##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




---

FORM 20-F/A

(Amendment No. 1)


(Mark One)



|  |                                                               
|- | --------------------------------------------------------------
|o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
    (g) OF

THE SECURITIES EXCHANGE ACT OF 1934




|  |                                                 
|- | ------------------------------------------------
|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31,
2002



|  |                                                     
|- | ----------------------------------------------------
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from ______ to

Commission file number:

1-14251

SAP AKTIENGESELLSCHAFT

SYSTEME, ANWENDUNGEN, PRODUKTE IN DER DATENVERARBEITUNG


(Exact name of registrant as specified in its
charter)


SAP CORPORATION

SYSTEMS, APPLICATIONS AND PRODUCTS IN DATA
PROCESSING


(Translation of Registrants name into
English)


Federal Republic of Germany

(Jurisdiction of incorporation or organization)




---

Neurottstrasse 16

69190 Walldorf


Federal Republic of Germany


(Address of principal executive offices)


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

|                                                                                                              |  |                                                      
|------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------
|Title of each class                                                                                           |  | Name of each exchange on which registered            
|                                                                                                              |  |                                                      
|American Depositary Shares, each representing
    one-fourth
    of one Ordinary Share, without nominal value |  | New York Stock Exchange                              
|                                                                                                             
|Ordinary Shares, without nominal value                                                                        |  | Frankfurt Stock Exchange
    New York Stock Exchange*

Securities
registered or to be registered pursuant to Section 12(g) of
the Act:None

Securities for
which there is a reporting obligation pursuant to
Section 15(d) of the Act: None

Indicate the number
of outstanding shares of each of the issuers classes of
capital or common stock at the close of the period covered by
the annual report:

|                                                                       |  |  |             | 
|---------------------------------------------------------------------- |  |  | ----------- | 
|Ordinary Shares, without nominal value (as of
    December 31, 2002)** |  |  | 314,962,606 | 

Indicate by check
mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

Yes x     No o

Indicate by check
mark which financial statement item the registrant has elected
to follow.

Item 17 o     Item 18 x



---






|   |                                                                                                                                       
|-- | --------------------------------------------------------------------------------------------------------------------------------------
|*  | Not for trading, but only in connection with the
    registration of American Depositary Shares representing such
    ordinary shares.
|** | Including 3,516,235 treasury shares.                                                                                                  



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TABLE OF CONTENTS



|                                                    |                                                 |  |  |  |  |  |  | 
|--------------------------------------------------- | ----------------------------------------------- |  |  |  |  |  |  | 
|REPORT OF ERNST AND YOUNG LLP, INDEPENDENT
AUDITORS
|Consolidated Financial Statements:                 
|CONSOLIDATED BALANCE SHEETS                        
|                                                    | CONSOLIDATED STATEMENTS OF
OPERATIONS          
|                                                    | CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY
|                                                    | CONSOLIDATED STATEMENTS OF CASH
FLOWS          
|                                                    | NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS     
|Independent Auditors Consent                       
|Consent of Ernst & Young                           



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##### Table of Contents



Explanatory Note

As stated in Item 18 of the
Registrants annual report on Form 20-F for the year
ended December 31, 2002, this amendment is being filed to
provide separate consolidated financial statements of Commerce
One, Inc. (Commerce One) for the fiscal year ended
December 31, 2002, as required by Rule 3-09 of
Regulation S-X.

This amendment is being filed for the purpose of
updating Item 18. Financial Statements, and
Item 19. Exhibits and adding to the page
reference in Item 8. Financial Information
under the heading Consolidated Financial Statements
the phrase and pages M-1 through M-36. The
following exhibits are amended for the year ended
December 31, 2002 on Form 20-F as set forth in the
pages attached hereto:

(1)   Exhibit 4.8 Strategic
Alliance Agreement Amendment No. 4, effective as of
January 1, 2002 by and between Commerce One Operations,
Inc., SAP and SAP Markets, Inc.

(2)   Exhibit 4.9 Strategic
Alliance Agreement Amendment No. 5, effective as of
December 20, 2002, by and between Commerce One Operations,
Inc., SAP and SAP Markets, Inc.

(3)   Exhibit 10.3
Independent Auditors Consent of Ernst & Young LLP,
Walnut Creek, California.

In addition, the Registrant is including certain
currently dated certifications and an updated consent of
independent auditors. The remainder of the annual report on
Form 20-F filed on March 21, 2003 remains unchanged.

Item 18.     Financial
Statements

Reference is made to pages F-1 through F-60,
incorporated herein by reference, to
the annual report on Form 20-F filed on March 21, 2003.

The following consolidated financial statements
are filed as part of this Annual Report on Form 20-F:

Reports of Independent Auditors.



| |                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------
| | Consolidated Statements of Income for the years
    ended 2002, 2001 and 2000.                                          
|
| | Consolidated Balance Sheets as of
    December 31, 2002 and 2001.                                                       
|
| | Consolidated Statements of Changes in
    Shareholders Equity for the years ended December 31,
    2002, 2001 and 2000.
|
| | Consolidated Statements of Cash Flows for the
    years ended December 31, 2002, 2001 and 2000.                         
|
| | Notes to the Consolidated Financial Statements.                                                                         
|
| | Schedule for the years ended December 31,
    2002, 2001 and 2000:                                                      
|
| | Schedule II  Valuation and
    Qualifying Accounts and Reserves.                                                       

Separate financial statements for Commerce One
filed pursuant to Rule 3-09 of
Regulation S-X  reference is made to
pages M-1 through M-36, incorporated herein by reference.
Summarized financial information for Commerce One is set forth
in note 16 to the consolidated financial statements.

Item 19.     Exhibits

The following documents are filed as exhibits to
this Annual Report on Form 20-F:



| |                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1     Articles of
    Incorporation (Satzung) of SAP AG, as amended to date (English
    translation).(1)                                                                                                                                                                     
|
| | 2.1   Form of global share
    certificate for ordinary shares (English
    translation).(2)                                                                                                                                                                                  
|
| | 2.2   Form of American Depositary
    Receipt.(3)                                                                                                                                                                                                                             
|
| | 4.1   Form of Amended and Restated
    Deposit Agreement among SAP AG, The Bank of New York, as
    Depositary, and all owners and holders from time to time of
    American Depositary Receipts issued thereunder, including the
    form of American Depositary Receipts.(4)
|
| | 4.2   Share Purchase Agreement by
    and among Commerce One, Inc., New Commerce One Holding Inc. and
    SAP AG, dated as of June 28, 2001.(5)                                                                                                                               

1



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##### Table of Contents





| |                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.3   Amended and Restated
    Standstill and Stock Restriction Agreement by and among Commerce
    One, Inc., New Commerce One Holding, Inc. and SAP AG, dated as
    of June 28, 2001.(6)
|
| | 4.4   Investor Rights Agreement by
    and among Commerce One, Inc., New Commerce One Holding, Inc. and
    SAP AG, dated as of June 28, 2001.(7)                                          
|
| | 4.5   Strategic Alliance Agreement
    by and among Commerce One, Inc., SAPMarkets, Inc. and SAP AG,
    dated as of September 18, 2000.(8)                                                
|
| | 4.6   Strategic Alliance Agreement
    Amendment No. 2 by and among Commerce One, Inc.,
    SAPMarkets, Inc. and SAP AG, dated as of June 29,
    2001.(9)                                 
|
| | 4.7   Strategic Alliance Agreement
    Amendment No. 3 by and among Commerce One, Inc.,
    SAPMarkets, Inc. and SAP AG, dated as of June 29,
    2001.(9)                                 
|
| | 4.8   Strategic Alliance Agreement
    Amendment No. 4, effective as of January 1, 2002 by
    and between Commerce One Operations, Inc., SAP and SAP Markets,
    Inc.(10)                
|
| | 4.9   Strategic Alliance Agreement
    Amendment No. 5, effective as of December 20, 2002, by
    and between Commerce One Operations, Inc., SAP and SAP Markets,
    Inc.(11)             
|
| | 8     Subsidiaries,
    Associated Companies and Other Investments of
    SAP AG.(1)                                                                                                       
|
| | 10.1 Independent Auditors Consent of
    KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft
    Wirtschaftsprüfungsgesellschaft, Mannheim, Germany.                                   
|
| | 10.2 Statement regarding Auditors
    Consent.(1)                                                                                                                                         
|
| | 10.3 Independent Auditors Consent of
    Ernst & Young LLP, Walnut Creek, California.                                                                                                     
|
| | 10.4 Certification pursuant to 18
    U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                       






|     |                                                                                                                          
|---- | -------------------------------------------------------------------------------------------------------------------------
|(1)  | Incorporated by reference to Form 20-F of
    SAP AG, filed on March 21, 2003.                                           
|    
|(2)  | Incorporated by reference to Form 8-A12B of
    SAP AG, filed on May 3, 2001.                                            
|    
|(3)  | Incorporated by reference to Form 8-A12B of
    SAP AG, filed on May 3, 2001.                                            
|    
|(4)  | Incorporated by reference to Form 8-A12B of
    SAP AG, filed on May 3, 2001.                                            
|    
|(5)  | Incorporated by reference to the Current Report
    on Form 8-K of Commerce One, Inc., filed on July 10,
    2001.       
|    
|(6)  | Incorporated by reference to the Current Report
    on Form 8-K of Commerce One, Inc., filed on July 10,
    2001.       
|    
|(7)  | Incorporated by reference to the Current Report
    on Form 8-K of Commerce One, Inc., filed on July 10,
    2001.       
|    
|(8)  | Incorporated by reference to the Quarterly Report
    on Form 10-Q of Commerce One, Inc., filed on
    November 14, 2000.
|    
|(9)  | Incorporated by reference to the Quarterly Report
    on Form 10-Q of Commerce One, Inc., filed on
    August 14, 2001.  
|    
|(10) | Incorporated by reference to the Annual Report on
    Form 10-K of Commerce One, Inc., filed on April 1,
    2002.       
|    
|(11) | Incorporated by reference to the Annual Report on
    Form 10-K of Commerce One, Inc., filed on March 31,
    2003.      

2



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##### Table of Contents



SIGNATURE

Pursuant to the requirements of Section 12
of the Securities Exchange Act of 1934, the Registrant certifies
that it meets all of the requirements for filing this Annual
Report on Form 20-F and has duly caused this Annual Report
to be signed on our behalf by the undersigned, thereunto duly
authorized.



| |                                
| | -------------------------------
| | SAP AKTIENGESELLSCHAFT SYSTEME,
| | ANWENDUNGEN, PRODUKTE IN DER   
| | DATENVERARBEITUNG              
| | (Registrant)                   



| |     |                   
| | --- | ------------------
| | By: | /s/ HASSO PLATTNER

| |                                
| | -------------------------------
| |                                
| | Name: Prof. Dr. .Hasso Plattner
| | Title: Co-Chairman and CEO     



| |     |                      
| | --- | ---------------------
| | By: | /s/ HENNING KAGERMANN

| |                                  
| | ---------------------------------
| |                                  
| | Name: Prof. Dr. Henning Kagermann
| | Title: Co-Chairman and CEO       



| |     |                  
| | --- | -----------------
| | By: | /s/ WERNER BRANDT

| |                        
| | -----------------------
| |                        
| | Name: Dr. Werner Brandt
| | Title: CFO             

Dated: April 14, 2003

3



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SAP AKTIENGESELLSCHAFT AND
SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF
COMMERCE ONE, INC

|                                                        |                                                                                                                                                         |      |     |     | 
|------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | --- | --- | 
|                                                        |                                                                                                                                                         | Page
|                                                        |                                                                                                                                                         |     
|Report of Ernst and Young LLP, Independent
    Auditors |                                                                                                                                                         |      | M-2 |    
|Consolidated Financial Statements:                      |                                                                                                                                                         |      |     |    
|                                                        | Consolidated Balance Sheets as of
    December 31, 2002 and 2001                                                                                        |      |     | M-3 | 
|                                                        | Consolidated Statements of Operations for the
    Years Ended December 31, 2002, 2001 and 2000                                                          |      |     | M-4 | 
|                                                        | Consolidated Statements of Redeemable Convertible
    Preferred Stock and Stockholders Equity for the Years
    Ended December 31, 2002, 2001 and 2000 |      |     | M-5 | 
|                                                        | Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2002, 2001 and 2000                                                          |      |     | M-6 | 
|                                                        | Notes to Consolidated Financial Statements                                                                                                              |      |     | M-7 | 

M-1



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REPORT OF ERNST AND YOUNG LLP, INDEPENDENT
AUDITORS

The Board of Directors and Stockholders

Commerce One, Inc.


We have audited the accompanying consolidated
balance sheets of Commerce One, Inc. as of December 31,
2002 and 2001, and the related consolidated statements of
operations, stockholders equity and cash flows for each of
the three years in the period ended December 31, 2002. Our
audits also included the financial statement schedule listed in
the Index at Item 15. These consolidated financial
statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on
our audits.

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

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Commerce One, Inc. at
December 31, 2002 and 2001, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States.
Also in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material
respects the information set forth therein.

As discussed in Notes 1 and 4 to the
consolidated financial statements, in 2002 Commerce One, Inc.
changed its method of accounting for goodwill and certain other
purchased intangible assets.

/s/ Ernst & Young LLP

| | 
| | 

Walnut Creek, California

January 27, 2003


M-2



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##### Table of Contents






COMMERCE ONE, INC.




CONSOLIDATED BALANCE SHEETS

(In thousands, except share, and per share
data)


|                                                                                                                                                                    |  |              |            |      |  |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | ---- |  | - | ---------- | -
|                                                                                                                                                                    |  |             
|                                                                                                                                                                    |  | December 31,
|                                                                                                                                                                    |  |             
|                                                                                                                                                                    |  | 2002         |            | 2001
|                                                                                                                                                                    |  |              |            |     
|Assets                                                                                                                                                              |  |              |            |      |  |   |            |  
|Current assets:                                                                                                                                                     |  |              |            |      |  |   |            |  
|Cash and cash equivalents                                                                                                                                           |  | $            | 73,753     |      |  | $ | 192,547    |  
|Short term investments                                                                                                                                              |  |              | 3,510      |      |  |   | 81,346     |  
|Accounts receivable, net of allowance for
    doubtful accounts of $6.0 million at December 31, 2002
    and $24.1 million at December 31, 2001(1)                  |  |              | 7,373      |      |  |   | 45,877     |  
|Prepaid expenses and other current assets                                                                                                                           |  |              | 4,923      |      |  |   | 9,762      |  
|                                                                                                                                                                    |  |              |            |      |  |   |            |  
|Total current assets                                                                                                                                                |  |              | 89,559     |      |  |   | 329,532    |  
|                                                                                                                                                                    |  |              |            |      |  |   |            |  
|Restricted cash, cash equivalents and short term
    investments                                                                                                    |  |              | 35,630     |      |  |   | 14,260     |  
|Property and equipment, net                                                                                                                                         |  |              | 9,761      |      |  |   | 64,908     |  
|Goodwill, net                                                                                                                                                       |  |              |           |      |  |   | 164,679    |  
|Other intangible assets, net                                                                                                                                        |  |              | 18,449     |      |  |   | 244,855    |  
|Investments and other assets                                                                                                                                        |  |              | 6,023      |      |  |   | 10,707     |  
|                                                                                                                                                                    |  |              |            |      |  |   |            |  
|Total assets                                                                                                                                                        |  | $            | 159,422    |      |  | $ | 828,941    |  
|                                                                                                                                                                    |  |              |            |      |  |   |            |  
|Liabilities and Stockholders
    Equity                                                                                                                            |  |              |            |      |  |   |            |  
|Current liabilities:                                                                                                                                                |  |              |            |      |  |   |            |  
|Accounts payable                                                                                                                                                    |  | $            | 3,104      |      |  | $ | 23,773     |  
|Accrued compensation and related expenses                                                                                                                           |  |              | 8,338      |      |  |   | 17,960     |  
|Deferred revenue(2)                                                                                                                                                 |  |              | 23,546     |      |  |   | 57,367     |  
|Other current liabilities(3)                                                                                                                                        |  |              | 29,997     |      |  |   | 50,021     |  
|                                                                                                                                                                    |  |              |            |      |  |   |            |  
|Total current liabilities                                                                                                                                           |  |              | 64,985     |      |  |   | 149,121    |  
|Notes payable                                                                                                                                                       |  |              | 25,000     |      |  |   | 19,000     |  
|Non-current accrued restructuring charges                                                                                                                           |  |              | 21,947     |      |  |   | 37,005     |  
|Commitment and Contingencies                                                                                                                                        |  |              |            |      |  |   |            |  
|Stockholders equity:                                                                                                                                               |  |              |            |      |  |   |            |  
|Common stock, par value $0.0001, 95,000,000
    shares authorized; 29,276,716 and 28,752,021 issued
    and outstanding at December 31, 2002 and 2001, respectively |  |              | 3,674,645  |      |  |   | 3,723,419  |  
|Deferred stock compensation                                                                                                                                         |  |              | (4,385     | )    |  |   | (66,772    | )
|Note receivable from stockholder                                                                                                                                    |  |              | (129       | )    |  |   | (129       | )
|Accumulated other comprehensive loss                                                                                                                                |  |              | (1,203     | )    |  |   | (1,101     | )
|Accumulated deficit                                                                                                                                                 |  |              | (3,621,438 | )    |  |   | (3,031,602 | )
|                                                                                                                                                                    |  |              |            |      |  |   |            |  
|Total stockholders equity                                                                                                                                          |  |              | 47,490     |      |  |   | 623,815    |  
|                                                                                                                                                                    |  |              |            |      |  |   |            |  
|Total liabilities and stockholders equity                                                                                                                          |  | $            | 159,422    |      |  | $ | 828,941    |  
|                                                                                                                                                                    |  |              |            |      |  |   |            |  
|Amounts included above from related parties
    (Note 10):                                                                                                          |  |              |            |      |  |   |            |  
|(1)  Accounts receivable, net                                                                                                                                       |  | $            | 947        |      |  | $ | 1,669      |  
|                                                                                                                                                                    |  |              |            |      |  |   |            |  
|(2)  Deferred revenue                                                                                                                                               |  | $            | 11,138     |      |  | $ | 35,458     |  
|                                                                                                                                                                    |  |              |            |      |  |   |            |  
|(3)  Other current liabilities                                                                                                                                      |  | $            | 418        |      |  | $ | 4,114      |  
|                                                                                                                                                                    |  |              |            |      |  |   |            |  

See accompanying notes.

M-3



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##### Table of Contents



COMMERCE ONE, INC.




CONSOLIDATED STATEMENTS OF
OPERATIONS

(In thousands, except per share
data)


|                                                                                                                             |  |                          |          |      |  |      |            |   |  |   |          |  
|---------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | -------- | ---- |  | ---- | ---------- | - |  | - | -------- | -
|                                                                                                                             |  |                         
|                                                                                                                             |  | Years ended December 31,
|                                                                                                                             |  |                         
|                                                                                                                             |  | 2002                     |          | 2001 |  | 2000
|                                                                                                                             |  |                          |          |      |  |     
|Revenues:                                                                                                                    |  |                          |          |      |  |      |            |   |  |   |          |  
|License fees                                                                                                                 |  | $                        | 28,597   |      |  | $    | 130,917    |   |  | $ | 223,277  |  
|Services                                                                                                                     |  |                          | 76,932   |      |  |      | 277,652    |   |  |   | 178,519  |  
|                                                                                                                             |  |                          |          |      |  |      |            |   |  |   |          |  
|Total revenues(1)                                                                                                            |  |                          | 105,529  |      |  |      | 408,569    |   |  |   | 401,796  |  
|Costs and expenses:                                                                                                          |  |                          |          |      |  |      |            |   |  |   |          |  
|Cost of license fees(2)                                                                                                      |  |                          | 192,406  |      |  |      | 662,315    |   |  |   | 14,910   |  
|Cost of services                                                                                                             |  |                          | 68,233   |      |  |      | 228,023    |   |  |   | 139,746  |  
|Sales and marketing                                                                                                          |  |                          | 78,945   |      |  |      | 183,412    |   |  |   | 168,647  |  
|Product development                                                                                                          |  |                          | 76,922   |      |  |      | 118,159    |   |  |   | 102,676  |  
|General and administrative                                                                                                   |  |                          | 25,615   |      |  |      | 116,621    |   |  |   | 43,236   |  
|Purchased in-process research and development                                                                                |  |                          |         |      |  |      | 4,548      |   |  |   | 5,142    |  
|Stock compensation                                                                                                           |  |                          | 8,728    |      |  |      | 98,302     |   |  |   | 39,820   |  
|Restructuring costs and other                                                                                                |  |                          | 22,947   |      |  |      | 126,605    |   |  |   |         |  
|Amortization of goodwill and other intangible
    assets                                                                     |  |                          | 11,867   |      |  |      | 332,789    |   |  |   | 233,183  |  
|Impairment of intangible assets, fixed assets and
    equity investments                                                     |  |                          | 214,082  |      |  |      | 1,120,464  |   |  |   |         |  
|                                                                                                                             |  |                          |          |      |  |      |            |   |  |   |          |  
|Total costs and expenses                                                                                                     |  |                          | 699,745  |      |  |      | 2,991,238  |   |  |   | 747,360  |  
|                                                                                                                             |  |                          |          |      |  |      |            |   |  |   |          |  
|Loss from operations                                                                                                         |  |                          | (594,216 | )    |  |      | (2,582,669 | ) |  |   | (345,564 | )
|Interest income and other, net                                                                                               |  |                          | 4,681    |      |  |      | 7,571      |   |  |   | 7,017    |  
|                                                                                                                             |  |                          |          |      |  |      |            |   |  |   |          |  
|Net loss before income taxes                                                                                                 |  |                          | (589,535 | )    |  |      | (2,575,098 | ) |  |   | (338,547 | )
|Provision for income taxes                                                                                                   |  |                          | 301      |      |  |      | 9,001      |   |  |   | 6,400    |  
|                                                                                                                             |  |                          |          |      |  |      |            |   |  |   |          |  
|Net loss                                                                                                                     |  | $                        | (589,836 | )    |  | $    | (2,584,099 | ) |  | $ | (344,947 | )
|                                                                                                                             |  |                          |          |      |  |      |            |   |  |   |          |  
|Basic and diluted net loss per share                                                                                         |  | $                        | (20.33   | )    |  | $    | (103.02    | ) |  | $ | (20.52   | )
|                                                                                                                             |  |                          |          |      |  |      |            |   |  |   |          |  
|Shares used in calculation of net loss per share                                                                             |  |                          | 29,011   |      |  |      | 25,084     |   |  |   | 16,807   |  
|                                                                                                                             |  |                          |          |      |  |      |            |   |  |   |          |  
|(1)  Revenue from related parties
    (Note 10)                                                                              |  | $                        | 32,022   |      |  | $    | 97,741     |   |  | $ | 52,512   |  
|                                                                                                                             |  |                          |          |      |  |      |            |   |  |   |          |  
|(2)  Includes charges for the
    impairment and amortization of the Technology Agreement with
    Covisint (Notes 4 and 11) |  | $                        | 190,396  |      |  | $    | 647,500    |   |  | $ | 5,700    |  
|                                                                                                                             |  |                          |          |      |  |      |            |   |  |   |          |  

See accompanying notes.

M-4



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##### Table of Contents



COMMERCE ONE, INC.




CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

(In thousands, except share data)


|                                                                                                      |  |              |            |          |  |              |           |               |  |            |          |         |  |       |      |   |  |   |        |   |  |   |            |   |  |   |            |  
|----------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | -------- |  | ------------ | --------- | ------------- |  | ---------- | -------- | ------- |  | ----- | ---- | - |  | - | ------ | - |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                      |  |              |            |          |  | Note         |           | Accumulated   |  |            |          |        
|                                                                                                      |  | Common Stock |            | Deferred |  | Receivable   |           | Other         |  |            |          |        
|                                                                                                      |  |              |            | Stock    |  | from         |           | Comprehensive |  | Accumulate |          |        
|                                                                                                      |  | Shares       |            | Amount   |  | Compensation |           | Shareholder   |  | Loss       |          | Deficit |  | Total
|                                                                                                      |  |              |            |          |  |              |           |               |  |            |          |         |  |      
|BALANCES AT DECEMBER 31, 1999                                                                         |  |              | 14,993,648 |          |  | $            | 423,839   |               |  | $          | (4,110   | )       |  | $     |     |   |  | $ | (452   | ) |  | $ | (102,556   | ) |  | $ | 316,721    |  
|Issuance of common stock upon exercise of stock
    options                                           |  |              | 803,304    |          |  |              | 40,407    |               |  |            |         |         |  |       |     |   |  |   |       |   |  |   |           |   |  |   | 40,407     |  
|Issuance of common stock under employee stock
    purchase plan                                       |  |              | 198,534    |          |  |              | 11,221    |               |  |            |         |         |  |       |     |   |  |   |       |   |  |   |           |   |  |   | 11,221     |  
|Issuance of shares in connection with business
    combinations                                       |  |              | 2,988,970  |          |  |              | 1,774,339 |               |  |            | (169,166 | )       |  |       |     |   |  |   |       |   |  |   |           |   |  |   | 1,605,173  |  
|Notes receivable from shareholder assumed in
    business combination                                 |  |              |           |          |  |              |          |               |  |            |         |         |  |       | (133 | ) |  |   |       |   |  |   |           |   |  |   | (133       | )
|Payment of note receivable from stockholder
    assumed in business combination                       |  |              |           |          |  |              |          |               |  |            |         |         |  |       | 4    |   |  |   |       |   |  |   |           |   |  |   | 4          |  
|Sale of common in connection with strategic
    partnerships, net of issuance cost                    |  |              | 505,955    |          |  |              | 249,783   |               |  |            |         |         |  |       |     |   |  |   |       |   |  |   |           |   |  |   | 249,783    |  
|Contractual obligation to issue common stock in
    connection with Covisint agreement                |  |              | 2,880,000  |          |  |              | 880,200   |               |  |            |         |         |  |       |     |   |  |   |       |   |  |   |           |   |  |   | 880,200    |  
|Deferred stock compensation                                                                           |  |              |           |          |  |              | 20,174    |               |  |            | (20,174  | )       |  |       |     |   |  |   |       |   |  |   |           |   |  |   |           |  
|Amortization of deferred stock compensation                                                           |  |              |           |          |  |              |          |               |  |            | 39,820   |         |  |       |     |   |  |   |       |   |  |   |           |   |  |   | 39,820     |  
|Issuance of warrants for services                                                                     |  |              |           |          |  |              | 1,524     |               |  |            |         |         |  |       |     |   |  |   |       |   |  |   |           |   |  |   | 1,524      |  
|Net loss                                                                                              |  |              |           |          |  |              |          |               |  |            |         |         |  |       |     |   |  |   |       |   |  |   | (344,947   | ) |  |   | (344,947   | )
|Foreign currency translation adjustment                                                               |  |              |           |          |  |              |          |               |  |            |         |         |  |       |     |   |  |   | (323   | ) |  |   |           |   |  |   | (323       | )
|Unrealized loss on investments                                                                        |  |              |           |          |  |              |          |               |  |            |         |         |  |       |     |   |  |   | (39    | ) |  |   |           |   |  |   | (39        | )
|                                                                                                      |  |              |            |          |  |              |           |               |  |            |          |         |  |       |      |   |  |   |        |   |  |   |            |   |  |   |            |  
|Comprehensive loss                                                                                    |  |              |            |          |  |              |           |               |  |            |          |         |  |       |      |   |  |   |        |   |  |   |            |   |  |   | (345,309   | )
|                                                                                                      |  |              |            |          |  |              |           |               |  |            |          |         |  |       |      |   |  |   |        |   |  |   |            |   |  |   |            |  
|BALANCES AT DECEMBER 31, 2000                                                                         |  |              | 22,370,411 |          |  |              | 3,401,487 |               |  |            | (153,630 | )       |  |       | (129 | ) |  |   | (814   | ) |  |   | (447,503   | ) |  |   | 2,799,411  |  
|Issuance of common stock upon exercise of stock
    options                                           |  |              | 429,331    |          |  |              | 6,961     |               |  |            |         |         |  |       |     |   |  |   |       |   |  |   |           |   |  |   | 6,961      |  
|Repurchase of common stock from terminated
    employees                                              |  |              | (17,416    | )        |  |              | (59       | )             |  |            |         |         |  |       |     |   |  |   |       |   |  |   |           |   |  |   | (59        | )
|Issuance of common stock under employee stock
    purchase plan                                       |  |              | 291,330    |          |  |              | 11,664    |               |  |            |         |         |  |       |     |   |  |   |       |   |  |   |           |   |  |   | 11,664     |  
|Issuance of common stock and assumption of stock
    options in connection with business combinations |  |              | 807,858    |          |  |              | 74,768    |               |  |            | (2,181   | )       |  |       |     |   |  |   |       |   |  |   |           |   |  |   | 72,587     |  
|Issuance of restricted common stock to employees                                                      |  |              | 187,915    |          |  |              | 14,099    |               |  |            | (14,099  | )       |  |       |     |   |  |   |       |   |  |   |           |   |  |   |           |  
|Forfeiture of restricted common stock by
    employees upon termination                               |  |              | (65,885    | )        |  |              | (4,836    | )             |  |            | 4,836    |         |  |       |     |   |  |   |       |   |  |   |           |   |  |   |           |  
|Sale of common stock to SAP, net of issuance cost                                                     |  |              | 4,748,477  |          |  |              | 219,335   |               |  |            |         |         |  |       |     |   |  |   |       |   |  |   |           |   |  |   | 219,335    |  
|Amortization of deferred stock compensation                                                           |  |              |           |          |  |              |          |               |  |            | 98,302   |         |  |       |     |   |  |   |       |   |  |   |           |   |  |   | 98,302     |  
|Net Loss                                                                                              |  |              |           |          |  |              |          |               |  |            |         |         |  |       |     |   |  |   |       |   |  |   | (2,584,099 | ) |  |   | (2,584,099 | )
|Foreign currency translation adjustment                                                               |  |              |           |          |  |              |          |               |  |            |         |         |  |       |     |   |  |   | 120    |   |  |   |           |   |  |   | 120        |  
|Unrealized loss on investments                                                                        |  |              |           |          |  |              |          |               |  |            |         |         |  |       |     |   |  |   | (407   | ) |  |   |           |   |  |   | (407       | )
|                                                                                                      |  |              |            |          |  |              |           |               |  |            |          |         |  |       |      |   |  |   |        |   |  |   |            |   |  |   |            |  
|Comprehensive loss                                                                                    |  |              |            |          |  |              |           |               |  |            |          |         |  |       |      |   |  |   |        |   |  |   |            |   |  |   | (2,584,386 | )
|                                                                                                      |  |              |            |          |  |              |           |               |  |            |          |         |  |       |      |   |  |   |        |   |  |   |            |   |  |   |            |  
|BALANCES AT DECEMBER 31, 2001                                                                         |  |              | 28,752,021 |          |  |              | 3,723,419 |               |  |            | (66,772  | )       |  |       | (129 | ) |  |   | (1,101 | ) |  |   | (3,031,602 | ) |  |   | 623,815    |  
|Issuance of common stock upon exercise of stock
    options                                           |  |              | 215,382    |          |  |              | 3,163     |               |  |            |         |         |  |       |     |   |  |   |       |   |  |   |           |   |  |   | 3,163      |  
|Repurchase of common stock from terminated
    employees                                              |  |              | (9,661     | )        |  |              | (53       | )             |  |            |         |         |  |       |     |   |  |   |       |   |  |   |           |   |  |   | (53        | )
|Issuance of common stock under employee stock
    purchase plan                                       |  |              | 358,760    |          |  |              | 2,275     |               |  |            |         |         |  |       |     |   |  |   |       |   |  |   |           |   |  |   | 2,275      |  
|Forfeiture of restricted common stock by
    employees upon termination                               |  |              | (39,786    | )        |  |              | (2,958    | )             |  |            | 2,958    |         |  |       |     |   |  |   |       |   |  |   |           |   |  |   |           |  
|Additional issuance cost on sale of common stock
    to SAP                                           |  |              |           |          |  |              | (500      | )             |  |            |         |         |  |       |     |   |  |   |       |   |  |   |           |   |  |   | (500       | )
|Deferred compensation forfeited                                                                       |  |              |           |          |  |              | (50,701   | )             |  |            | 50,701   |         |  |       |     |   |  |   |       |   |  |   |           |   |  |   |           |  
|Amortization of deferred stock compensation                                                           |  |              |           |          |  |              |          |               |  |            | 8,728    |         |  |       |     |   |  |   |       |   |  |   |           |   |  |   | 8,728      |  
|Net loss                                                                                              |  |              |           |          |  |              |          |               |  |            |         |         |  |       |     |   |  |   |       |   |  |   | (589,836   | ) |  |   | (589,836   | )
|Foreign currency translation adjustment                                                               |  |              |           |          |  |              |          |               |  |            |         |         |  |       |     |   |  |   | (490   | ) |  |   |           |   |  |   | (490       | )
|Unrealized gain on investments                                                                        |  |              |           |          |  |              |          |               |  |            |         |         |  |       |     |   |  |   | 388    |   |  |   |           |   |  |   | 388        |  
|                                                                                                      |  |              |            |          |  |              |           |               |  |            |          |         |  |       |      |   |  |   |        |   |  |   |            |   |  |   |            |  
|Comprehensive loss                                                                                    |  |              |            |          |  |              |           |               |  |            |          |         |  |       |      |   |  |   |        |   |  |   |            |   |  |   | (589,938   | )
|                                                                                                      |  |              |            |          |  |              |           |               |  |            |          |         |  |       |      |   |  |   |        |   |  |   |            |   |  |   |            |  
|BALANCES AT DECEMBER 31, 2002                                                                         |  |              | 29,276,716 |          |  | $            | 3,674,645 |               |  | $          | (4,385   | )       |  | $     | (129 | ) |  | $ | (1,203 | ) |  | $ | (3,621,438 | ) |  | $ | 47,490     |  
|                                                                                                      |  |              |            |          |  |              |           |               |  |            |          |         |  |       |      |   |  |   |        |   |  |   |            |   |  |   |            |  

See accompanying notes.

M-5



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##### Table of Contents



COMMERCE ONE OPERATIONS, INC.




CONSOLIDATED STATEMENTS OF CASH
FLOWS

(In thousands)


|                                                                                                                           |  |                          |          |      |  |      |            |   |  |   |           |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | -------- | ---- |  | ---- | ---------- | - |  | - | --------- | -
|                                                                                                                           |  |                         
|                                                                                                                           |  | Years ended December 31,
|                                                                                                                           |  |                         
|                                                                                                                           |  | 2002                     |          | 2001 |  | 2000
|                                                                                                                           |  |                          |          |      |  |     
|Operating activities:                                                                                                      |  |                          |          |      |  |      |            |   |  |   |           |  
|Net loss                                                                                                                   |  | $                        | (589,836 | )    |  | $    | (2,584,099 | ) |  | $ | (344,947  | )
|Adjustments to reconcile net loss to net cash
    provided by operating activities:                                        |  |                          |          |      |  |      |            |   |  |   |           |  
|Depreciation and amortization                                                                                              |  |                          | 30,733   |      |  |      | 45,375     |   |  |   | 15,339    |  
|Purchased in-process research and development                                                                              |  |                          |         |      |  |      | 4,548      |   |  |   | 5,142     |  
|Amortization of cost of Technology Agreement with
    Covisint                                                             |  |                          | 10,428   |      |  |      | 55,188     |   |  |   | 5,689     |  
|Amortization of deferred stock compensation                                                                                |  |                          | 8,728    |      |  |      | 98,302     |   |  |   | 39,820    |  
|Amortization of goodwill and other intangible
    assets                                                                   |  |                          | 11,867   |      |  |      | 332,789    |   |  |   | 233,184   |  
|Impairment of goodwill and other intangible assets                                                                         |  |                          | 189,344  |      |  |      | 1,098,869  |   |  |   |          |  
|Impairment of Technology Agreement with Covisint                                                                           |  |                          | 179,968  |      |  |      | 592,334    |   |  |   |          |  
|Write down of investment in Covisint                                                                                       |  |                          | 4,255    |      |  |      | 21,595     |   |  |   |          |  
|Loss on other investments                                                                                                  |  |                          | 248      |      |  |      | 2,958      |   |  |   | 2,994     |  
|Loss on disposal of property and equipment                                                                                 |  |                          |         |      |  |      | 26,914     |   |  |   |          |  
|Impairment of property and equipment                                                                                       |  |                          | 20,483   |      |  |      |           |   |  |   |          |  
|Other                                                                                                                      |  |                          | 977      |      |  |      |           |   |  |   |          |  
|Changes in operating assets and liabilities:                                                                               |  |                          |          |      |  |      |            |   |  |   |           |  
|Restricted cash and investments                                                                                            |  |                          | (30,184  | )    |  |      |           |   |  |   |          |  
|Accounts receivable, net                                                                                                   |  |                          | 29,972   |      |  |      | 111,366    |   |  |   | (91,043   | )
|Prepaid and other current assets                                                                                           |  |                          | 7,980    |      |  |      | 8,221      |   |  |   | (8,402    | )
|Accounts payable                                                                                                           |  |                          | (20,014  | )    |  |      | (5,075     | ) |  |   | 13,654    |  
|Accrued compensation and related expenses                                                                                  |  |                          | (9,622   | )    |  |      | (27,390    | ) |  |   | 26,612    |  
|Other current liabilities                                                                                                  |  |                          | (28,981  | )    |  |      | (28,780    | ) |  |   | 29,967    |  
|Deferred revenue                                                                                                           |  |                          | (33,821  | )    |  |      | (57,078    | ) |  |   | 71,894    |  
|Non-current accrued restructuring charges                                                                                  |  |                          |         |      |  |      | 37,005     |   |  |   |          |  
|                                                                                                                           |  |                          |          |      |  |      |            |   |  |   |           |  
|Net cash used in operating activities                                                                                      |  |                          | (217,475 | )    |  |      | (266,958   | ) |  |   | (97       | )
|Investing activities:                                                                                                      |  |                          |          |      |  |      |            |   |  |   |           |  
|Purchase of property and equipment, net                                                                                    |  |                          | (6,503   | )    |  |      | (39,491    | ) |  |   | (79,158   | )
|Proceeds from maturities of short term investments                                                                         |  |                          | 130,550  |      |  |      | 204,709    |   |  |   | 82,880    |  
|Purchase of short term investments                                                                                         |  |                          | (43,964  | )    |  |      | (173,954   | ) |  |   | (136,357  | )
|Business combinations, net of cash acquired                                                                                |  |                          |         |      |  |      | (2,499     | ) |  |   | 8,773     |  
|Additional costs of Technology Agreement with
    Covisint, net                                                            |  |                          |         |      |  |      | (2,815     | ) |  |   |          |  
|Proceed from divestitures                                                                                                  |  |                          | 10,734   |      |  |      |           |   |  |   |          |  
|Other investments                                                                                                          |  |                          | 1,569    |      |  |      | 3,191      |   |  |   | (13,199   | )
|                                                                                                                           |  |                          |          |      |  |      |            |   |  |   |           |  
|Net cash provided by (used in) investing
    activities                                                                    |  |                          | 92,386   |      |  |      | (10,859    | ) |  |   | (137,061  | )
|Financing activities:                                                                                                      |  |                          |          |      |  |      |            |   |  |   |           |  
|Proceeds from issuance of common stock, net                                                                                |  |                          | 4,885    |      |  |      | 237,901    |   |  |   | 301,411   |  
|Proceeds from borrowings on notes payable                                                                                  |  |                          | 25,423   |      |  |      | 19,000     |   |  |   |          |  
|Payments on notes payable and capital lease
    obligations                                                                |  |                          | (23,053  | )    |  |      | (1,846     | ) |  |   | (533      | )
|                                                                                                                           |  |                          |          |      |  |      |            |   |  |   |           |  
|Net cash provided by financing activities                                                                                  |  |                          | 7,255    |      |  |      | 255,055    |   |  |   | 300,878   |  
|Effect of foreign currency translation on cash
    and cash equivalents                                                    |  |                          | (960     | )    |  |      | 120        |   |  |   | (323      | )
|                                                                                                                           |  |                          |          |      |  |      |            |   |  |   |           |  
|Net (decrease) increase in cash                                                                                            |  |                          | (118,794 | )    |  |      | (22,642    | ) |  |   | 163,397   |  
|Cash balance at beginning of period                                                                                        |  |                          | 192,547  |      |  |      | 215,189    |   |  |   | 51,792    |  
|                                                                                                                           |  |                          |          |      |  |      |            |   |  |   |           |  
|Cash balance at end of period                                                                                              |  | $                        | 73,753   |      |  | $    | 192,547    |   |  | $ | 215,189   |  
|                                                                                                                           |  |                          |          |      |  |      |            |   |  |   |           |  
|Supplemental disclosures:                                                                                                  |  |                          |          |      |  |      |            |   |  |   |           |  
|Interest paid                                                                                                              |  | $                        | 946      |      |  | $    | 351        |   |  | $ | 235       |  
|                                                                                                                           |  |                          |          |      |  |      |            |   |  |   |           |  
|Cash paid for income taxes                                                                                                 |  | $                        | 2,620    |      |  | $    | 4,307      |   |  | $ | 4,590     |  
|                                                                                                                           |  |                          |          |      |  |      |            |   |  |   |           |  
|Non-cash investing and financing activities:                                                                               |  |                          |          |      |  |      |            |   |  |   |           |  
|Deferred stock compensation                                                                                                |  | $                        |         |      |  | $    | 9,263      |   |  | $ | 20,174    |  
|                                                                                                                           |  |                          |          |      |  |      |            |   |  |   |           |  
|Unrealized loss on investments                                                                                             |  | $                        | 388      |      |  | $    | 407        |   |  | $ | 39        |  
|                                                                                                                           |  |                          |          |      |  |      |            |   |  |   |           |  
|Issuance of preferred stock, common stock and
    assumption of stock options in connection with business
    combinations |  | $                        |         |      |  | $    | 74,768     |   |  | $ | 1,774,339 |  
|                                                                                                                           |  |                          |          |      |  |      |            |   |  |   |           |  
|Deferred stock compensation related to stock
    option grants and options assumed in business combinations                |  | $                        |         |      |  | $    | 2,181      |   |  | $ | 12,821    |  
|                                                                                                                           |  |                          |          |      |  |      |            |   |  |   |           |  
|Valuation of common stock to be issued in
    connection with Technology Agreement with Covisint                           |  | $                        |         |      |  | $    |           |   |  | $ | 849,350   |  
|                                                                                                                           |  |                          |          |      |  |      |            |   |  |   |           |  
|Common stock warrant issued in connection with
    services provided                                                       |  | $                        |         |      |  | $    |           |   |  | $ | 1,524     |  
|                                                                                                                           |  |                          |          |      |  |      |            |   |  |   |           |  
|Common stock issued in connection with equity
    interest in Covisint                                                     |  | $                        |         |      |  | $    |           |   |  | $ | 30,850    |  
|                                                                                                                           |  |                          |          |      |  |      |            |   |  |   |           |  

See accompanying notes.

M-6



---



##### Table of Contents






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1.     SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF THE COMPANY

The Company was founded as Distrivision in 1994,
and changed its name to Commerce One in 1997, and
re-incorporated into Delaware in 1999. On July 11, 2001,
the Company completed its reorganization into a holding company
structure. Commerce One is a technology company that specializes
in software and services that allow companies to conduct
business more efficiently through business process automation
and web services solutions. The Companys software provides
the technology and infrastructure that enable companies to
conduct business processes via the Internet or Intranets and to
manage their supplier, partner and customer relationships more
effectively. Commerce Ones services operations support
these software solutions and help companies take maximum
advantage of the efficiencies that these solutions can offer.
Together, the Companys software and services allow
companies to automate business functions that traditionally
involved costly and time-consuming phone calls and paperwork.

BASIS OF PRESENTATION

At December 31, 2002, the Company has
$112.9 million cash and cash equivalents and investments,
of which $77.3 million is unrestricted and available to
fund operations, $24.6 million working capital and
$3,621.4 million accumulated deficit. Furthermore, the
Company expects to use approximately $39 million in cash to
fund its operations in the first quarter of 2003. To date, the
Company has funded its operations from revenue and equity
financing. The Company plans to fund its current level of
operations from a combination of available unrestricted cash and
cash equivalents, investments and revenue. However, plans and
future events are inherently uncertain. Therefore, should the
Companys levels of revenue and cash, cash equivalents and
investments fall short of the Companys expectations, the
Company will take action to further reduce its operating
expenses, primarily through reductions of personnel-related
costs, and the Company believes such action, if needed, will
allow the Company to have sufficient cash to finance its
expected operating losses and working capital requirements
through the 2003 calendar year.

The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All
significant inter-company accounts and transactions have been
eliminated in consolidation. Certain previously reported amounts
have been reclassified to conform to the current presentation
format.

The functional currency of the Companys
foreign subsidiaries is the local currency. The Company
translates all assets and liabilities to U.S. dollars at
the current exchange rates as of the applicable balance sheet
date. Revenue and expenses are translated using the average
exchange rate for the period. Gains and losses resulting from
the translation of the foreign subsidiaries financial
statements are reported as a separate component of accumulated
comprehensive other income (loss) in stockholders equity.
Net gains and losses resulting from foreign exchange
transactions, which are recorded in the statement of operations,
were not significant during any of the periods presented.

USE OF ESTIMATES

The preparation of the consolidated financial
statements in conformity with accounting principles generally
accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results
could differ from those estimates. Significant estimates and
assumptions made by management involve revenue recognition, the
establishment of provisions for bad debts and warranty, the
determination of the fair value of stock awards to employees for
purposes of the pro forma disclosures. the valuation of
goodwill, other intangible assets, fixed assets, and equity
investments, and the restructuring accruals related to office
closures.

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CASH AND CASH EQUIVALENTS

Cash equivalents are highly liquid investments
with insignificant interest rate risk and maturities of
90 days or less at the date of purchase and are stated at
amounts that approximate fair value. Cash equivalents consist
principally of investments in short-term money market
instruments and certificates of deposit.

SHORT TERM INVESTMENTS

Short-term investments consist principally of
commercial paper, corporate notes and bonds, government notes
and bonds and certificates of deposit with maturities greater
than 90 days and are stated at amounts that approximate
fair value.

The Company accounts for its short term
investments in accordance with Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities.
Management determines the appropriate classification of debt
securities at the time of purchase and reevaluates such
designation as of each balance sheet date.

The Company has classified its short-term
investments as available-for-sale. Available-for-sale
investments are recorded at fair value based on quoted market
prices at December 31, 2002 and 2001, with unrealized gains
and losses reported as other comprehensive income (loss) and
included within accumulated other comprehensive income (loss) in
the statement of stockholders equity. Realized gains and
losses, which have been immaterial to date, are included in
interest and other income and are derived using the specific
identification method for determining the cost of investments
sold. Dividend and interest income is recognized when earned.

As of December 31, 2002, all of the
Companys short-term investments have a contractual
maturity date that is less than one year from December 31,
2002. The following summarizes the fair value of the
Companys short-term investments at December 31, 2002
(amounts in thousands):

|                           |  |           |       |            |  |            |   |       |  |   |   |  |  |   |       | 
|-------------------------- |  | --------- | ----- | ---------- |  | ---------- | - | ----- |  | - | - |  |  | - | ----- | 
|                           |  |           |       | Gross      |  | Gross      |   |      
|                           |  | Amortized |       | Unrealized |  | Unrealized |   | Fair 
|                           |  | Cost      |       | Gains      |  | Losses     |   | Value
|                           |  |           |       |            |  |            |   |      
|Government notes and bonds |  | $         | 8,928 |            |  | $          | 2 |       |  | $ |  |  |  | $ | 8,930 | 
|Certificates of deposit    |  |           | 26    |            |  |            |  |       |  |   |  |  |  |   | 26    | 
|                           |  |           |       |            |  |            |   |       |  |   |   |  |  |   |       | 
|                           |  | $         | 8,954 |            |  | $          | 2 |       |  | $ |  |  |  | $ | 8,956 | 
|                           |  |           |       |            |  |            |   |       |  |   |   |  |  |   |       | 

Short-term investments as of December 31,
2002 included approximately $26,000 and $5.4 million in
certificates of deposit and government notes and bonds,
respectively, which collateralized certain of the Companys
obligations related to operating lease agreements for office
facilities.

The following summarizes the fair value of the
Companys short-term investments at December 31, 2001
(amounts in thousands):

|                           |  |           |        |            |  |            |    |       |  |   |    |   |  |   |        | 
|-------------------------- |  | --------- | ------ | ---------- |  | ---------- | -- | ----- |  | - | -- | - |  | - | ------ | 
|                           |  |           |        | Gross      |  | Gross      |    |      
|                           |  | Amortized |        | Unrealized |  | Unrealized |    | Fair 
|                           |  | Cost      |        | Gains      |  | Losses     |    | Value
|                           |  |           |        |            |  |            |    |      
|Commercial paper           |  | $         | 30,916 |            |  | $          | 28 |       |  | $ |   |   |  | $ | 30,944 | 
|Government notes and bonds |  |           | 32,973 |            |  |            | 13 |       |  |   | (2 | ) |  |   | 32,984 | 
|Corporate notes and bonds  |  |           | 20,648 |            |  |            | 27 |       |  |   |   |   |  |   | 20,675 | 
|Certificates of deposit    |  |           | 11,003 |            |  |            |   |       |  |   |   |   |  |   | 11,003 | 
|                           |  |           |        |            |  |            |    |       |  |   |    |   |  |   |        | 
|                           |  | $         | 95,540 |            |  | $          | 68 |       |  | $ | (2 | ) |  | $ | 95,606 | 
|                           |  |           |        |            |  |            |    |       |  |   |    |   |  |   |        | 

Short-term investments as of December 31,
2001 included approximately $8.0 million and
$6.3 million in certificates of deposit and government
notes and bonds, respectively, which collateralized certain of
the Companys obligations related to operating lease
agreements for office facilities, potential workers compensation
claims and guarantees of a personal home mortgage for an
executive officer.

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RESTRICTED CASH, CASH EQUIVALENTS, AND
SHORT TERM INVESTMENTS

Restricted cash, cash equivalents, and short-term
investments totaled $35.6 million and $14.3 million as
of December 31, 2002 and 2001, respectively. In 2002, these
amounts collateralize the Companys obligations related to
operating lease agreements for office facilities and a bank note
payable. In 2001, these amounts collateralized the
Companys obligations related to operating lease agreements
for office facilities, potential worker compensation claims, and
the guarantee of a personal home mortgage for an executive
officer.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the
straight-line method over the estimated useful lives of the
related assets as follows: computer equipment, office equipment,
furniture and fixtures are depreciated over three years, and
leasehold improvements are depreciated over the shorter of the
remaining term of the related lease or the estimated economic
useful life of the improvement. Equipment acquired under capital
leases is depreciated over the shorter of the expected useful
life or the related lease term.

GOODWILL AND OTHER INTANGIBLE
ASSETS

Goodwill and other intangible assets result from
business combinations accounted for under the purchase method
and intellectual property that is comprised of the cost incurred
filing for original patents. Intangible assets related to
acquired technology, trademarks, patents and other intangible
assets acquired through business combinations are being
amortized on a straight-line method over the estimated useful
life of the related asset, generally one to five years, and
intellectual property related to original patents is being
amortized over an estimated useful life of ten years. Effective
July 1, 2001 the Company adopted certain provisions of
SFAS 141, Business Combinations, and on
January 1, 2002, the Company adopted the full provisions of
SFAS 141 and SFAS 142, Goodwill and Other
Intangible Assets. SFAS 141 requires that the
purchase method of accounting be used for all business
combinations initiated after June 30, 2001, and also
specifies the criteria for the recognition of intangible assets
separately from goodwill. Under the new rules, goodwill is no
longer amortized but is subject to an impairment test at least
annually. SFAS 141 specifically identified assembled
workforce as an intangible asset that is not to be recognized
apart from goodwill and it was subsumed into goodwill on
January 1, 2002. Other intangible assets that meet the new
criteria continue to be amortized over their useful lives. In
2002, goodwill was evaluated for impairment and deemed to be
fully impaired as of December 31, 2002. The Company also
evaluates potential impairments of its long-lived assets,
including intangibles. When the Company determines that the
carrying value of long-lived assets may not be recoverable based
upon the existence of one or more indicators of impairment, the
Company evaluates the expected undiscounted cash flows related
to the assets. If these cash flows are less than the carrying
value of the assets, the Company measures the impairment using
discounted cash flows.

LONG-LIVED ASSETS

The Company adopted SFAS 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, on
January 1, 2002. SFAS 144 supersedes SFAS 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. The primary
objectives of SFAS 144 are to develop one accounting model
based on the framework established in SFAS 121 for
long-lived assets to be disposed of by sale, and to address
significant implementation issues.

Long-lived assets, other than goodwill, are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets
might not be recoverable. The Company does not perform a
periodic assessment of assets for impairment in the absence of
such information or indicators. Conditions that would
necessitate an impairment assessment include a significant
decline in the observable market value of an asset, a
significant change in the extent or manner in which an asset is
used, or a significant adverse change that would indicate that
the carrying amount of an asset or group of assets is not
recoverable. For long-lived assets to be held and used, the
Company recognizes an impairment loss only if its carrying
amount is not recoverable through its undiscounted cash flows
and measures the impairment loss based on the difference

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between the carrying amount and fair value.
Long-lived assets held for sale are reported at the lower of
cost or fair value less costs to sell.


SOFTWARE DEVELOPMENT COSTS

The Company accounts for software development
costs in accordance with the Financial Accounting Standards
Board (referred to as FASB) No. 86,
Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed, under which certain
software development costs incurred subsequent to the
establishment of technological feasibility are capitalized and
amortized over the estimated lives of the related products.
Technological feasibility is established upon completion of a
working model. Development costs incurred subsequent to the
establishment of technological feasibility have not been
significant, and all software development costs have been
charged to product development expense in the accompanying
consolidated statements of operations.

CONCENTRATION OF CREDIT RISK AND CREDIT
EVALUATIONS

Financial instruments which potentially subject
the Company to concentrations of risk include cash, cash
equivalents, short-term investments and accounts receivable. The
Companys investment policies limit cash equivalents and
short-term investments to short-term, low risk investments. Cash
and cash equivalents, short-term investments are held with a
domestic financial institution with high credit standing. For
the year ended December 31, 2002, transactions with
SAP AG (SAP) accounted for approximately 24.8%
of the Companys total revenues. For the year ended
December 31, 2002, one other customer accounted for more
than 11% of the Companys total revenues. For the year
ended December 31, 2001, transactions with SAP accounted
for approximately 19.4% of the Companys total revenues.
For the years ended December 31, 2001 and 2000, no other
customer accounted for more than 10% of the Companys total
revenues. At December 31, 2002, no customers accounted for
more than 10% of the Companys gross accounts receivable
balance. At December 31, 2001, two customers accounted for
13% and 12% of the Companys gross accounts receivable
balance. The Company performs ongoing credit evaluations of its
customers and does not typically require collateral or
guarantees. Management maintains allowances for doubtful
accounts for estimated losses resulting from the inability of
the Companys customers to make required payments. If the
financial condition of the Companys customers were to
deteriorate, resulting in an impairment of their ability to make
such payments, increases in the allowance may be required.

REVENUE RECOGNITION

The Companys revenue recognition policies
are consistent with Statement of Position 97-2 Software
Revenue Recognition, as modified by Statement of Position
98-9.

Revenues from license agreements for software
products are recognized upon delivery of the software if there
is persuasive evidence of an arrangement, collection is probable
and the fee is fixed or determinable. When software is licensed
to third parties through indirect sales channels, generally
license fees are recognized as revenue under the sell-through
method, when the criteria described above have been met and the
reseller has sold the software to an end-user customer. While
the Company generally does not license software under barter or
concurrent arrangements, whenever software has been licensed
under such arrangements the Company has recognized revenue equal
to the net monetary amounts to be received by the Company.

The Company reduces license revenue to reflect
estimated product returns. While as a matter of contract and
general practice, the Company does not accept the return of
software products after the expiration of any acceptance period,
unforeseen contractual disputes with customers may require us to
accept the return of a product. Should actual product returns
differ from estimates, revisions to the product return allowance
would be required.

The Company charges estimated product warranty
costs to cost of licenses at the time revenue is recognized.
While the Company engages in extensive product quality programs
and processes prior to the release of software, unforeseen
product errors may exist in our products that may require us to
incur costs to correct or replace the

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affected products. Should actual costs differ
from its estimates, revisions to the estimated warranty costs
would be required.


Revenues from professional services contracts are
generally recognized on a time and material basis. However, when
contracts have a fixed price revenue is recognized on the
percentage-of-completion method, with costs and estimated
profits recorded as work is performed. Provisions for estimated
losses on uncompleted contracts are made in the period in which
such losses are determined. Changes in contract performance and
estimated profitability, including final contract settlements,
may result in revisions to costs and revenues, which are
recognized in the period in which the revisions are determined.

If a customer transaction includes both software
license and services elements or the rights to multiple software
products, the total arrangement fee is allocated to each of the
elements using the residual method, under which revenue is
allocated to undelivered elements based on vendor specific
objective evidence of the fair values of such undelivered
elements and the residual amounts of revenue are allocated to
the delivered elements.

Revenue is recognized using contract accounting
for arrangements involving significant customization or
modifications of the software or where professional services are
considered necessary to the functionality of the software.
Revenue from these software and services arrangements is
recognized using the percentage of completion method.

Software maintenance revenues, subscription and
hosting fees are recognized ratably over the term of the related
contract, typically one year, in accordance with revenue
recognition criteria.

Network service fees (transaction fees and
revenue sharing), which have not been significant, are
recognized as earned based on customer transactions.

Deferred revenue consists of license fees for
which revenue recognition criteria have not been met and prepaid
fees for services, subscription fees, and maintenance and
support agreements.

STOCK-BASED COMPENSATION

The Company generally has three categories of
employee stock-based awards: restricted stock, stock options and
a stock purchase plan, which are more fully described in
Note 11  Stockholders Equity.
The Company accounts for employee stock options using the
intrinsic value method in accordance with Accounting Principles
Board Opinion No. 25 Accounting for Stock Issued to
Employees (APB 25) and has adopted the
disclosure-only alternative of SFAS No. 123,
Accounting for Stock-Based Compensation as amended
by SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. Under
the intrinsic value method, the Company has only recorded
stock-based compensation resulting from restricted stock issued
and options assumed in various prior period acquisitions.

Restricted stock is measured at fair value on the
date of grant based on the number of shares granted and the
quoted price of the Companys common stock. Such value is
recognized as an expense ratably over the corresponding employee
service period. To the extent restricted stock or restricted
stock units are forfeited prior to vesting, the corresponding
previously recognized expense is reversed as an offset to
Stock-based compensation. Stock-based compensation
associated with restricted stock was $2.7 million during
2002.

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The following table illustrates the effect on net
income and earnings per share if the Company had applied the
fair value recognition provisions of SFAS 123 as amended by SFAS
148 to stock-based employee compensation (in thousands except
per share data):

|                                                                                                                            |  |                          |          |      |  |      |            |   |  |   |          |  
|--------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | -------- | ---- |  | ---- | ---------- | - |  | - | -------- | -
|                                                                                                                            |  |                         
|                                                                                                                            |  | Years ended December 31,
|                                                                                                                            |  |                         
|                                                                                                                            |  | 2002                     |          | 2001 |  | 2000
|                                                                                                                            |  |                          |          |      |  |     
|Net income  as reported                                                                                                    |  | $                        | (589,836 | )    |  | $    | (2,584,099 | ) |  | $ | (344,947 | )
|Add: Stock-based compensation cost, included in
    the determination of net income as reported                             |  |                          | 8,728    |      |  |      | 98,302     |   |  |   | 39,820   |  
|Deduct: Total stock-based employee compensation
    expense determined under the fair value based method for all
    awards |  |                          | (42,344  | )    |  |      | 120,723    |   |  |   | (543,710 | )
|                                                                                                                            |  |                          |          |      |  |      |            |   |  |   |         
|Proforma net loss                                                                                                           |  | $                        | (623,452 | )    |  | $    | (2,365,074 | ) |  | $ | (848,837 | )
|                                                                                                                            |  |                          |          |      |  |      |            |   |  |   |         
|Loss per share:                                                                                                             |  |                          |          |      |  |      |            |   |  |   |          |  
|Basic and diluted  as reported                                                                                             |  |                          | (20.33   | )    |  |      | (103.02    | ) |  |   | (20.52   | )
|                                                                                                                            |  |                          |          |      |  |      |            |   |  |   |         
|Basic and diluted  pro forma                                                                                               |  |                          | (21.49   | )    |  |      | (94.29     | ) |  |   | (50.50   | )
|                                                                                                                            |  |                          |          |      |  |      |            |   |  |   |         

The weighted average fair value of stock options
granted during 2002, 2001 and 2000 was $4.33, $40.80 and
$470.60, respectively. The weighted-average fair value for stock
options granted were calculated using the Black-Scholes
option-pricing model based on the following assumptions:

|                                         |  |      |          |      |  |      |          |  |  |  |          | 
|---------------------------------------- |  | ---- | -------- | ---- |  | ---- | -------- |  |  |  | -------- | 
|                                         |  | 2002 |          | 2001 |  | 2000
|                                         |  |      |          |      |  |     
|Volatility                               |  |      | 148%     |      |  |      | 146%     |  |  |  | 135%     | 
|Weighted-average estimated life          |  |      | 3  years |      |  |      | 3  years |  |  |  | 3  years | 
|Weighted-average risk-free interest rate |  |      | 4.6%     |      |  |      | 5.0%     |  |  |  | 6.2%     | 
|Dividend yield                           |  |      |         |      |  |      |         |  |  |  |         | 

The weighted average fair value of shares issued
under the employee stock purchase plan during 2002, 2001, and
2000 was $5.26, $68.06, and $273.65, respectively. The
weighted-average fair value of shares issued under the employee
stock purchase plan was calculated using the Black-Scholes
option-pricing model based on the following assumptions:

|                                         |  |      |           |      |  |      |           |  |  |  |           | 
|---------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  |  | --------- | 
|                                         |  | 2002 |           | 2001 |  | 2000
|                                         |  |      |           |      |  |     
|Volatility                               |  |      | 148%      |      |  |      | 146%      |  |  |  | 135%      | 
|Weighted-average estimated life          |  |      | 6  months |      |  |      | 6  months |  |  |  | 6  months | 
|Weighted-average risk-free interest rate |  |      | 4.6%      |      |  |      | 5.0%      |  |  |  | 6.2%      | 
|Dividend yield                           |  |      |          |      |  |      |          |  |  |  |          | 

ADVERTISING

Advertising costs are expensed as incurred.
Advertising expense was approximately $779,000, $5,981,000 and
$9,368,000 for the years ended December 31, 2002, 2001 and
2000, respectively.

INCOME TAXES

The Company accounts for income taxes in
accordance with SFAS No. 109, Accounting for Income
Taxes, which requires the use of the liability method in
accounting for income taxes. Under this method, deferred tax
assets and liabilities are measured using enacted tax rates and
laws that will be in effect when the differences are expected to
reverse.

NET LOSS PER SHARE

Basic and diluted net loss per share information
for all periods is presented under the requirements of SFAS
No. 128, Earnings per Share. Basic earnings per
share has been computed using the weighted-average number of
shares of common stock outstanding during the period, less
shares subject to repurchase and forfeiture, and

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excludes any dilutive effects of options,
warrants, and convertible securities. Potentially dilutive
securities have also been excluded from the computation of
diluted net loss per share as their inclusion would be
antidilutive.


The calculation of basic and diluted net loss per
share is as follows (in thousands, expect per share data):

|                                                                                                                   |  |                          |          |      |  |      |            |   |  |   |          |  
|------------------------------------------------------------------------------------------------------------------ |  | ------------------------ | -------- | ---- |  | ---- | ---------- | - |  | - | -------- | -
|                                                                                                                   |  |                         
|                                                                                                                   |  | Years ended December 31,
|                                                                                                                   |  |                         
|                                                                                                                   |  | 2002                     |          | 2001 |  | 2000
|                                                                                                                   |  |                          |          |      |  |     
|Net loss                                                                                                           |  | $                        | (589,836 | )    |  | $    | (2,584,099 | ) |  | $ | (344,947 | )
|                                                                                                                   |  |                          |          |      |  |      |            |   |  |   |         
|Weighted average shares of common stock
    outstanding                                                            |  |                          | 29,074   |      |  |      | 25,250     |   |  |   | 16,964   |  
|Less: weighted average shares subject to
    repurchase and forfeiture                                             |  |                          | (63      | )    |  |      | (166       | ) |  |   | (157     | )
|                                                                                                                   |  |                          |          |      |  |      |            |   |  |   |         
|Weighted average shares of common stock
    outstanding used in computing basic and diluted net loss per
    share |  |                          | 29,011   |      |  |      | 25,084     |   |  |   | 16,807   |  
|                                                                                                                   |  |                          |          |      |  |      |            |   |  |   |         
|Basic and diluted net loss per share                                                                               |  | $                        | (20.33   | )    |  | $    | (103.02    | ) |  | $ | (20.52   | )
|                                                                                                                   |  |                          |          |      |  |      |            |   |  |   |         

If the Company had reported net income, the
calculation of diluted earnings per share would have included,
approximately, an additional 584,000, 2,327,300, and 2,223,100
common equivalent shares related to outstanding stock options
and warrants not included above (determined using the treasury
stock method) for the years ended December 31, 2002, 2001
and 2000, respectively.

COMPREHENSIVE LOSS

Comprehensive loss is comprised of net loss and
other comprehensive income (loss). Other comprehensive income
(loss) includes certain changes in stockholders equity
that are excluded from net loss. Other comprehensive income
(loss) includes unrealized gains and losses and currency
translation adjustments. At December 31, 2002 and 2001
cumulative unrealized losses totaled $0.1 million and
$0.4 million, respectively, and cumulative currency
translation adjustments totaled $1.1 million and
$0.7 million, respectively. Comprehensive income (loss) for
the years ended December 31, 2002, 2001 and 2000 has been
reflected in the Consolidated Statements of Stockholders
Equity.

EFFECTS OF NEW ACCOUNTING
STANDARDS

In June 2002, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS
No. 146 addresses financial accounting and reporting for
costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (referred to as EITF) Issue
No. 94-3 Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring).
SFAS No. 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when
the liability is incurred, not at the date of an entitys
commitment to an exit plan as required under EITF Issue
No. 94-3. The provisions of SFAS No. 146 are effective
for exit or disposal activities initiated after
December 31, 2002. The adoption of SFAS
No. 146 may affect the timing of recognizing future
restructuring costs and the amounts recognized under such costs.
SFAS No. 146 is not expected to have a material impact on
the Consolidated Financial Statements.

In November 2002, the FASB issued FIN 45,
Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others. FIN 45 requires that the Company recognize
the fair value for guarantee and indemnification arrangements
issued or modified by the Company after December 31, 2002,
if these arrangements are within the scope of the
Interpretation. In addition, the Company must continue to
monitor the conditions that are subject to the guarantees and
indemnifications, as required under previously existing
generally accepted accounting principles, in order to identify
if a loss has occurred. If the Company determines it is probable
that a loss has occurred then any such estimable loss would be
recognized under those guarantees and indemnifications. Some of
the software licenses granted by the Company contain provisions
that indemnify licensees of the Companys software from
damages and costs resulting from claims alleging that the
Companys software infringes the intellectual property
rights of a third party. The Company has historically received
only a limited number of requests for indemnification under
these provisions and has not been required to make material
payments pursuant to these provisions. Accordingly, the Company
has not

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recorded a liability related to these
indemnification provisions. The Company does not have any
guarantees or indemnification arrangements other than the
indemnification clause in some of its software licenses. The
Company will be required to implement the provisions of
FIN 45 as of January 1, 2003 and does not believe that
FIN 45 will have a material impact on its financial
position, results of operations or cash flows.


REVERSE STOCK SPLIT

On September 16, 2002, the Company completed
a reverse stock split where ten shares of common stock
outstanding were converted into one share of common stock. All
references in the consolidated financial statements and notes
thereto with respect to the number of shares, per share amounts
and market prices of the Companys common stock have been
restated to reflect the effect of the reverse stock split.

2.     ACCOUNTS
RECEIVABLE

Accounts receivable consists of the following (in
thousands):

|                                    |  |              |        |      |  |   |        | 
|----------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                                    |  |             
|                                    |  | December 31,
|                                    |  |             
|                                    |  | 2002         |        | 2001
|                                    |  |              |        |     
|Accounts receivable                 |  | $            | 10,347 |      |  | $ | 59,390 | 
|Unbilled accounts receivable        |  |              | 3,027  |      |  |   | 10,564 | 
|                                    |  |              |        |      |  |   |        | 
|                                    |  |              | 13,374 |      |  |   | 69,954 | 
|Less accounts receivable allowances |  |              | 6,001  |      |  |   | 24,077 | 
|                                    |  |              |        |      |  |   |        | 
|                                    |  | $            | 7,373  |      |  | $ | 45,877 | 
|                                    |  |              |        |      |  |   |        | 

Unbilled accounts receivable result from
professional services provided to customers that have not yet
been formally invoiced as of the reporting date. Such amounts
are generally invoiced within fifteen business days of the end
of the period in which services are provided.

3.     PROPERTY AND
EQUIPMENT

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

|                                               |  |              |       |      |  |   |         | 
|---------------------------------------------- |  | ------------ | ----- | ---- |  | - | ------- | 
|                                               |  |             
|                                               |  | December 31,
|                                               |  |             
|                                               |  | 2002         |       | 2001
|                                               |  |              |       |     
|Computer and office equipment                  |  | $            | 7,417 |      |  | $ | 74,825  | 
|Furniture and fixtures                         |  |              | 2,344 |      |  |   | 24,635  | 
|Leasehold improvements                         |  |              |      |      |  |   | 15,660  | 
|Work in process                                |  |              |      |      |  |   | 674     | 
|                                               |  |              |       |      |  |   |         | 
|                                               |  |              | 9,761 |      |  |   | 115,794 | 
|Less accumulated depreciation and amortization |  |              |      |      |  |   | 50,886  | 
|                                               |  |              |       |      |  |   |         | 
|                                               |  | $            | 9,761 |      |  | $ | 64,908  | 
|                                               |  |              |       |      |  |   |         | 

Depreciation expense was approximately
$30.7 million in 2002, $45.4 million in 2001 and
$15.3 million in 2000. In accordance with SFAS 144
(See Note 4), an impairment charge was recorded for all
long-lived assets whose carrying value exceeded their estimated
fair value. As a result, the Company recorded impairment charges
of $20.5 million for property and equipment during the year
ended December 31, 2002 to reduce the book value to the
estimated fair value.

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4.     GOODWILL, LONG
LIVED ASSETS AND OTHER INTANGIBLE ASSETS

Other intangible assets, which result from
acquisitions accounted for under the purchase method and the
Covisint Technology Agreement entered into in December 2000,
consists of the following (in thousands):

|                              |  |              |        |      |  |   |          |  
|----------------------------- |  | ------------ | ------ | ---- |  | - | -------- | -
|                              |  |             
|                              |  | December 31,
|                              |  |             
|                              |  | 2002         |        | 2001
|                              |  |              |        |     
|Covisint Technology Agreement |  | $            | 15,943 |      |  | $ | 267,215  |  
|Core and developed technology |  |              | 1,431  |      |  |   | 34,742   |  
|Assembled workforce           |  |              |       |      |  |   | 29,273   |  
|Customer contracts            |  |              |       |      |  |   | 7,900    |  
|Other                         |  |              | 1,075  |      |  |   | 16,519   |  
|                              |  |              |        |      |  |   |          |  
|                              |  |              | 18,449 |      |  |   | 355,649  |  
|Less accumulated amortization |  |              |       |      |  |   | (110,794 | )
|                              |  |              |        |      |  |   |          |  
|Other intangible assets, net  |  | $            | 18,449 |      |  | $ | 244,855  |  
|                              |  |              |        |      |  |   |          |  

Changes in the net carrying amount of goodwill in
2002 are as follows (in thousands):

|                                                                                  |  |   |          |  
|--------------------------------------------------------------------------------- |  | - | -------- | -
|Balance as of December 31, 2001                                                   |  | $ | 164,679  |  
|Reclassification of intangible asset 
    assembled workforce into goodwill, net |  |   | 15,700   |  
|Exterprise goodwill adjustment for final purchase
    accounting                  |  |   | (545     | )
|Impairment                                                                        |  |   | (179,834 | )
|                                                                                  |  |   |         
|Balance as of December 31, 2002                                                   |  | $ |         |  
|                                                                                  |  |   |         

Changes in the net carrying amount of goodwill in
2001 are as follows (in thousands):

|                                                             |  |   |            |  
|------------------------------------------------------------ |  | - | ---------- | -
|Balance as of December 31, 2000                              |  | $ | 1,511,035  |  
|Goodwill recorded from the purchase of Exterprise            |  |   | 54,786     |  
|Appnet goodwill adjustment for final purchase
    accounting |  |   | (687       | )
|Impairment                                                   |  |   | (1,095,335 | )
|Goodwill amortization                                        |  |   | (305,120   | )
|                                                             |  |   |           
|Balance as of December 31, 2001                              |  | $ | 164,679    |  
|                                                             |  |   |           

Amortization expense of our goodwill and other
intangible assets are as follows (in thousands):

|                                                  |  |              |        |      |  |      |         |  |  |   |         | 
|------------------------------------------------- |  | ------------ | ------ | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                                  |  |             
|                                                  |  | December 31,
|                                                  |  |             
|                                                  |  | 2002         |        | 2001 |  | 2000
|                                                  |  |              |        |      |  |     
|Goodwill amortization                             |  | $            |       |      |  | $    | 305,120 |  |  | $ | 212,993 | 
|Covisint technology agreement amortization        |  |              | 10,428 |      |  |      | 55,188  |  |  |   | 5,689   | 
|Acquisition related intangible asset amortization |  |              | 11,824 |      |  |      | 27,669  |  |  |   | 20,190  | 
|Intellectual property amortization                |  |              | 43     |      |  |      |        |  |  |   |        | 
|                                                  |  |              |        |      |  |      |         |  |  |   |         | 
|Total                                             |  | $            | 22,295 |      |  | $    | 387,977 |  |  | $ | 238,872 | 
|                                                  |  |              |        |      |  |      |         |  |  |   |         | 

Intangible assets related to acquired technology,
trademarks, patents and other intangible assets acquired through
business combinations are being amortized on a straight-line
basis over the estimated useful life of the related asset,
generally one to five years, and intellectual property related
to original patents is being amortized over an estimated useful
life of ten years.

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The expected future annual amortization expense
of our other intangible assets is as follows (in thousands):

|                                   |  |              |        | 
|---------------------------------- |  | ------------ | ------ | 
|                                   |  | Amortization
|For the Year Ending December 31,   |  | Expense     
|                                   |  |             
|2003                               |  | $            | 2,584  | 
|2004                               |  |              | 2,584  | 
|2005                               |  |              | 2,584  | 
|2006                               |  |              | 2,107  | 
|Thereafter                         |  |              | 8,590  | 
|                                   |  |              |        | 
|Total expected future amortization |  | $            | 18,449 | 
|                                   |  |              |        | 

In accordance with SFAS 141 and 142, the Company
discontinued the amortization of goodwill and assembled
workforce beginning January 1, 2002. A reconciliation of
previously reported net income (loss) and earnings per share to
the amounts adjusted for the exclusion of goodwill amortization
and the amortization of assembled workforce is as follows (in
thousands, except per share amounts):

|                                 |  |                                  |          |      |  |      |            |   |  |   |          |  
|-------------------------------- |  | -------------------------------- | -------- | ---- |  | ---- | ---------- | - |  | - | -------- | -
|                                 |  |                                 
|                                 |  | For the years ended December 31,
|                                 |  |                                 
|                                 |  | 2002                             |          | 2001 |  | 2000
|                                 |  |                                  |          |      |  |     
|Net Loss:                        |  |                                  |          |      |  |      |            |   |  |   |          |  
|Reported net loss                |  | $                                | (589,836 | )    |  | $    | (2,584,099 | ) |  | $ | (344,947 | )
|Goodwill amortization            |  |                                  |         |      |  |      | 305,120    |   |  |   | 212,993  |  
|Assembled workforce amortization |  |                                  |         |      |  |      | 9,959      |   |  |   | 4,189    |  
|                                 |  |                                  |          |      |  |      |            |   |  |   |         
|Adjusted net loss                |  | $                                | (589,836 | )    |  | $    | (2,269,020 | ) |  | $ | (127,765 | )
|                                 |  |                                  |          |      |  |      |            |   |  |   |         

|                                              |  |                                  |        |      |  |      |         |   |  |   |        |  
|--------------------------------------------- |  | -------------------------------- | ------ | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                              |  |                                 
|                                              |  | For the years ended December 31,
|                                              |  |                                 
|                                              |  | 2002                             |        | 2001 |  | 2000
|                                              |  |                                  |        |      |  |     
|Basic and diluted loss per share:             |  |                                  |        |      |  |      |         |   |  |   |        |  
|Reported net loss                             |  | $                                | (20.33 | )    |  | $    | (103.02 | ) |  | $ | (20.52 | )
|Goodwill amortization                         |  |                                  |       |      |  |      | 12.16   |   |  |   | 12.67  |  
|Assembled workforce amortization              |  |                                  |       |      |  |      | 0.40    |   |  |   | 0.25   |  
|                                              |  |                                  |        |      |  |      |         |   |  |   |       
|Adjusted basic and diluted net loss per share |  | $                                | (20.33 | )    |  | $    | (90.46  | ) |  | $ | (7.60  | )
|                                              |  |                                  |        |      |  |      |         |   |  |   |       

Under SFAS No. 142, intangible assets with
finite lives that continue to be amortized should be reviewed
for impairment in accordance with SFAS No. 144. An
impairment assessment is required whenever events or changes in
circumstances indicate that the carrying value may not be
recoverable. During the quarter ended March 31, 2002, the
Company identified indicators of possible impairment relating to
the Technology Agreement with Covisint. The impairment
indicators included, but were not limited to, significant
negative industry and economic trends, which resulted in a
reduction of forecasted cash flows related to the Technology
Agreement.

In accordance with SFAS No. 144, the Company
performed, with the assistance of independent valuation experts,
an impairment test of the carrying value of the Technology
Agreement to determine whether any impairment existed. The
Company determined that the sum of the expected undiscounted
cash flows attributable to the Technology Agreement was less
than its carrying value and that an impairment write-down was
required. Accordingly, the Company calculated the estimated fair
value of the intangible asset by summing the present value of
the expected cash flows over its life. The impairment was
calculated by deducting the present value of the expected cash
flows from the carrying value. This assessment resulted in an
impairment write-down of $145.8 million in relation to the
Technology Agreement, which was charged to cost of license fees
during the quarter ended March 31, 2002.

During the quarter ended December 31, 2002,
the Company identified indicators of possible impairment
relating to property, plant, and equipment and intangible assets
other than goodwill. These indicators included but were not
limited to a history of negative cash flows and operating losses
and significant negative industry and economic trends. The
Company performed, with the assistance of independent valuation
experts, an impairment test of the carrying value of these
long-lived and intangible assets to determine whether any
impairment existed.

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The Company determined that the sum of the
expected undiscounted cash flows attributable to the assets was
less than the carrying value of the assets and that an
impairment existed. The Company determined fair value for
long-lived assets by using market values when available. If no
market existed for the asset, the Company used independent
valuation experts to calculate fair value as the sum of the
discounted cash flows attributable to the assets. The impairment
was calculated by deducting the established fair value from the
carrying value. As a result, the Company recorded impairment
charges of $20.5 million for property and equipment,
$9.5 million for intangible assets other than goodwill, and
$34.2 million for the Covisint Technology agreement during
the year ended December 31, 2002.


Effective July 1, 2001, the Company adopted
certain provisions of Statement of Financial Standards
(SFAS) No. 141, and effective January 1,
2002, the Company adopted the full provisions of SFAS
No. 141 and SFAS No. 142. SFAS No. 141 requires
business combinations initiated after June 30, 2001 to be
accounted for using the purchase method of accounting, and
broadens the criteria for recording intangible assets apart from
goodwill. The Company evaluated its goodwill and other
intangible assets acquired prior to June 30, 2001 using the
transition criteria of SFAS No. 141, which resulted in
$15.7 million of other intangible assets (comprised
entirely of assembled workforce) being subsumed into goodwill as
of January 1, 2002. SFAS No. 142 requires that
purchased goodwill and certain indefinite-lived intangible
assets no longer be amortized, but instead be tested for
impairment at least annually.

During the fourth quarter of 2002, the Company
prepared its required SFAS 142 impairment test. The
Companys fair value, established using the market method,
was below its carrying value as of December 31, 2002,
indicating that a potential impairment to goodwill existed. The
Company then calculated the potential impairment by establishing
the fair value of goodwill and subtracting this fair value from
the carrying value of goodwill. In accordance with FAS
No. 142, the fair value of goodwill is an implied value and
is calculated by subtracting the fair value of the net assets of
the Company (other than goodwill) from the fair value of the
Company. The fair value of net assets includes determining the
fair value of any unrecognized intangible assets. The Company
engaged an independent valuation firm in order to establish fair
values for any unrecognized intangible assets. The impairment
was then calculated by deducting the fair value of goodwill from
the carrying value of goodwill. This calculation resulted in an
impairment charge of $179.8 million, which brought the
carrying value of goodwill to zero.

During 2001, in accordance with the provisions of
SFAS No. 121, Accounting for the Impairment of Long
Lived Assets and for Long Lived Assets to be Disposed of,
the Company performed, with the assistance of independent
valuation experts, impairment tests to determine whether any
impairment existed. The Company determined that the sum of the
expected undiscounted cash flows attributable to certain of its
intangible assets was less than the carrying value of those
intangible assets. Accordingly, the Company calculated the
estimated fair value of the assets by summing the present value
of the expected cash flows over the life of the assets. The
impairment was calculated by deducting the present value of the
expected cash flows from the carrying value of the intangible
assets. Based on the results of these tests, the Company
determined that the carrying values of goodwill and other
intangible assets related to AppNet, the Technology Agreement
with Covisint, and CommerceBid were not recoverable and
therefore had suffered impairment.

This assessment resulted in write-downs during
the second quarter of 2001 of $1,098.9 million to record
the amount by which the carrying amounts of the goodwill and
other intangible assets related to AppNet and CommerceBid
exceeded their respective fair values. Further, an impairment
write-down of $592.3 million was recorded in relation to
the Technology Agreement with Covisint, and this amount was
charged to cost of license fees.

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5.     INVESTMENTS
AND OTHER ASSETS

Investments and other assets consists of the
following (in thousands):

|                                      |  |              |       |      |  |   |        | 
|------------------------------------- |  | ------------ | ----- | ---- |  | - | ------ | 
|                                      |  |             
|                                      |  | December 31,
|                                      |  |             
|                                      |  | 2002         |       | 2001
|                                      |  |              |       |     
|Investment in Covisint                |  | $            | 5,000 |      |  | $ | 9,255  | 
|Non-current prepaid software licenses |  |              | 308   |      |  |   | 592    | 
|Other                                 |  |              | 715   |      |  |   | 860    | 
|                                      |  |              |       |      |  |   |        | 
|                                      |  | $            | 6,023 |      |  | $ | 10,707 | 
|                                      |  |              |       |      |  |   |        | 

The Company has made several strategic
investments in privately held companies and two publicly traded
companies and has an investment in Covisint (Note 11). The
Company owns less than a 5% interest in these companies and does
not have a significant influence over these companies.
Investments in publicly traded companies are carried at fair
value, based on quoted market prices, with unrealized gains and
losses recorded in equity. Investments in private companies are
recorded at cost. These investments are periodically evaluated
for declines in value that are considered other than temporary.
During the fiscal year 2002, the Company recorded an investment
loss of $4.3 million related to the investment in Covisint.
This loss was partially offset by an approximate
$0.4 million gain from the sale of the investments in
publicly traded companies. As a result, the Company recorded
total investment losses of approximately $3.9 million.

6.     OTHER CURRENT
LIABILITIES

Other accrued liabilities consist of the
following (in thousands):

|                                                        |  |              |        |      |  |   |        | 
|------------------------------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                                                        |  |             
|                                                        |  | December 31,
|                                                        |  |             
|                                                        |  | 2002         |        | 2001
|                                                        |  |              |        |     
|Accrued restructuring costs                             |  | $            | 14,423 |      |  | $ | 18,839 | 
|Income taxes payable                                    |  |              | 4,688  |      |  |   | 10,055 | 
|Royalty, referral, and marketing commitment
    payable |  |              | 1,821  |      |  |   | 5,225  | 
|Accruals related to business combinations               |  |              |       |      |  |   | 5,112  | 
|Professional fees (legal, tax, and accounting)          |  |              | 1,040  |      |  |   | 1,189  | 
|Customer deposits                                       |  |              | 157    |      |  |   |       | 
|Deferred rent                                           |  |              | 2,578  |      |  |   | 1,786  | 
|Other                                                   |  |              | 5,290  |      |  |   | 7,815  | 
|                                                        |  |              |        |      |  |   |        | 
|Total other current liabilities                         |  | $            | 29,997 |      |  | $ | 50,021 | 
|                                                        |  |              |        |      |  |   |        | 

ACCRUED RESTRUCTURING COST

In April 2002, management approved and began to
implement a corporate restructuring plan (the First Plan)
aimed at streamlining the Companys cost structure.
Included in the plan were costs related to severance pay,
outplacement services, benefits continuation, write-down of the
carrying value of computers and equipment used by terminated
employees, office closures and the termination of certain office
leases. The plan included staff reductions totaling
approximately 500 employees from all areas of the company. The
restructuring charges relating to this plan were estimated at
$15.9 million and were recorded during the quarter ended
June 30, 2002.

In October 2002, management approved and began to
implement an additional corporate restructuring plan (the
Second Plan) aimed at further reducing operating
expenses while focusing our resources on our core product, the
Commerce One Conductor platform. The restructuring charges
related to the Second Plan were estimated at $12.0 million
and were recorded during the quarter ended December 31,
2002. The Second Plan included the costs associated with the
termination of approximately 400 employees including severance
pay, outplacement services and benefit continuation, the
termination of certain office leases, the consolidation or

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##### Table of Contents



closure of certain facilities and the write-down
of the carrying value of computers and equipment used by
terminated employees.


The following table summarizes the activity
related to the restructuring liability for the year ended
December 31, 2002, (in thousands):

|                                                                            |  |               |        |               |  |          |        |             |  |               |         |   |  |   |         |   |  |   |         |  
|--------------------------------------------------------------------------- |  | ------------- | ------ | ------------- |  | -------- | ------ | ----------- |  | ------------- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                                            |  | Accrued       |        | Amounts       |  |          |        |             |  | Accrued      
|                                                                            |  | restructuring |        | charged to    |  |          |        |             |  | restructuring
|                                                                            |  | costs at      |        | restructuring |  |          |        | Amounts     |  | costs at     
|                                                                            |  | December 31,  |        | costs and     |  | Amounts  |        | paid or     |  | December 31, 
|                                                                            |  | 2001          |        | other         |  | reversed |        | written off |  | 2002         
|                                                                            |  |               |        |               |  |          |        |             |  |              
|Lease cancellations and commitments                                         |  | $             | 50,889 |               |  | $        | 4,600  |             |  | $             | (10,452 | ) |  | $ | (10,293 | ) |  | $ | 34,744  |  
|Termination payments to employees and related
    costs                     |  |               | 4,515  |               |  |          | 23,749 |             |  |               | (193    | ) |  |   | (26,558 | ) |  |   | 1,513   |  
|Write-off on disposal of assets and related costs                           |  |               | 440    |               |  |          | 5,404  |             |  |               | (161    | ) |  |   | (5,570  | ) |  |   | 113     |  
|                                                                            |  |               |        |               |  |          |        |             |  |               |         |   |  |   |         |   |  |   |         |  
|Total restructure accrual and other                                         |  | $             | 55,844 |               |  | $        | 33,753 |             |  | $             | (10,806 | ) |  | $ | (42,421 | ) |  | $ | 36,370  |  
|                                                                            |  |               |        |               |  |          |        |             |  |               |         |   |  |   |         |   |  |   |         |  
|Less non-current accrued restructuring charges                              |  |               |        |               |  |          |        |             |  |               |         |   |  |   |         |   |  | $ | (21,947 | )
|                                                                            |  |               |        |               |  |          |        |             |  |               |         |   |  |   |         |   |  |   |         |  
|Accrued restructuring charges included within
    other accrued liabilities |  |               |        |               |  |          |        |             |  |               |         |   |  |   |         |   |  | $ | 14,423  |  
|                                                                            |  |               |        |               |  |          |        |             |  |               |         |   |  |   |         |   |  |   |         |  

Lease cancellations and
commitments

In the second and fourth quarters of 2002, the
Company incurred restructuring charges of approximately
$0.5 million and $4.1 million, respectively, for
facilities consolidated or closed in the United States, Europe
and Asia. These offices were responsible for the sale of our
software products, professional services or customer support.
These restructuring charges reflect the remaining contractual
obligations under facility leases net of anticipated sublease
income from the date of facility abandonment to the end of the
lease term. In addition, the charges include $3.7 million
of changes in management assumptions regarding sub-lease income.
Amounts reversed are mainly related to early lease settlement
negotiations for certain leased properties resulting in a
reversal of $5.7 million and changes in management
assumptions regarding broker fees in connection with assumed
sub-lease income resulting in a reversal of $1.3 million.
Certain facilities continued in use during the completion of the
restructuring. For those facilities, we continued to record
monthly rent expense to operations until the facilities were
available for sub-lease or were abandoned. Accrued restructuring
costs related to lease cancellations and commitments as of
December 31, 2002 were approximately $34.7 million of
which $21.9 million related to non-current obligations.

Termination payments to employees and
related costs

In the second and fourth quarters of 2002, we
incurred restructuring charges of approximately
$13.3 million and $8.3 million, respectively, for the
termination of approximately 900 employees to cover costs such
as separation pay, outplacement services and benefit
continuation. The separation payments and termination benefits
were accrued and charged to restructuring costs in the period
that both the benefit amounts were determined and such amounts
were communicated to the affected employees. The employee
reductions occurred in all areas of the Company. As of
December 31, 2002, all of the employees had been notified
and the majority of these terminations had been completed. The
Company expects that the accrued termination payments of
approximately $1.5 million as of December 31, 2002
will be fully paid during 2003.

In the first quarter of 2003, the Company
terminated approximately 430 employees bringing the total
workforce down to approximately 350 employees.

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Write-off on disposal of assets and related
costs

In the second and fourth quarters of 2002, the
Company incurred restructuring charges of approximately
$2.0 million and $3.4 million, respectively, related
to the carrying values of equipment and leasehold improvements
abandoned in connection with the restructuring. Included in the
assets disposed of and charged to restructuring costs are
personal computers and equipment used by terminated employees,
office equipment and leasehold improvements in connection with
closure or consolidation of facilities and subsidiaries in the
United States, Asia and Europe. We expect the restructuring
costs of approximately $0.1 million accrued as of
December 31, 2002 will be fully utilized during 2003.

In 2001, the Company implemented multiple
restructuring plans (the 2001 Plans) in order to
significantly reduce its annual operating expenses while
realigning Commerce Ones resources around its core product
initiatives. The restructuring costs in 2001 were estimated at
$126.6 million. Collectively, the 2001 costs were
associated with the termination of approximately 2,070 employees
to cover costs such as separation pay, outplacement services and
benefit continuation and also the termination of certain office
leases, the divestiture of certain parts of the Companys
Global Services division, the consolidation or closure of
certain facilities and the write-down of the carrying value of
computers and equipment used by employees terminated.

The following table summarizes the activity
related to the restructuring liability for the year ended
December 31, 2001, (in thousands):

|                                                                            |  |               |   |               |  |          |         |             |  |               |        |   |  |   |         |   |  |   |         |  
|--------------------------------------------------------------------------- |  | ------------- | - | ------------- |  | -------- | ------- | ----------- |  | ------------- | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                                            |  | Accrued       |   | Amounts       |  |          |         |             |  | Accrued      
|                                                                            |  | restructuring |   | charged to    |  |          |         |             |  | restructuring
|                                                                            |  | costs at      |   | restructuring |  |          |         | Amounts     |  | costs at     
|                                                                            |  | December 31,  |   | costs and     |  | Amounts  |         | paid or     |  | December 31, 
|                                                                            |  | 2000          |   | other         |  | reversed |         | written off |  | 2001         
|                                                                            |  |               |   |               |  |          |         |             |  |              
|Lease cancellations and commitments                                         |  | $             |  |               |  | $        | 68,860  |             |  | $             |       |   |  | $ | (17,971 | ) |  | $ | 50,889  |  
|Termination payments to employees and related
    costs                     |  |               |  |               |  |          | 30,790  |             |  |               |       |   |  |   | (26,275 | ) |  |   | 4,515   |  
|Write-off on disposal of assets and related costs                           |  |               |  |               |  |          | 30,418  |             |  |               | (4,321 | ) |  |   | (25,657 | ) |  |   | 440     |  
|                                                                            |  |               |   |               |  |          |         |             |  |               |        |   |  |   |         |   |  |   |         |  
|Costs associated with divestiture of certain
    businesses                 |  |               |  |               |  |          | 858     |             |  |               |       |   |  |   | (858    | ) |  |   |        |  
|                                                                            |  |               |   |               |  |          |         |             |  |               |        |   |  |   |         |   |  |   |         |  
|Total restructure accrual and other                                         |  | $             |  |               |  | $        | 130,926 |             |  | $             | (4,321 | ) |  | $ | (70,761 | ) |  | $ | 55,844  |  
|                                                                            |  |               |   |               |  |          |         |             |  |               |        |   |  |   |         |   |  |   |         |  
|Less non-current accrued restructuring charges                              |  |               |   |               |  |          |         |             |  |               |        |   |  |   |         |   |  | $ | (37,005 | )
|                                                                            |  |               |   |               |  |          |         |             |  |               |        |   |  |   |         |   |  |   |         |  
|Accrued restructuring charges included within
    other accrued liabilities |  |               |   |               |  |          |         |             |  |               |        |   |  |   |         |   |  | $ | 18,839  |  
|                                                                            |  |               |   |               |  |          |         |             |  |               |        |   |  |   |         |   |  |   |         |  

Lease cancellations and
commitments

In the first, second and fourth quarters of 2001,
the Company incurred total restructuring charges of
approximately $9.4 million, $33.6 million and
$25.9 million, respectively, for facilities consolidated or
closed in the United States, Europe and Asia. These offices were
primarily responsible for the sale of our software products,
professional services or customer support. These restructuring
charges reflect the remaining contractual obligations under
facility leases net of anticipated sublease income from the date
of facility abandonment to the end of the lease term. Certain
facilities continued in use during the completion of the
restructuring for which we continued to record monthly rent
expense until the facilities were available for sub-lease or
were abandoned. Accrued restructuring costs related to lease
cancellations and commitments as at December 31, 2001 were
approximately $50.9 million of which non-current amounts
accrued were approximately $37.0 million.

Termination payments to employees and
related costs

In the first, second and fourth quarters of 2001,
the Company incurred restructuring charges of approximately
$4.7 million, $15.9 million and $10.2 million,
respectively, for the termination of approximately 2,070

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employees to cover costs such as separation pay,
outplacement services and benefit continuation. The separation
payments and termination benefits were accrued and charged to
restructuring costs in the period that both the benefit amounts
were determined and such amounts were communicated to the
affected employees. The employee reductions came from all areas
of the Company and, as of December 31, 2001, all of the
employees affected had been notified and the majority of these
terminations had been completed.


Write-off on disposal of assets and related
costs

In the second and fourth quarters of 2001, the
Company incurred restructuring charges of approximately
$12.5 million and $17.9 million, respectively, related
to the carrying values of equipment and leasehold improvements
abandoned in connection with the restructuring and exit costs
associated with the anticipated liabilities for estimated
customer claims resulting from the divestiture of certain
operations within the Global Services division. Included within
the assets disposed of and charged to restructuring costs were
personal computers and equipment used by employees terminated,
office equipment and leaseholds in connection with closure or
consolidation of facilities and subsidiaries in the United
States, Asia and Europe.

Included within the second quarter of 2001 charge
of $12.5 million were amounts associated with the
anticipated liabilities for estimated customer claims resulting
from the divestiture of certain operations within the
Companys Global Services division which were no longer
core to the Companys business. The amounts accrued were
based on the Companys estimation of the likely costs
associated with the exit of certain service contracts. In the
fourth quarter of 2001, the Company reevaluated this liability
based on the actual customer claims received, amounts paid and
the successful execution of certain exit activities. The Company
reduced the liability by $4.3 million with a corresponding
credit to the restructuring charge in the fourth quarter of 2001.

Costs associated with divestiture of
certain businesses

As a result of the business divestitures
completed in the fourth quarter of 2001, the Company recorded a
loss on divestiture of $0.8 million that was charged to
restructuring costs and other in the fourth quarter of 2001. As
a result of the business divestitures completed in the first
quarter of 2002 the Company recorded a gain of approximately
$2.3 million based on the cash proceeds received from the
sale of E-Government Solutions, Inc. The Company recognized
total revenues of approximately $98.7 million in 2001 from
our professional services operations within the Global Services
division which were disposed of in the fourth quarter of 2001
and the first quarter of 2002.

7.     NOTES
PAYABLE

In October 2002, the Company repaid its loan from
Microsoft Corporation in the principal amount of
$19.0 million. The Microsoft loan bore interest at 7% per
annum, payable quarterly, and was secured with a
$19.0 million cash collateral account. On October 23,
2002, the Company executed a Loan and Security Agreement with
Silicon Valley Bank for a credit facility of up to
$25.0 million. In the fourth quarter of 2002, Commerce One
drew $25 million against the credit facility. The loan
facility is due by November 29, 2005, or upon the earlier
default by the Company, which is generally defined
in the agreement to include the following: failure to pay any
obligation to Silicon Valley Bank under the agreement within
three (3) days of the due date; failure of the Company to
maintain its legal existence and good standing where such
failure could materially impact the value of the loan
collateral; failure to provide certain financial information to
the bank within the time periods prescribed by the contract;
failure to pay taxes where such payment obligations are not
subject to good faith dispute; the placement of any uncorrected
material lien or seizure judgment against the Companys
assets; any material change in the value of the assets
collateralizing the loan; the filing of an insolvency
proceeding; any judgment or accelerated payment obligation
exceeding $3,000,000; or a material misstatement or
misrepresentation in the loan application. The loan facility
bears interest at a rate between one-half and three-quarters of
a point below the Silicon Valley Banks prime rate (3.75%
at December 31, 2002). All amounts drawn by Commerce One
are fully secured by a cash collateral account with Silicon
Valley Bank and do not result in any net additional unencumbered
cash to the Company.

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8.     BUSINESS
DIVESTITURE AND NOTES RECEIVABLE

During 2001, 2002 and the first quarter of 2003,
the Company completed the divestiture of certain professional
services divisions within its Global Services division. These
service divisions were initially acquired through the
acquisition of AppNet in September 2000, and were divested
through management buy-outs of the division.

In October 2001, the Company executed an asset
sale to Beaconfire Consulting Inc., a company composed of former
Commerce One employees. In consideration of the assets sold, the
Company received a note receivable with a face value of
approximately $0.4 million due on September 30, 2006,
that bears an annual interest rate of 8%, receivable on a
quarterly basis. Subject to certain criteria, the Company also
has the right to receive a 4% and 4.5% annual share of future
revenues of Beaconfire Consulting for the two and succeeding
three years, respectively, payable on a quarterly basis
beginning at the end of, and including payment for, the quarter
ending December 31, 2001.

In October 2001, the Company executed a stock
transfer and asset sale with Edgar, Dunn & Company, Inc., a
company composed of former Commerce One employees. In connection
with this agreement the Company received a 10% minority interest
in Edgar, Dunn & Company, Inc., and two notes receivable
with face values totaling $1.3 million that are due by
September 30, 2004. The notes bear an annual interest rate
of 7.5%, receivable on a quarterly basis. Subject to certain
criteria, the Company also has the rights to an annual revenue
share of 6% of the future revenues of Edgar, Dunn & Company,
Inc., for the four-year period following the closing in October
2001.

On January 9, 2002, the Company executed an
asset sale agreement with Connective Commerce Company LLC, a
Massachusetts limited liability company composed of former
Commerce One employees. In connection with this agreement, the
Company received cash of approximately $2.4 million and a
note receivable with a face value of approximately
$4.0 million due on December 31, 2004, that bears a
quarterly interest rate of 1.75%, receivable on a quarterly
basis commencing September 30, 2002. On October 15,
2002, the Company agreed with Connective Commerce to modify the
note agreement to decrease the payments in 2003 and to forgive
interest on the principal balance for 2003.

On February 21, 2002, the Company executed a
stock purchase agreement with Commerce One E-Government
Solutions, Inc., a Delaware corporation and a wholly-owned
subsidiary of the Company, and eGov Holdings, Inc., a Delaware
corporation composed of former Company employees. In
consideration for the sale of 100% of the outstanding common
stock of Commerce One E-Government Solutions, Inc to eGov
Holdings, Inc., the Company received cash consideration of
approximately $8.4 million.

On January 24, 2003, the Company executed
the sale and license of certain assets and liabilities,
including customer commitments, related to CommerceOne.net, the
Companys marketplace services business consisting of
auction services, subscription services, content services and
hosting services, with eScout LLC, a privately held limited
liability company. In connection with the closing of this
transaction, the Company received notes receivable with an
aggregate face value of approximately $2.0 million,
membership interests in eScout and the right to receive royalty
payments over the four years following the closing of no more
than $0.5 million in the aggregate. The note receivable
bears a quarterly interest rate of 1.5% with payments due each
quarter with the final payment due on January 24, 2005.
Fifteen percent (15%) of the aggregate purchase price is held in
escrow until January 2004 as security for any claims related to
a breach of the Companys representations, warranties and
covenants. During 2002, the Company recognized service revenues
totaling approximately $11.8 million from CommerceOne.net
related services. Subsequent to this sale, Commerce One will no
longer offer these services and therefore will receive no future
revenues related to these services.

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At December 31, 2002, the assets and
liabilities relating to the Companys marketplace service
business were held for sale. The following table summarizes the
assets and liabilities that were held for sale (in thousands) at
December 31, 2002:

|                         |  |   |        |  
|------------------------ |  | - | ------ | -
|Accounts receivable, net |  | $ | 507    |  
|Fixed assets             |  |   | 653    |  
|Prepaid expenses         |  |   | 30     |  
|Deferred revenue         |  | $ | (1,122 | )

9.     COMMITMENTS
AND CONTINGENCIES

LEASE OBLIGATIONS

The Company leases its principal office
facilities under non-cancelable operating leases with escalating
rent. Rent expense amounted to $16,460,000, $22,856,000 and
$14,411,000 for the years ended December 31, 2002, 2001 and
2000, respectively.

Capital lease payments for computer equipment and
future minimum payments under operating leases, net of any
contracted third-party sub-lease rental income at
December 31, 2002 are as follows (in thousands):

|                                            |  |         |      |           |  |       |         |   |  |   |         |  
|------------------------------------------- |  | ------- | ---- | --------- |  | ----- | ------- | - |  | - | ------- | -
|                                            |  | Capital |      | Operating |  |      
|Years ending December 31,                   |  | Leases  |      | Leases    |  | Total
|                                            |  |         |      |           |  |      
|2003                                        |  | $       | 351  |           |  | $     | 27,115  |   |  | $ | 27,466  |  
|2004                                        |  |         |     |           |  |       | 26,558  |   |  |   | 26,558  |  
|2005                                        |  |         |     |           |  |       | 16,413  |   |  |   | 16,413  |  
|2006                                        |  |         |     |           |  |       | 8,498   |   |  |   | 8,498   |  
|2007                                        |  |         |     |           |  |       | 8,121   |   |  |   | 8,121   |  
|Thereafter                                  |  |         |     |           |  |       | 18,094  |   |  |   | 18,094  |  
|Contracted third party sublease income      |  |         |     |           |  |       | (2,704  | ) |  |   | (2,704  | )
|                                            |  |         |      |           |  |       |         |   |  |   |         |  
|Total Estimated Cash Flows                  |  |         | 351  |           |  | $     | 102,095 |   |  | $ | 102,446 |  
|                                            |  |         |      |           |  |       |         |   |  |   |         |  
|Less Imputed Interest                       |  |         | (8   | )         |  |       |         |   |  |   |         |  
|                                            |  |         |      |           |  |       |         |   |  |   |         |  
|Present Value of net Minimum lease payments |  |         | 343  |           |  |       |         |   |  |   |         |  
|Less current portion                        |  |         | (343 | )         |  |       |         |   |  |   |         |  
|                                            |  |         |      |           |  |       |         |   |  |   |         |  
|Long-Term capital lease obligation          |  | $       |     |           |  |       |         |   |  |   |         |  
|                                            |  |         |      |           |  |       |         |   |  |   |         |  

Assets acquired under capital lease had an
original cost of $801,000, however during the quarter ended
December 31, 2002 all fixed assets were written down to
their fair market value. As a result the assets acquired under
capital leases had a book value of $88,000 and no accumulated
depreciation. Non-cancelable operating lease obligations include
$34.7 million that was accrued as restructuring costs as at
December 31, 2002.

LEGAL PROCEEDINGS

The Company currently is a party to various legal
proceedings, including those noted below. While the Company
currently believes that the ultimate outcome of these
proceedings will not have a material adverse effect on our
results of operations, litigation is subject to inherent
uncertainties, and unfavorable rulings could occur. Depending on
the amount and timing, an unfavorable outcome of some or all of
these matters could have a material adverse effect on the
Companys cash flows, business, results of operations or
financial position.

Securities Litigation

On June 19, 2001, an alleged securities
class action, captioned Cameron v. Commerce One, Inc., et
al., was filed against Commerce One, several company
officers and directors (the Individual Defendants),
and the three lead underwriters in the Commerce One initial
public offering (IPO) in the United States District
Court for the Southern District of New York. Various plaintiffs
have filed similar actions asserting virtually identical
allegations against more than 200 other companies. The lawsuits
against Commerce One and other companies have been

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coordinated for pretrial purposes with these
other related lawsuits and have been assigned the collective
caption In re Initial Public Offering Securities
Litigation.


On April 19, 2002, plaintiffs lawyers
for the consolidated lawsuits filed an amended complaint
consisting of a set of Master Allegations and
individual amended complaints against the various defendants,
including Commerce One and the Individual Defendants. The
amended complaint alleges violations of Section 11 and
Section 15 of the Securities Act of 1933,
Section 20(a) of the Securities Exchange Act of 1934
(Exchange Act), and Section 10(b) of the
Exchange Act (and Rule 10b-5, promulgated thereunder) as a
result of alleged conduct of the underwriters of the IPO to
engage in a scheme to underprice the IPO and then artificially
inflate our stock price in the aftermarket. The complaint seeks
unspecified damages on behalf of a purported class of purchasers
of common stock between July 1, 1999 and June 15,
2001. On July 15, 2002, the issuer and individual
defendants filed an omnibus motion to dismiss addressing issues
generally applicable to the defendants as a group. On
October 9, 2002, the district court entered an order
dismissing all of the living individual Commerce One officers
and directors from the case without prejudice. On
February 16, 2003, the district court entered an order
denying most of the defenses asserted by the defendants in the
omnibus motion to dismiss and allowing most of the case to
proceed.

In February 2003, Commerce One, along with its
Chief Executive Officer and former Chief Financial Officer, were
named as defendants in a similar class-action matter in Florida,
Liu v. Credit Suisse First Boston et al., United States
District Court, Southern District of Florida. In that case, the
plaintiff alleges that various investment banks, issuer
companies, and individuals violated securities laws by engaging
in a scheme to under-price initial public offerings and then
artificially inflate prices of those stocks in the aftermarket.

Real Estate Litigation

On November 13, 2002, the Company was named
as a defendant in an action for breach of lease, entitled
Marriott Plaza Associates L.P. v. Commerce One, Inc.,
Superior Court of California, County of Santa Clara,. The action
alleges that Commerce One breached its commercial real estate
lease for office space in Santa Clara, California. The Complaint
does not quantify the damages it seeks, but instead seeks all
unpaid rent owing at the time of trial. If the trial occurs
during 2003, the Company expects the claim for back rent to
range between $1.5 and $4.1 million, depending on the date
of the trial. As of March 31, 2003, Commerce Ones
full lease obligation with Marriott Plaza (including back and
future rent through the lease term of February 2006) is
approximately $11.5 million.

In addition to the above, the Company has stopped
paying rent with respect to various other real estate leases in
connection with attempts to negotiate with the landlords to
reduce or eliminate the Companys long-term real estate
obligations. The total long-term lease obligations for these
locations, including future rent through March 2011, is
approximately $50.0 million in the aggregate. In the first
quarter of 2003, the landlords for premises leased by the
Company in California, Maryland and Massachusetts filed unlawful
detainer actions against the Company to repossess the premises.
While none of these unlawful detainer actions has sought
monetary damages, it is likely that each landlord in the
locations where we have stopped paying rent eventually will file
a lawsuit to recover past and future rent payments unless the
Company is able to reach settlement agreements in the near
future.

10.     RELATED PARTY
TRANSACTIONS

Commerce Ones strategic relationship with
SAP commenced on September 18, 2000, when the Company
entered into a strategic alliance agreement with SAP AG to
jointly develop, market and sell the MarketSet suite of
applications and the Enterprise Buyer procurement applications.
These products were primarily targeted at electronic marketplace
customers, a market which has since declined substantially. This
agreement provided that either party licensing the jointly
developed products to its customers would owe a royalty to the
other party. The amount of the royalty was generally based on a
percentage of the total license fee paid by the customer.

SAP historically has made non-refundable royalty
prepayments to Commerce One, which the Company has recorded as
deferred revenue as payments are received. As SAP incurs the
obligation to pay royalties to Commerce One, these royalties are
recognized as revenue. Prepayments received from SAP and
included in

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deferred revenue totaled approximately
$10.2 million and $33.8 million as of
December 31, 2002 and 2001, respectively. When Commerce One
licenses one of the jointly developed products to its customers,
it pays a royalty to SAP in connection with the sale. These
royalty payments are recorded as a reduction of license or
support revenue, as appropriate. In 2002, 2001 and 2000, the
Company made royalty payments to SAP of approximately
$1.3 million, $16.9 million and $10.5 million,
respectively.


During 2001, Commerce One and SAP amended these
agreements to provide for different rights to resell certain
technology included in the jointly developed products and for
varying royalty rates and maintenance fees depending on the
particular product, category of customer and other factors.

Effective January 1, 2002, the Company
amended its strategic alliance agreement with SAP to simplify
its royalty payment provisions and to provide SAP with an
unlimited right to resell the jointly developed products on a
fixed fee basis, as well as a right to resell certain other
Commerce One technology on an OEM basis, for the first three
quarters of 2002. In exchange, SAP reported to the Company a
total of approximately $20.7 million, primarily
attributable to license fees, as well as related support and
maintenance. Commerce One credited the aggregate fee of
approximately $20.7 million against SAPs prior
prepayments which were previously recorded as deferred revenue.
Commerce One recognized the license and maintenance fees ratably
over the three-quarter period ending September 30, 2002.
The amendment provided that during this three-quarter period,
Commerce One would pay SAP a royalty fee based upon a fixed
percentage of the total license fee for jointly developed
products sold by Commerce One, if any. The amendment further
provided that the agreement would default to the historical
royalty structure in the event the parties failed to agree on a
new payment schedule by September 30, 2002. Commerce One
and SAP have not renegotiated the royalty payments, and
therefore the parties will revert to the historical royalty
structure when payments are due.

The parties entered into a subsequent amendment
effective December 20, 2002 in which the parties clarified
Commerce Ones support obligations for prior versions of
the Marketset product, granted reciprocal rights to distribute
certain connector technology related to the Marketset product on
a royalty-free basis, and resolved certain outstanding payment
issues relating to services and maintenance fees for certain
joint customers.

SAPs license royalty payments to Commerce
One historically have constituted a substantial portion of the
Companys revenues, including during 2002 and 2001.
Historically, SAP was instrumental in assisting the Company with
selling the jointly developed products, MarketSet and Enterprise
Buyer, to SAPs customer base. However, these royalty
payments have declined in the past year with the decline of the
market for electronic marketplace solutions. In 2002, 2001 and
2000, SAP reported royalties to the Company of approximately
$24.3 million, $79.1 million and $44.6 million,
respectively, of which license revenues were approximately
$19.7 million , $68.3 million and
$44.1 million, respectively.

Commerce One and SAP have each phased out the
jointly developed Enterprise Buyer procurement products and
replaced such products with its own successor procurement
products. As a result, corresponding revenues received from SAP
for the sale of such products have ceased, and the Company does
not expect to receive any future revenues from the sale of these
products by SAP. Similarly, revenues from the MarketSet product,
primarily targeted at the electronic marketplace sector, have
declined substantially and the Company does not expect to
receive significant future license revenues, if any, from the
sale of this product by SAP.

The Company also has generated revenue from its
relationship with SAP by performing professional services as a
subcontractor to SAP, primarily on software implementation
engagements where the Company has jointly sold MarketSet or
Enterprise Buyer to an SAP customer. SAP also has completed
professional services for the Company by acting as a
subcontractor, primarily in relation to the jointly sold
MarketSet or Enterprise Buyer products.

The Company also has generated revenue from its
relationship with SAP by providing technical customer support
and maintenance services to joint customers. In 2002, support of
such customers represented a substantial percentage of the
Companys total support and maintenance revenue. Amounts
received from SAP include payments based on a certain percentage
of total support and maintenance fees received by SAP from the
customer. In addition, the Company amended the strategic
alliance agreement on January 1, 2002 to provide that

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SAP would pay Commerce One $500,000 per quarter
for certain support obligations relating to Marketset. Under the
terms of that agreement, the fixed payment is scheduled to cease
on September 30, 2003.


During the years ended December 31, 2002,
2001 and 2000, the Company recognized revenues with Covisint,
LLC (Covisint), a business-to-business electronic
marketplace for the procurement of goods and services by
automakers, their suppliers and others. The Company holds a two
percent equity interest in Covisint and under the terms of a
Technology Agreement with Covisint (see Note 11), the
Company indirectly licenses software and provides professional
services and software maintenance to Covisint in exchange for
cash compensation and a share of Covisints electronic
marketplace revenue over a ten-year period.

During the years ended December 31, 2002,
2001 and 2000, the Company recognized revenue from transactions
with NTT Corporation (NTT). A member of the
Companys Board of Directors currently serves as an
executive of an NTT subsidiary.

Amounts included in the consolidated financial
statements in connection with the related party transactions
described above are as follows (in thousands):

|                                                                    |  |                           |        |      |  |      |        |  |  |   |        | 
|------------------------------------------------------------------- |  | ------------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                                                    |  |                          
|                                                                    |  | Years ending December 31,
|                                                                    |  |                          
|                                                                    |  | 2002                      |        | 2001 |  | 2000
|                                                                    |  |                           |        |      |  |     
|Revenues:                                                           |  |                           |        |      |  |      |        |  |  |   |        | 
|SAP                                                                 |  | $                         | 26,149 |      |  | $    | 79,111 |  |  | $ | 44,602 | 
|Covisint                                                            |  |                           | 5,011  |      |  |      | 12,885 |  |  |   | 6,036  | 
|NTT                                                                 |  |                           | 862    |      |  |      | 5,745  |  |  |   | 1,874  | 
|                                                                    |  |                           |        |      |  |      |        |  |  |   |        | 
|Total                                                               |  | $                         | 32,022 |      |  | $    | 97,741 |  |  | $ | 52,512 | 
|                                                                    |  |                           |        |      |  |      |        |  |  |   |        | 
|Professional consulting costs included within
    Cost of services: |  |                           |        |      |  |      |        |  |  |   |        | 
|SAP                                                                 |  | $                         | 2,237  |      |  | $    | 1,367  |  |  | $ |       | 
|                                                                    |  |                           |        |      |  |      |        |  |  |   |        | 
|Total                                                               |  | $                         | 2,237  |      |  | $    | 1,367  |  |  | $ |       | 
|                                                                    |  |                           |        |      |  |      |        |  |  |   |        | 

|                           |  |              |        |      |  |   |        | 
|-------------------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                           |  |             
|                           |  | December 31,
|                           |  |             
|                           |  | 2002         |        | 2001
|                           |  |              |        |     
|Accounts receivable:       |  |              |        |      |  |   |        | 
|SAP                        |  | $            | 38     |      |  | $ | 874    | 
|Covisint                   |  |              | 909    |      |  |   | 738    | 
|NTT                        |  |              |       |      |  |   | 57     | 
|                           |  |              |        |      |  |   |        | 
|Total                      |  | $            | 947    |      |  | $ | 1,669  | 
|                           |  |              |        |      |  |   |        | 
|Deferred revenue:          |  |              |        |      |  |   |        | 
|SAP                        |  | $            | 10,204 |      |  | $ | 33,863 | 
|Covisint                   |  |              |       |      |  |   | 72     | 
|NTT                        |  |              | 934    |      |  |   | 1,523  | 
|                           |  |              |        |      |  |   |        | 
|Total                      |  | $            | 11,138 |      |  | $ | 35,458 | 
|                           |  |              |        |      |  |   |        | 
|Other current liabilities: |  |              |        |      |  |   |        | 
|SAP                        |  | $            | 418    |      |  | $ | 4,114  | 
|                           |  |              |        |      |  |   |        | 
|Total                      |  | $            | 418    |      |  | $ | 4,114  | 
|                           |  |              |        |      |  |   |        | 

11.     STOCKHOLDERS
EQUITY

STRATEGIC RELATIONSHIP WITH SAP
AG

On September 18, 2000, the Company entered
into agreements with SAP AG to jointly develop and deliver the
next generation of e-business marketplace solutions. In
connection with those agreements, the Company issued 505,955
shares of common stock to SAP AG for an aggregate purchase price
of $250 million.

On June 28, 2001, Commerce One and SAP AG
entered into a further stock purchase agreement and related
agreements that resulted in Commerce Ones issuance of
4,748,477 shares of its common stock to SAP AG at a

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purchase price of $47.50 per share, for a total
purchase price of approximately $225 million. The
transaction was completed on August 6, 2001. SAP AG owned a
total of approximately 5.7 million shares of Commerce One
common stock as of December 31, 2002.


SAP AG is generally prohibited from transferring
its shares for three years from the date of the closing,
although it may sell up to 10% of its shares during the first
year after the closing, up to 30% during the second year and up
to 50% during the third year, subject to certain limitations on
open market sales and transfers to persons who after the
transfer will hold in excess of 10% of Commerce Ones
voting power. These restrictions on transfer terminate on the
earliest to occur of a change of control of Commerce One, the
termination of the strategic alliance agreement (other than as a
result of a material breach of the strategic alliance agreement
by SAP AG) and the third anniversary of the agreements. SAP AG
is also prohibited from transferring the shares to a competitor
of Commerce One for six years from the closing date, except in
open market transactions. Commerce One has a right of first
refusal on any private sale of shares by SAP AG for
54 months following the closing.

SAP AG also agreed to certain standstill
restrictions that, for three years following the date of share
purchase agreement, generally restrict SAP AGs ability to
acquire more than 23% of Commerce Ones outstanding common
stock, seek control of Commerce One, or participate in groups
with respect to the holding or voting of Commerce Ones
stock. The standstill obligations terminate prior to three years
from the date of the share purchase agreement upon the
occurrence of certain events, such as a change of control of
Commerce One or the acquisition of more than 15% of Commerce One
by certain named competitors of SAP AG. These obligations are
also suspended in the event of an offer for such a change of
control or acquisition, but will be reinstated if the offer is
withdrawn or terminated. SAP AG also remains subject to the
operation of Commerce Ones shareholder rights plan, or
poison pill, which was amended to permit SAP AG to
beneficially own shares of Commerce One common stock up to the
23% standstill limit.

Until the earlier of three years from the closing
or the end of the standstill period, SAP AG has the right to
participate to maintain its pro rata ownership of Commerce
Ones outstanding shares in the event Commerce One issues
additional securities in a private transaction. In addition, SAP
AG is entitled to certain registration rights, after one year
with respect to shares purchased by SAP AG from Commerce One
prior to the transaction, and after two years with respect to
the other shares it currently owns, shares acquired in the
transaction and any shares it acquires from Commerce One in the
future. SAP AG also received the right to nominate a director
for election to Commerce Ones board of directors for as
long as SAP AG owns ten percent or more of Commerce Ones
common stock. If SAP AG is entitled to nominate a director but
no director is nominated or available to attend a meeting of
Commerce Ones board of directors, SAP AG may send an
observer to attend. SAP AG also generally agreed to vote its
shares in proportion with the other stockholders of Commerce One
only with respect to nominees to Commerce Ones board of
directors and stockholder proposals to amend or rescind Commerce
Ones rights plan or SAP AGs standstill agreement
during the standstill period. There are no other restrictions on
SAP AGs voting rights.

STOCKHOLDERS RIGHTS
AGREEMENT

In March 2001, the Board of Directors of the
Company approved a Stockholders Rights Plan. Under the
plan, Commerce One issued a dividend of one right for each share
of common stock of the Company held by stockholders of record as
of the close of business on April 30, 2001. The rights
trade with Commerce Ones common stock. Each right entitles
stockholders to purchase a fractional share of Commerce
Ones preferred stock for an exercise price of $700.
However, the rights are not immediately exercisable and will
generally become exercisable if a person or group acquires
beneficial ownership of 15 percent or more of Commerce
Ones common stock or commences a tender or exchange offer
upon consummation of which such person or group would
beneficially own 15 percent or more of Commerce Ones
common stock. The rights will become exercisable by holders,
other than the unsolicited third party acquirer, for shares of
Commerce One or of the third party acquirer having a value of
twice the rights then-current exercise price. The rights
are redeemable by Commerce One and will expire on April 30,
2011. The Rights Plan was not adopted in response to any effort
to acquire control of the Company.

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REORGANIZATION INTO A HOLDING COMPANY
STRUCTURE

During 2001, the Company completed its
reorganization into a holding company structure. As part of the
reorganization, the Stockholders of the old Commerce
One (now the wholly-owned subsidiary Commerce One Operations,
Inc.) became stockholders of the new Commerce One.

In December 2000, Commerce One Operations,
Commerce One, Ford Motor Company (Ford), General Motors
Corporation (GM), DaimlerChrysler AG, Renault S.A. and Nissan
Motor Co., Ltd. entered into several agreements relating to the
formation of Covisint, LLC (Covisint), a
business-to-business electronic marketplace for procurement of
goods and services by automakers, their suppliers and others. In
connection with the formation of Covisint, under the terms of a
Formation Agreement, Commerce One Operations agreed to undergo a
corporate restructuring into a holding company. In addition,
under the terms of a Technology Agreement, Commerce One
indirectly licenses software and provides professional services
and support and maintenance services to Covisint in exchange for
cash compensation and a share of Covisints electronic
marketplace revenue over a ten-year period.

In July 2001, Commerce One Operations completed
the reorganization into a holding company structure by means of
a merger with and into a wholly-owned subsidiary of Commerce
One, pursuant to an Agreement and Plan of Merger, dated
April 25, 2001 by and among Commerce One, New C1 Merger
Corporation and Commerce One Operations.

Upon completion of the reorganization, Commerce
One Operations became a wholly owned subsidiary of Commerce One
and changed its name to Commerce One Operations, Inc. Holders of
Commerce One Operations common stock (and the associated right
under Commerce One Operations stockholder rights plan)
received one share of Commerce One common stock for each share
of Commerce One Operations common stock (and associated right)
held by such stockholder prior to the reorganization. Commerce
One continued the business of Commerce One Operations as the
parent holding company of Commerce One Operations.

On the completion of the reorganization, Commerce
One received an aggregate two percent equity interest in
Covisint. Upon the execution of the Formation Agreement,
Commerce One issued 1.44 million shares of its common stock
to Ford and 1.44 million shares of its common stock to GM.
Under the terms of the Formation Agreement, half of each of
Fords and GMs shares were held in escrow and were
released to Ford and GM in December 2002. Prior to the
reorganization, the board of directors issued a dividend of one
right under Commerce Ones stockholder rights plan per
share of common stock held by Ford and General Motors.

In addition, pursuant to a Standstill and Stock
Restriction Agreement entered into between Commerce One,
Commerce One Operations, Ford and GM, all of the shares of stock
issued to Ford and GM will generally be subject to transfer
restrictions for three years subject to certain exceptions. Ford
and GM also agreed to certain standstill
restrictions that will generally limit their ability to acquire
individually more than 9.95%, or collectively more than 19.9%,
of Commerce Ones outstanding common stock for three years,
and individually 12.5% and collectively 25% thereafter. In
addition, for a period of three years, Ford and GM generally
agreed to vote their shares in accordance with the
recommendations of Commerce Ones Board of Directors with
respect to nominees to the Board of Directors and increases in
Commerce One authorized capital stock and amendments to stock
option plans and employee stock purchase plans approved by
Commerce Ones Board of Directors. Under a Registration
Rights Agreement entered into between Commerce One, Ford and GM,
Ford and GM are entitled to registration rights generally
beginning after three years, subject to certain exceptions.

STOCK OPTIONS

In 1997, the Company adopted the Commerce One
1997 Incentive Stock Option Plan, which plan was amended and
restated in 1999 (the 1997 Plan). In 1999, the
Company adopted the 1999 Nonstatutory Stock Option Plan (the
1999 Plan). In connection with various acquisitions,
the Company assumed the VEO and CommerceBid stock option plans
in 1999, the Mergent and AppNet stock option plans in 2000 and
the Exterprise stock option plan in 2001. The Company terminated
all the assumed plans upon the assumption and no further options
will be granted under them. As of December 31, 2002, the
Company reserved an aggregate of 7,453,207

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shares of common stock for issuance pursuant to
all of its stock option plans and one standalone nonstatutory
stock option agreement.


All employees, including without limitation,
independent contractors and directors are eligible to receive
awards under the 1997 Plan. Options granted under the 1997 Plan
may be either incentive stock options or non-qualified stock
options. The exercise price of incentive stock options granted
under the 1997 Plan may not be less than the fair market value
of the shares of the Companys common stock on the date of
grant. However, the Administrator of the plan shall determine
the exercise price of non-qualified stock options. The option
holder may exercise unvested options and obtain shares of stock
that are subject to a repurchase option by the Company at the
original exercise price in the event of the employees
termination. As of December 31, 2002 the Company had issued
2,504 shares of common stock subject to repurchase. The
repurchase rights lapse over the period that the underlying
options vest.

Options granted under the 1999 Plan may only be
non-qualified stock options and the Administrator shall
determine the exercise price.

Under the Companys 1999 Director Option
Plan, 81,000 shares of common stock have been reserved for
grants of stock options under such plan. As of December 31,
2002, options to purchase 72,000 shares have been granted. No
grants were made pursuant to this plan in 2002.

A summary of the Companys stock option
activity under all plans is set forth below:

|                                            |  |           |            |                  |  |   |        | 
|------------------------------------------- |  | --------- | ---------- | ---------------- |  | - | ------ | 
|                                            |  |           |            | Weighted-Average
|                                            |  | Number of |            | Exercise Price  
|                                            |  | Shares    |            | per Share       
|                                            |  |           |            |                 
|Outstanding at December 31, 1999            |  |           | 2,719,566  |                  |  | $ | 104.30 | 
|Granted                                     |  |           | 2,902,381  |                  |  | $ | 501.00 | 
|Exercised                                   |  |           | (803,301   | )                |  | $ | 50.40  | 
|Canceled                                    |  |           | (227,524   | )                |  | $ | 296.30 | 
|                                            |  |           |            |                  |  |   |        | 
|Outstanding at December 31, 2000            |  |           | 4,591,122  |                  |  | $ | 354.90 | 
|Granted and assumed                         |  |           | 4,896,003  |                  |  | $ | 44.30  | 
|Exercised                                   |  |           | (429,331   | )                |  | $ | 16.20  | 
|Canceled                                    |  |           | (3,684,763 | )                |  | $ | 404.70 | 
|                                            |  |           |            |                  |  |   |        | 
|Outstanding at December 31, 2001            |  |           | 5,373,031  |                  |  | $ | 58.90  | 
|Granted and assumed                         |  |           | 3,783,592  |                  |  | $ | 4.82   | 
|Exercised                                   |  |           | (215,382   | )                |  | $ | 14.68  | 
|Canceled                                    |  |           | (2,635,911 | )                |  | $ | 57.42  | 
|                                            |  |           |            |                  |  |   |        | 
|Outstanding at December 31, 2002            |  |           | 6,305,330  |                  |  | $ | 28.56  | 
|                                            |  |           |            |                  |  |   |        | 
|Exercisable and vested at December 31, 2002 |  |           | 2,018,062  |                  |  | $ | 54.76  | 
|                                            |  |           |            |                  |  |   |        | 

|                         |  |                     |           |                                |  |                |      |             |  |                |        |  |  |  |           |  |  |   |        | 
|------------------------ |  | ------------------- | --------- | ------------------------------ |  | -------------- | ---- | ----------- |  | -------------- | ------ |  |  |  | --------- |  |  | - | ------ | 
|                         |  |                     |           |                               
|                         |  | Options Outstanding |           | Options Exercisable and Vested
|                         |  |                     |           |                               
|                         |  |                     |           | Weighted-Average               |  |                |      | Weighted   
|                         |  | Number of           |           | Remaining                      |  | Weighted       |      | Number of   |  | Average       
|                         |  | Outstanding         |           | Contractual Life               |  | Average        |      | Exercisable |  | Exercise Price
|Range of Exercise Prices |  | Option              |           | (Years)                        |  | Exercise Price |      | Options     |  | Per Share     
|                         |  |                     |           |                                |  |                |      |             |  |               
|$  0.33 
    $    3.32  |  |                     | 2,082,886 |                                |  |                | 9.64 |             |  | $              | 3.27   |  |  |  | 72,241    |  |  | $ | 2.31   | 
|$  3.35 
    $    7.40  |  |                     | 1,460,620 |                                |  |                | 9.52 |             |  | $              | 5.81   |  |  |  | 317,061   |  |  | $ | 6.88   | 
|$  7.50 
    $   28.10  |  |                     | 1,092,037 |                                |  |                | 7.65 |             |  | $              | 26.18  |  |  |  | 756,434   |  |  | $ | 26.55  | 
|$ 31.50  $   33.60      |  |                     | 922,884   |                                |  |                | 8.87 |             |  | $              | 33.57  |  |  |  | 349,717   |  |  | $ | 33.57  | 
|$ 34.80  $ 198.33       |  |                     | 593,438   |                                |  |                | 7.45 |             |  | $              | 71.59  |  |  |  | 409,854   |  |  | $ | 74.23  | 
|$212.50  $1,044.38      |  |                     | 153,465   |                                |  |                | 7.41 |             |  | $              | 405.62 |  |  |  | 112,755   |  |  | $ | 407.13 | 
|                         |  |                     |           |                                |  |                |      |             |  |                |        |  |  |  |           |  |  |   |        | 
|                         |  |                     | 6,305,330 |                                |  |                | 8.89 |             |  | $              | 28.56  |  |  |  | 2,018,062 |  |  | $ | 54.76  | 
|                         |  |                     |           |                                |  |                |      |             |  |                |        |  |  |  |           |  |  |   |        | 

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RESTRICTED COMMON STOCK

In May 2001, the Company issued 172,570
restricted shares of common stock to certain employees. The
shares of restricted common stock vest ratably over a two year
period and are subject to forfeiture if an employee ceases
employment prior to that time. In 2002, 39,786 shares of
restricted common stock were forfeited due to the cessation of
employment by certain employees. As of December 31, 2002,
11,142 shares of restricted common stock were outstanding and
subject to forfeiture.

1999 EMPLOYEE STOCK PURCHASE
PLAN

Under the 1999 Employee Stock Purchase Plan,
(ESPP Plan), the Company issued 358,760 shares of
common stock at a weighted average price of $6.32 per share,
291,330 shares of common stock at a weighted average price of
$40.00 per share and 198,534 shares of common stock at a
weighted average price of $56.50 per share, in 2002, 2001 and
2000, respectively. As of December 31, 2002, 1,419,026
shares of common stock have been reserved for issuance under the
ESPP Plan. Eligible employees may purchase common stock at 85%
of the lesser of the fair market value of the Companys
common stock on the first day of the applicable two-year
offering period or the last day of the applicable six month
purchase period.

DEFERRED STOCK-BASED
COMPENSATION

The Company did not record deferred stock
compensation in 2002. During 2002, the deferred stock
compensation recorded in relation to the restricted stock awards
and options assumed in acquisitions in previous years was
reduced by $3.0 million and $50.7 million,
respectively, representing the deferred stock compensation
recorded that was forfeited by employees upon termination of
their employment. In the years ended December 31, 2001 and
2000, the Company recorded deferred stock compensation of
approximately $16.3 million and $189.3 million,
respectively, representing the difference between the exercise
price and the deemed fair value of restricted stock granted to
employees and options assumed in connection with the
acquisitions. These amounts are being amortized by charges to
operations over the vesting periods of the individual stock
options and restricted common stock awards. Such amortization
amounted to approximately $8.7 million, $98.3 million
and $39.8 million for the years ended December 31,
2002, 2001 and 2000, respectively.

STOCK OPTION EXCHANGE PROGRAM

On March 5, 2001, the Company announced a
voluntary stock option exchange program for its employees. Under
the program, employees were given the opportunity to elect to
cancel outstanding stock options held by them in exchange for an
equal number of replacement options to be granted at a future
date. The elections to cancel options were effective on
April 6, 2001. The exchange resulted in the voluntary
cancellation by 2,307 employees of options to purchase 2,458,505
shares of common stock with exercise prices ranging from $10.00
to $1,044.40 in exchange for the same number of replacement
options. The replacement options were granted on October 8,
2001 and have the same terms and conditions as each
optionees cancelled options, including the vesting
schedule and expiration date of the cancelled options. The
replacement options were granted at an exercise price of $28.10
per share of common stock on October 8, 2001. Employees
were eligible to participate in the program; Board members,
former employees and consultants were ineligible to participate.

WARRANTS

In November 2000, the Company issued a warrant to
a consulting firm, in connection with services provided, to
purchase 10,000 shares of common stock at an exercise price of
$1,109.20. The warrant is exercisable through March 17,
2005. The fair value of the warrants was estimated using the
Black-Scholes option pricing model with the following
assumptions: risk free rate of 5.0%, weighted average
contractual life of 4.3 years, 106% volatility and no
dividend yield, which resulted in a value of $1,524,000. This
amount was charged to operations during the year 2000.

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12.     INCOME
TAXES

The following is a geographical breakdown of
consolidated income (loss) before income taxes by income tax
jurisdiction (in thousands):

|              |  |                          |          |      |  |      |            |   |  |   |          |  
|------------- |  | ------------------------ | -------- | ---- |  | ---- | ---------- | - |  | - | -------- | -
|              |  |                         
|              |  | Years ended December 31,
|              |  |                         
|              |  | 2002                     |          | 2001 |  | 2000
|              |  |                          |          |      |  |     
|United States |  | $                        | (589,572 | )    |  | $    | (2,626,787 | ) |  | $ | (308,411 | )
|Foreign       |  |                          | 37       |      |  |      | 51,689     |   |  |   | (30,136  | )
|              |  |                          |          |      |  |      |            |   |  |   |          |  
|Total         |  | $                        | (589,535 | )    |  | $    | (2,575,098 | ) |  | $ | (338,547 | )
|              |  |                          |          |      |  |      |            |   |  |   |          |  

There has been no provision for U.S. federal
or state income taxes for any period as the Company has incurred
operating losses in all periods. During the years ended
December 31, 2002, 2001 and 2000, the Company recorded
foreign income tax provisions of $301,000, $9,001,000 and
$6,400,000, respectively, relating to taxes withheld from
customer payments and remitted to foreign taxing jurisdictions
on the Companys behalf and income taxes generated in
certain foreign jurisdictions.

A reconciliation of income taxes at the statutory
federal income tax rate to net income taxes included in the
accompanying statements of operations is as follows:

|                                             |  |                         |       |      |  |      |       |    |  |  |       |   
|-------------------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- | -- |  |  | ----- | --
|                                             |  |                        
|                                             |  | Years ended December 31
|                                             |  |                        
|                                             |  | 2002                    |       | 2001 |  | 2000
|                                             |  |                         |       |      |  |     
|US federal taxes (benefit) at statutory rate |  |                         | (35.0 | )%   |  |      | (35.0 | )% |  |  | (35.0 | )%
|State                                        |  |                         | (5.2  | )%   |  |      | (5.2  | )% |  |  | (5.3  | )%
|Foreign                                      |  |                         | 0.1   | %    |  |      | 0.3   | %  |  |  | 1.9   | % 
|Acquisition related charges                  |  |                         | 30.2  | %    |  |      | 30.0  | %  |  |  | 24.7  | % 
|Valuation allowance                          |  |                         | 10.0  | %    |  |      | 10.2  | %  |  |  | 15.6  | % 
|                                             |  |                         |       |      |  |      |       |    |  |  |       |   
|Total                                        |  |                         | 0.1   | %    |  |      | 0.3   | %  |  |  | 1.9   | % 
|                                             |  |                         |       |      |  |      |       |    |  |  |       |   

Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Companys deferred tax assets are as follows
(in thousands):

|                                           |  |              |          |      |  |   |          |  
|------------------------------------------ |  | ------------ | -------- | ---- |  | - | -------- | -
|                                           |  |             
|                                           |  | December 31,
|                                           |  |             
|                                           |  | 2002         |          | 2001
|                                           |  |              |          |     
|Deferred tax assets:                       |  |              |          |      |  |   |          |  
|Net operating loss carryforwards           |  | $            | 359,687  |      |  | $ | 239,607  |  
|Capitalized research and development costs |  |              | 14,838   |      |  |   | 12,156   |  
|Deferred revenue                           |  |              | 8,972    |      |  |   | 22,035   |  
|Tax credit carryforwards                   |  |              | 13,155   |      |  |   | 9,516    |  
|Accrued costs and expenses                 |  |              | 7,609    |      |  |   | 29,805   |  
|                                           |  |              |          |      |  |   |          |  
|Deferred tax assets                        |  |              | 404,261  |      |  |   | 313,119  |  
|Less: valuation allowance                  |  |              | (400,298 | )    |  |   | (299,851 | )
|                                           |  |              |          |      |  |   |          |  
|Total deferred tax assets                  |  |              | 3,963    |      |  |   | 13,268   |  
|Deferred tax liabilities:                  |  |              |          |      |  |   |          |  
|Other identified intangible assets         |  |              | (3,963   | )    |  |   | (13,268  | )
|                                           |  |              |          |      |  |   |          |  
|Total deferred tax liabilities             |  |              | (3,963   | )    |  |   | (13,268  | )
|                                           |  |              |          |      |  |   |          |  
|Net deferred tax assets                    |  | $            | 0        |      |  | $ | 0        |  
|                                           |  |              |          |      |  |   |          |  

Realization of deferred tax assets is dependent
upon future earnings, if any, the timing and amount of which are
uncertain. Accordingly, the net deferred tax assets have been
fully offset by a valuation allowance. The valuation allowance
increased by $100,447,000, $154,008,000 and $102,829,000 during
2002, 2001 and 2000 respectively.

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The tax benefits associated with employee stock
options provide a deferred tax benefit of $175 million as
of December 31, 2002 which has been fully offset by a
valuation allowance and will be credited to additional paid-in
capital when realized.

As of December 31, 2002, the Company had net
operating loss carryforwards for federal income tax purposes of
approximately $986,745,000, which expire in the years 2009
through 2022.

The Company also had net operating loss
carryforwards for state income tax purposes of approximately
$403,233,000 expiring in the years 2004 through 2022.

In addition, the Company had federal and state
tax credit carryforwards of approximately $8,687,000 and
$6,770,000 respectively, which expire in the years 2012 through
2022.

Utilization of the Companys net operating
loss and tax credit carryforwards may be subject to a
substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code and similar
state provisions. Such an annual limitation could result in the
expiration of the net operating loss and tax credit
carryforwards before utilization.

13.     PROFIT
SHARING PLAN

The Company has a profit sharing plan and trust
under Section 401(k) of the Internal Revenue Code that
covers substantially all employees. Eligible employees may
contribute amounts to the plan via payroll withholdings, subject
to certain limitations. The Company did not match contributions
by plan participants during the year ended December 31,
2000. The Company began matching employee contributions on
January 1, 2001, but terminated the matching of employee
contributions on May 31, 2002.

14.     REVENUE BY
GEOGRAPHIC AREA

Revenue was derived from customers in the
following geographic areas (in thousands):

|                               |  |                          |         |      |  |      |         |  |  |   |         | 
|------------------------------ |  | ------------------------ | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                               |  |                         
|                               |  | Years ended December 31,
|                               |  |                         
|                               |  | 2002                     |         | 2001 |  | 2000
|                               |  |                          |         |      |  |     
|United States                  |  | $                        | 68,419  |      |  | $    | 270,630 |  |  | $ | 225,994 | 
|Europe, Middle East and Africa |  |                          | 30,805  |      |  |      | 83,361  |  |  |   | 119,372 | 
|Asia Pacific                   |  |                          | 5,304   |      |  |      | 28,319  |  |  |   | 47,419  | 
|Other Americas                 |  |                          | 1,001   |      |  |      | 26,259  |  |  |   | 9,011   | 
|                               |  |                          |         |      |  |      |         |  |  |   |         | 
|                               |  | $                        | 105,529 |      |  | $    | 408,569 |  |  | $ | 401,796 | 
|                               |  |                          |         |      |  |      |         |  |  |   |         | 

15.     BUSINESS
COMBINATIONS

EXTERPRISE, INC.

Effective May 25, 2001, the Company acquired
Exterprise, Inc. (Exterprise), a provider of
platform solutions that enable the development and deployment of
e-commerce applications. The acquisition was structured as a
common stock for common stock merger and has been accounted for
as a purchase transaction. The purchase consideration was
approximately $66.3 million consisting of approximately
720,000 shares of common stock with a fair value of
approximately $60.7 million, assumption of option to
acquire approximately 25,800 shares of common stock with a fair
value of $2.5 million and transaction costs of
approximately $3.1 million.

The Company estimated that approximately
$4.5 million of the $66.3 million purchase
consideration represented purchased in-process research and
development that had not yet reached technological feasibility
and had no alternative future use. Accordingly, this amount was
charged to operations during the year.

M-32



---



##### Table of Contents



The total purchase cost for the Exterprise
acquisition has been allocated to the acquired assets and
assumed liabilities based upon estimates of their fair value.
The following table depicts the total purchase cost and the
allocation thereof (in thousands):

|                                                                                |  |   |        |  
|------------------------------------------------------------------------------- |  | - | ------ | -
|Cash                                                                            |  | $ | 554    |  
|Accounts receivable                                                             |  |   | 106    |  
|Assumed liabilities                                                             |  |   | (6,103 | )
|Deferred compensation                                                           |  |   | 2,181  |  
|Intangible assets:                                                              |  |   |        |  
|Assembled workforce                                                             |  |   | 3,508  |  
|Purchase technology                                                             |  |   | 5,187  |  
|Patents                                                                         |  |   | 1,018  |  
|Goodwill                                                                        |  |   | 55,307 |  
|                                                                                |  |   |        |  
|Total intangible assets                                                         |  |   | 65,020 |  
|                                                                                |  |   |        |  
|Purchased in-process research and development
    charged to operations in 2001 |  |   | 4,548  |  
|                                                                                |  |   |        |  
|Total purchase cost                                                             |  | $ | 66,306 |  
|                                                                                |  |   |        |  

16.     SELECTED
QUARTERLY COMBINED FINANCIAL DATA (UNAUDITED)

On January 30, 2003, Commerce One announced
that it recently discovered that it had overstated the
companys stock compensation expense for the quarters ended
March 31, 2002, June 30, 2002 and September 30,
2002, resulting in a net loss for those periods that was less
than previously reported. The stock compensation expense for
these periods was lower than previously reported by
approximately $10.6 million in the third quarter of 2002,
$8.8 million in the second quarter of 2002 and
$8.9 million in the first quarter of 2002. This
overstatement related to non-cash stock compensation expenses
for certain employees from prior acquisitions no longer employed
with the company, but for whom the company continued to amortize
the expense. After adjusting the results in these quarters to
correctly reflect the lower expense, the adjusted net loss on a
GAAP basis for the third quarter of 2002 was reduced to
$36.3 million or $1.25 per share, for the second quarter of
2002 was reduced to $62.3 million or $2.15 per share and
for the first quarter of 2002 was reduced to $211.7 million
or $7.36 per share. The Company also discovered that it had
overstated its deferred stock compensation expense for the
fiscal years ended 2000 and 2001 by amounts that were immaterial
to the financial results for those periods.

A summary of the Companys quarterly
financial results follows (in thousands, except per share data).

|                                     |  |                              |          |         |  |              |         |             |  |   |         |     |  |   |          |  
|------------------------------------ |  | ---------------------------- | -------- | ------- |  | ------------ | ------- | ----------- |  | - | ------- | --- |  | - | -------- | -
|                                     |  |                             
|                                     |  | Year ended December 31, 2002
|                                     |  | Quarter ended               
|                                     |  |                             
|                                     |  | March 31                     |          | June 30 |  | September 30 |         | December 31
|                                     |  |                              |          |         |  |              |         |            
|Total revenues                       |  | $                            | 31,755   |         |  | $            | 27,837  |             |  | $ | 26,423  |     |  | $ | 19,514   |  
|                                     |  |                              |          |         |  |              |         |             |  |   |         |     |  |   |          |  
|Total cost of licenses and services  |  |                              | 174,476  |         |  |              | 21,950  |             |  |   | 17,337  |     |  |   | 46,876   |  
|                                     |  |                              |          |         |  |              |         |             |  |   |         |     |  |   |          |  
|Loss from operations                 |  | $                            | (213,481 | )*      |  | $            | (62,696 | )*          |  | $ | (36,584 | )*  |  | $ | (281,455 | )
|                                     |  |                              |          |         |  |              |         |             |  |   |         |     |  |   |          |  
|Net loss                             |  | $                            | (211,681 | )*      |  | $            | (62,333 | )*          |  | $ | (36,340 | )*  |  | $ | (279,482 | )
|                                     |  |                              |          |         |  |              |         |             |  |   |         |     |  |   |          |  
|Basic and diluted net loss per share |  | $                            | (7.36    | )**     |  | $            | (2.15   | )**         |  | $ | (1.25   | )** |  | $ | (9.57    | )
|                                     |  |                              |          |         |  |              |         |             |  |   |         |     |  |   |          |  

|                                     |  |                              |          |         |  |              |            |             |  |   |          |   |  |   |          |  
|------------------------------------ |  | ---------------------------- | -------- | ------- |  | ------------ | ---------- | ----------- |  | - | -------- | - |  | - | -------- | -
|                                     |  |                             
|                                     |  | Year ended December 31, 2001
|                                     |  | Quarter ended               
|                                     |  |                             
|                                     |  | March 31                     |          | June 30 |  | September 30 |            | December 31
|                                     |  |                              |          |         |  |              |            |            
|Total revenues                       |  | $                            | 170,273  |         |  | $            | 101,251    |             |  | $ | 81,086   |   |  | $ | 55,959   |  
|                                     |  |                              |          |         |  |              |            |             |  |   |          |   |  |   |          |  
|Total cost of licenses and services  |  |                              | 102,831  |         |  |              | 682,954    |             |  |   | 57,941   |   |  |   | 46,612   |  
|                                     |  |                              |          |         |  |              |            |             |  |   |          |   |  |   |          |  
|Loss from operations                 |  | $                            | (228,739 | )       |  | $            | (2,066,266 | )           |  | $ | (119,271 | ) |  | $ | (168,393 | )
|                                     |  |                              |          |         |  |              |            |             |  |   |          |   |  |   |          |  
|Net loss                             |  | $                            | (228,534 | )       |  | $            | (2,068,258 | )           |  | $ | (119,020 | ) |  | $ | (168,287 | )
|                                     |  |                              |          |         |  |              |            |             |  |   |          |   |  |   |          |  
|Basic and diluted net loss per share |  | $                            | (10.21   | )       |  | $            | (90.25     | )           |  | $ | (4.51    | ) |  | $ | (5.90    | )
|                                     |  |                              |          |         |  |              |            |             |  |   |          |   |  |   |          |  






|   |                                                                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  | These amounts differ from amounts previously
    reported by $10.6 million, $8.8 million and
    $8.9 million for the third, second and first quarters,
    respectively, as a result of the above mentioned over statement
    of stock compensation expense.
|  
|** | These amounts differ from amounts previously
    reported by $0.36, $0.31, and $0.31 for the third, second and
    first quarters, respectively.                                                                                                              

M-33



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##### Table of Contents



Section 302 Certifications

I, Prof. Dr. h.c. Hasso Plattner, certify
that:



|   |                                                                                                                                                                                                                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | I have reviewed this annual report on
    Form 20-F of SAP Aktiengesellschaft Systeme, Anwendungen,
    Produkte in der Datenverarbeitung;                                                                                                                                                                                                  
|  
|2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|  
|3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|  
|4. | The registrants other certifying officers
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                          



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



|   |                                                                                                                                                                                                                                                                   
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5. | The registrants other certifying officers
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of the
    registrants board of directors (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



|   |                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. | The registrants other certifying officers
    and I have indicated in this annual report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

Date: April 14, 2003



| |     |                   
| | --- | ------------------
| | By: | /s/ HASSO PLATTNER

| |                                    
| | -----------------------------------
| |                                    
| | Name: Prof. Dr. h.c. Hasso Plattner
| | Title: Co-Chairman and CEO         

M-34



---



##### Table of Contents



I, Prof. Dr. Henning Kagermann, certify that:



|   |                                                                                                                                                                                                                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | I have reviewed this annual report on
    Form 20-F of SAP Aktiengesellschaft Systeme, Anwendungen,
    Produkte in der Datenverarbeitung;                                                                                                                                                                                                  
|  
|2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|  
|3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|  
|4. | The registrants other certifying officers
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                          



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



|   |                                                                                                                                                                                                                                                                   
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5. | The registrants other certifying officers
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of the
    registrants board of directors (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



|   |                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. | The registrants other certifying officers
    and I have indicated in this annual report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

Date: April 14, 2003



| |     |                      
| | --- | ---------------------
| | By: | /s/ HENNING KAGERMANN

| |                                  
| | ---------------------------------
| |                                  
| | Name: Prof. Dr. Henning Kagermann
| | Title: Co-Chairman and CEO       

M-35



---



##### Table of Contents



I, Dr. Werner Brandt, certify that:



|   |                                                                                                                                                                                                                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | I have reviewed this annual report on
    Form 20-F of SAP Aktiengesellschaft Systeme, Anwendungen,
    Produkte in der Datenverarbeitung;                                                                                                                                                                                                  
|  
|2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|  
|3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|  
|4. | The registrants other certifying officers
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                          



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



|   |                                                                                                                                                                                                                                                                   
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5. | The registrants other certifying officers
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of the
    registrants board of directors (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



|   |                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. | The registrants other certifying officers
    and I have indicated in this annual report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

Date: April 14, 2003



| |     |                  
| | --- | -----------------
| | By: | /s/ WERNER BRANDT

| |                        
| | -----------------------
| |                        
| | Name: Dr. Werner Brandt
| | Title: CEO             

M-36



---



##### Table of Contents



EXHIBIT INDEX

The following documents are filed as exhibits to
this Annual Report on Form 20-F:



| |                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1     Articles of
    Incorporation (Satzung) of SAP AG, as amended to date (English
    translation).(1)                                                                                                                                                                     
|
| | 2.1   Form of global share
    certificate for ordinary shares (English
    translation).(2)                                                                                                                                                                                  
|
| | 2.2   Form of American Depositary
    Receipt.(3)                                                                                                                                                                                                                             
|
| | 4.1   Form of Amended and Restated
    Deposit Agreement among SAP AG, The Bank of New York, as
    Depositary, and all owners and holders from time to time of
    American Depositary Receipts issued thereunder, including the
    form of American Depositary Receipts.(4)
|
| | 4.2   Share Purchase Agreement by
    and among Commerce One, Inc., New Commerce One Holding Inc. and
    SAP AG, dated as of June 28, 2001.(5)                                                                                                                               
|
| | 4.3   Amended and Restated
    Standstill and Stock Restriction Agreement by and among Commerce
    One, Inc., New Commerce One Holding, Inc. and SAP AG, dated as
    of June 28, 2001.(6)                                                                                   
|
| | 4.4   Investor Rights Agreement by
    and among Commerce One, Inc., New Commerce One Holding, Inc. and
    SAP AG, dated as of June 28, 2001.(7)                                                                                                                             
|
| | 4.5   Strategic Alliance Agreement
    by and among Commerce One, Inc., SAPMarkets, Inc. and SAP AG,
    dated as of September 18, 2000.(8)                                                                                                                                   
|
| | 4.6   Strategic Alliance Agreement
    Amendment No. 2 by and among Commerce One, Inc.,
    SAPMarkets, Inc. and SAP AG, dated as of June 29,
    2001.(9)                                                                                                                    
|
| | 4.7   Strategic Alliance Agreement
    Amendment No. 3 by and among Commerce One, Inc.,
    SAPMarkets, Inc. and SAP AG, dated as of June 29,
    2001.(9)                                                                                                                    
|
| | 4.8   Strategic Alliance Agreement
    Amendment No. 4, effective as of January 1, 2002 by
    and between Commerce One Operations, Inc., SAP and SAP Markets,
    Inc.(10)                                                                                                   
|
| | 4.9   Strategic Alliance Agreement
    Amendment No. 5, effective as of December 20, 2002, by
    and between Commerce One Operations, Inc., SAP and SAP Markets,
    Inc.(11)                                                                                                
|
| | 8     Subsidiaries,
    Associated Companies and Other Investments of
    SAP AG.(1)                                                                                                                                                                                          
|
| | 10.1 Independent Auditors Consent of
    KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft
    Wirtschaftsprüfungsgesellschaft, Mannheim, Germany.                                                                                                                      
|
| | 10.2 Statement regarding Auditors
    Consent.(1)                                                                                                                                                                                                                            
|
| | 10.3 Independent Auditors Consent of
    Ernst & Young LLP, Walnut Creek, California.                                                                                                                                                                                        
|
| | 10.4   Certification pursuant to 18
    U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                        






|     |                                                                                                                          
|---- | -------------------------------------------------------------------------------------------------------------------------
|(1)  | Incorporated by reference to Form 20-F of
    SAP AG, filed on March 21, 2003.                                           
|    
|(2)  | Incorporated by reference to Form 8-A12B of
    SAP AG, filed on May 3, 2001.                                            
|    
|(3)  | Incorporated by reference to Form 8-A12B of
    SAP AG, filed on May 3, 2001.                                            
|    
|(4)  | Incorporated by reference to Form 8-A12B of
    SAP AG, filed on May 3, 2001.                                            
|    
|(5)  | Incorporated by reference to the Current Report
    on Form 8-K of Commerce One, Inc., filed on July 10,
    2001.       
|    
|(6)  | Incorporated by reference to the Current Report
    on Form 8-K of Commerce One, Inc., filed on July 10,
    2001.       
|    
|(7)  | Incorporated by reference to the Current Report
    on Form 8-K of Commerce One, Inc., filed on July 10,
    2001.       
|    
|(8)  | Incorporated by reference to the Quarterly Report
    on Form 10-Q of Commerce One, Inc., filed on
    November 14, 2000.
|    
|(9)  | Incorporated by reference to the Quarterly Report
    on Form 10-Q of Commerce One, Inc., filed on
    August 14, 2001.  
|    
|(10) | Incorporated by reference to the Annual Report on
    Form 10-K of Commerce One, Inc., filed on April 1,
    2002.       
|    
|(11) | Incorporated by reference to the Annual Report on
    Form 10-K of Commerce One, Inc., filed on March 31,
    2003.