Phil Oreste                    34            Senior Vice President of Strategic Alliances
</TABLE>


                                       30
<PAGE>   31

<TABLE>
<S>                            <C>           <C>
Dr. Andreas Gregori            33            Vice President, Marketing Europe EMEA
Dr. Ludger Vogt                40            Vice President, Consulting, Europe and Asia
</TABLE>

Karsten Schneider. Since August 1999, Mr. Schneider has served as our Senior
Vice President of Strategic Alliances. In March 1996, Mr. Schneider co-founded
INTERSHOP Communications, Inc., and has since served as its VP, Professional
Services.

Frank Gessner. Since November 2000, Mr. Gessner has served as our Senior Vice
President, Engineering. From August 1997 to October 2000 and from January 1996
to July 1997, Mr. Gessner served as VP Engineering and Software Engineer,
respectively, of our subsidiary, Intershop Software Entwicklungs GmbH.

Dirk Reiche. Since January 2001, Mr. Reiche has served as our Vice President,
Finance. From October 1997 to December 2000, Mr. Reiche served as Director
Finance, Europe and VP Finance, Europe of Intershop Communications GmbH, our
subsidiary and a technology consulting firm. From February 1996 to September
1997, Mr. Reiche served as Commercial Director for BbNet, a Berlin
telecommunications company.

Ray Schaaf. Since May 2001, Mr. Schaaf has served as our President, Americas.
From October 1998 to May 2001, Mr. Schaaf served as President and Chief
Executive Officer of Xmarc, Inc. (formerly Formida Software), a provider of
infrastructure software solutions, and he remains a director of the Xmarc, Inc.
Prior to October 1998, Mr. Schaaf held senior management positions at Fabrik
Communications, Veritas Software and NeXT Computers.

Dieter Neujahr. Since August 2000, Mr. Neujahr has served as our Vice President,
Asia/Pacific. From Spring 1998 to July 2000, Mr. Neujahr served as our Vice
President, Operations, Europe. From November 1993 to December 1996, Mr. Neujahr
served as a Managing Director in the Munich office of Intuit, Inc., a provider
of personal finance software products, before he joined Intuit's headquarters
in Mountain View, California to head a Service Marketing Division from January
1997 to February 1998.

Michael Tsifidaris. Since January 2001, Mr. Tsifidaris has served as our Vice
President, Central Europe. From January 1996 to December 2000, Mr. Tsifidaris
served in various senior management positions in IBM Corporation, a developer
and manufacturer of information technologies.

Philip Oreste. Since May 2001, Mr. Oreste has served as our Senior Vice
President of Strategic Alliances. From January 1999 to January 2001, Mr. Oreste
served as our Vice President, Finance. From June 1998 to January 1999,
Mr. Oreste served as Controller for our subsidiary, U.S., Inc. From April 1996
to June 1998, Mr. Oreste served as the Controller for Pacific Bell Internet
Services, an internet service provider and subsidiary of Pacific Bell Telephone
Company.

Dr. Andreas Gregori. Since October 1999, Dr. Gregori has served as our Vice
President, Marketing Europe EMEA. From July 1998 to October 1999, Dr. Gregori
served as Vice President of Marketing for Lycos-Bertelsmann AG, a book
publisher. From October 1992 to June 1998, Dr. Gregori served as the System
Analyst and later as Brand Manager for Proctor and Gamble Company, a
manufacturer and marketer of consumer products.

Dr. Ludger Vogt. Since September 2000, Dr. Vogt has served as our Vice
President, Consulting, Europe and Asia. From February 1999 to August 2000,
Dr. Vogt served as Director Project Management. From August 1992 to January
1999, Dr. Vogt served as Manager Consulting for Oracle Corporation, a provider
of business-to-business software and services. From spring 1989 to spring 1999,
Dr. Vogt served as Senior Practice Director for Debis, formerly the IT and
Services subsidiary of DaimlerChrysler Group, an automobile manufacturer and
distributor.

SUPERVISORY BOARD

Our supervisory board oversees the leadership of the management board.
The following table lists the current members of the supervisory board:

                                       31
<PAGE>   32

<TABLE>
<CAPTION>
          NAME                          AGE           MEMBER SINCE               PRINCIPAL OCCUPATION
          ----                          ---           ------------               --------------------
<S>                                     <C>           <C>                 <C>
Eckhard Pfeiffer, Chairman              59                1999            Consultant
Theodore J. Smith, Vice Chairman        71                1998            Chairman, FileNet Corporation
Jorg Menno Harms                        61                1998            Managing Director, Hewlett-Packard GmbH
Lorenzo Pelliciolo                      49                1999            Chief Executive Officer of Seat Regine Gialle
Hartmut Essinger                        57                1999            Founder of frogdesign, an integrated design company
</TABLE>

        The following list identifies the members of our supervisory board who
serve as directors for other companies:

Eckhard Pfeiffer:

     -   General Motors Corporation

     -   Hughes Electronics Corporation

     -   L.M. Ericsson AB

     -   NXView Technologies

     -   IFCO Systems NV

     -   Synetc Capital AG

Theodore J. Smith:

     -   FileNet Corporation

Jorg Menno Harms:

     -   Hewlett-Packard GmbH

     -   Holding GmbH (Chairman of the supervisory board)

     -   Jenoptik AG

     -   Wurttembergeische Hypothekenbank AG

     -   Durr AG

     -   Heidelberger Druckmaschinen AG

     -   Heraeus Holdings GmbH

     -   CAA AG

Hartmut Essinger, Ph.D.:

     -   Frogdesign Inc. (Chairman of the supervisory board)

Lorenzo Pellicioli:

     -   Matrix

     -   Giallo Dat@

     -   Various companies of the Seat Group

BOARD PRACTICES

        All supervisory board members are elected for one-year terms ending at
the date of the annual shareholders' meeting. The above members were re-elected
for one-year terms as at the latest shareholders' meeting


                                       32
<PAGE>   33
on June 13, 2001. Our audit committee is composed of Jorg Menno Harms
(Chairman), Theodore J. Smith and Lorenzo Pelliciolo.

Board Compensation

        In fiscal 2000, the annual aggregate compensation, accrued but not paid,
for the supervisory board was E106,000. In fiscal 2000, the annual aggregate
compensation for the management board was E51,000.

Employees

        For INTERSHOP AG, fiscal 2000 was marked by strong organizational growth
in all areas. The recruitment of new employees was particularly significant as
part of our global expansion strategy, and we more than doubled our number of
employees during fiscal 2000. Numbers grew worldwide by 674 to 1,218 at the end
of the year, with focus on recruiting in technical areas such as product
development, consulting, support and training. In these areas, the number of
employees rose from 336 to 623. The sales and marketing team welcomed 206 new
employees, bringing the headcount up to 385 at the end of the year. The number
of employees in administrative roles increased by 132 to 210. At the end of
fiscal 2000, 72% of employees were deployed in Europe, 21% in the U.S., and 7%
in Asia/Pacific.

                                 SHARE OWNERSHIP

        The following table sets forth certain information with respect to the
beneficial ownership of our bearer ordinary shares as at March 31, 2001 for:

        -   each member of the management board (both of whom are also
            members of the senior management);

        -   each executive officer; and

        -   each member of the supervisory board.

<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER                 BEARER ORDINARY SHARES(1)           PERCENTAGE OWNER(4)
------------------------                 -------------------------           -------------------
<S>                                      <C>                                 <C>
SUPERVISORY BOARD
Eckhard Pfeiffer                                    400,000                        (2)
Theodore J. Smith                                   107,290                        (2)
Jorg Menno Harms                                        200                        (2)
Hartmut Esslinger, PhD                                    0                       n/a
Lorenzo Pellicioli                                        0                       n/a

SENIOR MANAGEMENT

Karsten Schneider                                 4,972,965                       4.89%
Frank Gessner                                       956,100                        (2)
Dirk Reiche                                          62,121                        (2)
Ray Schaaf                                                0                       n/a
Dieter Neujahr                                        2,475                        (2)
Michael Tsifidaris                                        0                       n/a
Phil Oreste                                           5,000                        (2)
Dr. Andreas Gregori                                       0                       n/a
Dr. Ludger Vogt                                         990                        (2)
</TABLE>


                                       33
<PAGE>   34

<TABLE>
<S>                                      <C>                                 <C>
MANAGEMENT BOARD

Stephan Schambach                                 12,500,000(3)                   12.30%
Wilfried Beeck                                     7,000,000                        6.9%
</TABLE>

(1) Ownership of bearer ordinary shares of INTERSHOP AG as at December 31, 2000.

(2) Percentage owned is less than one percent of the outstanding bearer ordinary
shares.

(3) Stephan Schambach holds 4,166,667 shares in U.S., Inc. These shares are
convertible into 12,500,000 shares of INTERSHOP AG at any time prior to 2004.

(4) Percentage ownership is calculated to reflect the percentage ownership if
all outstanding U.S., Inc. shares not already held by INTERSHOP AG were
exchanged for INTERSHOP AG shares. If all such outstanding U.S., Inc. shares
were so converted, 101,647,516 INTERSHOP AG shares would be issued and
outstanding.

INTERSHOP COMMUNICATIONS, INC. 1997 EQUITY INCENTIVE PLAN

        The INTERSHOP Communications, Inc. 1997 Equity Incentive Plan (the "1997
Plan") was first approved by U.S., Inc. shareholders on December 30, 1996, and
10,000,000 shares of INTERSHOP AG bearer ordinary shares have been reserved for
issuance under the 1997 Plan. INTERSHOP AG continues to maintain the 1997 Plan,
pursuant to which selected employees, officers, directors and consultants who
joined one of our subsidiaries prior to June 21, 1999 were granted stock options
("U.S. Options"). Since June 21, 1999, no options have been granted under the
1997 Plan. Each U.S. Option is exercisable for INTERSHOP AG bearer ordinary
shares at a ratio of 1:3.

        The U.S. Options include both incentive stock options and non-incentive
stock options. Incentive stock options were granted only to employees and had
exercise prices equal to or greater than the fair market value of the U.S., Inc.
shares on the date of the grant. The non-statutory stock options were granted to
employees, consultants or directors and had exercise prices not less than 85% of
the fair market value of the U.S., Inc. shares on the date of the grant.

        The 1997 Plan was administered by the management board. Generally, the
U.S. Options vest with respect to 17% of the shares on the six-month anniversary
of the date of grant and thereafter in 30 equal monthly installments with
respect to the remaining 83% of the shares. Vested options may be exercised at
any time following their vesting date and prior to the 10th anniversary of the
date of grant; however, an individual optionholder may not exercise stock
options more than four times in any calendar year.

        Upon the termination of an optionholder's status as employee, director
or consultant for any reason other than death or disability, the unvested
portion of the option will be forfeited and the vested portion will remain
exercisable for a maximum of three months. U.S. Options are not transferable
except by will or the laws of intestate succession.

INTERSHOP COMMUNICATIONS AG STOCK OPTION PLAN 1999

        At the shareholders' meeting on June 21, 1999, our shareholders adopted
the INTERSHOP Communications AG Stock Option Plan 1999 (the "1999 Plan"), which
became effective on July 1, 1999, and authorized the grant of stock options,
which we refer to as 1999 AG Options, to employees, officers and directors of
INTERSHOP AG and its affiliates, including members of the management board. An
aggregate of 8,165,000 INTERSHOP AG bearer ordinary shares are reserved for
issuance under the 1999 Plan, with 665,000 INTERSHOP AG bearer ordinary shares
reserved for grants to members of the management board and general managers of
our subsidiaries and 7,500,000 INTERSHOP AG bearer ordinary shares reserved for
grants to all other employees. Each 1999 AG Option is exercisable for one
INTERSHOP AG bearer ordinary share.

        The 1999 Plan is administered by the management board, except in the
case of 1999 AG Options granted to members of the management board, whereby the
supervisory board shall determine the terms of the awards. The supervisory board
can also determine additional performance targets that must be met prior to the
grant of a 1999 AG Option to any participant.

        The vesting schedules of the 1999 AG Options generally provide full
vesting within four years from the date of grant. However, pursuant to German
law, no 1999 AG Options shall be exercisable, even though a portion may be
vested, prior to the second anniversary of the date of grant. The exercise
prices of a 1999 AG Option shall be


                                       34
<PAGE>   35


equal to 120% of the fair market value of the INTERSHOP AG bearer ordinary
shares on the date of grant, where the fair market value is determined to be the
average closing sales price as quoted on the Neuer Markt for the ten trading
days prior to the date of grant. The exercise price may be reduced by a
shareholders' resolution if, at any time, we issue shares or securities
convertible into shares at a price lower than the exercise price of an
outstanding 1999 AG Option.

        Upon the termination of an optionholder's status as employee, officer or
consultant for cause, the 1999 AG Option will be immediately terminated. In the
event of death or disability, the 1999 AG Option may be exercised within six
months of the date of such death or disability. The 1999 AG Options are not
transferable except by will or the laws of intestate succession.

INTERSHOP COMMUNICATIONS AG STOCK OPTION PLAN 2001

        At the shareholders' meeting on June 27, 2000, our shareholders adopted
the INTERSHOP Communications AG Stock Option Plan 2001 (the "2001 Plan"), which
became effective April 1, 2001. The 2001 Plan authorizes the grant of stock
options, which we refer to as 2001 AG Options, to current and former employees
of INTERSHOP AG and its affiliates, as well as to the members of the management
board and the board of directors of an affiliated enterprise if they currently
are or formerly were employed by us or one of our affiliates. 8,753,094
INTERSHOP AG bearer ordinary shares have been reserved for issuance under the
2001 Plan. Each 2001 AG Option is exercisable for one INTERSHOP AG bearer
ordinary share.

        As with the 1999 Plan, the 2001 Plan is administered by the management
board, except in the case of 2001 AG Options granted to members of the
management board, whereby the supervisory board shall determine the terms of the
awards. The supervisory board can also determine additional performance targets
that must be met prior to the grant of a 2001 AG Option to any participant.

        The vesting schedules for the 2001 AG Options generally provide for
vesting in 50 equal monthly installments from the date of grant. However, no
2001 AG Option will be exercisable, even though a portion may be vested, prior
to the end of the first six months after date of grant. Each AG Option shall be
exercised within five years of the date of grant. The exercise price of the 2001
AG Options shall be equal to the fair market value of the INTERSHOP AG bearer
ordinary shares on the date of grant, where the fair market value is determined
to be the closing sales price as quoted on the Neuer Markt for the date of the
grant.

        Upon termination of the employment agreement between the optionholder
and either INTERSHOP AG or an affiliated enterprise, or upon the optionholder's
death or disability, the vested portion of a 2001 AG Option will remain
exercisable for a maximum of six months. Generally, if an employee is terminated
by either INTERSHOP AG or an affiliated enterprise for cause, all exercisable
2001 AG Options expire immediately. The 2001 AG Options are not transferable
except by will or the laws of intestate succession.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

                               MAJOR SHAREHOLDERS

        The following table sets forth certain information with respect to the
beneficial ownership of our bearer ordinary shares as at March 31, 2001 by each
person, or group of affiliated persons, who is known by us to own beneficially
more than 5% of our bearer ordinary shares.

        Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and generally includes voting power or
investment power with respect to securities. Mr. Schambach holds 16.2% of the
shares of our subsidiary U.S., Inc. which he may exchange at any time for
INTERSHOP AG bearer ordinary shares at a ratio of 1:3. The table below assumes


                                       35
<PAGE>   36

that Mr. Schambach has exchanged his shares of our U.S. subsidiary, INTERSHOP
Communications, Inc., for INTERSHOP AG shares. We believe that the persons named
in this table, based on information provided by such persons, have sole voting
and investment power with respect to the bearer ordinary shares indicated.

<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER            BEARER ORDINARY SHARES (1)         PERCENTAGE OWNER(3)
------------------------            --------------------------         -------------------
<S>                                 <C>                                <C>
Stephan Schambach                        12,500,000(2)                       12.30%
Wilfried Beeck                            7,000,000                           6.90%
</TABLE>

(1) Ownership of INTERSHOP AG shares as at March 31, 2001.

(2) Stephan Schambach holds 4,166,667 shares in U.S., Inc. These shares are
convertible into 12,500,000 shares of INTERSHOP AG at any time prior to 2004.

(3) Percentage ownership is calculated to reflect the percentage ownership if
all outstanding U.S., Inc. shares not already held by INTERSHOP AG were
exchanged for INTERSHOP AG shares. If all such outstanding U.S., Inc. shares
were so converted, 101,647,516 INTERSHOP AG shares would be issued and
outstanding.

        As at June 15, 2001, based upon information provided by the Depositary,
there were 3,350,000 ADSs, representing approximately 1,675,000 bearer ordinary
shares, held of record by 5 registered holders. The bearer ordinary shares
underlying such ADSs represented 1.9% of the then-outstanding bearer ordinary
shares. Because our bearer ordinary shares are issued in bearer form only, we
are unable to determine the number of bearer ordinary shares directly held by
persons resident in the U.S.

                           RELATED PARTY TRANSACTIONS

        During fiscal 1999, we entered into a secured loan agreement for E7
million with Wilfried Beeck, our Chief Financial Officer and a member of our
management board. Interest on the note was payable quarterly at a rate of six
percent, and we repaid the note in full in November 2000.

        During fiscal 2000, we entered into a secured loan agreement for $10
million with Stephan Schambach, our Chief Executive Officer and the Chairman of
the management board. Interest on the note was payable quarterly at a rate of
6.13%, and we repaid the note in full in October 2000.

ITEM 8. FINANCIAL INFORMATION

                        CONSOLIDATED FINANCIAL STATEMENTS

        Pursuant to the General Instructions to Form 20-F, our audited
consolidated financial statements are set forth under "Item 18. Financial
Statements" and are incorporated herein by reference.

                           OTHER FINANCIAL INFORMATION

LEGAL MATTERS

        INTERSHOP AG is a defendant in various legal matters arising in the
normal course of business. In the opinion of management, after consultation with
legal counsel, the ultimate resolution of these matters is not expected to have
a material effect on the attached consolidated financial statements. In
addition, we are a party to, or involved in, the following legal matters:

        In January 2001, a U.S. company filed suit in federal district court in
Delaware against U.S., Inc., claiming violation of certain patent rights. The
complaint seeks compensation for damages based on the alleged patent
infringements. We believe there is no merit to the case and intend to defend the
case vigorously. There can be no assurance that we will be able to prevail in
the lawsuit, or that the pendency of the lawsuit will not adversely affect our
operations. As the outcome of this matter cannot reasonably be determined, we
have not accrued for any potential loss contingencies.


                                       36
<PAGE>   37

        In the first quarter of 2001 several securities class action lawsuits
were filed in the U.S. against INTERSHOP AG, its management board members, and
certain other officers, and the underwriters of its September 2000 public
offering. The complaints allege that the defendants made material
misrepresentations and omissions of material facts concerning our business
performance. The complaint seeks an unspecified amount of damages. We believe
there is no merit to the case and intends to defend the case vigorously. There
can be no assurance that we will be able to prevail in the lawsuit, or that the
pendency of the lawsuit will not adversely affect our operations. As the outcome
of this matter cannot reasonably be determined, we have not accrued for any
potential loss contingencies.

        The German Federal Supervisory Office for Securities Trading
(Bundesaufsichtsamt fur den Wertpapierhandel) announced in January 2001 that it
had initiated an investigation regarding a possible violation of the duty to
disclose material information in connection with the release on January 2, 2001
of our preliminary results for 2000. The prosecutor's office in Hamburg
initiated an investigation into complaints about stock price manipulations in
May of 2001. We are cooperating with these investigations and, to our knowledge,
have never been the subject of such investigations previously. Although the
outcome of such investigations cannot be predicted with certainty, we believe
that any resulting adverse judgments would not have a material adverse effect on
our business, financial position, results of operations or cash flows.

DIVIDEND POLICY

        Paragraphs 21 and 22 of our articles of association set forth our policy
regarding the use of net profits. Paragraph 21 states that the management board
at the end of each fiscal year is to prepare a proposal for the appropriation of
net profits to be submitted to the shareholders, which is then reviewed by the
supervisory board. Paragraph 22 states that net profits (after certain
adjustments) "shall be distributed amongst the shareholders, unless the general
meeting of the shareholders decides on another form of appropriation." Paragraph
22 further states that if the general meeting of the shareholders approves the
year-end financial statements, "up to half the profit for the year may be
transferred to the revenue reserve," and if the management and supervisory
boards approve the year-end financial statements, "a larger or smaller portion
of the profit for the year may be transferred to the revenue reserve." We have
not paid dividends in the past and do not intend to pay dividends in the
foreseeable future.

                               SIGNIFICANT CHANGES

        Please see the section entitled "Subsequent Events" under "Item 5.
Operating and Financial Review and Prospects," which is incorporated herein by
reference.

ITEM 9. THE OFFER AND LISTING

NATURE OF THE TRADING MARKET

General

        Our bearer ordinary shares are listed on the Neuer Markt, which is the
principal trading market for such shares. Our bearer ordinary shares are issued
only in bearer form and are also traded at regional stock exchanges in Germany
(Berlin, Bremen, Duesseldorf, Hamburg, Hannover, Munich, Stuttgart) as well as
through Freiverkehr (OTC) and on XETRA, a computerized trading system.

        Effective September 29, 2000, 3,350,000 American Depositary Shares
("ADSs"), each representing one-half of one bearer ordinary share, were listed
on the Nasdaq National Market ("Nasdaq"). The ADSs trade on Nasdaq under the
symbol "ISHP." The Depositary for the ADSs pursuant to the Deposit Agreement is
Citibank N.A.


                                       37
<PAGE>   38

Trading on the Neuer Markt

        The table below sets forth, for the periods indicated, the high and low
closing sales prices for the bearer ordinary shares on the Neuer Markt, as
provided by Deutsche Boerse AG, together with the closing highs and lows of the
NEMAX 50 Performance Index. Since January 4, 1999, the first official trading
day of 1999, the share prices of shares traded on the German stock exchanges
have been quoted in euros.

<TABLE>
<CAPTION>
                                                PRICE PER BEARER
                                                ORDINARY SHARE(1)              NEMAX 50(2)
                                             ----------------------      -----------------------
                                              HIGH             LOW         HIGH            LOW
                                             ------           -----      -------         -------
                                                              (IN E)
<S>                                          <C>              <C>        <C>             <C>
ANNUAL HIGHS AND LOWS
1998                                           8.49            5.28      3343.63         1875.00
1999                                          60.00            6.64      5212.13         3350.75
2000                                         135.40           31.20      9631.53         2734.98

QUARTERLY HIGHS AND LOWS
1999

First Quarter                                 12.10            6.64      4782.92         3548.68
Second Quarter                                16.53           11.73      4295.55         3827.30
Third Quarter                                 20.90           14.73      4606.11         3350.75
Fourth Quarter                                61.60           20.10      5212.13         3433.05

2000
First Quarter                                135.40           48.20      9631.53         4789.80
Second Quarter                               110.00           73.20      7567.21         5589.95
Third Quarter                                105.00           73.80      6443.87         5212.58
Fourth Quarter                                76.40           31.20      5151.36         2734.98

2001
First Quarter                                 13.90            3.90      2920.90         1450.25
Second Quarter (through June 18)               5.88            2.98      1980.94         1309.70

MONTHLY HIGHS AND LOWS
2000

December                                      47.80           31.20      3489.55         2734.98
2001

January                                       13.90            8.05       2920.9         2116.32
February                                       9.25            6.16      2681.92         1961.11
March                                          6.69            3.90       2067.6         1450.25
April                                          4.10            2.98      1868.92         1309.70
May                                            5.88            4.26      1980.94         1704.12
June (through June 18)                         4.70            3.70      1753.73         1467.31
</TABLE>

(1) All bearer ordinary share prices as per Frankfurter Wertpapierborse (FWB).

(2) The NEMAX 50 Performance Index is a continuously updated, capital-weighted
performance index of 50 innovative, small to midsize companies in high-growth
industries or in traditional industries that have an international orientation
and that are willing to provide active investor relations. In principle, the
shares included in the NEMAX 50 were selected on the basis of their stock
exchange turnover and the issuer's market capitalization. Adjustments to the
NEMAX 50 are made for capital changes, subscription rights and dividends. All
NEMAX 50 Performance-Index numbers were obtained from Deutsche Borse. Subsequent
to June 21, 1999, the highs and lows of the NEMAX 50 are disclosed on XETRA.


                                       38
<PAGE>   39
        The average daily volumes of bearer ordinary shares traded on the
Frankfurt Stock Exchange during the fiscal years 1999 and 2000 were
approximately E91,980 and E786,819, respectively. These numbers are based on
total yearly turnover statistics quoted by Deutsche Boerse AG.

        On June 18, 2001, the closing sales price per bearer ordinary share on
the Neuer Markt was E3.75, as provided by the Deutsche Boerse AG.

Trading on Nasdaq

        On September 29, 2000, 1,675,000 bearer ordinary shares in the form of
3,350,000 ADSs were listed on Nasdaq and trading in our ADSs commenced.

        The table below sets forth, for the periods indicated, the high and low
closing sales prices for the ADSs on Nasdaq as reported on the Nasdaq National
Market.

<TABLE>
<CAPTION>
                                                             PRICE PER ADS
                                                               (IN U.S. $)
                                                         ----------------------
                                                         HIGH              LOW
                                                         -----            -----
<S>                                                      <C>              <C>
ANNUAL HIGHS AND LOWS
2000                                                     61.25            26.50
2001                                                     11.25             1.50

QUARTERLY HIGHS AND LOWS
2000

Fourth Quarter (commencing October 4, 2000)              61.25            26.50
2001
First Quarter                                            11.25             4.10
Second Quarter (through June 15)                          3.15             1.50

MONTHLY HIGHS AND LOWS
2000
October                                                  61.25            38.63
November                                                 50.50            26.50
December                                                 40.00           29.875

2001
January                                                  11.25             7.01
February                                                  7.50             7.01
March                                                     4.10             4.10
April                                                     3.15             2.75
May                                                       2.75             1.54
June (through June 15)                                    2.20             1.45
</TABLE>

On June 15, 2001, the closing sales price per ADS on Nasdaq was $1.55, as
reported on the Nasdaq National Market.

ITEM 10. ADDITIONAL INFORMATION

                             ARTICLES OF ASSOCIATION

Organization and Register

        INTERSHOP AG is a stock corporation organized in the Federal Republic of
Germany under the Stock Corporation Law (Aktiengesetz) and is registered in the
Commercial Register (Handelsregister) maintained by the


                                       39
<PAGE>   40
local court in Hamburg, Germany, under the entry number "HRB 67465." INTERSHOP
AG's official notices are published in the Bundesanzeiger.

Authorized Capital

        INTERSHOP AG currently has 154,187,975 bearer ordinary shares
authorized for issuance.

Corporate Governance

        In contrast to corporations organized in the U.S., INTERSHOP AG, as a
German stock corporation, is governed by two separate bodies: the supervisory
board and the management board, the actions of whom are approved at the annual
shareholders' meeting. Their roles are defined by German law and by INTERSHOP
AG's articles of association (Satzung), and may be described generally as
follows:

The Supervisory Board

        The supervisory board appoints and removes the members of the management
board and oversees the management of the corporation. Although prior approval of
the supervisory board may be required in connection with certain significant
matters, the law prohibits the supervisory board from making management
decisions. The supervisory board is also responsible for representing us in
connection with transactions involving a member of the management board.

        The supervisory board currently consists of five members. All members
were elected by INTERSHOP AG's shareholders at a general shareholders' meeting.
Any supervisory board member elected by the shareholders at the general
shareholders' meeting may be removed by a three-fourths majority of the votes
cast at a general shareholders' meeting.

        The supervisory board chooses a Chairman and a Vice-Chairman from among
its members by a majority vote of its members. Unless otherwise provided for by
law, the supervisory board acts by simple majority. In the case of any deadlock,
the Chairman has the deciding vote.

        The members of the supervisory board are each elected for the same fixed
terms ending on the adjournment of the annual general shareholders' meeting
after the fourth fiscal year following the year in which the supervisory board
was elected, unless the general shareholders' meeting determines a shorter
period of service at the time of their election. Reelection is possible. The
remuneration of the members of the supervisory board is determined by the
articles of association.

        The supervisory board may appoint committees from among its members and
may, to the extent permitted by law, vest committees with the authority to make
decisions.

The Management Board

        The management board manages the corporation's business and represents
it in dealings with third parties. The management board submits regular reports
to the supervisory board about INTERSHOP AG's operations and business
strategies, and prepares special reports upon request. A person may not serve on
the management board and the supervisory board of a corporation at the same
time.

        Pursuant to our articles of association, the management board must
consist of at least one member. The management board currently consists of two
members. The two members of the management board jointly or one member of the
management board and the holder of a procuration (a power of attorney) may
legally represent INTERSHOP AG. Each member of the management board is appointed
by the supervisory board for a maximum term of five years and is eligible for
reappointment thereafter. Under certain circumstances, such as a serious breach
of duty or a vote of no confidence (Vertrauensentzug) by a majority of
shareholders at a general shareholders' meeting, a member of the management
board may be removed by the supervisory board prior to the expiration of such
term. A member of the management board may not vote on matters relating to
certain contractual agreements between such member and us and may be liable to
INTERSHOP AG if such member has a material interest in any contractual agreement
between a third party and us which was not disclosed to, and approved by, the
supervisory board.


                                       40
<PAGE>   41
        Under German law, INTERSHOP AG's supervisory board members and
management board members owe a duty of loyalty and care to INTERSHOP AG. They
must exercise the standard of care of a prudent and diligent businessman and
bear the burden of proving they did so if their actions are contested. Both
boards must consider the interests of INTERSHOP AG's shareholders and its
workers and, to some extent, the common interest. Those who violate their duties
may be held jointly and severally liable for any resulting damages, unless their
actions were validly approved by resolution at a shareholders' meeting.

THE ANNUAL GENERAL SHAREHOLDERS' MEETING

        The annual general shareholders' meeting ratifies the actions of
INTERSHOP AG's supervisory board and the management board. It approves the
amount of the appropriation of retained earnings, the appointment of an
independent auditor and certain significant corporate transactions. The annual
general meeting must be held within the first eight months of each fiscal year.

Objectives and Purposes

        Paragraph 2 of INTERSHOP AG's articles of association states that its
objectives shall be the development, production and distribution of hardware and
software products in the field of computers, as well as the management of its
own assets and the acquisition, management and sale of participating interests
in other companies and business enterprises with an identical or similar object,
as well as all associated services and businesses connected commercially
thereto.

Voting Rights

        Unless otherwise regulated by law, one bearer ordinary share represents
one vote in all matters subject to a shareholders' vote, including the election
of the members of the supervisory board. Cumulative voting is not permitted
under German law.

        Our articles provide that resolutions are passed at general
shareholders' meetings by a majority of votes cast, unless a vote of a
two-thirds majority is required by law. Additionally, German law requires that
the following matters, among others, be approved by the affirmative vote of 75%
of the issued shares present at the general shareholders' meeting at which the
matter is proposed:

        -    share capital increases that exclude shareholders' preemptive
             rights;

        -    the creation of authorized or conditional capital;

        -    changes to the articles of association modifying the corporate
             purpose;

        -    any decrease of capital;

        -    mergers and similar transactions;

        -    dissolution, and

        -    company agreements (Unternehmensvertrage) such as denomination or
             profit transfer agreements.

Shareholder Meetings

        The supervisory board or the management board may call a special meeting
of the shareholders. Additionally, our shareholders holding in the aggregate at
least E500,000 in nominal value of our issued share capital or shares
representing at least 5% of our outstanding shares may call a special meeting of
the shareholders.

Change in Control

        There are no provisions in the articles of association that would have
an effect of delaying, deferring or preventing a change in control of INTERSHOP
AG and that would only operate with respect to a merger, acquisition or
corporate restructuring involving it or any of its subsidiaries. German law does
not specifically regulate business combinations with interested stockholders.
However, German law may restrict certain business combinations.


                                       41
<PAGE>   42
Disclosure of Share Holdings

        INTERSHOP's articles of association do not require shareholders to
disclose their share holdings. The Securities Trading Act
(Wertpapierhandelsgesetz), however, requires holders of voting securities of a
corporation whose shares are listed on a stock exchange to notify us of the
number of shares they hold if that number reaches, exceeds or falls below
specified thresholds. These thresholds are 5%, 10%, 25%, 50% and 75% of our
outstanding voting rights.

DIVIDENDS

        Please see the sections entitled "Dividends" under "Item 3. Key
Information," and "Dividend Policy" under "Item 8. Financial Information," which
are incorporated herein by reference.

                               MATERIAL CONTRACTS

        Not applicable.

                                EXCHANGE CONTROLS

        The euro and the Deutsche mark are fully convertible currencies. At the
present time, Germany does not restrict the export or import of capital, except
for investments in certain areas in accordance with applicable resolutions
adopted by the United Nations and the European Union. However, for statistical
purposes only, every individual or corporation residing in Germany ("Resident")
must report to the German Central Bank (Deutsche Bundesbank), subject only to
certain immaterial exceptions, any payment received from or made to an
individual or a corporation resident outside of Germany ("Non-resident") if such
payment exceeds DM 5,000 (approximately E2,556) (or the equivalent in a foreign
currency). As of January 1, 2001, Residents must only report to the Central Bank
if such payment exceeds E25,000. In addition, Residents must report any claims
against or any liabilities payable to Non-residents if such claims or
liabilities, in the aggregate, exceed DM 3 million (approximately E1.5 million)
(or the equivalent in a foreign currency) during any one month. For a discussion
of the treatment of remittance of dividends, interest or other payments to
Non-resident holders of ADSs or Preference Shares, see "Item 10 -- Taxation --
German Taxation of Holders of ADSs or Preference Shares."

        There are no limitations imposed by German law or our articles of
association on the right of Non-residents or foreign holders to hold or vote
bearer ordinary shares or ADSs.

                                    TAXATION

GENERAL

        The following is a summary of material U.S. and German tax
considerations relating to the ownership and disposition of bearer ordinary
shares or ADSs by U.S. Holders (defined below). As discussed below, our
discussion does not purport to be comprehensive, but we have provided a
materially complete description of the tax considerations which may be relevant
to the ownership and disposition of bearer ordinary shares or ADSs by U.S.
Holders. The discussion is based on tax laws of the U.S. and Germany, that are
in force at the date hereof and is subject to any changes in these laws,
occurring after such date, including the Convention Between the United States of
America and The Federal Republic of Germany for the Avoidance of Double Taxation
and the Prevention of Fiscal Evasion With Respect to Taxes on Income and Capital
and to Certain other Taxes, which we refer to as the Income Tax Treaty, and the
Convention Between the United States of America and the Federal Republic of
Germany for the Avoidance of Double Taxation with Respect to Taxes on Estates,
Inheritances, and Gifts, which we refer to as the Estate Tax Treaty. In October
2000, the Tax Reduction Act (Steuersenkungsgesetz) was enacted in Germany as
part of an extensive tax reform. The new law became effective as of January 1,
2001. However, for companies whose fiscal year is the calendar year most of the
regulations with regard to dividends, capital gains and other relevant
provisions enter into effect for the tax year beginning in 2002. The following
discussion addresses only those regulations which are valid in the 2001 tax
year. Significant changes which are effective in 2002 may be mentioned herein
but are not explained in detail. This discussion is also based, in part, on
representations of the


                                       42
<PAGE>   43
Depositary and assumes that each obligation of the Deposit Agreement and any
related agreements will be performed in accordance with its terms.

        In general, a "U.S. Holder" is any beneficial owner of shares or ADSs:

        -  who is a resident of the U.S. for the purposes of the Income Tax
           Treaty;

        -  who is not also a resident of the Federal Republic of Germany for the
           purposes of the Income Tax Treaty;

        -  who owns the shares or ADSs as capital assets;

        -  who owns, directly or indirectly, less than 10% of the voting stock;

        -  who does not hold shares as part of the business property of a
           permanent establishment located in Germany or as part of a fixed base
           of an individual located in Germany and used for the performance of
           independent personal services; and

        -  who is entitled to benefits under the Income Tax Treaty with respect
           to income and gain derived in connection with the shares or ADSs.

        The discussion does not purport to be a comprehensive description of all
of the tax considerations that may be relevant to the ownership and disposition
of shares or ADSs, and, in particular, it does not address U.S. federal taxes
other than income tax and German taxes other than income tax, gift and
inheritance taxes and capital tax. Moreover, the discussion does not consider
any specific facts or circumstances that may apply to a particular U.S. Holder.
Some U.S. Holders including tax-exempt entities, certain insurance companies,
traders in securities that elect to mark to market, investors that actually or
constructively own 10% or more of the voting shares, holders subject to the
alternative minimum tax, securities broker-dealers and certain other financial
institutions, holders who hold the shares or ADSs in a hedging transaction or as
part of a straddle or conversion transaction or holders whose functional
currency is not the U.S. dollar, may be subject to special rules. PROSPECTIVE
INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE U.S.
FEDERAL, STATE, LOCAL, GERMAN AND OTHER TAX CONSEQUENCES OF OWNING AND DISPOSING
OF THEIR SHARES OR ADSs. IN PARTICULAR, PROSPECTIVE INVESTORS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS TO CONFIRM THEIR STATUS AS U.S. HOLDERS AND THE
CONSEQUENCES TO THEM IF THEY DO NOT SO QUALIFY.

        In general, for U.S. federal income tax purposes, holders of ADRs
evidencing ADSs will be treated as the owners of the shares represented by such
ADSs. Unless the context otherwise requires, all references in this section to
"shares" are deemed to refer likewise to ADSs representing an ownership interest
in shares.

TAXATION OF DIVIDENDS

        Under German domestic income tax laws, German corporations are required
to withhold tax on dividends in an amount equal to 25% of the gross amount paid
to resident and non-resident shareholders. A 5.5% surtax on the German
withholding tax is currently levied on dividend distributions paid by a German
corporation, such as INTERSHOP AG. The surtax equals 1.375% (5.5% of 25%) of the
gross amount of a cash dividend. Certain persons resident in Germany (e.g.,
qualifying investment funds or tax-exempt organizations) may obtain a partial or
full refund of such taxes.

        The Tax Reduction Act decreases the withholding tax on dividends from
25% to 20%. Accordingly, the respective surtax will be reduced from 1.375% to
1.10%. For companies whose fiscal year is the calendar year, the new regulation
will be effective the first time for regular dividend distributions made in the
year 2002 for previous years.

        For a holder of ADSs that is resident in Germany, according to German
income tax law, dividends are subject to German income tax or corporation tax.
For such a holder, the taxable amount will be the sum of: (i) the cash payment
by INTERSHOP AG; (ii) the taxes withheld; and (iii) 3/7 of the sum of (i) and
(ii). Subject to certain conditions, the tax withheld and the gross-up of 3/7
will be eligible for credit against the holder's income or


                                       43
<PAGE>   44
corporation tax. If the dividend is paid out of tax-exempt foreign income, there
will be neither the 3/7 gross-up of the income nor a credit for this amount. For
holders subject to German Trade Tax, such tax is also imposed on the dividends
received (including any gross-up).

        With regard to the taxation of dividends, the full imputation system
(tax credit system) will only be applicable through 2001. From 2002, the Tax
Reduction Act replaces the full imputation system by the half-income system.
Under this system only half of the distributed profits of a corporation will be
included in the individual shareholder's personal income tax base. Therefore, it
will no longer be possible to credit the corporation tax paid by us against the
shareholder's income tax. Accordingly, there will be neither the 3/7 gross-up of
the income nor a credit for this amount. Dividends received by corporate
shareholders in general will be tax-exempt.

        For U.S. federal income tax purposes, U.S. Holders must include in
income, as foreign source ordinary income, the gross amount of any dividend paid
by us, as determined before reduction for German withholding taxes to the extent
paid or deemed paid out of our current or accumulated earnings and profits as
determined for U.S. federal income tax purposes. As discussed in more detail
below, the amount of the dividend shall include, where applicable, the German
tax credit-related refund, under the Income Tax Treaty, equal to 5% of the gross
amount of the dividend which is treated for U.S. federal income tax purposes as
a distribution equal to 5.88% of the gross amount of the dividend actually paid.

        Dividends paid in Deutsche marks to a U.S. Holder of shares will be
included in income in a U.S. dollar amount calculated by reference to the
exchange rate in effect on the date the dividends, including the deemed refund
of German corporate tax, are received by the U.S. Holder or, in the case of
ADSs, by the depositary bank. If dividends paid in Deutsche marks are converted
into U.S. dollars on the date received, U.S. Holders generally should not be
required to recognize foreign currency gain or loss in respect of the dividend
income. Generally, any gain or loss resulting from currency exchange
fluctuations, during the period from the date the dividend payment is includible
in income to the date that payment is converted into U.S. dollars, will be
treated as ordinary income or loss. Such gain or loss will generally be
considered income from sources within the U.S. for foreign tax credit limitation
purposes.

        U.S. Holders may be eligible for a U.S. foreign tax credit for certain
German income taxes paid on these dividends. U.S. Holders should be aware that
under no circumstances will a U.S. foreign tax credit be available in respect of
any portion of a foreign tax which the U.S. Holder is entitled to have refunded,
whether pursuant to the terms of a tax treaty or foreign law. For foreign tax
credit limitation purposes, dividends paid by us will be considered income from
sources outside the U.S., but generally will be treated separately, together
with other items of "passive income," or in the case of certain holders
"financial services income." Dividends paid by us will not be eligible for the
dividends-received deduction generally allowed to U.S. corporations in respect
of dividends received from U.S. corporations.

REFUND OF GERMAN TAX TO U.S. HOLDERS

        A partial refund of the 25% withholding tax equal to 10% of the gross
amount of the dividend and a full refund of the surtax can be obtained by a U.S.
Holder under the U.S.-German income tax treaty (the Convention between the
Federal Republic of Germany and the United States of America for the Avoidance
of Double Taxation and the Prevention of Fiscal Evasion) (the "Treaty") with
respect to taxes on Income (German Federal Law Gazette, BGBl 1991 II, page 355).
In addition, so long as the German imputation system provides German resident
individual shareholders with a tax credit for corporate taxes with respect to
dividends paid by German corporations, the Treaty provides that U.S. Holders are
entitled to a further refund equal to 5% of the gross amount of the dividend.
Thus, for each U.S.$100 of gross dividends paid by INTERSHOP AG to a U.S.
Holder, the dividends after partial refund of the 25% withholding tax and a
refund of the surtax under the Treaty will be subject to a German withholding
tax of U.S.$15. If the U.S. Holder also applies for the additional 5% refund,
then the German withholding tax is effectively reduced to U.S.$10. Thus, the
cash received per U.S.$100 of gross dividends is U.S.$90 after a refund of the
German withholding tax from the German tax authorities.

        As mentioned above, the 25% withholding tax will be reduced to 20% and
the full imputation system will be replaced beginning with the year 2002.
Accordingly, the refund of German tax to U.S. Holders will change.


                                       44
<PAGE>   45
        In the case of U.S. Holders of ADSs, Citibank, which is the depositing
bank, and INTERSHOP AG will perform, on behalf of such U.S. Holders, certain
administrative functions necessary to obtain the 5% refund, the refund of the
German withholding tax in excess of 15%, and the refund of the 5.5% German
surtax when applicable. The following procedure is currently permitted by the
German tax authorities but that permission may be revoked, or the procedure may
be amended, at any time in the future.

        In order to utilize this procedure, the U.S. Holder will be required to
submit the following items to the depositary bank:

        -   a certification of their last filed U.S. federal income tax
            return from the Internal Revenue Service on IRS Form 6166; and

        -   a completed and signed form, which will be provided to the U.S.
            Holder by the depositary bank, stating basic information required
            for us to file the German claim for refund form on behalf of the
            U.S. Holder and authorizing us to perform these procedures and
            agreeing that the German tax authorities may inform the Internal
            Revenue Service of any refunds of German taxes.

        The depositary bank will provide the U.S. Holder with an unsigned
request for an IRS Form 6166 which the U.S. Holder will be required to file with
the Internal Revenue Service at the address specified below to obtain the Form
6166. The issued Form 6166 will be valid for a period of three years from the
date of the last filed return to which it relates.

        The depositary bank will forward the certification and the signed
authorization to us which, with the depositary bank's prior authorization, we
will prepare and file, on behalf of U.S. Holders, the German claim for refund
form with the Form 6166s, as well as other necessary documentation with the
German tax authorities. The German tax authorities will issue the refunds which
will be denominated in Deutsche marks in the name of the depositary bank which
will convert the refunds into U.S. dollars and issue corresponding checks to the
U.S. Holders.

        The claim for refunds must be submitted within four years of the end of
the calendar year in which the dividend is received. Along with the depositary
bank, we anticipate filing the claims for refunds within a reasonable time after
receipt of the necessary documentation. U.S. Holders are urged to return the
necessary documentation to the depositary bank in a timely fashion.

        U.S. Holders holding ADSs registered with brokers participating in the
Depositary Trust Company will not be able to utilize this procedure unless the
brokers, as is expected, assist the depositary bank in obtaining these documents
from such U.S. Holders.

        In order to obtain the 5% tax credit refund, the refund of the German
withholding tax in excess of 15%, and the refund of the 5.5% German surtax, U.S.
Holders of shares must submit the following items directly to the German tax
authorities:

        -   a claim for refund;

        -   the original bank voucher, or certified copy, issued by the
            paying entity documenting the tax withheld; and

        -   an IRS Form 6166.

        Refund claims must be made on a special refund claim form, which must be
filed with the German tax authorities at the following address: Bundesamt fur
Finanzen, Friedhofstrasse 1, D-53225 Bonn, Germany. The refund claim forms may
be obtained from the German tax authorities at the same address where the
applications are filed, or from the Embassy of the Federal Republic of Germany,
4645 Reservoir Road, N.W., Washington, D.C. 20007-1998.

        U.S. Holders may obtain a Form 6166, which is a certification of the
U.S. Holder's last filed U.S. federal income tax return, by filing a request
with the office of the Director of the Internal Revenue Service Center at the


                                       45
<PAGE>   46
following address: Internal Revenue Service Center, Philadelphia, Pennsylvania,
Foreign Certificate Request, P.O. Box 16347, Philadelphia, PA 19114-0447.
Requests for certification are to be made in writing and must include the U.S.
Holder's name, social security number or employer identification number, tax
return form number, and tax period for which such certification is requested.
The Internal Revenue Service will send IRS Form 6166 directly to the U.S.
Holder.

        Refunds under the Income Tax Treaty are not available for shares held by
a U.S. Holder in connection with a permanent establishment or fixed base in
Germany.

REFUND OF GERMAN TAX TO HOLDERS OF ADSS OR PREFERENCE SHARES IN OTHER COUNTRIES

        A holder of ADSs resident in a country other than Germany or the U.S.
that has a double taxation convention with Germany may obtain a partial refund
of German withholding taxes. Rates and procedures may vary according to the
applicable treaty. For details, such holders are urged to consult their own tax
advisors.

TAXATION OF CAPITAL GAINS

        German Taxation. Under the Income Tax Treaty, a U.S. Holder will not be
liable for German tax on capital gains realized or accrued on the sale or other
disposition of shares, unless the shares are held in connection with a permanent
establishment or fixed base in Germany. A capital gain derived from the sale or
other disposition by a holder resident in Germany of ADSs is taxable if the ADSs
are held as part of his or her trade or business or if the ADSs are sold within
a period of one year after acquisition.

        The taxation of capital gains will also be subject to the above
mentioned half-income system. The new treatment will apply the first time for
capital gains derived in the year 2002 provided that the fiscal year of the
company whose shares are sold equals the calendar year. Half of any capital gain
derived from the sale or other disposition by an individual holder resident in
Germany of ADSs is taxable if the ADSs are held as his or her trade or business
subject to certain conditions or if the ADSs are sold within a period of one
year after acquisition. Capital gains derived by corporate shareholders resident
in Germany are tax-exempt subject to certain conditions.

        U.S. Federal Income Taxation. Upon a sale or other disposition of
shares, a U.S. Holder will recognize gain or loss for U.S. federal income tax
purposes in an amount equal to the difference between the U.S. dollar value of
the amount realized and the U.S. Holder's tax basis, determined in U.S. dollars,
in the shares. Such gain or loss will generally be capital gain or loss. In the
case of certain non-corporate U.S. Holders, including individuals, any capital
gain will generally be subject to U.S. federal income tax at preferential rates
if specified minimum holding periods are met. In addition, any gain or loss
realized by a U.S. Holder on the sale or other disposition of shares will
generally be treated as U.S. source gain.

PASSIVE FOREIGN INVESTMENT COMPANY STATUS

        INTERSHOP AG believes that it is not a passive foreign investment
company ("PFIC"), for U.S. federal income tax purposes and does not expect to
become a PFIC in this or future years. However, because this conclusion is a
factual determination made annually and because there are uncertainties in the
application of the relevant rules, INTERSHOP AG cannot assure that it will not
be considered to be a PFIC for any fiscal year. In general, a non-U.S.
corporation will be classified as a PFIC if either (i) at least 75% of its gross
income for a taxable year is passive income or (ii) if the average quarterly
value of assets held by it during a taxable year which produce or are held for
the production of passive income represents at least 50% of the value of all of
its assets. For this purpose, the corporation must take into account a
proportionate share of the income and assets of each corporation in which it
owns, directly or indirectly, at least a 25% interest.

        If INTERSHOP AG were a PFIC, a U.S. Holder would generally be subject to
special rules with respect to (a) any gain realized on the sale or other
disposition of the shares and (b) any "excess distribution" by us to the U.S.
Holder. An excess distribution generally consists of distributions to the U.S.
Holder on the shares during a single taxable year that are greater than 125% of
the average annual distributions received by the U.S. Holder in the three
preceding taxable years or during the U.S. Holder's holding period for the
shares, if shorter. Under these rules:


                                       46
<PAGE>   47
        -   the gain or excess distribution would be allocated ratably over the
            U.S. Holder's holding period for the shares;

        -   the amount allocated to the taxable year in which the gain or excess
            distribution was realized would be taxable as ordinary income;

        -   the amount allocated to each prior year, with certain exceptions,
            would be subject to tax at the highest tax rate in effect for that
            year; and

        -   the interest charge generally applicable to underpayments of tax
            would be imposed in respect of the tax attributable to each such
            year. Special rules apply with respect to the calculation of the
            amount of the foreign tax credit with respect to excess
            distributions by a PFIC.

        In certain circumstances, a U.S. Holder, in lieu of being subject to the
PFIC rules discussed above, may make an election to include gain on the stock of
a PFIC as ordinary income under a mark-to-market method provided that such stock
is regularly traded on a qualified exchange. Under current law, the
mark-to-market election may be available to a U.S. Holder since the ADSs will be
listed on the Nasdaq National Market, which constitutes a qualified exchange as
designated in the Code. There can be no assurances, however, that the ADSs will
be "regularly traded" on such exchange. It is intended that only the ADSs will
be listed on the Nasdaq National Market. The bearer ordinary shares are listed
on the Neuer Markt of the Frankfurt Stock Exchange, which must meet certain
trading, listing, financial disclosure and other requirements to be treated as a
qualified exchange under applicable Treasury regulations for purposes of the
mark-to-market election, and no assurance can be given that the shares will be
"regularly traded" for purposes of the mark-to-market election.

        If a U.S. Holder makes an effective mark-to-market election, the U.S.
Holder will recognize as ordinary income or loss each year an amount equal to
the difference as of the close of the taxable year between the fair market value
of the PFIC shares or ADSs and the U.S. Holder's adjusted tax basis in such
shares or ADSs. Losses would be allowed only to the extent of net mark-to-market
gain previously included by the U.S. Holder under the election for prior taxable
years. A U.S. Holder's adjusted tax basis in PFIC shares or ADSs will be
increased by the amount of any income inclusion and decreased by the amount of
any deductions under the mark-to-market rules.

        If a U.S. Holder makes a mark-to-market election, it will be effective
for the taxable year for which the election is made and all subsequent taxable
years unless the shares or ADSs are no longer regularly traded on a national
securities exchange or the Internal Revenue Service consents to the revocation
of the election. A mark-to-market election is subject to complex and specific
rules and requirements, and U.S. Holders are urged to consult their tax advisors
about the availability of the mark-to-market election and whether making the
election would be advisable in their particular circumstances.

        If INTERSHOP AG were a PFIC, a U.S. Holder would be required to make an
annual return on IRS Form 8621 regarding distributions received with respect to
shares and any gain realized on the disposition of shares.

GIFT, ESTATE AND INHERITANCE TAXES

        The Estate Tax Treaty provides that an individual whose domicile is
determined to be in the U.S. for purposes of the treaty will not be subject to
German inheritance and gift tax, or the equivalent of the U.S. federal estate
and gift tax, on the individual's death or making of a gift unless the shares
are part of the business property of a permanent establishment located in
Germany or are part of the assets of a fixed base of an individual located in
Germany and used for the performance of independent personal services. For
persons giving up German residence, special rules apply during the first five
years, and under specific circumstances, during the first ten years, after the
end of the year in which the person left Germany. An individual's domicile in
the U.S., however, does not prevent imposition of German inheritance and gift
tax with respect to an heir, donee, or other beneficiary who is domiciled in
Germany at the time the individual died or the gift was made.

        The Estate Tax Treaty also provides a credit against U.S. federal estate
and gift tax liability for the amount of inheritance and gift tax paid to
Germany, subject to certain limitations, in a case where the shares are subject
to both German inheritance or gift tax and U.S. federal estate or gift tax.


                                       47
<PAGE>   48
OTHER GERMAN TAXES

        There are no German transfer, stamp or other similar taxes that would
apply to U.S. Holders who purchase or sell shares.

U.S. INFORMATION REPORTING AND BACKUP WITHHOLDING

        Dividend payments on the shares and proceeds from the sale, exchange or
redemption of shares may be subject to information reporting to the IRS and
possible U.S. backup withholding at a 31% rate. Backup withholding will not
apply, however, to a holder who furnishes a correct taxpayer identification
number or certificate of foreign status and makes any other required
certification or who is otherwise exempt from backup withholding. Persons
required to establish their exempt status generally must provide such
certification on IRS Form W-9, entitled Request for Taxpayer Identification
Number and Certification, in the case of U.S. persons and on IRS Form W-8 BEN,
entitled Certificate of Foreign Status, in the case of non-U.S. persons.
Finalized U.S. Department of Treasury regulations, which are applicable to
payments made after December 31, 2000, have generally expanded the circumstances
under which information reporting and backup withholding may apply unless the
holder provides the information described above.

        Amounts withheld as backup withholding may be credited against a
holder's U.S. federal income tax liability, and a holder may obtain a refund of
any excess amounts withheld under the backup withholding rules by filing the
appropriate claim for refund with the IRS and furnishing any required
information. U.S. Holders of shares should consult their tax advisors regarding
the application of the information reporting and backup withholding rules.

TAXATION OF HOLDERS OF ADSS IN OTHER COUNTRIES

        Holders or potential holders of ADSs who are resident or otherwise
taxable in countries other than Germany and the U.S. are urged to consult their
own tax advisors concerning the overall tax consequences of the acquisition,
ownership and disposition of ADSs.

LIMITATIONS AFFECTING SECURITY HOLDERS

        At the current time, Germany does not restrict the export or import of
capital, except for investments in Iraq and Libya in accordance with applicable
resolutions adopted by the United Nations and the European Union. However, for
statistical purposes only, every individual or corporation residing in Germany
must report to the German Central Bank (Bundesbank), subject only to certain
immaterial exceptions, any payment received from or made to an individual or a
corporation resident outside Germany if such payment exceeds DM 5,000 (or the
equivalent in a foreign currency). In addition, German residents must report any
claims against or any liabilities payable to nonresidents if such claims or
liabilities, in the aggregate, exceed DM 3 million (or the equivalent in a
foreign currency) during any one month. German residents must also report any
direct investment outside Germany if such investment exceeds DM 100,000.

        There are no limitations on the rights of non-residents or foreign
owners to hold or vote our shares or ADSs imposed by German law or the articles
of association.

                              DOCUMENTS ON DISPLAY

        INTERSHOP AG is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended. In accordance with these
requirements, INTERSHOP AG files reports and other information with the SEC.
These materials, including this Annual Report on Form 20-F and the exhibits
thereto, may be inspected and copied at the SEC's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's regional offices at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade
Center, New York, New York 10048. Copies of the materials may be obtained from
the Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The public may obtain information on the operation of
the SEC's Public Reference Room by calling the SEC in the U.S. at
1-800-SEC-0330. The SEC also


                                       48
<PAGE>   49
maintains a Web site at http://www.sec.gov that contains reports, proxy
statements and other information regarding registrants that file electronically
with the SEC. INTERSHOP AG's annual reports and some of the other information
submitted by INTERSHOP AG to the SEC may be accessed through this Web site. In
addition, material filed by INTERSHOP AG can be inspected at the offices of the
New York Stock Exchange at 20 Broad Street, New York, New York 10005.

                             SUBSIDIARY INFORMATION

        Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

EXCHANGE RATE EXPOSURE

        Although our financial accounting and reporting currency is the euro, a
significant portion of our business is nevertheless conducted in currencies
other than the euro. International sales are primarily made through our
subsidiaries in the respective regions and are generally denominated in the
local currency, although in certain countries where exchange rate exposure is
considered high, some sales may be denominated in euros or Dollars. Expenses
incurred by the subsidiaries are generally denominated in the local currency.
Accordingly, the functional currency of our subsidiaries is the local currency
or the euro for countries that participate in the EMU. Therefore, our
consolidated financial position, results of operation and cash flows may be
materially affected by movements in the exchange rate between the euro, on the
one hand, and the respective local currencies to which our subsidiaries are
exposed, on the other hand. In general, appreciation of the euro relative to
another currency has a negative effect on results of operations, while
depreciation of the euro has a positive effect. As a consequence,
period-to-period changes in the average exchange rate in a particular currency
can significantly affect revenue and operating results. The principal currencies
in which our subsidiaries conduct business that are subject to the risks
described in this paragraph are the Dollar, the Japanese Yen, the British Pound,
the Swiss Frank, the Brazilian Real, the Canadian Dollar and the Australian
Dollar.

        Of INTERSHOP AG's consolidated revenue in fiscal 1999 and fiscal 2000,
approximately 55% and 50%, respectively, were attributable to operations in
non-EMU participating countries and translated into euros.

INTEREST RATE EXPOSURE

        INTERSHOP AG invests its cash primarily in bank time deposits and
marketable securities, including fixed and variable rate marketable debt
securities. The majority of such investments are denominated in euros and
Dollars. Cash held by foreign subsidiaries is generally held in short-term time
deposits denominated in the local currency.

        Net interest income was E0.97 million in fiscal year 1998, E0.52 million
in fiscal 1999, and increased to E1.59 million in fiscal 2000. The decrease in
net interest income from fiscal 1998 to fiscal 1999 was due primarily to our
decreased liquidity. The increase in net interest income from fiscal 1999 to
fiscal 2000 was due primarily to increased interest rates and increased
liquidity.

        While we are exposed generally to fluctuations in the interest rates of
many of the world's leading industrialized countries, our interest income and
expense is most sensitive to fluctuations in the level of U.S. and EMU interest
rates. The fair market values of both fixed and variable rate investments are
exposed to such interest rate risk. To the extent that interest rates rise,
fixed interest securities may be adversely impacted, whereas a decline in
interest rates may decrease the anticipated interest income for variable rate
investments. At December 31, 2000, we had current debt obligations of E0.193
million. This balance will paid in fiscal 2001. Therefore, we do not expect
significant exposure to exchange rate fluctuations resulting from these debt
obligations.

INFLATION


                                       49
<PAGE>   50
        The rates of inflation on an average basis in Germany during 1998, 1999
and 2000 were 1.0%, 0.6% and 1.9%, respectively. The inflation rates on an
annual average basis in the U.S. for those years were 1.6%, 2.2% and 3.4%,
respectively. The effects of inflation on the our operations have not been
significant in recent years.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

        Not applicable.

                                     PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

        There have been no material defaults, dividend arrearages or
delinquencies.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
         PROCEEDS.

                           RIGHTS OF SECURITY HOLDERS

        There are no material modifications to the rights of security holders
that are required to be disclosed.

                                 USE OF PROCEEDS

        In September 2000, INTERSHOP AG issued 1,675,000 bearer ordinary shares
in connection to its registered public offering of 3,350,000 ADSs in the U.S.
The shares were sold on the Nasdaq National Market on September 29, 2000 for net
proceeds of approximately E112 million.

        INTERSHOP AG used the net proceeds primarily for working capital and
general corporate purposes funding product development and expanding our sales
and marketing services. In addition, INTERSHOP AG may use a portion of the net
proceeds for further development of INTERSHOP AG product lines through
acquisitions of products, technologies and businesses. The amount of cash that
INTERSHOP AG expects to spend for working capital purposes will depend on a
number of factors, including future revenue growth, if any, and the amount of
cash INTERSHOP AG generates from operations. Thus, management will have
significant discretion in applying the net proceeds of this offering. Pending
the uses described above, INTERSHOP AG will invest the net proceeds in
investment grade, interest-bearing securities.

                                CHANGE OF TRUSTEE

        The trustee for our stock option plans has changed. The new trustee is:

Contor Treuhandgesellschaft mbH
Jungfernstieg 30
20354 Hamburg
Germany
INTERSHOP AG is represented by Dr. Udo Henkel (managing director/
Geschaftsfuhrer)

                                    PART III

ITEM 15. RESERVED.

ITEM 16. RESERVED.


                                       50
<PAGE>   51

                                     PART IV

ITEM 17. FINANCIAL STATEMENTS

        Our Consolidated Financial Statements have been prepared in accordance
with Item 18 hereof.

ITEM 18. FINANCIAL STATEMENTS

        Our financial statements set forth in the accompanying Index to
Consolidated Financial Statements included in this Annual Report on Form 20-F
following Part III beginning on page F-1 are incorporated herein by this
reference. Such consolidated financial statements are filed as part of this
Annual Report on Form 20-F.

        Report of Independent Public Accountants.

        Consolidated Balance Sheets as at December 31, 1999 and 2000.

        Consolidated Statements of Operations for the years ended December 31,
        1998, 1999 and 2000.

        Consolidated Statements of Cash Flows for the years ended December 31,
        1998, 1999 and 2000.

        Consolidated Statements of Convertible Redeemable Preferred Stock and
        Shareholders' Equity for the years ended December 31, 1998, 1999 and
        2000.

        Notes to Consolidated Financial Statements.


ITEM 19. EXHIBITS

1.1     Articles of Association of INTERSHOP Communications Aktiengesellschaft
        (as amended).

4.1     Summary Translation of Loan Agreement between Wilfried Beeck and
        Intershop Communications AG (incorporated by reference to Exhibit 10.6
        to the Registration Statement of INTERSHOP AG on Form F-1 (File No.
        333-32034)).

4.2     Summary Translation of Loan Agreement between Stephan Schambach and
        Intershop Communications AG (incorporated by reference to Exhibit 10.7
        to the Registration Statement of INTERSHOP AG on Form F-1 (File No.
        333-32034)).

10.1    Consent of Arthur Andersen Wirtschaftsprufungsgesellschaft
        Steuerberatungsgesellschaft mbH, Independent Public Accountants.


                                       51
<PAGE>   52
                                   SIGNATURES

        The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.

                                     INTERSHOP COMMUNICATIONS AKTIENGESELLSCHAFT

Date:  June 29, 2001                 By: /s/ Stephan Schambach
                                         ---------------------------------------
                                         Name:  Stephan Schambach
                                         Title: Chief Executive Officer and
                                                Chairman of the Management Board

<PAGE>   53
ITEM 20. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S>                                                                        <C>
Report of Independent Public Accountants...............................    F-2

Consolidated Balance Sheets as of December 31, 1999 and 2000...........    F-3

Consolidated Statements of Operations for the years ended
December 31, 1998, 1999 and 2000.......................................    F-4

Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1999 and 2000.......................................    F-5

Consolidated Statements of Convertible Redeemable Preferred Stock
and Shareholders' Equity for the years ended December 31, 1998,
1999 and 2000..........................................................    F-6

Notes to Consolidated Financial Statements.............................    F-9
</TABLE>





                                      F-1

<PAGE>   54

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

We have audited the consolidated financial statements of Intershop
Communications AG as at December 31, 1999 and 2000, including the consolidated
balance sheets and the related consolidated statements of operations, cash
flows, changes in shareholders' equity and notes for each of the three years in
the period ended December 31, 2000. The legal representatives of the company are
responsible for the preparation and content of the consolidated financial
statements. Our responsibility is to express an opinion,based on our audit,
whether these consolidated financial statements have been prepared in accordance
with United States generally accepted accounting principles.

We conducted our audit in accordance with the German Auditing Rules and in
compliance with the generally accepted standards of auditing prescribed by the
German Institute of Certified Public Accountants (Institut der
Wirtschaftsprufer)and in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatements. In establishing the audit
procedures we considered our knowledge about the group's business operations,
its economic and legal environment, and expectations of possible errors. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. The audit includes
assessing the accounting principles used and significant estimates made by the
legal representatives, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements present a true and fair
view of the group's financial position, as at December 31, 1999 and 2000, and
the results of their operations and cash flows for each of the three years in
the period ended December 31, 2000 in accordance with United States generally
accepted accounting principles.

                                         ARTHUR ANDERSEN
                                         Wirtschaftsprufungsgesellschaft
                                         Steuerberatungsgesellschaft mbH

                                         Nendza               Schneider

                                         Wirtschaftsprufer    Wirtschaftsprufer

Hamburg, March 7, 2001


                                      F-2
<PAGE>   55

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


<TABLE>
<CAPTION>
                                                                                 AS AT DECEMBER 31,
                                                                                1999           2000
<S>                                                                           <C>            <C>
ASSETS
Current Assets
    Cash and cash equivalents                                                   12,065         84,062
    Marketable securities                                                           --         27,509
    Restricted cash                                                              1,437            168
    Trade receivables, net of allowances for doubtful
    accounts of E1,614 and E5,181, respectively                                 23,333         36,984
    Prepaid expenses and other current assets                                    3,870          7,793
                                                                              --------       --------
    Total current assets                                                        40,705        156,516
PROPERTY AND EQUIPMENT, NET                                                      5,610         22,054
INVESTMENTS                                                                      6,222          2,550
GOODWILL AND ACQUIRED INTANGIBLE ASSETS, NET                                        --         25,562
OTHER ASSETS                                                                     1,252          2,773
                                                                              --------       --------
TOTAL ASSETS                                                                    53,789        209,455

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
    Current debt and current maturities of long-term debt                           33            193
    Notes payable to shareholders                                                7,000             --
    Accounts payable                                                             5,149         10,345
    Accrued liabilities                                                          9,960         17,973
    Deferred revenue                                                             8,543          6,817
                                                                              --------       --------
    Total current liabilities                                                   30,685         35,328
NOTES PAYABLE TO SHAREHOLDERS                                                       20             --
DEFERRED REVENUE                                                                   220            159
                                                                              --------       --------
TOTAL LIABILITIES                                                               30,925         35,487

COMMITMENTS AND CONTINGENCIES (NOTE 9)
SHAREHOLDERS' EQUITY
    Common stock, stated value E1 authorized:154,187,975 shares;
    outstanding: 84,390,520 and 88,003,016 shares at December 31, 1999
    and 2000
    respectively                                                                16,878         88,003
     Paid-in capital                                                            48,169        165,585
     Notes receivable from shareholders                                           (141)            --
     Deferred compensation                                                        (273)            --
     Accumulated deficit                                                       (45,406)       (84,329)
     Accumulated other comprehensive income                                      3,637          1,709
     Total shareholders' equity                                                 22,864        173,968
                                                                              --------       --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                      53,789        209,455
</TABLE>


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


                                      F-3
<PAGE>   56


                      CONSOLIDATED STATEMENTS OF OPERATIONS
                (IN THOUSANDS OF EUROS, EXCEPT PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                            1998           1999           2000
<S>                                                        <C>            <C>            <C>
REVENUES
   Licenses                                                11,295         29,534         74,068
   Services, maintenance and other revenue
                                                            6,577         16,732         48,926
                                                         --------       --------       --------
   Total revenues                                          17,872         46,266        122,994

COST OF REVENUES
   Licenses                                                 1,742          4,786          5,289
   Services, maintenance and other revenue                  3,766          8,465         43,453
                                                         --------       --------       --------
   Total costs of revenues                                  5,508         13,251         48,742

GROSS PROFIT                                               12,364         33,015         74,252
OPERATING EXPENSES
   Research and development                                 4,368          7,115         10,191
   Sales and marketing                                     18,368         34,771         75,743
   General and administrative                               6,729         11,206         27,590
   Legal settlement costs                                   1,866             --             --
   Amortization of acquired intangible assets
                                                               --             --          1,477
                                                         --------       --------       --------
   Total operating expenses                                31,331         53,092        115,001

OPERATING LOSS                                            (18,967)       (20,077)       (40,749)
OTHER INCOME (EXPENSE)
     Interest income                                          968            515          1,591
     Interest expense                                        (797)           (42)          (571)
     Other income                                           1,488          1,215            806
     Total other income                                     1,659          1,688          1,826
                                                         --------       --------       --------
NET LOSS                                                  (17,308)       (18,389)       (38,923)

ACCRETION OF REDEEMABLE PREFERRED STOCK                      (220)            --             --
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS              (17,528)       (18,389)       (38,923)
BASIC AND DILUTED NET LOSS PER SHARE                        (0.38)         (0.23)         (0.46)
SHARES USED IN COMPUTING BASIC AND DILUTED NET LOSS
PER SHARE                                                  45,965         79,883         84,134
</TABLE>

The accompanying notes are an integral part of these financial statements. All
balances for years prior to 1999 have been restated from Deutsche marks to euros
using the exchange rate as at January 1, 1999.


                                      F-4
<PAGE>   57

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (IN THOUSANDS OF EUROS)

<TABLE>
<CAPTION>
                                                              1998           1999           2000
<S>                                                         <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net loss                                               (17,308)       (18,389)       (39,923)
     Adjustments to reconcile net loss to cash
     Used in operating activities:
     Depreciation and amortizations                           1,657          2,076          7,114
                                                                269          2,037          6,130
     Provision for doubtful accounts
     Amortization of deferred compensation                      162            308            273
     Loss on disposal of equipment                               --             --             71
     Legal settlement costs                                   1,866             --             --

     Change in:

     Accounts receivable                                     (4,080)       (18,220)       (19,586)
     Prepaid expenses and other current assets               (1,695)        (1,474)        (4,202)
     Other assets                                               (58)          (830)        (2,987)
     Accounts payable                                           436          2,228          4,877
     Deferred revenue                                        (3,245)         1,542         (1,787)
     Accrued expenses and other liabilities                   1,013          6,298          7,152
                                                           --------       --------       --------
                                                            (20,983)       (24,424)       (41,878)
     Net cash used in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:
     INVESTMENT IN UNAFFILIATED COMPANY                        (512)        (1,199)            --
     Cash paid for acquisitions, net of cash acquired            --             --         (3,036)
     Restricted cash                                             --         (1,227)         1,269
     Purchases of equipment, net of capital leases           (3,302)        (3,625)       (20,626)
     Purchase of available for sale securities                   --         (1,490)       (27,039)
                                                           --------       --------       --------
     NET CASH USED IN INVESTING ACTIVITIES                   (3,814)        (7,541)       (49,432)

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from sale of preferred stock                    1,873             --             --
     Proceeds from sale of common stock, net of
     offering costs                                          52,104          1,759        168,679
     Proceeds from debt issuance                              1,975          7,937         10,758
     Collection on notes receivable from stockholders            --          1,287            141
     Repayments of indebtedness                              (3,233)        (1,144)       (17,791)
     NET CASH PROVIDED BY FINANCING ACTIVITIES               52,719          9,839        161,787
     Effect of change in exchange rates on cash               1,205              6          1,520
Net change in cash and cash equivalents                      29,127        (22,120)        71,997
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                  5,058         34,185         12,065
                                                           --------       --------       --------
CASH AND CASH EQUIVALENTS, END OF YEAR                       34,185         12,065         84,062
</TABLE>


The accompanying notes are an integral part of these financial statements. All
balances for years prior to 1999 have been restated from Deutsche marks to euros
using the exchange rate as at January 1, 1999.


                                      F-5

<PAGE>   58

                Consolidated Statements of Convertible Redeemable
                    Preferred Stock and Shareholders' Equity


<TABLE>
<CAPTION>
                                          Convertible Redeemable
                                              Preferred Stock                  Common Stock            Common Stock      Notes
                                           Shares           Amount        Shares         Stated Value      APIC        Receivable
<S>                                      <C>                <C>        <C>               <C>             <C>           <C>
BALANCE, DECEMBER 31, 1997               39,600,000          4,986     33,139,050             --            468           (400)
Net loss                                         --             --             --             --             --             --
Foreign currency translation
adjustments                                      --             --             --             --             --             --
Issuance of common stock of Inc.                 --             --        300,000             --            186             --
Issuance of Series D preferred stock      1,169,550          1,873             --             --             --             --
Issuance of common stock to member
of supervisory board                             --             --        250,005             43            596             --
Issuance of common stock for cash
and forgiveness of legal settlement
obligation                                       --             --        900,450            153          5,661             --
Accretion of preferred stock                     --            220             --             --             --             --
Conversion of preferred stock of
subsidiary to common stock of
parent, net of share amounts not
converted                               (37,841,550)        (7,079)    37,841,550             --          7,079             --
Shares not converted                     (2,928,000)            --    (13,230,000)            --             --             --
</TABLE>


<TABLE>
<CAPTION>
                                                                         Accumulated        Total
                                                                            Other        Shareholders'
                                             Deferred     Accumulated   Comprehensive       Equity        Comprehensive
                                           Compensation     Deficit     Income (Loss)     (Deficit)       Income (Loss)
<S>                                        <C>           <C>              <C>             <C>             <C>
BALANCE, DECEMBER 31, 1997                       --         (9,489)          (172)          (9,593)
Net loss                                         --        (17,308)            --          (17,308)        (17,308)
Foreign currency translation
adjustments                                      --             --            135              135             135
Issuance of common stock of Inc.                 --             --             --              186              --
Issuance of Series D preferred stock             --             --             --               --              --
Issuance of common stock to member
of supervisory board                             --             --             --              639              --
Issuance of common stock for cash
and forgiveness of legal settlement
obligation                                       --             --             --            5,814              --
Accretion of preferred stock                     --           (220)            --             (220)             --
Conversion of preferred stock of
subsidiary to common stock of
parent, net of share amounts not
converted                                        --             --             --            7,079              --
Shares not converted                             --             --             --               --              --
</TABLE>


                                      F-6

<PAGE>   59


<TABLE>
<S>                                            <C>           <C>       <C>                <C>           <C>            <C>
Reclassification for formation of AG             --             --             --          9,894         (9,894)            --
Issuance of common stock in initial
public offering, net                             --             --     15,000,000          2,557         44,774             --
Exercise of stock options                        --             --      3,723,450            634            394         (1,028)
Deferred compensation                            --             --             --             --            961             --
Amortization of deferred compensation            --             --             --             --             --             --
BALANCE, DECEMBER 31, 1998                       --             --     77,924,505         13,281         50,225         (1,428)
Net loss                                         --             --             --             --             --             --
Foreign currency translation
adjustments                                      --             --             --             --             --             --
Unrealized gain on available for                 --             --             --             --             --             --
sale security
Conversion of common stock of                    --             --      2,233,500            416           (416)            --
subsidiary to common stock of parent
Change in stated value of common
stock                                            --             --             --          2,449         (2,449)            --
Exercise of stock options                        --             --      4,232,515            732          1,027             --
Collections on notes receivables
from stockholders                                --             --             --             --             --          1,287
Amortization of deferred compensation            --             --             --             --           (218)            --
BALANCE, DECEMBER 31, 1999                       --             --     84,390,520         16,878         48,169           (141)
Net loss                                         --             --             --             --             --             --
Foreign currency translation
adjustments                                      --             --             --             --             --             --
Unrealized loss on available for
sale securities, net                             --             --             --             --             --             --
Private Placement of Common Stock,
net                                              --             --        500,000            100         38,900             --
Issuance of Common Stock for
Secondary Offering, net                          --             --      1,675,000            335        111,876             --
Conversion of preferred stock of
subsidiary to common stock of parent             --             --        280,000             56            (56)            --
</TABLE>


<TABLE>
<S>                                               <C>         <C>             <C>           <C>            <C>
Reclassification for formation of AG                 --             --             --             --             --
Issuance of common stock in initial
public offering, net                                 --             --             --         47,331             --
Exercise of stock options                            --             --             --             --             --
Deferred compensation                              (961)            --             --             --             --
Amortization of deferred compensation               162             --             --            162             --
BALANCE, DECEMBER 31, 1998                         (799)       (27,017)           (37)        34,225        (17,173)
Net loss                                             --        (18,389)            --        (18,389)       (18,389)
Foreign currency translation
adjustments                                          --             --            652            652            652
Unrealized gain on available for
sale security                                        --             --          3,022          3,022          3,022
Conversion of common stock of
subsidiary to common stock of parent                 --             --             --             --             --
Change in stated value of common
stock                                                --             --             --             --             --
Exercise of stock options                            --             --             --          1,759             --
Collections on notes receivables
from stockholders                                    --             --             --          1,287             --
Amortization of deferred compensation               526             --             --            308             --
BALANCE, DECEMBER 31, 1999                         (273)       (45,406)         3,637         22,864        (14,715)
Net loss                                             --        (38,923)            --        (38,923)       (38,923)
Foreign currency translation
adjustments                                          --             --          1,523          1,523          1,523
Unrealized loss on available for
sale securities, net                                 --             --         (3,451)        (3,451)        (3,451)
Private Placement of Common Stock,
net                                                  --             --             --         39,000             --
Issuance of Common Stock for
Secondary Offering, net                              --             --             --        112,211             --
Conversion of preferred stock of
subsidiary to common stock of parent                 --             --             --             --             --
</TABLE>


                                      F-7
<PAGE>   60


<TABLE>
<S>                                           <C>            <C>      <C>                <C>           <C>               <C>
Issuance of Common Stock for
Acquisitions                                     --             --        275,011            275         22,586             --
Exercise of stock options                        --             --        882,485            334          4,635             --
Capital Contribution                             --             --             --             --         12,500             --
Collections on notes receivables
from stockholders                                --             --             --             --             --            141
Amortization of deferred compensation            --             --             --             --             --             --
Allocation of par value resulting
from stock split                                 --             --             --         70,025        (70,025)            --
BALANCE, DECEMBER 31, 2000                       --             --     88,003,016         88,003        168,585              0
</TABLE>


<TABLE>
<S>                                              <C>         <C>              <C>          <C>            <C>
Issuance of Common Stock for
Acquisitions                                        --             --             --         22,861             --
Exercise of stock options                           --             --             --          4,969             --
Capital Contribution                                --             --             --         12,500             --
Collections on notes receivables
from stockholders                                   --             --             --            141             --
Amortization of deferred compensation              273             --             --            273             --
Allocation of par value resulting
from stock split                                    --             --             --             --             --
BALANCE, DECEMBER 31, 2000                           0        (84,329)         1,709        173,968        (40,851)
</TABLE>


                                      F-8
<PAGE>   61

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 | ORGANIZATION AND OPERATIONS OF THE COMPANY

INTERSHOP Communications AG, a German stock corporation (the "Company"), is the
successor to Intershop Communications, Inc. and Intershop Communications GmbH.
Intershop Communications GmbH was originally founded in 1992 as NetConsult
Computersysteme GmbH in Germany as a limited liability company. NetConsult
Communications GmbH established a wholly owned subsidiary, NetConsult
Communications, Inc., a Delaware corporation in March 1996. These companies were
subsequently renamed Intershop Communications GmbH and Intershop Communications,
Inc., respectively.

In December 1996, Intershop Communications, Inc. ("U.S., Inc.") entered into a
share exchange agreement with Intershop Communications GmbH ("GmbH") to acquire
100% of GmbH's outstanding shares. The shareholders of GmbH's common shares
received common shares in U.S., Inc. Holders of existing debt (approximately
E1.1 million) and capital (approximately E200,000) in GmbH, totaling
approximately E1.3 million, received 6,720,000 shares of preferred stock in
U.S., Inc. The fair value of the preferred stock issued was equal to the
carrying value of the debt and capital for which it was exchanged. The share
exchange did not alter the relative ownership interest of the parent company.
Upon completion of the transaction, U.S., Inc. became the parent company of GmbH
and its subsidiaries.

On June 23, 1998, the holders of 79.26% of the shares of U.S., Inc. exchanged
their shares of preferred and common stock of U.S., Inc., totaling 20,591,348,
into 61,729,050 shares of the Company. As a result of this transaction, U.S.,
Inc. became a majority-owned subsidiary of the Company. Two stockholders,
including Stephan Schambach, our founder and Chief Executive Officer, did not
contribute all of their shares of U.S., Inc. due to certain tax consequences,
and, as of December 31, 2000, still hold 16.0% and 1.5%, respectively, of U.S.,
Inc.'s common stock These two stockholders are entitled to exchange their shares
in U.S., Inc. for shares in the Company at a ratio of 1:3, using conditional
capital specifically approved for this purpose. The instruments held by these
individuals are considered to be part of the majority interest in AG given the
related party nature of the holdings, their conversion rights and their probable
conversion, given the fact that they are subject to repurchase at US $0.01 per
share if not converted by 2004. Accordingly, the cost basis of such shares is
included in additional paid in capital in the accompanying consolidated
financial statements. Conversions of U.S., Inc. shares to AG shares subsequent
to the initial conversion in June 1998 are treated as an increase to the stated
value of the common stock and a corresponding decrease to additional paid-in
capital. During 1999, these stockholders converted 744,500 common shares of
U.S., Inc. for 2,233,500 shares of the Company. During the year ended December
31, 2000, these stockholders converted 93,333 common shares of U.S., Inc. for
280,000 shares of the Company. As of December 31, 2000, these stockholders held
4,548,167 shares in U.S., Inc., and these shares are convertible into 13,644,500
shares of the Company at any time. If these two shareholders were to have
converted their shares as of December 31, 2000, they would own approximately
13.4% of the Company.

The accompanying consolidated financial statements reflect the consolidated
results of the Company and its wholly and majority owned subsidiaries, which
have been prepared according to United States generally accepted accounting
principles ("U.S. GAAP"). All significant intercompany transactions and balances
between the companies have been eliminated.

With the introduction of the euro on January 1, 1999, the Company has elected to
present the accompanying consolidated financial statements in euro. Accordingly,
the Deutsche mark consolidated financial statements for each period presented
have been restated into euro using the Deutsche mark/euro exchange rate as at
January 1, 1999 of Euro 1 = DM 1.95583. The Company's restated financial
statements in euro depict the same trends as would be presented if it had
continued to present its consolidated financial statements in Deutsche marks.
The consolidated financial statements will, however, not be comparable to
financial statements for periods prior to January 1, 1999 in euro of other
companies that previously reported their financial information in a currency
other than Deutsche marks.

Unless otherwise noted, all references to the "Company" refer to INTERSHOP
Communications AG and its subsidiaries, as well as its predecessors.


                                      F-9
<PAGE>   62

The Company is a global provider of electronic commerce software applications
that enable businesses to sell their products and services over the Internet.
The Company's products can be integrated with existing business systems to allow
its customers to sell goods and services over the Internet without replacing
their existing business systems. The merchandising capabilities of the Company's
products, such as customer profiling and cross-selling, help allow its customers
to maximize sales revenues. The Company also provides professional services for
its customers to assist in the installation and ongoing maintenance of its
software applications.

During 1997, the Company commenced commercial shipment of its products and
emerged from the development stage. Although no longer in the development stage,
the Company continues to be subject to the risks and challenges similar to other
companies in a comparable stage of development. These risks include, but are not
limited to, operating in a new and rapidly evolving market, competition from
larger companies, dependence on new products, dependence on key personnel,
uncertain profitability, and a limited operating history.

USE OF ESTIMATES

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

FOREIGN CURRENCY TRANSLATION

The functional currency of the Company's operations outside of Germany is the
local country's currency. Consequently, assets and liabilities of operations
outside Germany are translated into euros using exchange rates at the end of
each reporting period. Revenues and expenses are translated at the average
exchange rates prevailing during the period. Cumulative translation gains and
losses are reported as a separate component of shareholders' equity.

STATEMENT OF CASH FLOWS

The Company paid E540,000, E37,000 and E561,000 in cash for interest in 1998,
1999 and 2000, respectively. The Company paid E13,000, E61,000 and E40,100 in
cash for taxes in 1998, 1999 and 2000, respectively. The Company issued stock
valued at E22,861,000 in conjunction with acquisitions in 2000 (see Note 6).

The Company considers all investments with original maturities of 90 days or
less to be cash equivalents.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of accounts receivable. The Company performs
ongoing credit evaluations of its customer's financial condition and the risk
with respect to trade receivables is further mitigated by the fact that the
Company's customer base is diversified.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company's financial instruments, including cash and
cash equivalents, accounts receivable, accounts payable and long-term debt
approximate their fair values.

All balances within accounts receivable are due within one year.

Marketable securities designated as available for sale are recorded at market
with any unrealized gain or loss being recorded in the shareholders' equity
section of the Balance Sheet.

PROPERTY AND EQUIPMENT


                                      F-10
<PAGE>   63

Property and equipment are stated at cost. Capital leases are recorded at the
present value of the future minimum lease payments at the date of acquisition.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, generally three years. Capital leases and leasehold
improvements are amortized on a straight-line basis over the shorter of the
lease terms or their estimated useful life.

SOFTWARE DEVELOPMENT COSTS

The Company accounts for internally generated software development costs in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed." Capitalization of software development costs begins upon the
establishment of technological feasibility of the product, which the Company
defines as the development of a working model and further defines as the
completion of beta testing of the software. The establishment of technological
feasibility and the ongoing assessment of the recoverability of these costs
requires considerable judgment by management with respect to certain external
factors, including, but not limited to, anticipated future gross product
revenue, estimated economic life and changes in technology. Such costs are
reported at the lower of unamortized cost or net realizable value. To date,
internal software development costs that were eligible for capitalization have
not been significant and the Company has charged all software development costs
to research and development expense as incurred.

The Company expenses all research and development costs as incurred.

LONG-LIVED ASSETS

The Company periodically evaluates the recoverability of the carrying amount of
its long-lived assets in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of."
Whenever events or changes in circumstances indicate that the carrying amounts
of those assets may not be recoverable, the Company will compare undiscounted
net cash flows estimated to be generated by those assets to the carrying amount
of those assets. When these undiscounted cash flows are less than the carrying
amounts of the assets, the Company will record impairment losses to write the
asset down to fair value, measured by the discounted estimated net future cash
flows expected to be generated from the assets. During the years ended December
31, 1998, 1999, and 2000, management believes that no such impairments exist.

ADVERTISING COSTS

Advertising costs are expensed as incurred. Advertising expenses of E1.5
million, E4.2 million and E13.2 million were included with sales and marketing
expenses for 1998, 1999 and 2000, respectively.

STOCK-BASED COMPENSATION

The Financial Accounting Standards Board issued SFAS No. 123, "Accounting for
Stock-Based Compensation," in October 1995. This accounting standard permits the
use of either a fair value based method of accounting or the method defined in
Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees" ("APB 25") to account for stock-based compensation arrangements.
Companies that elect to employ the method proscribed by APB 25 are required to
disclose the pro forma net income (loss) that would have resulted from the use
of the fair value based method. The Company has elected to continue to account
for its stock-based compensation arrangements under the provisions of APB 25,
and, accordingly, it has included in Note 10 the pro forma disclosures required
under SFAS No. 123.

REVENUE RECOGNITION

The Company recognizes the following types of revenue:

Licenses. License fees are earned under software license agreements primarily to
end-users and to a lesser extent resellers and distributors. Revenues from
licenses to end-users are recognized upon shipment of the software if persuasive
evidence of an arrangement exists, collection of the resulting receivable is
probable and the fee is fixed and determinable. If an acceptance period is
required, revenues are recognized upon the earlier of customer acceptance or the
expiration of the acceptance period.


                                      F-11
<PAGE>   64

Service and maintenance. Services consist of support arrangements and consulting
and education services. Support agreements generally call for the Company to
provide technical support and provide certain rights to unspecified software
updates to customers. Revenue on technical support and software update rights is
recognized ratably over the term of the support agreement. The Company provides
consulting and education services to its customers; revenue from such services
is generally recognized as the services are performed.

For arrangements that include multiple elements, the fee is allocated to the
various elements based on vendor-specific objective evidence of fair market
value established by independent sale of the elements when sold separately.

In June 1997, the Company entered into a software license agreement with a
shareholder for total license fees of E10.1 million, which was received in cash
in 1997. The Company recognized the revenue associated with this agreement over
the three-year term of the agreement. In 1998, the Company recognized E3.4
million of revenue associated with this agreement, and E0.8 million related to
other agreements with this customer, which combined represented 23% of
consolidated revenue in 1998. In 1999, the Company recognized E4.2 million of
revenue associated with this agreement representing 9% of consolidated revenue
in 1999. In 2000, the Company recognized E2.4 million of revenue associated with
this agreement, representing 2% of consolidated revenue in 2000. In 1999, an
executive from this customer became a member of our supervisory board. Another
member of our supervisory board is also an executive with another one of our
customers. Sales to this customer represented 6%, 2% and 3% of consolidated
revenue in 1998, 1999 and 2000, respectively. Besides these two customers, no
other customer accounted for 10% or more of consolidated revenues for any year
presented.

COMPREHENSIVE INCOME

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which the Company adopted beginning on January
1, 1998. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The objective of SFAS No. 130 is to report a measure of
all changes in equity of an enterprise that results from transactions and other
economic events of the period other than transactions with shareholders
("comprehensive income"). Comprehensive income is the total of net income (loss)
and all other non-owner changes in shareholders' equity.

Accumulated other comprehensive income consists of the following (in thousands
of euros):

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,

                                                               1999        2000
<S>                                                           <C>        <C>
Foreign currency translation adjustment                         615       2,138
Unrealized gain (loss) on available-for-sale securities       3,022        (429)
                                                             ------      ------
                                                              3,637       1,709
</TABLE>

In the year ended December 31,1998, the only component of other comprehensive
income is the net foreign currency translation, which was E135,000. A summary of
the components of other comprehensive income for the years ended December 31,
1999 and 2000 is as follows (in thousands of euros):

<TABLE>
<CAPTION>
                                                  YEAR ENDED                               YEAR ENDED
                                               DECEMBER 31, 1999                        DECEMBER 31, 2000

                                    Before Tax    Income Tax    After Tax     Before Tax     Income Tax      After Tax
                                      Amount                     Amount         Amount                        Amount
<S>                                 <C>           <C>           <C>           <C>            <C>             <C>
Unrealized gain (loss) on
available-for-sale securities         3,022            --         3,022         (3,202)          (249)        (3,451)
Foreign currency translation
adjustment                              652            --           652          1,523             --          1,523
                                      -----                      ------         ------                        ------
                                      3,674            --         3,674         (1,679)          (249)        (1,928)
</TABLE>


                                      F-12
<PAGE>   65

EARNINGS PER SHARE

Basic net loss per common share is presented in conformity with SFAS No. 128
"Earnings Per Share" for all periods presented. Basic net loss per share is
computed using the weighted-average number of vested outstanding shares of
common stock. As discussed in Note 1, certain shareholders hold shares in U.S.,
Inc., and these shares were previously included in basic weighted average common
and common equivalent shares outstanding for the purpose of calculating earnings
per share. The Company has restated earnings per share to exclude these shares
from the calculation of basic earnings per share. For the years ended December
31, 1998 and 1999, basic net loss per share previously reported were (E0.29) and
(E0.19), respectively, in comparison with a restated basic earnings per share of
(E8) and (E0.23), respectively.

Diluted net loss per share is computed using the weighted-average number of
vested shares of common stock outstanding and, when dilutive, unvested common
stock outstanding, potential common shares from options and warrants to purchase
common stock using the treasury stock method and from convertible securities
using the as-if-converted basis. The options exercised that result in shares
subject to repurchase have been excluded in computing the number of weighted
average shares outstanding for basic earnings per share purposes. All potential
common shares have been excluded from the computation of diluted net loss per
share for 1998, 1999 and 2000 because the effect would be antidilutive. The
weighted-average number of vested shares of common stock outstanding includes
the shares of U.S., Inc., converted at a ratio of 1:3, held by two shareholders
of the Company as discussed further in Note 1.

The following table provides a reconciliation of the numerators and denominators
used in calculating basic and diluted earnings per share for the three years
ended December 31, 2000, respectively (in thousands of euros, except per share
data)

<TABLE>
<CAPTION>
                                                                  FOR THE YEAR ENDED DECEMBER 31,

                                                                  1998          1999          2000
<S>                                                            <C>           <C>           <C>
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS                   (17,528)      (18,389)      (38,923)
     Basic net loss per share:
     Weighted average common shares outstanding                 48,590        82,633        85,884
     Less:  Weighted average shares subject to repurchase       (2,625)       (2,750)       (1,750)
    Total weighted average common shares                        45,965        79,883        84,134

     Basic net loss per share                                    (0.38)        (0.23)        (0.46)
     Diluted net loss per share:
     Weighted average common shares outstanding                 45,965        79,883        84,134

     Add:  Weighted average
     shares subject to repurchase                                   --            --            --
     Convertible shares of U.S., Inc.                               --            --            --
     Common Stock option grants                                     --            --            --
                                                               -------       -------       -------
Total weighted average common shares
and common stock equivalents                                    45,965        79,883        84,134
Diluted net loss per share                                       (0.38)        (0.23)        (0.46)
</TABLE>


RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which requires
companies to record derivative financial instruments on the balance sheet as
assets or liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. The key
criterion for hedge accounting is that the hedging relationship must be highly
effective in achieving offsetting changes in fair value or cash flows. In June
1999, the FASB issued SFAS No. 137,


                                      F-13
<PAGE>   66

"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statements No. 133," which amends SFAS No. 133 to be
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000 (or January 1, 2001 for the Company). In June 2000, the FASB issued
Statement No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities - an Amendment of FASB Statement No. 133." SFAS 138 amends
SFAS 133 to (a) exclude from the scope of SFAS No. 133 nonfinancial assets that
will be delivered in quantities expected to be used or sold by a company over a
reasonable period in the normal course of business and or which physical
delivery is probable, (b) permit hedging of a benchmark interest rate, (c) allow
hedging of foreign-currency-denominated assets and liabilities and (d) allow for
limited hedging of net foreign currency exposures. The Company has no derivative
financial and commodity instruments, forward contracts or hedging arrangements
in cash and cash equivalents. These statements should not have a material impact
on the current financial condition or results of the Company's operations.

RECLASSIFICATIONS

Certain amounts in the prior years' financial statements have been reclassified
to conform to the current year presentation.

3 | PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following (in
thousands of euros):

<TABLE>
<CAPTION>
                                                      DECEMBER 31,

                                                    1999         2000
<S>                                                 <C>          <C>
Trade show and advertising prepayments                178          203
Receivables from employees                             --          568
VAT receivable                                      2,435        2,406
Other                                               1,257        4,616
                                                    -----        -----
TOTAL                                               3,870        7,793
</TABLE>


4 | PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands of euros):

<TABLE>
<CAPTION>
                                            1999         ADDITIONS       DISPOSALS         2000
<S>                                       <C>            <C>             <C>             <C>
Computer equipment                          7,724          13,581          (1,004)         20,301
Furniture and fixtures                      2,552           3,467            (113)          5,906
Leasehold improvements                        332           5,990              --           6,322
                                          -------         -------         -------         -------
SUBTOTAL                                   10,608          23,038          (1,117)         32,529
Accumulated depreciation                   (4,998)         (6,312)            835         (10,475)
                                          -------         -------         -------         -------
PROPERTY AND EQUIPMENT, NET                 5,610                                          22,054
</TABLE>


Equipment under capital leases included in property and equipment as at December
31, 1999 was E114,000. Accumulated amortization of leased equipment was E81,000
as at December 31, 1999. The leases were paid in full as at December 31, 2000.

5 | INVESTMENTS

During 1998 and 1999, the Company made investments in a non-public company in
Israel totaling E0.5 million and E1.2 million, respectively. The total
investment of E1.7 million in this entity represents an ownership interest of
approximately 6% as at December 31, 2000. The investments are carried at their
original cost basis.

Investments in debt and marketable equity securities are categorized as
available-for-sale and are stated at fair value, with unrealized gains and
losses, net of deferred income taxes, reported as a component of other
comprehensive income.


                                      F-14
<PAGE>   67

As at December 31, 1999 and 2000, available-for-sale securities consisted of the
following (in thousands of euros):

<TABLE>
<CAPTION>
                                                        GROSS         GROSS
                                                      UNREALIZED    UNREALIZED    ESTIMATED FAIR
                                       COST             GAINS         LOSSES           VALUE
<S>                                    <C>            <C>           <C>           <C>
DECEMBER 31, 1999
Equity securities                      1,490            3,022            -            4,512
Investment funds                          --               --            -               --
</TABLE>

<TABLE>
<CAPTION>
                                                          GROSS             GROSS
                                                        UNREALIZED        UNREALIZED      ESTIMATED FAIR
                                        COST              GAINS             LOSSES             VALUE
<S>                                    <C>              <C>               <C>             <C>
DECEMBER 31, 2000
Equity securities                       1,490                --              (650)               840
Investment funds                       27,039               470                --             27,509
</TABLE>


6 | ACQUISITIONS

OWIS SOFTWARE GMBH

In July 2000, the Company acquired the assets of Owis Software GmbH ("Owis") for
26,550 shares of the Company's capital stock, the market value of which was
approximately E2.4 million, and approximately E2.5 million in cash resulting in
an aggregate purchase price of approximately E4.9 million. The value assigned to
the shares issued was determined based on the market price of the Company's
common stock over a period of time before and after the Company and Owis had
reached agreement on the purchase price and the proposed transaction was
announced. The Company did not assume any options in the transaction. The
acquisition was accounted for using the purchase method. Accordingly, the
purchase price was allocated to the assets acquired and the liabilities assumed,
based on the completion of the evaluation of the fair values of Owis's assets
and liabilities at the date of acquisition. The following is a summary of the
purchase price allocation (in thousands of euros):

<TABLE>
<S>                                                  <C>
Current assets and other tangible assets             1,263
Liabilities assumed                                 (1,292)
Assembled workforce                                    530
Goodwill                                             4,409
                                                    ------
                                                     4,910
</TABLE>

The acquired assembled workforce and goodwill are being depreciated over a
period of three years. The operating results of Owis have been included in the
consolidated income statements from the date of acquisition. The allocation of
purchase price is based on preliminary estimates of fair value and is subject to
revision based upon the finalization of management's assessment of the fair
value of net assets acquired. Changes in the allocation of purchase price would
likely be limited to the recording of other identified intangible assets,
resulting in a reduction of goodwill, if such assets and their respective values
can be identified.

SUBOTNIC GMBH

In December 2000, the Company acquired the assets of Subotnic GmbH ("Subotnic")
for 248,461 shares of the Company's capital stock, the market value of which was
approximately E20.3 million. The value assigned to the shares issued was
determined based on the market price of the Company's common stock over a period
of time before and after the Company and Subotnic had reached agreement on the
purchase price and the proposed transaction was announced. The Company did not
assume any options in the transaction. The acquisition was accounted for using
the purchase method. Accordingly, the purchase price was allocated to the assets
acquired and the liabilities assumed, based on the completion of the evaluation
of the fair values of Subotnic's assets and liabilities at the date of
acquisition.

The following is a summary of the purchase price allocation (in thousands of
euros):

<TABLE>
<S>                                                 <C>
Current assets and other tangible assets                348
Liabilities assumed                                  (1,353)
Assembled workforce                                     360
                                                     21,019
Goodwill                                             ------
                                                     20,374
</TABLE>


                                      F-15
<PAGE>   68

The acquired assembled workforce and goodwill are being depreciated over a
period of three years. The operating results of Subtonic have been included in
the consolidated income statements from the date of acquisition. The allocation
of purchase price is based on preliminary estimates of fair value and is subject
to revision based upon the finalization of management's assessment of the fair
value of net assets acquired. Changes in the allocation of the purchase price
would likely be limited to the recording of other identified intangible assets,
resulting in a reduction of goodwill, if such assets and their respective values
can be identified.

The following unaudited pro forma financial information presents results as if
the acquisition of Owis and Subotnic had occurred at the beginning of the
respective periods (in thousands of euros):

<TABLE>
<CAPTION>
                                                               DECEMBER 31,

                                                         1999               2000
                                                      (unaudited)        (unaudited)
<S>                                                    <C>               <C>
Pro forma total revenue                                 47,776            123,090
Pro forma net loss                                     (28,258)           (48,801)
Pro forma net loss per share - basic/diluted             (0.35)             (0.58)
</TABLE>


These pro forma results have been prepared for comparative purposes only and
include certain adjustments such as additional amortization expense as a result
of intangible assets arising from the purchase. The pro forma results are not
necessarily indicative of the results of operations which actually would have
resulted had the purchase been in effect at the beginning of the respective
periods or of future results.

ACCRUED LIABILITIES

Accrued liabilities consisted of the following (in thousands of euros):

<TABLE>
<CAPTION>
                                            DECEMBER 31,

                                        1999            2000
<S>                                     <C>             <C>
VAT payable                             2,476           2,923
Accrued commissions                     1,817           2,464
Employee compensation                   1,208           2,105
Payroll taxes payable                     396             768
Social security                           464             950
Deferred tax liability                     --             264
Other                                   3,599           8,499
                                       ------          ------
                                        9,960          17,973
</TABLE>


8 | NOTES PAYABLE TO SHAREHOLDERS

During fiscal 2000, the Company entered into a secured loan agreement for
US$10.0 million with an officer of the Company who is also a shareholder and a
member of the management board. Interest on the note is payable quarterly at
6.13%. The note was paid in full in October 2000.

During 1999, the Company entered into a secured loan agreement for E7.0 million
with an officer of the Company who is also a shareholder and a member of the
management board. Interest on the note is payable quarterly at 6%. The note was
paid in full in November 2000.

During 1996, the Company entered into a series of unsecured loans with certain
shareholders. Interest is payable quarterly at 10%. The outstanding principal
amounts on the notes are classified as long-term and was E20,000 at December 31,
1999. The notes were repaid in 2000.


                                      F-16
<PAGE>   69

9 | COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

Facilities and certain furniture and equipment are leased under operating
leases. As at December 31, 2000, future minimum annual lease payments are as
follows (in thousands of euros):

<TABLE>
<S>                                    <C>
YEAR ENDED DECEMBER 31,

2001                                     9,520
2002                                     9,108
2003                                     7,793
2004                                     6,849
2005                                     6,875
Subsequent years                        29,306
                                       -------
TOTAL                                   69,451
</TABLE>


Rent expense was E1,277,000, E2,022,000 and E6,095,000 for the years ended
December 31, 1998, 1999 and 2000 respectively.

LEGAL MATTERS

In January 2001, a U.S. company filed a suit with a U.S. court against U.S.,
Inc., claiming violation of certain patent rights. The complaint seeks for
compensation of damages based on the alleged patent infringements. The Company
believes there is no merit to the case and intends to defend the case
vigorously. There can be no assurance that the Company will be able to prevail
in the lawsuit, or that the pendency of the lawsuit will not adversely affect
the Company's operations. As the outcome of this matter cannot reasonably be
determined, the Company has not accrued for any potential loss contingencies.

On March 1, 2001, a securities class action complaint, Juergen Fischer v.
INTERSHOP Communications, et al., Case No. 01-0882 was filed in the United
States District Court for the Northern District of California, INTERSHOP
Communications AG, its management board members, and certain other officers. The
complaint alleges that the defendants made material misrepresentations and
omissions of material facts concerning the Company's business performance. As at
March 7, 2001, the Company had not yet been served with a complaint in this
matter. The complaint seeks an unspecified amount of damages. The Company
believes there is no merit to the case and intends to defend the case
vigorously. There can be no assurance that the Company will be able to prevail
in the lawsuit, or that the pendency of the lawsuit will not adversely affect
the Company's operations. As the outcome of this matter cannot reasonably be
determined, the Company has not accrued for any potential loss contingencies.

On March 7, 2001, a securities class action complaint, Roberta Casden v.
INTERSHOP Communications, et al., Case No. 01-CV-1947, was filed in the United
States District Court for the Southern District of New York, INTERSHOP
Communications AG, its management board members, and the underwriters of its
September 2000 public offering. The complaint alleges that the defendants issued
a materially false and misleading registration statement in conjunction with its
September 2000 public offering. As of March 7, 2001, the Company had not yet
been served with a complaint in this matter. The complaint seeks an unspecified
amount of damages. The Company believes there is no merit to the case and
intends to defend the case vigorously. There can be no assurance that the
Company will be able to prevail in the lawsuit, or that the pendency of the
lawsuit will not adversely affect the Company's operations. As the outcome of
this matter cannot reasonably be determined, the Company has not accrued for any
potential loss contingencies.

The Company is a defendant in various other legal matters arising in the normal
course of business. In the opinion of management, after consultation with legal
counsel, the ultimate resolution of these matters is not expected to have a
material effect on these consolidated financial statements.


                                      F-17
<PAGE>   70

10 | SHAREHOLDERS' EQUITY

STOCK SPLITS AND CHANGE IN STATED VALUE

In conjunction with the share exchange discussed in Note 1 between the
shareholders of U.S., Inc., in June 1998, the shares of U.S., Inc. were
exchanged for shares of the Company on a 1-for-5 basis. In June 1999, the
Company changed the stated value of its common stock from DM 5 per share to E1
per share and affected a 3-for-1 stock split. Unless otherwise noted, all share
and per share amounts presented have been restated to retroactively reflect this
conversion ratio and stock split for all periods presented.

The adjustment to the stated value of the Company's common stock is reflected in
the Consolidated Statements of Convertible Redeemable Preferred Stock and
Shareholders' Equity as an increase to the stated value of the common stock for
E2.4 million and a corresponding decrease to additional paid in capital as of
June 1999.

On June 27, 2000, the Company's Annual Shareholder Meeting authorized a 5-for-1
stock split and authorized management to repurchase up to 10% of its outstanding
common stock through November 2001. The stock split became effective on August
16, 2000, when it was registered in the commercial register in accordance with
the German Stock Corporation Act. All share and per share amounts presented in
the accompanying financial statements have been restated to retroactively
reflect the stock split for all periods presented.

CONVERTIBLE REDEEMABLE PREFERRED STOCK

During 1997, the Company issued 6,000,000 shares of preferred stock at
approximately E0.6 per share resulting in aggregate proceeds of E3.5 million. In
March 1998, the Company sold 1,169,550 shares of preferred stock in U.S., Inc.
at approximately E1.60 per share resulting in aggregate proceeds of E1.9
million.

Significant rights, restrictions, and preferences of preferred stock included
cash dividends at a rate of 8% per annum, as defined, liquidation preferences,
voting rights, and conversion and redemption features.

Prior to the share exchange between the shareholders of U.S., Inc. and the
Company in June 1998, all outstanding shares of preferred stock converted to the
same number of shares of common stock of U.S., Inc. After considering the
conversion ratio and stock split discussed above, shares of U.S., Inc. common
stock were converted to shares of the Company on a 1-for-3 basis.

EQUITY TRANSACTIONS IN 2000

In January 2000, the Chairman of the Company's supervisory board purchased
250,000 shares from a trust that administers certain shares issued under the
Company's 1997 Equity Incentive Plan. Consistent with the terms of the trust,
the proceeds of the sale, E12.5 million, net of related tax effects, were
recorded as a capital contribution in paid-in capital.

In March 2000, the Company issued 1,675,000 shares related to its registration
with the U.S. Securities and Exchange Commission to register shares of its
common stock in the form of American Depository Shares ("ADSs"). The shares were
sold to the public in the form of a secondary offering on September 29, 2000 for
net proceeds of approximately E112 million.

In August 2000, the Company sold 500,000 shares at E80 per share in a private
placement. The Company will use the net proceeds of approximately E38.9 million
for general corporate purposes.

CONVERTIBLE PROMISSORY NOTE

In April 1998, U.S., Inc. entered into a convertible promissory note, which
bears interest at 7%, with a member of the Company's supervisory board for
US$500,000. The principal and accrued interest were convertible at the option of
the holder, in whole or in part, into shares of U.S., Inc.'s next series of
preferred stock issued in connection with a third party financing at the
purchase price per share paid by the third party investors. The principal and
interest would automatically convert into common stock in the event that U.S.,
Inc. completed an underwritten public offering, as defined, at the initial
public offering price less a 25% discount. In the event that a new series of


                                      F-18
<PAGE>   71

preferred stock were not issued, or a public offering did not occur, then the
outstanding principal and accrued interest were convertible at the option of the
holder, in whole or in part, into common stock of U.S., Inc. at E1.60 per share.
All principal and unpaid interest was due and payable, to the extent not
converted, on October 28, 1998.

In conjunction with the legal entity reorganization that occurred in June 1998,
U.S., Inc. repaid the note to the board member, and the board member purchased
250,005 shares of the Company's common stock for E2.56 per share, resulting in
aggregate proceeds of E639,118.

LEGAL SETTLEMENT OBLIGATION

In May 1998, the Company entered into a legal settlement related to a trademark
dispute that obligated us to pay E1 million. An investor paid this amount on
behalf of the Company. In exchange, this investor purchased 900,450 shares from
the Company on June 23, 1998. The final purchase price for these shares was
determined based on the average trading price for one month following the
Company's initial public offering in Germany. Based on this average trading
price, the investor paid an additional E4.0 million in cash for these shares.
The Company has recorded the legal settlement cost of E1.9 million the
additional cash received of E4.0 million as an increase in equity in exchange
for the 900,450 shares issued.

DEFERRED COMPENSATION

In connection with the grant of certain stock options to employees prior to the
initial public offering in July 1998, the Company recorded deferred compensation
of approximately E1.0 million representing the intrinsic value of the options,
i.e., the difference between the deemed value of the common stock for accounting
purposes and the option exercise price of such options at the date of grant.
This amount is presented as a reduction of shareholders' equity and amortized
ratably over the vesting period of the applicable options. Approximately
E162,000, E308,000 and E273,000 was expensed during the years ended December 31,
1998, 1999 and 2000, respectively. The balance was expensed in full at December
31, 2000. Compensation expense is decreased in the period of forfeiture for any
accrued but unvested compensation arising from the early termination of an
option holder's services. No compensation expense related to any other periods
presented has been recorded.

1997 EQUITY INCENTIVE PLAN

The Company had originally reserved 10,000,000 shares of common stock for
issuance to employees, directors and consultants under its 1997 Equity Incentive
Plan (the 1997 Plan). The Board of Supervisors may grant incentive or
non-statutory stock options at prices not less than 100% or 85%, respectively,
of fair market value as determined by the Board of Supervisors, at the date of
grant. Options vest ratably over periods determined by the Board, generally
three years. The Board also has the authority to set exercise dates (no longer
than ten years from the date of grant), payment terms, and other provisions for
each grant. The Company generally had the right of first refusal for all common
stock issued under the 1997 Plan should the holder desire to sell or otherwise
transfer any of the shares. The Company's right of first refusal terminated upon
the effective date of the Company's initial public offering, July 16, 1998.

1999 EQUITY INCENTIVE PLAN

Effective as of June 21, 1999, the Company adopted a new stock option plan (the
1999 Plan) covering board members, executive officers and certain employees. The
options under the 1999 Plan vest ratably over a four year period beginning six
months from the date of grant; however, pursuant to the German Stock Corporation
Act, no options will be exercisable, even though a portion is vested, prior to
the second anniversary of the date of grant. The exercise price of the options
is equal to 120% of the market price of the shares on the date of grant, where
the market price is determined to be the average closing price as quoted on the
Neuer Markt for the 10 trading days prior to the date of grant.

There are two pools of shares authorized under the 1999 Plan. There are 665,000
shares for grants of stock options to members of the management board and
general managers of subsidiaries and 7,500,000 shares for grants of stock
options to all other employees.


                                      F-19
<PAGE>   72

STOCK-BASED COMPENSATION

The Company applies APB Opinion No. 25 and related interpretations in accounting
for the Plan. If compensation cost for the Plan had been determined based on the
fair value at the grant dates for the awards calculated in accordance with the
method prescribed by SFAS No. 123, the impact on the Company's net loss and net
loss per share would have been as follows (in thousands of euros, except per
share amounts):

<TABLE>
<CAPTION>
                                                                FOR THE YEAR ENDED DECEMBER 31,
                                                          1998                1999                2000
<S>                                                     <C>                 <C>                 <C>
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
     As reported                                        (17,528)            (18,389)            (38,923)
     Pro forma                                          (17,563)            (21,204)            (74,851)
BASIC AND DILUTED EARNINGS PER SHARE

    As reported                                           (0.38)              (0.23)              (0.46)
     Pro forma                                            (0.38)              (0.27)              (0.89)
</TABLE>

Option activity under the plans was as follows (in thousands, except per share
data):

<TABLE>
<CAPTION>
                                                                                 YEAR ENDED DECEMBER 31,
                                                       1998                            1999                           2000
                                                     WEIGHTED       NUMBER OF        WEIGHTED                        WEIGHT-ED
                                   NUMBER OF         AVERAGE         SHARES          AVERAGE     NUMBER OF SHARES    AVERAGE
                                   SHARES            EXERCISE      OUTSTANDING       EXERCISE     OUTSTANDING        EXERCISE
                                  OUTSTANDING        PRICE (E)                       PRICE (E)                       PRICE (E)
<S>                               <C>                <C>           <C>               <C>         <C>                 <C>
Outstanding at beginning
 of period                            6,495            0.11           5,625            0.59           2,365           14.78
Granted                               3,960            0.84           2,235           15.66           4,086           99.89
Exercised                            (3,720)           0.23          (4,235)           0.43            (882)           5.01
Canceled                             (1,110)           0.20          (1,260)           1.11            (639)          61.11
                                     ------           -----          ------           -----          ------           -----
OUTSTANDING
AT END OF PERIOD                      5,625            0.59           2,365           14.78           4,930           66.48
</TABLE>


The following table summarizes information with respect to the stock options
outstanding at December 31, 2000:

<TABLE>
<CAPTION>
                                                   Weighted Average
                              Number of Options       Remaining                               Number
    Range of                    Outstanding        Contractual Life   Weighted Average     Exercisable at    Weighted Average
 Exercise Price                   (in 1,000)           (Years)        Exercise Price (E)      12/31/00        Exercise Price (E)
<S>                           <C>                 <C>                 <C>                  <C>               <C>
0.02 -   15.15                     1,122                 7.4                8.04               1,119                8.03
15.16 -  30.31                       763                 3.7               22.86                 244               22.38
30.32 -  45.46                       115                 4.3               39.99                  19               37.22
45.47 -  60.62                       133                 4.6               52.89                  11               50.94
60.63 -  75.77                       547                 4.6               67.53                  49               66.05
75.78 -  90.93                       109                 4.3               79.65                  17               78.81
90.94 -  106.08                      397                 4.6               97.22                  31               97.71
106.09 - 121.24                    1,467                 4.3              114.81                 223              115.19
121.25 - 136.39                      210                 4.4              130.02                  29              131.55
136.40 - 151.55                       67                 4.2              144.55                  13              144.55
                                 -------                ----              ------              ------              -------
                                   4,390                 5.0               66.48               1,755               31.18
</TABLE>


                                      F-20
<PAGE>   73

The 1997 Plan allows for the issuance of options that are immediately
exercisable through execution of a restricted stock purchase agreement. Shares
purchased subject to a restricted stock purchase agreement generally vest over
three years. In the event of termination of employment, the Company may
repurchase unvested shares at a price equal to the original issuance price. As
at December 31, 2000, 59,423 shares of common stock issued and outstanding were
unvested and subject to repurchase by the Company at E0.02 to E8.13 per share.
All shares that were exercised early are held by a trustee on behalf of the
employee. In the event that an employee leaves the Company with unvested shares,
the unvested shares are sold in the open market, and the proceeds of the sale
are contributed to the Company.

The fair value of each option grant is estimated on the date of grant utilizing
risk-free interest rates on the date of grant (4.2%-5.6% in 1998, 4.6%-6.2% in
1999 and 6.3% in 2000) with maturities equal to the expected option term of 4.5
years. The dividend assumed is estimated at 0% in 1998, 1999 and 2000, and the
volatility is assumed to be 0% through the date of the Company's initial public
offering in 1998, 69% in 1999 and 86% in 2000.

SHARES RESERVED FOR FUTURE ISSUANCE

As at December 31, 2000, the Company had authorized and conditional capital of
43,490,459 and 22,694,500 shares, respectively. Authorized capital is equivalent
to additional authorized shares for acquisitions or sales of common stock with
the approval of the Company's supervisory board. Conditional capital is
equivalent to shares reserved for future issuance, as follows:

<TABLE>
<S>                                                <C>
Conversion of remaining U.S., Inc. shares          13,644,500
Stock options                                       9,050,000
                                                   ----------
                                                   22,694,500
</TABLE>


11 | INCOME TAXES

The Company accounts for income taxes using an asset and liability approach
under which deferred income taxes are provided based upon enacted tax laws and
rates applicable to the periods in which taxes become payable.

The income tax benefit differs from the amounts which would result by applying
the applicable German statutory rates to the loss before taxes, as follows (in
thousands of euros):

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                        1998              1999             2000
<S>                                                   <C>                <C>              <C>
PROVISION (BENEFIT) AT GERMAN STATUTORY RATE          (10,079)           (9,783)          (20,707)
Foreign income/losses taxed/benefited at a
different tax rate                                      3,480             2,998             5,914
Change in valuation allowance                           6,036             9,775            58,914
Tax credits                                               (17)               --                --

PERMANENT DIFFERENCES                                      40               214              (394)
Intercompany reserves                                      --                --            60,597
Changes in statutory tax rate                              --            (2,490)           15,949
Other                                                      --              (714)              921
                                                           --                --                --
PROVISION (BENEFIT) FOR INCOME TAXES
</TABLE>

The components of the deferred tax asset were as follows (in thousands of
euros):


                                      F-21
<PAGE>   74

<TABLE>
<CAPTION>
                                                       AS OF DECEMBER 31,

                                                     1999              2000
<S>                                                 <C>               <C>
Net operating loss carryforwards                    18,973            75,063
Tax credit carryforwards                                82                82
Accruals not currently deductible                    1,287             1,966
Capitalized start-up costs and other
Intangibles not currently deductible                    16               300
Interest expense not currently deductible               --             1,150
Other                                                  (99)              612
                                                   -------           -------
                                                    20,259            79,173
                                                   -------           -------
Valuation allowance                                (20,259)          (79,173)
NET DEFERRED TAX ASSET                                  --                --
</TABLE>

A valuation allowance has been recorded for the entire deferred tax asset for
all periods through December 31, 2000 as a result of uncertainties regarding the
realization of the asset including the limited operating history of the Company,
the lack of profitability through December 31, 1999 and 2000.

For the year ended December 31, 2000, the Company had net operating loss
carryforwards for tax reporting purposes in various tax jurisdictions as follows
(in thousands of euros):

<TABLE>
<S>                                <C>
U.S. Federal                       52,696
U.S. State                         68,582
German                            122,780
Other                               4,484
                                  -------
TOTAL                             258,542
</TABLE>

In addition, as of December 31, 2000, the Company had U.S. federal and U.S.
state income tax credit carryforwards of approximately E70,000 and E40,000,
respectively. U.S. federal and state net operating losses carryforwards expire
in various periods through 2019. The German net operating loss carryforwards for
tax purposes relate to corporate income tax and municipal trade tax and carry
forward indefinitely. The Tax Reform Act of 1986 and German tax law contain
provisions which may limit the net operating loss and tax credit carryforwards
to be used in any given year upon the occurrence of certain events, including a
significant change in ownership interest.

12 | INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION

During 1998, the Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information."

The Company is organized based upon the nature of the products and services it
offers. Under this organizational structure, the Company operates in two
fundamental business segments: product and service. The product segment includes
the development and sale of the Company's software products. The service segment
provides service and support for the Company's products. The Company's products
are primarily developed at its facilities in Jena Germany, and are sold through
a direct sales force and independent distributors in Europe, North America,
South America, Australia, and Asia.

The information in the following tables is derived directly from the Company's
internal financial reporting used by the Company's chief operating decision
makers for corporate management purposes. The Company evaluates its segments'
performance based on several factors, of which the primary financial measure is
gross margin. Unallocated costs include corporate and other costs not allocated
to business segments for management reporting purposes. The accounting policies
followed by the Company's business segments are the same as those described in
Note 2 to the consolidated financial statements. The Company does not allocate
assets by segment for management reporting purposes.


                                      F-22
<PAGE>   75

<TABLE>
<CAPTION>
                                                     FOR THE YEAR ENDED DECEMBER 31,

                                                 1998             1999             2000
<S>                                            <C>              <C>              <C>
REVENUES FROM UNAFFILIATED CUSTOMERS:
     Product                                    11,295           29,534           74,068
     Services                                    6,577           16,732           48,926
                                               -------          -------          -------
TOTAL REVENUE                                   17,872           46,266          122,994

GROSS MARGIN:
     Product                                     9,553           24,748           68,779
     Services                                    2,811            8,267            5,473
                                               -------          -------          -------
TOTAL GROSS MARGIN                              12,364           33,015           74,252
</TABLE>

        Revenues by geographic location are attributed to the country from which
the sale is made and are presented below (in thousands of euros):

<TABLE>
<CAPTION>
                                        FOR THE YEAR ENDED DECEMBER 31,

                                    1998             1999             2000
<S>                                <C>              <C>              <C>
Germany                            10,232           17,190           53,465
United States                       5,940           18,366           39,615
United Kingdom                        797            7,000           12,971
Other*                                903            3,710           16,943
                                  -------          -------          -------
TOTAL                              17,872           46,266          122,994
</TABLE>

* Revenues for other geographic locations are substantially derived from France
in 1997 and 1998 and France and Sweden in 1999 and France, Sweden, China, Korea,
Singapore, Japan, and Australia in 2000.

Long-lived assets located by geographic location are as follows (in thousands of
euros):

<TABLE>
<CAPTION>
                                           AS AT DECEMBER 31,

                                   1998            1999            2000
<S>                                <C>             <C>             <C>
Germany                            1,404           1,644           9,106
United States                      2,074           2,671           7,937
United Kingdom                        48             716           3,188
Other*                               141             579           1,823
                                  ------          ------          ------
TOTAL                              3,667           5,610          22,054
</TABLE>


13 | LOCAL DISCLOSURE REQUIREMENTS

MANAGEMENT BOARD
Stephan Schambach, Chair
Wilfried Beeck

SUPERVISORY BOARD
Eckhard Pfeiffer, Chair
Theodore J. Smith, Vice Chair
Joerg Menno Harms
Lorenzo Pellicioli
Hartmut Esslinger, Ph.D.

BOARD COMPENSATION In 2000, the annual compensation, accrued but not paid, for
the supervisory board was E106,000. In 2000, the total annual compensation for
the management board was E51,000.


                                      F-23
<PAGE>   76

INVESTMENTS

The following table lists directly and indirectly held investments of the
Company that are included in the consolidated financial statements as at
December 31, 2000:

<TABLE>
<CAPTION>
OWNERSHIP                                                                  %
<S>                                                                     <C>
Intershop Communications, Inc., San Francisco, U.S.                     82.5
Intershop Communications GmbH, Jena                                      100
Intershop Software Entwicklungs GmbH, Jena                               100
Intershop Communications Ventures GmbH, Hamburg                          100
Intershop (U.K.) Ltd., London, United Kingdom                            100
Intershop Communications S.a.r.l., Paris, France                         100
Intershop Communications AB, Stockholm, Sweden                           100
Intershop Communications Hong Kong Co. Ltd., Hong Kong, China            100
Intershop Communications Singapore Pte. Ltd., Singapore                  100
Intershop Communications Australia Pty Ltd., Sydney, Australia           100
Intershop Communications Taiwan Co. Ltd., Taipei, Taiwan                 100
Intershop Communications Korea Co. Ltd., Seoul, Korea                    100
Intershop Communications K.K., Tokyo, Japan                              100
</TABLE>

EMPLOYEES

During fiscal 2000, the Company had an average of 918 employees.

14 | SUBSEQUENT EVENTS

In January 2001, the Company announced plans to restructure certain operations,
resulting in the termination of approximately 200 employees worldwide.



                                      F-24

<PAGE>   77
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                             DESCRIPTION
------- -----------------------------------------------------------------------
<S>     <C>
1.1     Articles of Association of INTERSHOP Communications Aktiengesellschaft
        (as amended).

4.1     Summary Translation of Loan Agreement between Wilfried Beeck and
        Intershop Communications AG (incorporated by reference to Exhibit 10.6
        to the Registration Statement of INTERSHOP AG on Form F-1 (File No.
        333-32034)).

4.2     Summary Translation of Loan Agreement between Stephan Schambach and
        Intershop Communications AG (incorporated by reference to Exhibit 10.7
        to the Registration Statement of INTERSHOP AG on Form F-1 (File No.
        333-32034)).

10.1    Consent of Arthur Andersen Wirtschaftsprufungsgesellschaft
        Steuerberatungsgesellschaft mbH, Independent Public Accountants.
</TABLE>