10-Q 1 f83611e10vq.txt FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 000-27431 CALICO COMMERCE, INC. ---------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 77-0373344 -------- ---------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 333 WEST SAN CARLOS, SAN JOSE, CALIFORNIA 95110 ----------------------------------------- ----- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (408) 975-7400 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) 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 (1) YES [X] NO [ ] (2) YES [X] NO [ ] AS OF AUGUST 9, 2002 THERE WERE 35,868,280 SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING. ================================================================================ CALICO COMMERCE, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 2002 TABLE OF CONTENTS

PAGE NO. -------- PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS -- ~~DECEMBER~~JUNE 3130, ~~2001~~2002 AND MARCH 31, ~~2001~~2002......................................................... 3 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS -- THREE ~~AND NINE~~ MONTHS ENDED ~~DECEMBER~~JUNE 3130, ~~2001~~2002 AND ~~2000~~2001.......................~~...........~~ 4 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - THREE ~~AND NINE~~ MONTHS ENDED ~~DECEMBER~~JUNE 3130, ~~2001~~2002 AND ~~2000~~2001.................................................. 5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.......................~~..........~~ 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................................~~..........~~ 2118 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................~~..........~~ 3929 PART II OTHER INFORMATION~~....................................................................~~ 40 ITEM 1. LEGAL PROCEEDINGS..........................................................~~..........~~ 4130 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS..................................~~..........~~ 4131 ITEM 3. DEFAULTS UPON SENIOR SECURITIES............................................~~..........~~ 4131 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................~~..........~~ 4131 ITEM 5. OTHER INFORMATION..........................................................~~..........~~ 4131 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...........................................~~..........~~ 4131

2 CALICO COMMERCE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) (UNAUDITED) On December 14, 2001, Calico Commerce (the "Debtor") filed a voluntary petition for relief (the "Filing") under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"). Please see Note 3 of the Notes to the Condensed Consolidated Financial Statements.

~~DECEMBER~~JUNE 3130, MARCH 31, ~~2001~~2002 ~~2001~~2002 ------------ ---------- ASSETS Current assets: Cash and cash equivalents ................~~....~~ $ 2126,~~868~~392 $ 826,~~354~~536 Restricted cash ..........................~~....~~ --660 ~~400~~500 ~~Short-term investments ....................... 1,100 24,411~~ Accounts receivable, net .................~~....~~ ~~586~~-- ~~2,582~~380 Other current assets .....................~~....~~ 31,~~551~~858 21,~~449~~991 ---------- ---------- Total current assets .................~~....~~ 2728,~~105~~910 3829,~~196~~407 Long-term investments ........................~~....~~ 40 160 ~~250~~ Restricted cash ..............................~~....~~ 600 ~~1,450~~600 Property and equipment, net ..................~~....~~ ~~1,376~~12 ~~4,644~~218 Other assets .................................~~....~~ 190 190 ---------- ---------- $ 29,~~431~~752 $ 4430,~~730~~575 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable .........................~~....~~ $ 92345 $ ~~1,823~~203 Accrued liabilities ......................~~....~~ 1,~~444~~047 ~~11,187 Deferred revenue .............................~~ 1,~~595~~058 ~~2,031 Current portion of notes payable .............~~ -- ~~1,826 Current portion of capital lease obligations 85 104~~ --------- ---------- Total current liabilities ............~~....~~ 31,~~216~~392 161,~~971~~261 ~~Notes payable, non-current ....................... -- 3 Capital lease obligations, non-current ........... -- 29 Other liabilities ................................ 331 396~~ Liabilities subject to compromise ............~~....~~ 35,~~654~~196 --5,264 ---------- ---------- 76,~~201~~588 176,~~399~~525 ---------- ---------- Commitments and contingencies (Note 89) Stockholders' equity: Preferred stock ..........................~~....~~ -- -- Common stock .............................~~....~~ 35 35 Additional paid-in capital ...............~~....~~ 226,~~689~~785 226,~~786~~785 ~~Notes receivable from stockholders ........... -- (617) Unearned compensation ........................ -- (7)~~ Other comprehensive loss .................~~....~~ (3993) (5844) Accumulated deficit ......................~~....~~ (~~204~~203,~~455~~563) (~~198~~202,~~808~~726) ---------- ---------- Total stockholders' equity ...........~~....~~ 2223,~~230~~164 2724,~~331~~050 ---------- ---------- Total liabilities and stockholders' equity ...~~....~~ $ 29,~~431~~752 $ 4430,~~730~~575 ========== ==========

The accompanying notes are an integral part of these condensed consolidated financial statements. 3 CALICO COMMERCE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) On December 14, 2001, Calico Commerce (the "Debtor") filed a voluntary petition for relief (the "Filing") under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"). Please see Note 3 of the Notes to the Condensed Consolidated Financial Statements.

THREE MONTHS ENDED ~~NINE~~JUNE ~~MONTHS ENDED DECEMBER 31~~30, ~~DECEMBER~~2002 ~~31,~~ -------------------------~~-------------------------~~ ~~2001~~2002 ~~2000~~ 2001 ~~2000~~ -------- --~~------~~ -------- --~~------~~ Net revenue: License .................................................~~......~~ $-- ~~458~~ $ 1,~~569~~118 ~~$ 2,131 $ 10,056~~ Services ................................................~~......~~ ~~633~~-- 31,~~933~~142 ~~2,591 14,333~~ -------- --~~------~~ -------- --~~------~~ Total net revenue ..................................~~......~~ ~~1,091~~-- 52,~~502~~260 ~~4,722 24,389~~ -------- --~~------~~ -------- --~~------~~ Cost of net revenue: License ................................................~~......~~ 12-- ~~382~~124 ~~202 1,014~~ Amortization of purchased technology ...................~~......~~ -- ~~469~~ -- ~~1,449~~ Services ~~(including stock-based compensation of $0, $16, $0 and $68, respectively)~~ ............................................... ~~850 4,375 2,739 15,245~~ --~~------~~ ~~--------~~1,356 ~~-------- --------~~ Total cost of net revenue ..........................~~......~~ ~~862~~-- 51,~~226~~480 ~~2,941 17,708~~ -------- --~~------~~ -------- --~~------~~ Gross profit .......................................~~......~~ ~~229~~-- ~~276~~780 ~~1,781 6,681~~ -------- --~~------~~ -------- --~~------~~ Operating expenses: Sales and marketing ~~(including stock-based compensation of $0, $79, $0 and $312, respectively)~~ ................................... ~~1,674~~-- 113,~~039~~563 ~~6,549 28,285~~ Research and development ~~(including stock-based compensation of $0, $51, $0 and $180, respectively)~~ ........ ~~1,334 5,866 5,444 16,973 General and administrative (including stock-based compensation of $0, $27, $7 and $118, respectively)~~ ........ ~~1,219 2,370 5,553 5,700 Amortization of intangibles~~ .............. -- 2,623 General and administrative .................... ~~-- 7,481 -- 22,443 Impairment and loss on disposal of long-lived assets~~ ......... ~~148~~836 ~~-- 1~~2,~~756~~394 -- Restructuring and other activities .....................~~......~~ ~~221~~ -- ~~1,957~~710 -- -------- -------- --~~------~~ ~~--------~~ Total operating expenses ...........................~~......~~ ~~4,596~~836 269,~~756~~290 ~~21,259 73,401~~ -------- --~~------~~ -------- --~~------~~ Loss from operations ...............................~~......~~ (~~4,367~~836) (268,~~480~~510) ~~(19,478) (66,720)~~ Chapter 11 related reorganization items .................~~......~~ (~~2,476~~192) -- ~~(2,476) -- Realized gains on sale of securities .......................... 16,558 -- 16,558 --~~ Impairment of long-term investments .....................~~......~~ (~~390~~120) -- ~~(390)~~Interest --and ~~Other~~other income (expense), net ...............~~....................~~ ~~(211)~~248 ~~849~~130 ~~114 2,907~~ -------- --~~------~~ -------- --~~------~~ Income (loss) before taxes .........................~~......~~ ~~9,114~~ (~~25,631~~900) (58,~~672~~380) ~~(63,813)~~ Provision (benefit) for income taxes .......................~~......~~ (2063) ~~414~~145 ~~(25) 414~~ -------- --~~------~~ -------- --~~------~~ Net income (loss) ..................................~~......~~ $ ~~9,134 $~~(~~26,045~~837) $ (58,~~647~~525) ~~$(64,227)~~ Other comprehensive income (loss): Unrealized gain on investments .........................~~......~~ ~~12,258~~-- 40(509) ~~16,558 12~~ Reclassification adjustment for gains included in net income (loss) ......................................~~........~~ ~~(16,558)~~ -- (~~16,569~~11) ~~179~~ Foreign currency translation adjustments ...............~~......~~ 20(48) 1123 ~~30 12~~ -------- --~~------~~ -------- --~~------~~ Comprehensive income (loss) .......................~~......~~ $ ~~4,854 $~~(~~25,994~~885) $ (59,~~628~~022) ~~$(64,024)~~ ======== ==~~======~~ ======== ==~~======~~ Net income (loss) per share: Basic ~~earnings~~and ~~per~~diluted ~~share~~loss ...................................... $ 0.26 $ (0.75) $ (0.16) $ (1.87) -------- -------- -------- -------- Weighted average shares ....................................... 35,183 34,700 35,134 34,400 ======== ======== ======== ======== Diluted earnings per share ........................~~............~~ $ ~~0.26 $~~ (0.7502) $ (0.1624) ~~$ (1.87)~~ -------- --~~------~~ -------- --~~------~~ Weighted average shares .................................~~......~~ 35,~~349~~868 ~~34,700~~ 35,~~134~~075 ~~34,400~~ ======== ==~~======~~ ======== ==~~======~~

The accompanying notes are an integral part of these condensed consolidated financial statements. 4 CALICO COMMERCE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) On December 14, 2001, Calico Commerce (the "Debtor") filed a voluntary petition for relief (the "Filing") under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"). Please see Note 3 of the notes to the Condensed Consolidated Financial Statements.

~~NINE~~THREE MONTHS ENDED ~~DECEMBER~~JUNE 3130, ----------------------- 2002 2001 ~~2000~~ --------- --------- Cash flows from operating activities: Net loss ......................................................... $ (~~5,647~~837) $ (648,~~227~~525) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization .............................. ~~1,451~~20 ~~25,758~~590 Amortization of unearned compensation .................... ~~7 678 Warrants to customers~~ ..~~..................................~~ -- 617 Provision for doubtful accounts ............................ (68) ~~1,000~~47 Loss /(gain) on disposal of assets .......................... ~~997~~ (~~130~~20) 128 Loss on impairment of investments .......................... ~~390~~120 -- ~~Impairment~~Restriction of ~~long-lived~~cash ~~assets~~under asset sale escrow agreement ......~~....................~~ ~~910~~(160) -- Forgiveness of stockholder notes receivable ................ ~~591~~ -- 591 Changes in assets and liabilities: Accounts receivable ........................................ ~~2,002 3,~~388 983 Other current assets ....................................... ~~(1,102)~~133 ~~(1,322)~~236 Accounts payable ........................................... ~~(1,731)~~142 ~~(1,561)~~259 Accrued liabilities ........................................ (~~6,072~~11) (14,~~095~~456) Deferred revenue ........................................... -- (~~501~~268) ~~594~~ Other liabilities .......................................... 35-- 46 Liabilities subject to compromise .......................... (1768) -- --------- --------- Net cash used in operating activities ................. (~~8,676~~301) (3610,~~873~~362) ~~-------- --------~~ Cash flows from investing activities: Purchases of property and equipment ........................ ~~(221)~~-- (~~3,233~~5) Proceeds from sale of property and equipment ............... ~~106~~205 -- Sale of securities ......................................... ~~24,405~~-- -- Purchases of short-term investments ........................ ~~(22,458)~~-- (223,~~007~~350) Release of restricted cash to cash equivalents ............. ~~200~~-- -- Maturity of short-term investments ......................... ~~21,354~~-- 3811,~~455~~003 Acquisition, net of cash acquired .......................... -- 46-- --------- --------- Net cash provided by investing activities ............. ~~23,386~~205 137,~~261~~648 --------- --------- Cash flows from financing activities: Proceeds from issuance of common stock, net of issuance costs ...................................................... 23-- ~~3,351~~19 Common stock repurchases ................................... ~~(103)~~-- (3611) Proceeds from repayments of stockholder notes receivable 10... ~~354~~-- 10 Proceeds from issuance of notes payable .................... -- ~~515~~-- Restriction of cash for collateral of notes payable ........ ~~(500)~~-- -- Release of restricted cash collateral ...................... ~~1,258~~-- -- Repayments of notes payable ................................ ~~(1,826)~~-- (~~1,045~~278) Principal payments under capital lease obligations ......... ~~(88)~~-- (~~212~~38) --------- --------- Net cash provided by (used in) financing activities ... -- (~~1,226~~298) ~~2,927~~ --------- --------- Effect of foreign exchange on cash ............................... 30(48) --23 Net increase (decrease) in cash and cash equivalents ............. ~~13,514~~(144) (202,~~685~~989) Cash and cash equivalents at beginning of period ................. 26,536 8,354 ~~25,917~~ --------- --------- Cash and cash equivalents at end of period ....................... $ 2126,~~868~~392 $ 5,~~232~~365 ========= =========

The accompanying notes are an integral part of these condensed consolidated financial statements. 5 CALICO COMMERCE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -UNAUDITED- NOTE 1 -- PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The unaudited interim condensed consolidated financial statements include the accounts of Calico Commerce, Inc. and its wholly owned subsidiaries (collectively, the "Company"). All material intercompany accounts and transactions have been eliminated in consolidation. The accompanying condensed consolidated financial statements as of June 30, 2002 and for the three months ended June 30, 2002 and 2001 are unaudited and have been prepared on a basis consistent with the March 31, 2002 audited financial statements and include all normal recurring adjustments which are, in the opinion of management, necessary for the fair statement of the results of these periods. These condensed consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and notes thereto included in its Form 10-K for the fiscal year ended March 31, 2002. The results of operations for the three months ended June 30, 2002 are not necessarily indicative of results to be expected for the entire year or any other period. NOTE 2 --RECENT ACCOUNTING PRONOUNCEMENTS In August 2001, the FASB issued Statement of Financial Accounting Standard No. 144 ("SFAS 144") "Accounting for the Impairment or Disposal of Long-Lived Assets", which is effective January 1, 2002. SFAS 144 supersedes FASB Statement No. 121, "Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and the accounting and reporting provisions relating to the disposal of a segment of a business of Accounting Principles Board Opinion No. 30. This Statement retains many of the fundamental provisions of SFAS 121 and expands the scope of discontinued operations to include more disposal transactions. The adoption of SFAS 144 had no material impact on the Company's financial position, results of operations, and cash flows. In August 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations," which is effective for fiscal years beginning after June 15, 2002. Earlier adoption is encouraged. SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company anticipates that the adoption of SFAS 143 will not have a material impact on its financial statements. In July 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities," which is effective for exit or disposal activities initiated after December 31, 2002. SFAS 146 requires that a liability for a cost that is associated with an exit or disposal activity be recognized when the liability is incurred rather than at the 6 date of a commitment to an exit or disposal plan. Examples of costs covered by this standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. SFAS 146 also establishes that fair value is the objective for the initial measurement of the liability. The Company anticipates that the adoption of SFAS 146 will not have a material impact on its financial statements. NOTE 3 --SALE OF ASSETS TO PEOPLESOFT, INC. AND VOLUNTARY PETITION FOR REORGANIZATION RELIEF UNDER CHAPTER 11 On December 12, 2001, Calico Commerce, Inc. executed an Asset Purchase Agreement with PeopleSoft, Inc., a Delaware corporation ("PeopleSoft") providing for the sale by the Company of its intellectual property and substantially all of its operating assets to PeopleSoft for $5.0 million in cash. Pursuant to the terms of the Asset Purchase Agreement ("the Agreement"), on December 14, 2001 (the "Petition Date"), Calico Commerce, Inc. (the "Debtor") filed a voluntary petition for relief under Chapter 11 ("Chapter 11") of title 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of California (the "Bankruptcy Court") under Case No. 01-56101 ("Chapter 11 Case"). On January 25, 2002, the Bankruptcy Court approved the sale of assets to PeopleSoft, and the sale closed on February 6, 2002. At the closing, the Company transferred the purchased assets to PeopleSoft and PeopleSoft paid to the Company the sum of $4.5 million. The remaining $500,000 of the purchase price will be held in escrow until August 31, 2002, to satisfy any potential claims that PeopleSoft may make under the Agreement. In connection with the sale of assets to PeopleSoft, the purchase price payable by PeopleSoft could have been reduced by $1.0 million if specified numbers of key employees did not accept and remain in employment positions with PeopleSoft. Accordingly, the Company established a retention program in the aggregate amount of $160,000, payable equally to 8 key employees, provided that they remained in PeopleSoft's employ for six months after the closing of the sale of assets to PeopleSoft. This commitment has been funded by the Company in an escrow account, and is included in restricted cash, with a corresponding balance in accrued liabilities on the accompanying condensed consolidated balance sheet at June 30, 2002. This amount is expected to be remitted to the 8 key employees by August 31, 2002. As a result of the sale to PeopleSoft, the Company no longer owns any intellectual property and few operating assets, does not intend to continue selling product, and is prohibited by the terms of the Asset Purchase Agreement with PeopleSoft from competing with PeopleSoft's operation of the business. In addition, the Company has a license from PeopleSoft to use the "Calico" name until December 31, 2002, and will thereafter change its name. The Debtor is currently operating as debtor-in-possession in accordance with the applicable provisions of the Bankruptcy Code, provided, however, that as a result of the sale to PeopleSoft, the Company no longer has operating assets and will not continue to sell any products. Although the Chapter 11 Case does not include any of the subsidiaries of Calico Commerce (collectively, the "Non-Debtor Subsidiaries") (only the net realizable value of investments held by Calico Commerce, Inc. in the Non-Debtor Subsidiaries are included as assets in the Chapter 11 Case), the Company expects to windup, dissolve, or liquidate all of its subsidiaries. In addition, prior to filing the Chapter 11 Case, ConnectInc.com and FirstFloor Software, Inc., two of the Company's domestic subsidiaries, were merged into the Company and no longer exist as separate subsidiaries. Consequences of the Chapter 11 Filing As a consequence of the bankruptcy filing, all pending claims and litigation against the Debtor are stayed automatically by Section 362 of the Bankruptcy Code, and absent further order of the Bankruptcy Court, no party may take any action to recover any pre-petition claims, enforce any lien against or obtain possession of any property from Calico. In addition, pursuant to Section 365 of the Bankruptcy Code, Calico may reject or assume pre-petition executory contracts and unexpired leases. Parties affected by the rejections of these contracts or leases may file claims with the Bankruptcy Court in accordance with the Chapter 11 reorganization process. Calico and the equity committee appointed in the bankruptcy proceeding have agreed to extend the period during which the Debtor shall have the exclusive right to propose a plan of reorganization in the bankruptcy proceeding to October 8, 2002. If Calico does not file a plan by October 8, 2002, or does not obtain acceptance of the plan by December 10, 2002, the equity committee may propose a plan of reorganization. Subject to approval of a motion filed by Calico to extend the exclusivity period, with respect to all persons other than the equity committee, if Calico does not file a plan by February 5, 2003, or files a plan by such date but does not obtain approval of the plan prior to April 7, 2003, other parties in interest may be permitted to propose their own plan or plans of reorganization for Calico. The Bankruptcy Court may confirm a plan of reorganization only upon making certain findings required by the Bankruptcy Code, and a plan may be confirmed over the dissent of non-accepting creditors and equity security holders if certain requirements of the Bankruptcy Code are met. The payment rights and other entitlements of pre-petition creditors and the Company's stockholders may be substantially altered by any plan of reorganization confirmed in the Chapter 11 Case. Currently, subject to resolution of outstanding contingent claims, the Company believes that all 7 known, non-disputed, non-contingent claims will be paid in full. However, the Company is subject to certain contingent liabilities as described in Note 8 below. Consequently, there is no assurance that there will be sufficient assets to satisfy the Debtor's pre-petition liabilities in whole. Under a plan of reorganization, pre-petition creditors could receive less than 100% of the face value of their claims. Although the Company expects that it will have excess assets after payment of liabilities, and that there is value for the Company's equity securities, because of the contingent claims, there is no assurance that the holders of the Company's equity securities will receive value for their interests. Until resolution of such claims, the Company may be unable to make a distribution to its equity securities, if at all. In addition, the Company has not yet determined what will be its proposed plan, whether it will liquidate and distribute all remaining assets after satisfaction of liabilities, or whether it will merge or combine with or be sold to another entity. As of June 30, 2002, the Company had $26.4 million of cash and cash equivalents. The Company expects that its cash on hand will provide sufficient funds to allow it to meet its post-petition debt and capital requirements, while a plan of reorganization is developed and considered. However, the ability of the Company to continue as a going concern (including its ability to meet post-petition obligations of the Debtor and its subsidiaries) and the appropriateness of using the going concern basis for its financial statements are dependent upon, among other things, any cash management orders entered by the Bankruptcy Court concerning matters outside of the ordinary course of business, and obtaining confirmation of a plan of reorganization under the Bankruptcy Code. The consolidated financial statements contain no adjustments related to this uncertainty. Background of Filing Prior to the sale of its intellectual property to PeopleSoft, the Company provided interactive selling software that enabled its customers to sell broad and complex product offerings through their different sales channels as well as direct to customers over the Internet. The products sold by the Company were Java and standards-based, and contained advanced configuration, recommendation and pricing technology that allowed the Company's customers to interact directly with users to create a web-based, guided selling experience that improved order accuracy, shortened sales cycles and resulted in improved customer satisfaction. Although applicable to a wide range of industries and markets, the Company historically focused on the telecommunications, financial services, retail, computer hardware and manufacturing industries. With its historical focus primarily in the e-commerce sector, the decline of the Company's performance over the previous eighteen months paralleled that of the economy generally. In January of 2001, the Company tried to respond to the decline by commencing a series of restructurings which substantially reduced its workforce; significantly reduced its use of contract labor; decreased its emphasis on international sales and marketing, resulting in the closure of several foreign sales offices; and reduced its office space and related assets. As revenues continued to dramatically decline and despite restructuring several times, profitability proved elusive, and additional capital was difficult to obtain, the Company concluded that its best course of action was to find a buyer for its products. On December 12, 2001, the Company executed an Asset Purchase Agreement with PeopleSoft, and on February 6, 2002, concluded the sale of its intellectual property and other operating assets to PeopleSoft for a purchase price of $5.0 million. Financial Statement Presentation The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with AICPA Statement of Position 90-7 ("SOP 90-7"), "Financial Reporting by Entities in Reorganization under the Bankruptcy Code," and on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business. However, as a result of the bankruptcy filing, and the contingent liabilities described in Note 9 below, such realization of assets and liquidation of liabilities are subject to uncertainty. While operating as debtor-in-possession under the protection of Chapter 11 of the Bankruptcy Code, and subject to Bankruptcy Court approval or otherwise as permitted in the normal course of business, the Company has sold substantially all of its operating assets. In connection with its plan of reorganization, the Company may liquidate or settle liabilities for amounts other than those reflected in the Condensed Consolidated Financial Statements. Further, a plan of reorganization could materially change the amounts and classifications reported in the consolidated historical financial statements, which do not give effect to any adjustments to the carrying value of assets or amounts of liabilities that might be necessary as a consequence of a plan of reorganization. 8 Should the Company at any time elect to pursue an orderly wind down and complete cessation of its business operations, upon necessary approvals, it will present its balance sheet under the liquidation basis of accounting, under which the accompanying unaudited condensed financial statements would include adjustments that reflect the effects on the recoverability and classification of assets or amounts, as well as the classification and amounts of liabilities of the Company's decision to pursue an orderly wind down. The liquidation basis of accounting requires the Company to accrue an estimate for all liabilities and related expenses to be incurred during the wind down period. Additionally, assets are stated at their net realizable value and liabilities are stated at their anticipated settlement amounts. The estimated net realizable value of assets represents management's best estimate of the recoverable value of the assets, net of selling expenses, and without consideration for the effect that the settlement of any litigation may have on the value of the assets. The assets are held at their net realizable value until they are sold or liquidated. Because the Company has sold substantially all of its assets, including most of its intellectual property, the Company believes that its long-lived assets included on the accompanying balance sheet at June 30, 2002 closely approximates the net realizable value of such remaining assets under the liquidation basis of accounting. Had the Company adopted the liquidation basis of accounting as of June 30, 2002, there likely would be additional adjustments recorded to reduce the carrying value of other current assets, as well as adjustments to accrue the estimated costs of liquidation. As reflected in the Condensed Consolidated Financial Statements, "Liabilities subject to compromise" refer to the Debtor's liabilities incurred prior to the commencement of the Chapter 11 Case. The amounts of the various liabilities that are subject to compromise are included in the financial statements set forth below (the "Condensed Combined Debtor-in-Possession Financial Statements"). These amounts represent the Company's estimate of known or potential pre-petition claims to be resolved in connection with the Chapter 11 Case. Such claims remain subject to future adjustment. Adjustments may result from negotiations, actions of the Bankruptcy Court, further developments with respect to disputed claims, rejection of executory contracts and unexpired leases, the determination as to the value of any collateral securing claims, proofs of claim, or other events. Payment terms for these amounts will be established in connection with the Chapter 11 Case. Pursuant to the Bankruptcy Code, schedules have been filed by Calico with the Bankruptcy Court setting forth the assets and liabilities of Calico. Calico is researching differences between amounts recorded by Calico and claims filed by creditors and expects to resolve any remaining differences as part of the Chapter 11 Case or in the plan of reorganization. All bar dates established by the Bankruptcy Court for the filing of proofs of claim against the Company have expired For most claims. As of June 30, 2002, the ultimate number and allowed amounts of such claims were not known as a result of certain contingent claims; excluding the contingent claims of $62.0 million, filed claims were approximately $4.5 million. The Company has received approval from the Bankruptcy Court to pay or otherwise honor certain of its pre-petition obligations, including employee wages, salaries, benefits and other employee obligations and certain other pre-petition claims, the substantial portion of which has been paid as of June 30, 2002. The pre-petition liabilities that have been approved by the Bankruptcy Court to be paid are not included in "Liabilities subject to compromise" on the accompanying condensed consolidated balance sheets as of June 30, 2002. The liabilities subject to compromise in the condensed consolidated and condensed debtor-in-possession balance sheets consist of the following items at June 30, 2002:

~~THREE~~Accounts ~~MONTHS~~payable ~~NINE~~and ~~MONTHS~~accrued ~~ENDED~~expenses ~~DECEMBER 31, ENDED DECEMBER 31, 2001 2001 ------------------ ------------------ Net revenue~~ ............................~~.................~~ $ ~~598~~918 $Estimated ~~4,188~~allowable ~~Cost~~claims offor ~~net~~rejection ~~revenue~~of ~~.....................................~~executory ~~453~~contracts ~~1,546 -------- -------- Gross profit~~ ..~~..................................~~ ~~145~~828 ~~2,642~~Estimated ~~--------~~allowable ~~--------~~claims ~~Operating~~for ~~expenses:~~rejection ~~Sales~~of ~~and~~unexpired ~~marketing~~leases .....~~............................~~ ~~790~~ 2,~~941~~924 ~~Research~~Taxes ~~and~~payable ~~development~~ ............................ ~~1,334 5,444 General and administrative~~ .......................... ~~1,219~~526 ~~5,552 Impairment and loss on disposal of long~~-~~lived assets 148 1,756 Restructuring and other activities .................. 221 1,836~~ -------- ~~--------~~ Total ~~operating~~liabilities ~~expenses~~subject ~~........................~~to ~~3,712~~compromise ~~17,529 -------- -------- Loss from operations~~ ..................~~.........~~ (3,567) (14,887) Chapter 11 related reorganization items .............. (2,476) (2,476) Realized gains on sale of securities ................. 16,558 16,558 Impairment of long-term investments and intercompany balances ........................................... (4,924) (5,314) Other income (expense), net .......................... (185) 181 -------- -------- Net income (loss) ....................................... $ 5,~~406~~196 ~~$ (5,938)~~ ======== =~~=======~~

The Company has rejected certain leases and executory contracts as allowed by the Bankruptcy Code. For leases that the Company has rejected, the Company has recorded an accrual of $2.9 million for the estimated maximum amount of allowable claims under the Bankruptcy Code, which consists of estimated lease payments for 12 months from the filing for Chapter 11. The accrual is included in liabilities subject to compromise in the accompanying condensed consolidated and condensed debtor-in-possession balance sheets. 9 The $192,000 for Chapter 11 related reorganization items in the condensed consolidated and condensed debtor-in-possession statements of operations consisted of approximately $183,000 of professional fees and $9,000 in fees paid to the U.S. Trustee for the three months ended June 30, 2002. In accordance with SOP 90-7, condensed debtor-in-possession financial statements of the Company are presented below. Such financial statements have been prepared on the same basis as the condensed consolidated financial statements and include investments in its subsidiaries at net realizable value and are presented as follows: CALICO COMMERCE, INC. Condensed Debtor-in-Possession Statement of Operations For the Three Months Ended June 30, 2002 (In Thousands) (Unaudited)

~~DECEMBER~~THREE 31MONTHS ENDED JUNE 30, ~~2001~~2002 ------------ ~~ASSETS~~Net ~~Current~~revenue ~~assets~~Cost of net revenue Gross profit Operating expenses: ~~Cash~~General and ~~cash~~administrative ~~equivalents~~ ......................... ~~$ 20,813 Short-term investments~~ ..............~~..............~~ ~~1,100~~$ ~~Accounts~~802 ~~receivable,~~Total ~~net~~operating expenses .......................... ~~354 Other current assets~~ ...............~~...............~~ ~~3,217~~802 ---------- ~~Total~~Loss ~~current~~from ~~assets~~operations .......................... ~~25,484 Long-term investments~~ ..............~~...................~~ ~~160~~(802) ~~Restricted~~Chapter ~~cash~~11 ~~.......................................~~related ~~600~~reorganization ~~Property~~items ~~and equipment, net~~ ........................... ~~1,128~~(192) ~~Investments~~Net ingain ~~Non-Debtor~~realized ~~Subsidiaries~~from ~~................ 233 Other assets .......................................... 184~~ long-~~--------~~term $investments ~~27,789~~and ~~=========~~intercompany ~~LIABILITIES~~balances ~~AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable~~ .................................. ~~$ 33 Accrued liabilities~~ .....................~~..........~~ ~~1,066~~134 ~~Deferred~~Other ~~revenue~~income/(expense), net .................................. ~~1,263 Current portion of capital lease obligations~~ ...... 85220 ---------- ~~Total~~Loss ~~current~~before ~~liabilities~~income ~~.....................~~taxes ~~2,447 Other liabilities~~ ..................................... ~~331 Liabilities subject to compromise ..................... 3,654 --------- 6,432 --------- Commitments and contingencies~~ (~~Note 8~~640) ~~Stockholders'~~Income ~~equity:~~tax ~~Preferred~~benefit ~~stock~~ ................................... ~~-- Common stock~~ .............~~.........................~~ 3560 ~~Additional paid~~-in--------- ~~capital~~Net ~~........................~~loss ~~226,689 Other comprehensive income~~ ........................ ~~16 Accumulated deficit~~ ............................~~...~~ $ (~~205,383~~580) ~~--------- Total stockholders' equity .................... 21,357 --------- Total liabilities and stockholders' equity ............ $ 27,789~~ ==========

10 CALICO COMMERCE, INC. Condensed Debtor-in-Possession Balance Sheet June 30, 2002 (In Thousands) (Unaudited)

~~2001~~JUNE 30, 2002 ----------- ~~Cash~~ASSETS ~~flows~~Current ~~from~~assets: ~~operating~~Cash ~~activities:~~and ~~Net~~cash ~~loss~~equivalents ................~~.......................................~~ $ (526,~~938)~~165 ~~Adjustments~~Restricted ~~to reconcile net loss to net~~ cash ~~used in operating activities: Depreciation and amortization~~ ............................ ~~1,379~~660 ~~Amortization~~Accounts ofreceivable, ~~unearned~~net ~~compensation~~ .................~~...~~ 7-- ~~Provision~~Other ~~for~~current ~~doubtful accounts .......................... (6) Loss on disposal of~~ assets .....................~~..........~~ 1,~~025~~853 ~~Loss~~----------- onTotal ~~impairment~~current ofassets ~~investments~~ .................~~.......~~ 528,~~314~~678 ~~Impairment of long~~Long-~~lived~~term ~~assets~~investments .......................... ~~910~~40 ~~Forgiveness~~Restricted ofcash ~~stockholder notes receivable~~ .............. ~~591 Changes in assets and liabilities: Accounts receivable~~ ................~~......................~~ ~~2,181~~600 ~~Other~~Property ~~current~~and ~~assets ..................................... (1~~equipment,~~283)~~ ~~Accounts~~net ~~payable~~ ..................~~.......................~~ ~~(1,675)~~12 ~~Accrued~~Investments ~~liabilities~~in ~~......................................~~Non-Debtor ~~(5,640)~~Subsidiaries ~~Deferred revenue~~ .......~~..................................~~ ~~(833)~~-- Other ~~liabilities~~assets .................................~~.......~~ 35184 -------- ~~Net cash used in operating activities ............... (3,933)~~ ---~~-----~~ ~~Cash~~$ ~~flows~~29,514 ~~from~~=========== ~~investing~~LIABILITIES ~~activities:~~AND ~~Purchases~~STOCKHOLDERS' ofEQUITY ~~property~~Current ~~and~~liabilities: ~~equipment~~Accounts payable ...................... ~~(290) Proceeds from sale of property and equipment~~ ...~~..........~~ ~~106~~$ ~~Sale~~338 ofAccrued ~~securities~~liabilities ......................~~.................~~ ~~24,405~~933 ~~Purchases of short~~-~~term~~---------- ~~investments~~Total ~~......................~~current ~~(22,458)~~liabilities ~~Cash paid to fund Non-Debtor subsidiaries~~ ............~~....~~ (41,~~636)~~271 ~~Release~~Liabilities ofsubject ~~restricted cash~~ to ~~cash~~compromise ~~equivalents~~ ........... ~~200 Maturity of short-term investments~~ .~~......................~~ 215,~~354~~196 ~~--------~~Commitments ~~Net~~and ~~cash~~contingencies ~~provided~~(Note by9) ~~investing~~Stockholders' ~~activities ........... 18,681 -------- Cash flows from financing activities~~equity: ~~Proceeds~~Preferred ~~from issuance of common~~ stock, ~~net of issuance costs~~ ..........................~~........................~~ 23-- Common stock ~~repurchases~~ .............................~~....~~ ~~(103)~~35 ~~Proceeds~~Additional ~~from~~paid-in ~~repayments~~capital ~~of stockholder notes receivable~~ . ~~10 Restriction of cash for collateral of notes payable~~ ...... ~~(500) Release of restricted cash collateral~~ ........~~............~~ 1226,~~258~~785 ~~Repayments~~Other ofcomprehensive ~~notes~~income ~~payable~~ ...............~~...............~~ ~~(1,823)~~16 ~~Principal~~Accumulated ~~payments~~deficit ~~under capital lease obligations~~ ....... ~~(91) -------- Net cash used in financing activities~~ ............... (1203,~~226~~789) ----------- ~~Net~~Total ~~increase~~stockholders' inequity ~~cash and cash equivalents~~ ...........~~...........~~ 1323,~~522~~047 ~~Cash and cash equivalents at beginning of period ............... 7,291~~ ----------- ~~Cash~~Total liabilities and ~~cash~~stockholders' ~~equivalents~~equity ~~at end of period~~ ...~~..................~~ $ 2029,~~813~~514 ===========

11 CALICO COMMERCE, INC. Condensed Debtor-In-Possession Statement of Cash Flows For the Three Months Ended June 30, 2002 (In Thousands) (Unaudited)

~~THREE MONTHS NINE MONTHS ENDED DECEMBER 31, ENDED DECEMBER 31, ---------------------- ----------------------~~ 2001 ~~2000 2001 2000~~ -------- ~~--------~~Cash ~~--------~~flows ~~--------~~from ~~Numerator~~operating activities: Net ~~income (~~loss) ....................................................................... ~~$ 9,134 $~~(~~26,045~~580) $Adjustments ~~(5,647)~~to ~~$(64,227)~~reconcile ~~========~~net ~~========~~loss ~~========~~to ~~========~~net ~~Denominator~~cash used in operating activities: ~~Weighted~~Depreciation ~~average~~and ~~shares~~amortization ............................................ ~~35,326~~21 ~~35,200~~Gain ~~35,322~~on ~~35,100~~disposal ~~Weighted average unvested shares~~ of ~~common~~assets ~~stock subject to repurchase~~ ............................................... (~~143~~20) ~~(500)~~Net ~~(188)~~gain realized from long-term investments and intercompany balances ... (~~700~~133) ~~--------~~Restriction ~~--------~~of ~~--------~~cash ~~--------~~under ~~Denominator~~asset ~~for~~sale ~~basic~~escrow ~~calculation~~agreement .................... ~~35,183~~(160) ~~34,700~~Changes ~~35,134~~in ~~34,400~~assets ~~========~~and ~~========~~liabilities: ~~========~~Accounts ~~========~~receivable ~~Weighted~~...................................................... ~~average~~5 ~~effect~~Other ofcurrent ~~dilutive~~assets ~~securities:~~..................................................... ~~Weighted~~122 ~~average~~Accounts ~~common~~payable ~~shares~~......................................................... ~~subject~~152 toAccrued ~~repurchase~~liabilities ...................................................... ~~143~~39 --Deferred --revenue --......................................................... ~~Incremental~~Liabilities ~~shares~~subject ~~from~~to ~~employee~~compromise ~~stock options~~ ........................................ 23(68) -- -- -- -~~-------~~ ~~--------~~Net ~~--------~~cash ~~--------~~used ~~Denominator~~in ~~for~~operating ~~diluted~~activities ~~calculation~~ ............................... ~~35,349~~(622) ~~34,700~~Cash ~~35,134~~flows ~~34,400~~from ~~========~~investing ~~========~~activities: ~~========~~Proceeds ~~========~~from ~~Net~~sale ~~earnings~~of ~~per~~property ~~share:~~and ~~Basic~~equipment ............................. 205 Net cash collected from fund Non-Debtor subsidiaries ..................... $854 ~~0.26~~------- $Net ~~(0.75)~~cash $provided ~~(0.16)~~by $investing (1activities .~~87)~~.......................... ~~========~~1,059 ~~========~~Net ~~========~~increase ~~========~~in ~~Diluted~~cash and cash equivalents ...................................... 437 Cash and cash equivalents at beginning of period ............................... $25,728 ~~0.26~~------- $Cash ~~(0.75)~~and $cash ~~(0.16)~~equivalents $at ~~(1.87)~~end ~~========~~of ~~========~~period ~~========~~..................................... $26,165 ========

12 NOTE 4: REVENUE RECOGNITION The Company did not record any revenues during the three months ended June 30, 2002, nor does it expect to record any revenues in the foreseeable future. In addition, as a part of the sale of substantially all its assets to PeopleSoft in February 2002, PeopleSoft has agreed to support the most recent releases of Calico's products for up to one year, and accordingly, the Company ceased to recognize revenue on the amortization of deferred maintenance and support obligations (See Note 5). Historically, revenues were derived from software licenses and related services, which included implementation and integration, technical support, training and consulting and were recognized under the applicable provisions set forth under AICPA Statement of Position No. 97-2 ("SOP No. 97-11). For contracts with multiple elements, and for which vendor-specific objective evidence of fair value for the undelivered elements exists, revenue has been recognized for the delivered elements based upon the residual contract value as prescribed by Statement of Position No. 98-9, "Modification of SOP No. 97-2 with Respect to Certain Transactions." All revenues reported for the three months ended June 30, 2001 were recognized in accordance with SOP No. 97-2 and SOP No. 98-9. NOTE 5: PRE-FILING ACCOUNTS RECEIVABLE AND CUSTOMER SUPPORT OBLIGATIONS As part of the sale of assets to PeopleSoft, PeopleSoft assumed responsibility for the collection of certain accounts receivable of the Company through May 6, 2002, and remitted the proceeds to Calico. As of June 30, 2002, there remained $1.1 million of accounts receivable outstanding, which Calico continues to try to collect, and which is fully reserved on the accompanying balance sheet. In addition, PeopleSoft has agreed to support the most recent releases of the Company's products for up to one year for the contracts and customers transferred to PeopleSoft. This will provide most customers with support for the period and support level for which they originally contracted with the Company. In the quarter ended March 31, 2002, the Company reclassified the remaining amount of deferred revenue for these support obligations to other accrued liabilities, and ceased to recognize revenue on the amortization of these obligations. The Company periodically assesses actual and contingent liabilities surrounding these support obligations and adjusts the amount of the liability as appropriate. As of June 30, 2002, the total liability included on the consolidated balance sheet related to these obligations totaled approximately $149,000. Those support obligations which were not assumed by PeopleSoft, and which the Company intends to reject, were reclassified as liabilities subject to compromise. NOTE 6: NET EARNINGS PER SHARE The following table sets forth the computation of basic and diluted net earnings per share for the periods indicated (in thousands, except per share amounts):

~~ESTIMATED~~THREE ~~EFFECT~~MONTHS OFENDED ~~NET~~JUNE ~~MINIMUM~~30, ~~SUBLEASE REJECTED MINIMUM YEAR RENTALS RENTALS LEASES RENTALS~~ ---- ------- ---------------- 2002 2001 ----------- ----------- ~~2002~~Numerator: Net income/(loss) ...............................~~...................~~ $ ~~720 $~~ (~~335~~837) $ (~~104~~8,525) $Denominator: ~~281~~Weighted ~~2003~~average shares .........................~~.........................~~ 235,~~867~~868 (135,~~341)~~325 ~~(1,246)~~Weighted ~~280~~average ~~2004~~unvested ~~..................................................~~shares ~~2,687~~of ~~(373)~~common ~~(2,214)~~stock ~~100~~subject ~~2005~~to ~~..................................................~~repurchase ~~2,661 (285) (2,356) 20 2006~~ ..........~~........................................~~ ~~1,190~~-- (~~214~~250) ~~(959) 17~~ ------- ----~~---~~ ------- ----~~---~~ ~~Total~~Denominator ~~minimum~~for ~~lease~~basic ~~obligations~~and diluted calculation ... 35,868 35,075 =========== =========== Net loss per share: Basic and diluted .............................. $~~10,125~~ $(~~2,548~~0.02) $ (~~6,879~~0.24) ~~$ 698~~ ======= ====~~===~~ ======= ====~~===~~

13 NOTE 7: COMPREHENSIVE INCOME (LOSS) Comprehensive income is defined as the change in equity during the period arising from transactions and other events and circumstances, excluding transactions resulting from investments by stockholders and distributions to stockholders. The primary difference between net loss and comprehensive income/(loss) for the Company arises from foreign currency translation adjustments and unrealized gains/(losses) on securities. As of June 30, 2002, accumulated other comprehensive loss totaled approximately $93,000. NOTE 8: RELATED PARTY TRANSACTIONS: In exchange for the issuance of Common Stock upon the exercise of options in the years ended March 31, 2000 and 1999, the Company received notes receivable from certain employees of the Company which bore simple interest at various rates ranging from 5.54% to 6.65% per annum. The notes, which were collateralized by the underlying shares of Common Stock, were full recourse and matured on various dates through fiscal 2002. During fiscal 2001, two of these notes were renegotiated and portions of the notes forgiven. One note receivable in the amount of $65,000, including accrued interest, was renegotiated for a cash payment of $10,000. The remaining $55,000 of the note was forgiven and recorded as an expense in fiscal year 2001. The second note renegotiated was in the amount of $404,000, including accrued interest. The note holder agreed to perform services without compensation in exchange for reducing the note principal. The remaining $388,000 of the note was forgiven and recorded as an expense in fiscal year 2001. In addition, a third stockholder note in the amount of $309,000, including accrued interest, was forgiven during fiscal 2001. The entire amount of the note was recorded as an expense for the year ended March 31, 2001. In July 2001, as part of a separation agreement and release with its former President and Chief Executive Officer, the Company agreed to forgive the remaining principal balance and all unpaid interest due, totaling approximately $607,000, related to notes received in exchange for the issuance of Common Stock in lieu of compensation for services performed subsequent to the date of the separation agreement. This amount was recorded as compensation expense over the period the services were performed. The Company repurchased all unvested shares related to these notes, and offset the purchase price of such repurchase against the amounts due on the notes. In March 2000, the Company advanced $450,000 to an employee for a home loan and received a note receivable which bears simple interest at a rate of 6.45%. The employee granted the Company a security interest in all of the employee's assets, including vested and unvested stock options granted to the employee and any proceeds from the sale of such options, to secure the note. The note was due November 30, 2000. During fiscal 2001, the maturity date on this note was extended to November 30, 2001. The individual was no longer employed by the Company as of February 2001. As of June 30, 2002, the note remains unpaid and outstanding, and the Company is continuing collection efforts. In July 2001, Mr. James B. Weil replaced Mr. Alan Naumann as the Company's Chief Executive Officer and Mr. Gary Sbona was appointed to the Board of Directors. In addition, the Company entered into an agreement with Regent Pacific Management Corporation ("Regent Pacific"), a management firm of which Mr. Sbona is the Chief Executive Officer and Mr. Weil is a principal, pursuant to which Regent Pacific has provided management services to the Company, including the services of Mr. Sbona and Mr. Weil, and other Regent Pacific personnel. The initial agreement had a 6 month term commencing July 2001 with a minimum cash compensation to Regent Pacific of $1.3 million for that period. As of December 31, 2001 the Company had recorded all $1.3 million of management fees related to this agreement. In December 2001, the Company amended the agreement with Regent Pacific to extend the noncancellable term of the agreement to May 2002, and in connection herewith, paid to Regent Pacific $750,000 as fees due for the noncancellable portion of the agreement. In addition, Mr. Gary Sbona was granted options to purchase 3,548,777 shares of the Company's Common Stock. Vesting on all of these options accelerated as a result of the sale to PeopleSoft, and these options are now fully vested and exercisable. In September of 1999, the Company entered into an agreement with Accenture to procure consulting services. Mr. Joel Friedman, a member of the Company's Board of Directors, is a director of this professional services company. Under this purchase agreement, the Company agreed to engage Accenture to provide a minimum of $1.0 million of consulting services over the following 18 month period, ending March 2001. The services provided to the Company were priced reflecting a customary discount from the provider's standard rates. As of June 30, 2002, there was $165,000 remaining under this purchase obligation. This amount is included in liabilities subject to compromise on the Company's balance sheet as of June 30, 2002. 14 As a result of the sale to PeopleSoft, 1% of the purchase price payable by PeopleSoft, or $50,000, was paid to David Powell, Inc. as a bonus relating to services rendered by Mr. Leslie E. Wright, interim Chief Financial Officer of the Company during the quarter ended June 30, 2002. The services of Mr. Wright were provided to the Company under an agreement with David Powell, Inc. The term of this agreement expired in May 2002. Options granted under the Company's 2000 Non-officer Stock Option Plan are subject to acceleration upon a change of control of the Company. As a result of the sale to PeopleSoft, 25% of the options outstanding under this plan accelerated and became vested and exercisable. All options outstanding under the Company's stock option plans terminated if not assumed by PeopleSoft. Accordingly, immediately prior to the closure of the sale to PeopleSoft, options to purchase 543,345 shares of common stock were exercised at a weighted average exercise price of $0.175 per share, and options to purchase 2,064,406 shares were terminated and cancelled. Except for the options outstanding to Mr. Gary Sbona, the Company no longer has any options outstanding under its stock option plans. NOTE 9: COMMITMENTS AND CONTINGENCIES: The Company leases office space for its current corporate headquarters under a month-to-month agreement. As part of its bankruptcy filing, the Company rejected certain of its leases as allowed by the Bankruptcy Code. Certain of the facility leases that the Company intends to reject had been previously exited and the estimated future sub-lease losses through the term of the leases were accrued under the restructuring plans. The Company recorded an accrual in the three-month period ended December 31, 2001, of $2.3 million for the estimated maximum amount of allowable claims under the Bankruptcy Code. The accrual is included in liabilities subject to compromise in the accompanying condensed consolidated balance sheets. Future minimum payments under non-cancelable operating leases by fiscal year, before and after giving effect to leases which the Company has rejected, are as follows (in thousands):

~~EXCESS~~ESTIMATED ~~FACILITIES~~EFFECT ~~EMPLOYEE~~OF ~~AND~~NET ~~COSTS~~MINIMUM ~~EQUIPMENT~~SUBLEASE ~~TOTAL~~REJECTED MINIMUM YEAR RENTALS RENTALS LEASES RENTALS ---- --- --------- ------- ~~Balance at March 31, 2001 ............................. $ 217 $ 588 $ 805 Adjustment to reserve .............................. (37) (6) (43) Reserve established, April restructuring ........... 753~~ ---- ~~753 Reserve utilized ................................... (777) (185) (962)~~ ------- ---- --- -------- ~~Balance~~2002 ~~at June 30, 2001~~ .............................. ~~$ 156 $ 397 $ 553 Adjustment to reserve~~ .........~~.....................~~ $ 720 $ (~~121~~335) --$ (~~121~~146) ~~Reserve~~$ ~~established,~~239 ~~July~~2003 ~~restructuring~~ ............ ~~985 162 1,147 Reserve utilized~~ ...........................~~........~~ ~~(875)~~2,867 (571,341) (~~932~~1,492) ~~-------~~34 ~~-------~~2004 ~~------- Balance at September 30, 2001~~ ......................... ~~$ 145 $ 502 $ 647 Adjustment to reserve~~ .............. 2,687 (373) (2,293) 21 2005 ................ ~~(27) -- (27) Adjustment for rejected leases~~ ....................... --2,661 (~~351~~285) (~~351~~2,356) ~~Reserve~~20 ~~established,~~2006 ~~December restructuring~~ ........ ~~248 -- 248 Reserve utilized~~ ...............................~~....~~ ~~(225)~~1,190 (95214) (~~320~~959) 17 ----------- ----------- ----------- ~~Balance~~----------- atTotal ~~December~~minimum ~~31,~~lease ~~2001~~obligations .......~~...................~~ $ ~~141~~10,125 $ 56(2,548) $ ~~197~~(7,246) $ 331 =========== =========== =========== ===========

LETTER OF CREDIT At June 30, 2002, the Company maintained a $600,000 letter of credit to collateralize the lease deposit on its corporate headquarters. As of June 30, 2002, this letter of credit was classified as long-term restricted cash on the accompanying balance sheet. The Company expects that the maximum amount of the allowable claim for rejection of the lease on its corporate headquarters will be offset against this letter of credit and its related security deposit of approximately $184,000, subject to approval by the Bankruptcy Court. PURCHASE COMMITMENTS In September of 1999, the Company entered into an agreement with Accenture to procure consulting services. Mr. Joel Friedman, a member of the Company's Board of Directors, is a director of this professional services company. Under this purchase agreement, the Company agreed to engage Accenture to provide a minimum of $1.0 million of consulting services over the following 18 month period, ending March 2001. The services provided to the Company were priced reflecting a customary discount from the provider's standard rates. As of June 30, 2002 there was $165,000 15 remaining under this purchase obligation, which is included in liabilities subject to compromise on the accompanying balance sheet. In addition, the Company entered into an agreement with Regent Pacific Management Corporation ("Regent Pacific"), a management firm of which Mr. Sbona is the Chief Executive Officer and Mr. Weil is a principal, pursuant to which Regent Pacific will provide management services to the Company, including the services of Mr. Sbona and Mr. Weil, and other Regent Pacific personnel. The initial agreement had a 6 month term commencing July 2001 with a minimum cash compensation to Regent Pacific of $1.3 million for that period. As of December 31, 2001 the Company had recorded all $1.3 million of management fees related to this agreement. In December 2001, the Company amended the agreement with Regent Pacific to extend the noncancellable term of the agreement to May 2002, and in connection herewith, paid to Regent Pacific $750,000 as fees due for the noncancellable portion of the agreement. There are no additional amounts payable to Regent Pacific at June 30, 2002. Regent Pacific continues to provide management services to the Company under this agreement, which are covered by the $750,000 previously paid. EMPLOYEE RETENTION PROGRAM In connection with the sale of assets to PeopleSoft, the purchase price payable by PeopleSoft could have been reduced by $1.0 million if specified numbers of key employees did not accept and remain in employment positions with PeopleSoft. Accordingly, the Company established a retention program in the aggregate amount of $160,000, payable equally to 8 key employees, provided that they remain in PeopleSoft's employ for six months after the closing of the sale of assets to PeopleSoft. This commitment is included in accrued liabilities as of June 30, 2002 on the Company's consolidated balance sheet, and is expected to be paid in full by August 31, 2002. CONTINGENCIES SECURITIES CLASS ACTIONS On or around March 27, 2001, a class action lawsuit was filed on behalf of all holders of Calico securities in the Southern District of New York against Calico, our former chief executive officer Alan Naumann, directors William Unger and Bernard Lacroute, and former director William Paseman, SDR Investors, LP v. Calico Commerce, Inc. et al., 01CIV 2601. Plaintiffs allege, among other things, that the investment banks which underwrote Calico's initial public offering of securities, and others, received commissions and made agreements which were not disclosed, but should have been disclosed in the initial public offering prospectus, and which affected the price of Calico securities. Plaintiffs attempt to state claims under Sections 11, 12 and 15 of the Securities Act of 1933, and under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated by the Securities Exchange Commission. Other class action lawsuits on behalf of essentially the same putative class, making substantially the same allegations and making some or all of the same claims, have been filed in the same jurisdiction by different lawyers. Several of these lawsuits also name Calico's former chief financial officer Art Knapp. All of the Calico actions have been consolidated for pre-trial purposes before Judge Shira A. Scheindlin, United States District Judge for the Southern District of New York, together with more than one thousand actions making virtually identical allegations against the same and additional investment banks, approximately 350 other issuers of securities which conducted initial public offerings in 1998-2000, and numerous individuals associated with such issuers. The consolidated litigation is known as the "Initial Public Offering Securities Litigation." Plaintiffs filed an amended class action complaint that makes substantially the same allegations against the individual defendants, but did not name Calico itself as a defendant, due to the existence of the automatic stay of the Chapter 11 Case. The individual defendants have filed a claim for indemnification against individual Calico in the Chapter 11 Case. No specific amount of damages is sought against the Calico defendants in the litigation, and no time has been set for the Calico defendants to respond to the complaints. The Company believes that the allegations against the individual Calico Defendants in the litigation are without merit, and intends to vigorously defend the litigation. On April 4, 2002, a proof of claim was filed against the Company with the Bankruptcy Court by the plaintiffs asserting a class action claim in excess of $62.0 million. The Company intends to object to this claim in the Chapter 11 Case. NOTE 10: RESTRUCTURING The following table lists the components of the Company's restructuring charges for the three months ended June 30, 2002 (in thousands):

~~THREE~~EXCESS ~~MONTHS~~FACILITIES ~~ENDED~~EMPLOYEE ~~DECEMBER~~AND ~~31,~~COSTS ~~------------------------------------------------~~EQUIPMENT ~~2001 2000 2001 2000 -------- -------- -------- -------- % OF~~ TOTAL ~~NET REVENUE NET REVENUE: License ....................................... $ 458 $ 1,569 42% 29% Services ...................................... 633 3,933 58 71~~ -------- ---~~-----~~ -------- ---~~-----~~ ~~Total net revenue ......................... 1,091 5,502 100 100~~ -------- ---~~-----~~ ~~--------~~Balance ~~--------~~at ~~COST~~March ~~OF NET REVENUE: License ....................................... 12 382 1 7 Amortization of purchased technology .......... -- 469 -- 9 Services ...................................... 850 4~~31,~~375~~ 782002 ~~79 -------- -------- -------- -------- Total cost of net revenue~~ ....~~............~~ ~~862~~36 ~~5,226~~24 7960 95Reserve ~~--------~~utilized ~~-------- -------- -------- Gross profit~~ ..........~~...................~~ 229 276 21 5 -------- -------- -------- -------- OPERATING EXPENSES: Sales and marketing ........................... 1,674 11,039 153 201 Research and development ...................... 1,334 5,866 122 107 General and administrative .................... 1,219 2,370 112 43 Amortization of intangibles ................... -- 7,481 -- 135 Impairment of long-lived assets ............... 148 -- 14 -- Restructuring and other activities ............ 221 -- 20 -- -------- -------- -------- -------- Total operating expenses ................. 4,596 26,756 421 486 -------- -------- -------- -------- Loss from operations ............................. (~~4,367~~36) ~~(26,480) (400) (481) Chapter 11~~-~~related reorganization items .......... (2,476)~~ -- (~~227~~36) -- ~~Interest and other income, net .................. 15,957 849 1,463 15~~ --------- -------- --- ----- -------- ~~Net~~Balance ~~loss~~at ~~before~~June ~~income taxes ..................... 9~~30,~~114~~ ~~(25,631)~~2002 ~~836 (466) Benefit for income taxes~~ .....~~.................~~ ~~(20)~~$ ~~414 (2) 8~~ --~~------~~ ~~-------- -------- -------- Net loss .........................................~~ $ ~~9,134~~24 $~~(26,045)~~ ~~838%~~24 ~~(474)%~~ ======== === ===== ====== == =========

16 NOTE 11: GAIN ON DISPOSAL OF LONG-LIVED ASSETS During the three months ended June 30, 2002, the Company sold excess furniture and fixtures and computer equipment with a net book value of approximately $185,000 for proceeds of approximately $205,000, which were paid in July 2002 and included in other current assets on the June 30, 2002 balance sheet. The Company recorded a net gain of approximately $20,000 on the sale of those assets, which represented substantially all of the Company's remaining long-lived assets. NOTE 12: IMPAIRMENT OF LONG TERM INVESTMENTS During the three months ended June 30, 2002, the Company recorded an impairment charge of $120,000 against one of its long-term investments to reflect this investment at its estimated net realizable value. 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, identified by words such as "believes," "expects," "intends," "may," "will," and similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Our forward-looking statements include statements about our future plans, operations, bankruptcy proposals and plan of reorganization. Our actual results could differ substantially from those anticipated in these forward-looking statements as a result of many factors, including those set forth later in this section. The following discussion should be read in conjunction with our financial statements and related notes included elsewhere in this report, as well as our reports filed with the Securities and Exchange Commission. OVERVIEW On December 12, 2001, we executed an Asset Purchase Agreement with PeopleSoft, Inc., a Delaware corporation ("PeopleSoft") providing for the sale of our intellectual property and substantially all our operating assets to PeopleSoft for $5.0 million in cash. Pursuant to the terms of the Asset Purchase Agreement, on December 14, 2001 (the "Petition Date"), we filed a voluntary petition for relief under Chapter 11 ("Chapter 11") of title 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of California (the "Bankruptcy Court") under Case No. 01-56101 ("Chapter 11 Case"). On January 25, 2002, the U.S. Bankruptcy Court approved the sale to PeopleSoft, and the sale closed on February 6, 2002. At the closing, we transferred the purchased assets to PeopleSoft and PeopleSoft paid to Calico the sum of $4.5 million. The remaining $500,000 of the Agreement, $500,000 of the purchase price has been held in escrow until August 31, 2002, to satisfy any potential claims that PeopleSoft may make under the Agreement. We are currently operating as debtor-in-possession in accordance with the applicable provisions of the Bankruptcy Code, provided, however, that as a result of the sale to PeopleSoft, we no longer have operating assets and will not continue to sell any products. Although the Chapter 11 Case does not include any of our subsidiaries (collectively, the "Non-Debtor Subsidiaries") (only the net realizable value of investments held by Calico Commerce in the Non-Debtor Subsidiaries are included as assets in the Chapter 11 Case), we expect to windup, dissolve, or liquidate all of our subsidiaries. In addition, prior to filing the Chapter 11 Case, ConnectInc.com and FirstFloor Software, Inc., two of our domestic subsidiaries, were merged into Calico Commerce, Inc. and no longer exist as separate subsidiaries. Prior to our sale to PeopleSoft, we have historically derived revenues from software licenses and related services, which included implementation and integration, technical support, training and consulting and were recognized under the applicable provisions set forth under SOP 97-2 and SOP 98-9. All historical reported revenues have been recognized in accordance with these provisions. Historically, our operating expenses have been classified under three general categories: sales and marketing, research and development and general and administrative. We expect to continue to incur certain operating expenses until our bankruptcy proceeding is concluded. We expect that the substantial majority of these expenses will be general and administrative in nature, as we discontinued sales and marketing and research and development activities concurrent with our sale to PeopleSoft. For the three months ended June 30, 2002, we incurred a loss from operations of $836,000 and negative cash flows from operations of $301,000. As of June 30, 2002, we had an accumulated deficit of $203.6 million. CONSEQUENCES OF THE CHAPTER 11 FILING As a consequence of the bankruptcy filing, all pending claims and litigation against Calico are stayed automatically by Section 362 of the Bankruptcy Code, and, absent further order of the Bankruptcy Court, no party may take any action to recover any pre-petition claims, enforce any lien against or obtain possession of any property from us. In addition, pursuant to Section 365 of the Bankruptcy Code, we may reject or assume pre-petition executory contracts and unexpired leases. Parties affected by the rejections of these contracts or leases may file claims with the Bankruptcy Court in accordance with the Chapter 11 reorganization process. We have filed motions to assume or reject substantially all of our pre-petition executory contracts and the bar dates to file claims arising from such rejection have all run. It is anticipated that any remaining executory contracts and unexpired leases will be assumed or rejected through the Company's plan of reorganization. Calico and the equity committee appointed in the Chapter 11 Case have agreed to extend the period during which Calico shall have the exclusive right to propose a plan of reorganization in the bankruptcy proceeding to October 8, 2002. If Calico does not file a plan by October 8, 2002, or does not obtain acceptance of the plan by December 10, 2002, the equity committee may propose a plan of reorganization. Subject to approval of a motion filed by Calico to extend the exclusivity period, with respect to all persons other than the equity committee, if Calico does not 18 file a plan by February 5, 2003, or files a plan by such date but does not obtain approval of the plan prior to April 7, 2003, other parties in interest may be permitted to propose their own plan or plans of reorganization for Calico. The Bankruptcy Court may confirm a plan of reorganization only upon making certain findings required by the Bankruptcy Code, and a plan may be confirmed over the dissent of non-accepting creditors and equity security holders if certain requirements of the Bankruptcy Code are met. The payment rights and other entitlements of pre-petition creditors and our stockholders may be substantially altered by any plan of reorganization confirmed in the Chapter 11 Case. Currently, subject to resolution of outstanding contingent claims, we believe that all known, non-disputed, non-contingent claims will be paid in full. However, we are subject to certain contingent liabilities as described in Note 8 to the financial statements. Until resolution of such claims, Calico may be unable to make a distribution to its equity securities, if at all. Consequently, there is no assurance that there will be sufficient assets to satisfy our pre-petition liabilities in whole, or to make a distribution to stockholders, until after resolution of these contingent claims. Although we expect that we will have excess assets after payment of liabilities, and that there is value for Calico's equity securities, there is no assurance that the holders of the our equity securities will receive value for their interests. In addition, we have not yet finally determined what our proposed plan will be, whether we will liquidate and distribute all remaining assets after satisfaction of liabilities, or whether we will merge or combine with or be sold to another entity. As of June 30, 2002, we had $26.4 million of cash and cash equivalents. We expect that our cash on hand will provide sufficient funds to allow us to meet our post-petition debt and capital requirements, while a plan of reorganization is developed and considered. However, our ability to continue as a going concern (including our ability to meet post-petition obligations of Calico and its subsidiaries) and the appropriateness of using the going concern basis for our financial statements are dependent upon, among other things, any cash management orders entered by the Bankruptcy Court concerning matters outside of the ordinary course of business, and obtaining confirmation of a plan of reorganization under the Bankruptcy Code. BACKGROUND OF FILING Prior to the sale of our intellectual property to PeopleSoft, we provided interactive selling software that enabled our customers to sell broad and complex product offerings through their different sales channels as well as direct to customers over the Internet. Calico's products were Java and standards-based, and contained advanced configuration, recommendation and pricing technology that allowed our customers to interact directly with users to create a web-based, guided selling experience that improved order accuracy, shortened sales cycles and resulted in improved customer satisfaction. Although applicable to a wide range of industries and markets, we historically focused on the telecommunications, financial services, retail, computer hardware and manufacturing industries. With our historical focus primarily in the e-commerce sector, the decline of our performance over the previous eighteen months paralleled that of the economy generally. In January of 2001, we tried to respond to the decline by commencing a series of restructurings which substantially reduced our workforce; significantly reduced our use of contract labor; decreased our emphasis on international sales and marketing, resulting in the closure of several foreign sales offices; and reduced our office space and disposed of related assets. As revenues continued to dramatically decline and despite restructuring several times, profitability proved elusive, and additional capital was difficult to obtain, we concluded that our best course of action was to find a buyer for our products. On December 12, 2001, we executed an Asset Purchase Agreement with PeopleSoft, and on February 6, 2002, concluded the sale of our intellectual property and other operating assets to PeopleSoft for a purchase price of $5.0 million. CRITICAL ACCOUNTING POLICIES Our accompanying Condensed Consolidated Financial Statements have been prepared in accordance with SOP 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code," and on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business. However, as a result of the bankruptcy filing, and the contingent liabilities described in Note 9 to the Condensed Consolidated Financial Statements, such realization of assets and liquidation of liabilities are subject to uncertainty. While operating as debtor-in-possession under the protection of Chapter 11 of the Bankruptcy Code, and subject to Bankruptcy Court approval or otherwise permitted in the normal course of business, we have sold substantially all of our assets. In connection with our plan of reorganization, we may liquidate or settle liabilities for amounts other that those reflected in the Condensed Consolidated Financial Statements. Further, a plan of reorganization could materially change the amounts and classifications reported in the consolidated historical financial statements, which do not give effect to any adjustments to the carrying value of assets or amounts of liabilities that might be necessary as a consequence or plan of reorganization. 19 Should we at any time elect to pursue an orderly wind down and complete cessation of our business operations, we will present our balance sheet under the liquidation basis of accounting, under which the accompanying unaudited condensed financial statements would include adjustments that reflect the effects on the recoverability and classification of assets or amounts, as well as the classification and amounts of liabilities of our decision to pursue an orderly wind down. The liquidation basis of accounting requires us to accrue an estimate for all liabilities and related expenses to be incurred during the wind down period. Additionally, assets are stated at their net realizable value and liabilities are stated at their anticipated settlement amounts. The estimated net realizable value of assets represents management's best estimate of the recoverable value of the assets, net of selling expenses, and without consideration for the effect that the settlement of any litigation may have on the value of the assets. The assets are held at their net realizable value until they are sold or liquidated. Because we have sold substantially all of our assets, including most of our intellectual property, we believe that our long-lived assets included on the accompanying balance sheet at June 30, 2002 closely approximates the net realizable value of such remaining assets under the liquidation basis of accounting. Had we adopted the liquidation basis of accounting as of June 30, 20 2002, there likely would be additional adjustments recorded to reduce the carrying value of other current assets, as well as adjustments to accrue the estimated costs of liquidation. RESULTS OF OPERATIONS COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2002 AND 2001 REVENUE We recorded no revenues during the quarter ended June 30, 2002, as compared to revenues of $2.3 million in the quarter ended June 30, 2001. This decrease was a direct result of the sale to PeopleSoft in February 2002. As a result of this transaction, we do not expect to generate any additional revenues in the foreseeable future. As a part of the sale to PeopleSoft, PeopleSoft has agreed to support the most recent releases of Calico's products for up to one year and we ceased to recognize revenue on the amortization of the related deferred maintenance and support obligations. COST OF REVENUE We recorded no cost of revenues during the quarter ended June 30, 2002, as compared to cost of revenues of $1.5 million in the quarter ended June 30, 2001. This decrease was a direct result of the sale to PeopleSoft in February 2002. As a result of this transaction, we do not expect to incur any additional cost of revenues from software licensing or support and maintenance in future periods. As a part of the sale to PeopleSoft, PeopleSoft has agreed to support the most recent releases of Calico's products for up to one year, and the Company ceased to recognize revenue on the amortization of it related deferred maintenance and support obligations. OPERATING EXPENSES Sales and Marketing. We incurred no sales and marketing expenses in the quarter ended June 30, 2002, as compared $3.6 million in the quarter ended June 30, 2002. This decrease was a direct result of the sale to PeopleSoft in February 2002, and our Chapter 11 filing in December 2001. Research and Development. We incurred no research and development expenses in the quarter ended June 30, 2002, as compared to $2.6 million in the same quarter of fiscal 2002. This decrease was a direct result of the sale to PeopleSoft in February 2002, and our Chapter 11 filing in December 2001. General and Administrative. General and administrative expenses decreased to $836,000 in the quarter ended June 30, 2002 from $2.4 million in the comparable quarter in fiscal 2002. General and administrative expenses decreased in absolute dollars in fiscal 2002 due to a decrease in the number of administrative personnel and personnel-related costs. We expect general and administrative costs to continue to decline significantly as a result of our sale to PeopleSoft and reductions in personnel to one employee. Restructuring. During the quarter ended June 30, 2001 we undertook our second restructuring designed to reduce operating expenses. In connection with this restructuring, we reduced our workforce by another 77 employees, who were employed in all functional areas of Calico. All employees were notified of their terminations during the quarter that ended June 30, 2001. The total amount of the restructuring charge was $710,000 comprised entirely of employee-related expenses for employee terminations and entirely cash-related charges. In July 2001, we announced a third strategic restructuring plan, designed to further reduce operating expenses. In this restructuring, we reduced our workforce by approximately 80 full-time positions and closed our India operations. This restructuring affected headcount in all functional areas. The total amount of the restructuring charge was approximately $1.1 million, comprised of $985,000 in employee-related expenses for employee terminations, and $162,000 of estimated expenses for facilities-related charges. All charges incurred were cash-related charges. In connection with the sale to PeopleSoft, approximately 40 of our employees became employees of PeopleSoft, leaving us with approximately 5 employees to perform the remaining tasks necessary to conclude our bankruptcy proceedings and other administrative matters. In anticipation of this sale and the pending Bankruptcy filing, we further reduced our workforce by approximately 9 full-time positions in December 2001. 21 The total amount of the related restructuring charge was approximately $248,000 during the quarter ended December 31, 2002, all of which consisted of employee-related expenses for employee terminations. During the quarter ended June 30, 2002, we incurred costs totaling approximately $36,000 related to the restructuring, all of which were cash-related. By June 30, 2002 we had reduced our workforce down to one employee as appropriate going forward consistent with administration of our Chapter 11 case and proposal and confirmation of our plan of reorganization. The remaining reserve for this restructuring is approximately $24,000 which is included in accrued liabilities. The following table lists the components of restructuring charges and reserve balances at each quarter end since March 31, 2001:

~~NINE~~EXCESS ~~MONTHS~~FACILITIES ~~ENDED~~EMPLOYEE ~~DECEMBER~~AND ~~31,~~COSTS EQUIPMENT TOTAL -----------~~-------------------------------------~~ ~~2001 2000 2001 2000~~ -------- ---~~-----~~ -------- ---~~-----~~ %Balance OFat ~~TOTAL~~March ~~NET~~31, ~~REVENUE~~2001 ~~NET REVENUE: License~~ ........................~~...............~~ $ ~~2,131~~217 $ ~~10,056~~588 ~~45%~~$ ~~41%~~805 ~~Services~~Adjustment to reserve ......................... (37) (6) (43) Reserve established, April restructuring ......~~.......~~ ~~2,591~~753 ~~14,333 55 59~~ --~~------~~ ~~--------~~753 ~~--------~~Reserve ~~--------~~utilized ~~Total net revenue~~ .............................. ~~4,722~~(777) ~~24,389~~(185) ~~100~~(962) ~~100~~ -------- --- ----- ------ -- --------- ~~COST~~Balance OFat ~~NET~~June ~~REVENUE:~~30, ~~License~~2001 .........................~~..............~~ ~~202~~$ ~~1,014~~156 4$ 4397 ~~Amortization~~$ of553 ~~purchased~~Adjustment ~~technology~~to ~~..........~~reserve ~~-- 1,449 -- 6 Services~~ .........................~~.............~~ ~~2,739~~(121) ~~15,245 58 63~~ --~~------~~ ~~--------~~(121) ~~--------~~Reserve ~~--------~~established, ~~Total~~July ~~cost~~restructuring ~~of net revenue~~ .......~~.........~~ ~~2,941~~985 17162 1,~~708~~147 62Reserve 73utilized ~~-------- -------- -------- -------- Gross profit~~ .............................. ~~1,781~~(875) ~~6,681~~(57) 38(932) 27 -------- --- ----- ------ -- --------- ~~OPERATING~~Balance ~~EXPENSES:~~at ~~Sales~~September ~~and~~30, ~~marketing~~2001 ....................~~.......~~ ~~6,549~~$ ~~28,285~~145 ~~139~~$ ~~116~~502 ~~Research~~$ ~~and~~647 ~~development~~Adjustment to reserve ......................... ~~5,444~~(27) ~~16,973~~-- ~~115~~(27) 70Adjustment ~~General~~for ~~and~~rejected ~~administrative~~leases ................~~....~~ ~~5,553~~-- ~~5,700~~(351) ~~118~~(351) 23Reserve ~~Amortization~~established, ofDecember ~~intangibles~~restructuring ...~~................~~ --248 ~~22,443~~ -- 92248 ~~Impairment~~Reserve ofutilized ~~long-lived assets~~ ............... ~~1,756 -- 37 -- Restructuring and other activities~~ ............... ~~1,957~~(225) --(95) 41(320) -- --------- -------- --- ----- -------- ~~Total~~Balance ~~operating~~at ~~expenses~~December 31, 2001 ..................... ~~21,259~~$ ~~73,401~~141 ~~450~~$ ~~301~~56 ~~--------~~$ ~~--------~~197 ~~--------~~Adjustment ~~--------~~to ~~Loss~~reserve ~~from operations~~ .........................~~....~~ (~~19,478~~23) ~~(66,720)~~13 (~~412~~10) ~~(274)~~Reserve ~~Chapter~~utilized ~~11-related reorganization items~~ .......... ~~(2,476) -- (52) -- Interest and other income, net~~ .................... ~~16,282~~(82) ~~2,907~~(45) ~~345~~(127) 12 -------- --- ----- ------ -- --------- ~~Net~~Balance ~~loss~~at ~~before~~March ~~income~~31, ~~taxes~~2002 ........................ ~~(5,672)~~$ ~~(63,813)~~36 ~~(119)~~$ ~~(262)~~24 ~~Benefit~~$ ~~for~~60 ~~income~~Reserve ~~taxes~~utilized .............................. (2536) ~~414~~-- (136) 2 -------- --- ----- ------ -- --------- ~~Net~~Balance ~~loss~~at June 30, 2002 ........................~~.................~~ $-- ~~(5,647)~~ $~~(64,227)~~ ~~(118)%~~24 ~~(264)%~~$ 24 ======== === ===== ====== == =========

CHAPTER 11 RELATED REORGANIZATION ITEMS The accompanying condensed consolidated financial statements have been prepared in accordance with SOP 90-7. SOP 90-7 requires charges, including professional fees, realized gains and losses and provisions for losses resulting from the reorganization and restructuring of the business due to our bankruptcy filing to be reported separately. Included in reorganization items for the quarter ended June 30, 2002 are professional fees of approximately $183,000 and fees to the U.S. Trustee of $9,000. IMPAIRMENT OF LONG TERM INVESTMENTS During the three months ended June 30, 2002, we recorded an impairment charge of $120,000 against one of our long-term investments to properly reflect this investment at its estimated net realizable value. INTEREST AND OTHER INCOME/(EXPENSE) Interest and other expense, net, was $248,000 in the quarter ended June 30, 2002, an increase over net other income of $130,000 in the same quarter of fiscal 2002. This increase is primarily due to a $71,000 gain on currency exchange during the quarter ended June 30, 2002, as compared to a loss of $79,000 in the same quarter of fiscal 2002, as well as a $20,000 gain on sale of property and equipment during the quarter ended June 30, 2002 as compared to a loss of $44,000 in the same quarter of fiscal 2002. This increase was offset in part by a decrease in interest income resulting from lower average invested cash balances during the quarter ended June 30, 2002. INCOME TAXES We have incurred operating losses for all periods from inception through June 30, 2002, and therefore have not recorded a provision for federal or state income taxes. We have not generated revenues in foreign locales during fiscal 2003. Accordingly, we have not recorded a provision for international income taxes. In the quarter ended June 30, 2002 we recorded a net reduction to the provision for income taxes of $63,000, primarily attributed to an adjustment of foreign tax obligations in Japan. We are in the process of liquidating and closing down all of our foreign subsidiaries. 22 LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2002, we had $26.4 million of cash and cash equivalents, compared with $26.5 million of cash and cash equivalents as of March 31, 2002. The decrease in cash and cash equivalents is largely attributed to cash used to fund operations during the quarter ended June 30, 2002. We expect cash and cash equivalents to decrease in the next quarter and beyond, as we have ceased operations, are generating no revenue and we expect cash used in operating and investing activities to continue to be greater than cash provided by financing activities. Cash used in operating activities was $301,000 for the three months ended June 30, 2002, primarily from net losses decreases in accrued liabilities and accounts payable, offset by a decrease in accounts receivable related to collections on several foreign receivables balances. This compares to cash used in operating activities of $10.4 million for the three months ended June 30, 2002, primarily from net losses, net of non-cash expenses including depreciation, amortization and stock compensation, in addition to significant decreases in accrued liabilities, and offset in part by collections on accounts receivable. Net cash provided by investing activities was $205,000 for three months ended June 30, 2002, related to net proceeds from the sale of property and equipment. This compares to net cash provided by investing activities for the three months ended June 30, 2001 of $7.7 million, attributed primarily to sales and maturities of investments. There was no cash used or generated from financing activities for the three months ended June 30, 2002. Financing activities used $298,000 during the three months ended June 30, 2001, primarily as a result of payments on debt and leases. We do not expect to make capital expenditures over the next 12 months, however, our capital requirements will depend on many factors, including the success of our reorganization, the form of our Chapter 11 plan of reorganization, the aggregate amount to be fully distributed to creditors to satisfy claims, the amount of any unknown claims or contingent claims from creditors or equity holders, the outcome of litigation, the cost to shut-down our international subsidiaries and the costs of administering our Chapter 11 process, including legal and other fees. POST FILING LIQUIDITY On December 14, 2001 we filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code and as such all pending claims and litigation against us are stayed automatically. Accordingly, we may reject or assume pre-petition executory contracts as allowed by the Bankruptcy Code. We are currently reviewing all pre-petition executory contracts to determine which commitments will be assumed or rejected by us. Currently, subject to resolution of outstanding contingent claims, we believe that all known, non-disputed, non-contingent claims will be paid in full. However, we are subject to certain contingent liabilities as described in Note 8 to the financial statements. Consequently, there is no assurance that there will be sufficient assets to satisfy our pre-petition liabilities in whole. Under a plan of reorganization, pre-petition creditors could receive less than 100% of the face value of their claims. Although we expect that we will have excess assets after payment of liabilities, and that there is value for our equity securities, there is no assurance that the holders of our equity securities will receive value for their interests. Until resolution of such claims, we may be unable to make a distribution to its equity securities, if at all. In addition, we have not yet determined what our proposed plan will be, whether we will liquidate and distribute all remaining assets after satisfaction of liabilities, or whether we will merge or combine with or be sold to another entity. It is not possible to predict the outcome of the Chapter 11 Case, the terms and provisions of any plan of reorganization, or the effect of the Chapter 11 reorganization process on the claims of our creditors or the interests of our equity security holders. RECENT ACCOUNTING PRONOUNCEMENTS 23 In August 2001, the FASB issued Statement of Financial Accounting Standard No. 144 ("SFAS 144") "Accounting for the Impairment or Disposal of Long-Lived Assets", which is effective January 1, 2002. SFAS 144 supersedes FASB Statement No. 121, "Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and the accounting and reporting provisions relating to the disposal of a segment of a business of Accounting Principles Board Opinion No. 30. This Statement retains many of the fundamental provisions of SFAS 121 and expands the scope of discontinued operations to include more disposal transactions. The adoption of SFAS 144 had no material impact on our financial position, results of operations, and cash flows. In August 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations," which is effective for fiscal years beginning after June 15, 2002. Earlier adoption is encouraged. SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. We do not anticipate that the adoption of SFAS 143 will have a material impact on our financial statements. In July 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities," which is effective for exit or disposal activities initiated after December 31, 2002. SFAs 146 requires that a liability for a cost that is associated with an exit or disposal activity be recognized when the liability is incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by this standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. SFAS 146 also established that fair value is the objective for the initial measurement of the liability. We do not anticipate that the adoption of SFAS 146 will have a material impact on our financial statements. FACTORS THAT COULD AFFECT OUR FUTURE PERFORMANCE Our future performance and ability to implement a plan of reorganization is subject to a variety of risks. If any of the following risks actually occur, our business could be harmed and the trading price of our common stock could decline. You should also refer to the other information contained in this report, including our financial statements and the related notes. AS A RESULT OF OUR BANKRUPTCY FILING, OUR STOCKHOLDERS MAY NOT REALIZE VALUE FOR THEIR SHARES. On December 14, 2001, we filed a voluntary petition for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. As a result, we are presently operating our business as a debtor-in-possession. Currently, neither we nor our creditors have proposed a plan of reorganization and there can be no assurance that the Bankruptcy Court will confirm any plan of reorganization that we or our creditors or our equity committee may propose. As provided by the Bankruptcy Code, we initially have the exclusive right to propose a plan of reorganization for 120 days following the filing of our Chapter 11 petition. We previously obtained an order from the Bankruptcy Court extending our exclusive rights to file a plan. In connection with this order, we entered into two separate stipulations with the Equity Committee established in the bankruptcy case that provided extensions of the exclusivity 24 periods as to the Committee. We have recently filed a motion to further extend the exclusivity periods and have entered into a third stipulation for a further extension of the exclusivity periods as to the Equity Committee. A f we fail to file a plan of reorganization during such period or any extension thereof as approved by the Bankruptcy Court, or if such plan is not accepted by the requisite numbers of creditors and equity holders entitled to vote on the plan, other parties in interest in the Chapter 11 Case may be permitted to propose their own plan or plans of reorganization. The failure to have a plan of reorganization approved by the Bankruptcy Court could result in a liquidation of our remaining assets, consisting predominantly of our cash, cash equivalents, equity investments and corporate shell. Furthermore, there can be no assurance that there will be any improvement in our financial condition or results of operations upon consummation of a plan of reorganization, or that sufficient assets will remain to repay creditors or to make a distribution to stockholders During the Chapter 11 Case, we have incurred, and will continue to incur, significant costs associated with the reorganization, including, but not limited to, professional fees and other cash demands typical in bankruptcy proceedings. These costs, which are being expensed as incurred, are expected to significantly affect our results of operations and decrease assets available for use in the reorganization. Further, we may incur unanticipated expenses and liabilities associated with the bankruptcy. In addition, we have not yet proposed our plan of reorganization, and it is uncertain at this time what will be the effect of the plan on our creditors and stockholders. We do not know if the plan will provide for payment of the whole or part of the claims of our creditors, nor whether there will be a distribution to stockholders. Due to the existence of contingent claims, such as the securities class action lawsuit filed against us, we may not be able to make a full distribution for some time, even if a distribution is made at all. We also may propose in the plan a further sale of the company to an unrelated third party, which could result in our stockholders becoming stockholders in the combined entity. Consequently, we may be unable to develop, prosecute, confirm and consummate a plan of reorganization, and may incur unanticipated expenses of and liabilities associated with litigation and bankruptcy. WE HAVE A HISTORY OF LOSSES, WE HAVE SOLD ALL OF OUR PRODUCTS AND ASSOCIATED ASSETS TO OTHER COMPANIES, AND DO NOT EXPECT TO GENERATE FUTURE REVENUES. Since inception, we have funded our business primarily through selling our stock, not from cash generated by our business. With the exception of the third and fourth quarters of fiscal 2002, we have incurred quarterly and annual losses in each of the seven years since we were formed. We incurred net operating losses of $837,000 for the three months ended June 30, 2002. We have sold all of our intellectual property, trademarks, tradenames, patents, copyrights, and associated assets, including the intellectual property related to our products, and we have scaled back our business to only very limited administrative functions. Our sole source of income is anticipated to be interest income earned on the cash realized from the sale of our operating assets and, potentially, proceeds from the sale of remaining tangible assets, and returns that may be generated from our limited equity investments in generally high-risk technology start-up companies. There can be no assurance that this income will be sufficient to cover our administrative costs and other costs, such as ongoing litigation and the winding down of our international subsidiaries. We may have insufficient cash to satisfy all of the claims of our creditors or to make a distribution to stockholders, or to reorganize and merge our company with an existing business OUR ABILITY TO CONTINUE AS A "GOING CONCERN" IS UNLIKELY. The accompanying condensed consolidated financial statements have been prepared assuming that we will continue to operate as a going concern, which contemplates continuity of operations, timely payment for services by customers, control of operating costs and expenses and the realization of asset sales and liquidation of liabilities and commitments. While we expect that our cash on hand will provide sufficient funds to allow us to meet our pre- and post-petition debt, operating expenses and capital requirements while a plan of reorganization is developed and considered, the bankruptcy filing and related circumstances, and the sale of substantially all of our operating assets, raise substantial doubt about our ability to continue as a going concern. The appropriateness of reporting on a going concern basis is dependent upon, among other things, the availability of sufficient capital to meet expenses, confirmation of a plan of reorganization, future profitable operations, customer and employee retention and the ability to generate sufficient cash from operations and financing sources to meet our obligations as they become due. We have assumed all of the foregoing. However, our ability to survive the bankruptcy and emerge as a going concern is contingent on our sale to, 25 or merger or combination with, another company, or identification of another product or business in which to invest, and there is no assurance that we will undertake these actions. We may well liquidate the company instead. Without a sale to, or merger or combination with, another company, we would likely file a plan of reorganization that provides for our liquidation and distribution of assets. Should some or all of our assumptions prove to be unfounded or prove to be untrue in the future, our results of operations and financial condition will be adversely affected, and any future accounts will be presented under the liquidation basis of accounting. WE ARE NO LONGER LISTED ON THE NASDAQ NATIONAL MARKET AND THE MARKET IN OUR STOCK MAY NOT CONTINUE In July 2001 our common stock was delisted from the Nasdaq National Market. Our common stock is quoted on the Nasdaq Over-the-Counter (OTC) bulletin board quotation service. This has reduced the market and liquidity of our common stock and consequently may adversely affect the ability of our stockholders and brokers/dealers to purchase and sell our shares in an orderly manner or at all. The volume of trading in our stock has continued to decline since our bankruptcy filing. Trading in our common stock through market makers and quotation on the OTC Bulletin Board entails other risks. Due in part to the decreased trading price of our common stock and reduced analyst coverage, the trading price of our common stock may change quickly, and market makers may not be able to execute trades as quickly as they could when the common stock was listed on the Nasdaq National Market. Although trading continues, if the plan of reorganization provides for liquidation of the company, the plan will set forth the date on which stockholders of record will be entitled to any distribution. In such an event, trading in our stock will be suspended after such date. PENDING LITIGATION COULD CAUSE US TO INCUR INCREASED COSTS AND RESULT IN A COSTLY JUDGMENT OR SETTLEMENT AGAINST US. Since March 2001, various of our stockholders have filed class action lawsuits against us, certain of our current and former directors and officers and certain underwriters of our initial public offering of Common Stock in October 1999. The complaints, which have been consolidated, alleged generally that we and other named defendants failed properly to disclose certain underwriting arrangements or terms in connection with our initial public offering, which resulted in the manipulation of the price of our Common Stock. Plaintiffs filed an amended class action complaint that makes substantially the same allegations against the individual Calico defendants, but did not name Calico itself as a defendant, due to the existence of the automatic stay of the Chapter 11 Case. The lawsuits seek an unspecified amount of damages and are based on transactions in Calico common stock generally between October 1999 and June 2000. The uncertainty associated with these substantial, unresolved lawsuits could seriously harm our business and financial condition. The continued defense of these lawsuits against the individual defendants also could result in the diversion of resources. Negative developments with respect to the lawsuits could cause our stock price to decline significantly. In addition, although we are unable to determine the amount, if any, that we may be required to pay in connection with the defense and resolution of these lawsuits, by settlement of otherwise, the size of any such payments could seriously harm our financial condition and result in decreased distributions to creditors and stockholders. On April 4, 2002, a Proof of Claim was filed with the Bankruptcy Court by the Plaintiffs, asserting a class action claim in excess of $62.0 million. We intend to object to this claim in the Bankruptcy Case; however, we are unable to estimate the possible range of damages that could be awarded as a result of the lawsuits. We maintain directors and officers insurance applicable to the lawsuits, but there can be no guarantee that the proceeds of such insurance will be available for defense fees and costs, or payment of any settlement or judgment in the lawsuits. We are also contractually committed to indemnify officers and directors for losses they may incur in defense, settlement, or judgement of such suit. We have not set aside any financial reserves relating to potential damages associated with these lawsuits. Because the lawsuit represents a disputed, contingent, unliquidated claim, we may be unable to confirm a plan of reorganization until resolution of the lawsuit, or may have to set aside a reserve of 26 some or all of the cash that would otherwise be available to satisfy claims of creditors or distributed to stockholders, resulting in a reduced or delayed distribution, or eliminate such distribution in its entirety. OUR STOCK PRICE HAS BEEN HIGHLY VOLATILE AND HAS EXPERIENCED A SIGNIFICANT DECLINE, AND MAY CONTINUE TO BE VOLATILE AND DECLINE. The trading price of our common stock has fluctuated widely in the past and is expected to continue to do so in the future, as a result of a number of factors, many of which are outside our control. In addition, the stock market has experienced extreme price and volume fluctuations that have affected the market prices of many technology and computer software companies, and that have often been unrelated or disproportionate to the operating performance of these companies. These broad market fluctuations has adversely affect the market price of our common stock. In the past, following periods of volatility in the market price of a particular company's securities, securities class action litigation has often been brought against that company. Current pending securities class action litigation could result in substantial costs and a diversion of our management's attention and resources. Our common stock reached a high of $2.53 during the year ended March 31, 2002 and traded as low as $0.28 during the three months ended June 30, 2002. SOME OF OUR INVESTMENTS IN PORTFOLIO COMPANIES HAVE LOST VALUE OR MAY BE IMPAIRED. We have investments in several privately held technology companies in development stage. These investments are inherently risky because the companies' businesses may never develop, and we may incur losses related to these investments. We may be required to reduce the value of those investments as reflected on our balance sheet, which also may affect our results of operations. If we incur additional charges to reflect other than temporary declines in the value of our private equity investments below our recorded value, our balance sheet and results of operations will be reduced. The market valuations of technology companies have been highly volatile in recent years, and in the most recent year those market valuations have generally trended downward. Because of this downward trend, we have in the past incurred charges for the impairment of values of our investments, and may incur similar charges in future periods. 27 WE MAY EXPERIENCE INCREASING DIFFICULTY COLLECTING AMOUNTS DUE FROM OUR CUSTOMERS. Although PeopleSoft had, under the terms of our asset purchase agreement and the servicing agreement entered into pursuant thereto, agreed to collect our outstanding accounts receivable and transmit collections to us for a period of time ending May 6, 2002, certain accounts receivable were not collected by PeopleSoft and we may be unable to collect any of the outstanding accounts receivable. With the recent economic slow down and the down turn in the market for products and services offered by our customers, many of these customers are forecasting that their revenue for the foreseeable future will be lower than anticipated, and some customers have experienced or are likely to experience serious cash flow problems and even bankruptcy. Economic conditions affecting our customers could cause customers to become unable or unwilling to pay us in a timely manner, or at all, for products and services that we have provided them. These customers may also use our bankruptcy filing, sale to PeopleSoft and termination of relations with the customer as a reason to withhold payment on outstanding accounts receivable. We have established allowances that we believe are sufficient to cover losses due to bad debts. IF PEOPLESOFT MAKES A CLAIM AGAINST US UNDER THE ASSET PURCHASE AGREEMENT, THE PURCHASE PRICE MAY BE DECREASED, RESULTING IN A REDUCTION OF CASH AVAILABLE FOR REPAYMENT OF CREDITORS OR DISTRIBUTION TO STOCKHOLDERS. In connection with our sale of assets to PeopleSoft, $500,000 of the purchase price was deposited in escrow for six months as a non-exclusive remedy to satisfy any claims that PeopleSoft may have against us under the asset purchase agreement. Should PeopleSoft make, and ultimately prevail, on any such claim, the claim will be satisfied from the escrow fund and the amount of the purchase price will be reduced accordingly. WE INTEND TO WIND UP ALL OF OUR INTERNATIONAL SUBSIDIARIES, WHICH WILL CAUSE US TO INCUR COSTS ASSOCIATED WITH THEIR CLOSURE. We intend to wind up and dissolve all of our foreign and domestic subsidiaries, and expect to incur increased costs as a result of their closure for termination of employees, disposal of assets, termination of office leases and related professional costs and fees. Such costs and expenses will reduce the amount of cash that we might otherwise have available to repay creditors and distribute any remaining assets to stockholders, if any, if a liquidation and distribution is made. 28 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE RISK Our interest income is sensitive to changes in the general level of U.S. interest rates, particularly since the majority of our investments are in short-term instruments. However, due to the short-term nature of our cash investments, we do not believe that we have a material risk exposure. Because some of our debt arrangements are based on variable rates of interest, our interest expense is sensitive to changes in the general level of U.S. interest rates. Since these obligations represent a small percentage of our total capitalization, an increase or decrease in interest rates would not significantly increase or decrease interest expense. EQUITY INVESTMENTS RISK We have also invested in a small number of privately held companies, almost all of which can still be considered in the start-up or development stages. These investments are inherently risky as the market for the technologies or products the companies have under development are typically in the early stages and may never materialize. We could lose our entire initial investment in these companies. Our investments are carried at cost unless a decline in the value of the investment occurs, and at such time the investment is written down to its estimated fair value. Investments in privately held Companies at June 30, 2002 aggregated $40,000 and are included in long-term investments in the accompanying condensed consolidated balance sheets. We monitor these investments for changes in value, including impairment, by reference to factors such as the companies' technology, product launch, funding and liquidity. 29 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On December 14, 2001 we filed a voluntary petition for reorganization relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Northern District of California under Case No. 01-56101 and an order for relief was entered by the Bankruptcy Court. The filing is intended to allow us to remain in possession of our assets and properties, and our existing directors and officers will continue to oversee operation of our business as a debtor-in-possession, subject to supervision and orders of the Bankruptcy Court of matters outside the ordinary course of business. As a result of the Chapter 11 filing, claims against us are subject to an automatic stay. No creditors' committee has been formed in the case by the Office of the United States Trustee based on its view that, in a case that appears to be a surplus case, a committee of equity security holders is more appropriate. On January 15, 2002 the U.S. Trustee appointed a committee to represent the interests of our equity holders. On December 28, 2001 we filed with the United States Bankruptcy Court a schedule of our assets, liabilities, income, expenditures, and lists of our executory contracts, and unexpired leases, all as required by Bankruptcy Rule 1007(b). A list of the Debtor's equity security holders was filed with the Bankruptcy Court on December 14, 2001. On or around March 27, 2001, a class action lawsuit was filed on behalf of all holders of Calico securities in the Southern District of New York against Calico, our former chief executive officer Alan Naumann, directors William Unger and Bernard Lacroute, and former director William Paseman, SDR Investors, LP v. Calico Commerce, Inc. et al., 01CIV 2601. Plaintiffs allege, among other things, that the investment banks which underwrote Calico's initial public offering of securities, and others, received commissions and made agreements which were not disclosed, but should have been disclosed in the initial public offering prospectus, and which affected the price of Calico securities. Plaintiffs attempt to state claims under Sections 11, 12 and 15 of the Securities Act of 1933, and under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated by the Securities Exchange Commission. Other class action lawsuits on behalf of essentially the same putative class, making substantially the same allegations and making some or all of the same claims, have been filed in the same jurisdiction by different lawyers. Several of these lawsuits also name Calico's former chief financial officer Art Knapp. All of the Calico actions have been consolidated for pre-trial purposes before Judge Shira A. Scheindlin, United States District Judge for the Southern District of New York, together with more than one thousand actions making virtually identical allegations against the same and additional investment banks, approximately 350 other issuers of securities which conducted initial public offerings in 1998-2000, and numerous individuals associated with such issuers. The consolidated litigation is known as the "Initial Public Offering Securities Litigation." No specific amount of damages is sought against the Calico defendants in the litigation, and no time has been set for the Calico defendants to respond to the complaints. Plaintiffs filed an amended class action complaint that makes substantially the same allegations against the individual defendants, but did not name Calico itself as a defendant, due to the existence of the automatic stay of the Chapter 11 Case. The individual defendants have filed a claim for indemnification against Calico in the Chapter 11 Case. The remaining Calico defendants recently moved to dismiss all claims against them in the litigation, but a decision on the motions to dismiss is not expected before September 2002. Calico believes that the allegations against the Calico Defendants in the litigation are without merit, and intends to vigorously defend the litigation. On April 4, 2002, a Proof of Claim was filed against Calico with the Bankruptcy Court by the Plaintiffs asserting a class action claim of in excess of $62 million. The Company intends to object to this claim in the Chapter 11 Case. On June 16, 2000, Calico demanded that BigMachines.com make payments due under its March 2000 license and service agreements between BigMachines.com and Calico, and cease and desist from improperly using Calico's name and trademarks. Calico claims that $1,030,315 is due under the license and service agreements, including late fees, and seeks an unknown amount in damages from improper use of Calico's name and marks. BigMachines.com has denied that amounts are due to Calico, and has asserted that Calico made improper use of BigMachines.com's name and trademarks. On September 12, 2001 BigMachines and Calico unsuccessfully participated in a mediation in an attempt to resolve this dispute. Despite the Company's best efforts, BigMachines and Calico were unable to come to a mutually agreeable settlement to this dispute. Calico is currently assessing its legal options, and intends to aggressively pursue collections efforts against BigMachines. Calico has not yet filed suit against BigMachines. Calico was informed that on June 27, 2001 BigMachines filed an action against Calico in the Superior Court of San Mateo County alleging causes of action for fraud, rescission, negligent misrepresentation, and breach of contract. Calico was never served with this summons or complaint in this action prior to the filing of the Company's petition pursuant to Chapter 11 of the Bankruptcy Code. On March 4, 2002 Calico filed and served a Complaint in the United States Bankruptcy Court Adversary Proceeding Number 02-5064. On April 8, 2002 Calico was served with BigMachines' Answer and Counterclaim for Rescission, Fraud, Negligent Misrepresentation and Breach of Contract. Settlement negotiations between Calico and BigMachines continue. Calico and BigMachines have agreed to mediate this matter through the Bankruptcy Dispute Resolution Program. Calico intends to aggressively prosecute its affirmative claims against BigMachines, and will vigorously defend against those claims made by BigMachines against Calico. 30 On August 17, 2001 the Company made a demand for payment of $357,870 from Motorola, Inc. for amounts passed due on a Professional Services Agreement and a September 19, 2000 letter agreement between the Company and Motorola. Motorola and the Company engaged in preliminary negotiations regarding this sum, from which no significant settlement prospects emerged. Calico has initiated litigation against a former employee in connection with an outstanding promissory note. On March 2, 2000 the Company issued a loan of $450,000 to an employee. Pursuant to a promissory note and security agreement executed contemporaneously with the loan, the repayment on the loan was to occur on or before November 30, 2000. The individual ceased employment thereafter, and the Company has not received repayment on the outstanding loan. On or about March 15, 2002, Calico filed and served a complaint in the Bankruptcy Court as Adversary Proceeding No. 02-5111 against Mr. and Mrs. Steven Leahy, which was answered by the Leahys. The matter is being transferred to the U.S. District Court for the Northern District of California by Stipulation. Calico intends to aggressively pursue its claim against Mr. and Mrs. Leahy as well as their assets. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable ITEM 5. OTHER INFORMATION Not applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1(1) Certificate of Incorporation 3.2(1) Bylaws 99.1 Certification by Chief Executive Officer and Principal Financial Officer ------- (1) Incorporated herein by reference to Calico's Registration Statement on Form S-1, as amended (File No. 333-82907) (b) Reports on Form 8-K Not applicable 31 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: August 16, 2002 /s/ James B. Weil ---------------------------------------------- James B. Weil President & Chief Executive Officer (Duly authorized officer and Principal Financial Officer) 32 EXHIBIT INDEX -------------

~~EXCESS~~Exhibit ~~FACILITIES~~Number ~~EMPLOYEE~~Description ~~AND COSTS EQUIPMENT TOTAL~~ -------- ---------- -~~------~~ ~~Balance at March 31, 2001~~ 3.~~....................... $ 217 $ 588 $ 805 Adjustment to reserve .........................~~ 1(371) ~~(6)~~Certificate ~~(43)~~of ~~Reserve~~Incorporation ~~established, April restructuring~~ 3.~~..... 753 -- 753 Reserve utilized ..............................~~ 2(~~777~~1) ~~(185)~~Bylaws ~~(962) ------- ------- ------- Balance at June 30, 2001~~ 99.~~........................ $ 156 $ 397 $ 553 Adjustment to reserve ......................... (121) -- (121) Reserve established, July restructuring ....... 985 162~~ 1~~,147~~ ~~Reserve~~Certification ~~utilized~~by ~~..............................~~Chief ~~(875)~~Executive ~~(57)~~Officer ~~(932)~~and ~~-------~~Principal ~~-------~~Financial ------- Balance at September 30, 2001 .................... $ 145 $ 502 $ 647 Adjustment to reserve ......................... (27) -- (27) Adjustment for rejected leases ................ -- (351) (351) Reserve established, December restructuring ... 248 -- 248 Reserve utilized .............................. (225) (95) (320) ------- ------- ------- Balance at December 31, 2001 ..................... $ 141 $ 56 $ 197 ======= ======= =======Officer

---------- (1) Incorporated herein by reference to Calico's Registration Statement on Form S-1, as amended (File No. 333-82907) 33

EXCESS FACILITIES EMPLOYEE AND COSTS EQUIPMENT TOTAL -------- ---------- ------- Balance at March 31, 2001 ........................ $ 217 $ 588 $ 805 Adjustment to reserve ......................... (37) (6) (43) Reserve established, April restructuring ...... 753 -- 753 Reserve utilized .............................. (777) (185) (962) ------- ------- ------- Balance at June 30, 2001 ......................... $ 156 $ 397 $ 553 Adjustment to reserve ......................... (121) -- (121) Reserve established, July restructuring ....... 985 162 1,147 Reserve utilized .............................. (875) (57) (932) ------- ------- ------- Balance at September 30, 2001 .................... $ 145 $ 502 $ 647 Adjustment to reserve ......................... (27) -- (27) Adjustment for rejected leases ................ -- (351) (351) Reserve established, December restructuring ... 248 -- 248 Reserve utilized .............................. (225) (95) (320) ------- ------- ------- Balance at December 31, 2001 ..................... $ 141 $ 56 $ 197 ======= ======= =======

Number ------ 2.6 Asset Purchase Agreement dated as of December 12, 2001 by and between Registrant and PeopleSoft, Inc. 10.22 First Amendment to Management Services Agreement between Regent Pacific Management Corporation and Registrant, dated December 6, 2001. 10.23 First Amendment to Financial Services Arrangement between David Powell, Inc. and Registrant, dated December 6, 2001.

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