** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, DC  20549**

** **

----

** **

**FORM10-Q**

** **

----

** **
| **(Mark  One)** |                                                                                         |
|-----------------|----------------------------------------------------------------------------------------------|
|            |                                                                                         |
| **ý**      | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

** **

**Forthe Quarter ended March 31, 2002**

** **

**OR**

 
| **o** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|-----------------------------------------------------------------------------------------------|

** **

**0–28252**

(Commission File Number)

** **

----

** **

**BROADVISION, INC.**

(Exact name of registrant as specified in its charter)

 

----

** **

| **Delaware**                                                   | **94–3184303**                     |
|----------------------------------------------------------------|-----------------------------------------|
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
|                                                           |                                    |
| **585 Broadway**                                               |                                    |
| **Redwood City, California**                                   | **94063**                               |
| (Address of principal executive offices)                       | (Zip code)                              |

** **

**(650)261–5100**

(Registrant’s telephonenumber, including area code)

 

Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13 or15 (d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days. Yes ý No o

 

As of  May 8,2002, there were 288,430,012 shares of the Registrant’s Common Stock issued andoutstanding.

 

 

----

 

**BROADVISION, INC. AND SUBSIDIARIES**

**FORM 10-Q**

**Quarter Ended March 31, 2002**

** **

**TABLE OF CONTENTS**

 
| **PART I.**    | **FINANCIAL INFORMATION**                                                                                                |
|----------------|--------------------------------------------------------------------------------------------------------------------------|
| Item 1.        | Financial Statements                                                                                                     |
|           | Condensed  Consolidated Balance Sheets–March 31, 2002 and December 31, 2001                                    |
|           | Condensed  Consolidated Statements of Operations and Comprehensive Loss–Three months  ended March 31, 2002 and 2001 |
|           | Condensed  Consolidated Statements of Cash Flows–Three months ended March 31, 2002 and  2001                        |
|           | Notes  to Condensed Consolidated Financial Statements                                                                    |
| Item  2.       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                              |
| Item  3.       | Quantitative  and Qualitative Disclosures about Market Risk                                                              |
|           |                                                                                                                     |
| **PART II.**   | **OTHER INFORMATION**                                                                                                    |
| Item  1.       | Legal  Proceedings                                                                                                       |
| Item  2.       | Changes  in Securities and Use of Proceeds                                                                               |
| Item 3.        | Defaults upon  Senior Securities                                                                                         |
| Item  4.       | Submission  of Matters to a Vote of Security Holders                                                                     |
| Item  5.       | Other  Information                                                                                                       |
| Item 6.        | Exhibits and  Reports on Form 8-K                                                                                        |
|           |                                                                                                                     |
| **SIGNATURES** |                                                                                                                     |

 

2

----

 

**PARTI.  FINANCIAL INFORMATION**

**Item 1.            FinancialStatements**

** **

**BROADVISION, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

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

** **
|                                                                                                                                              |   | **March 31, 2002 (unaudited)** |    | **December 31,  2001** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|---------|------------------------|--------|
| **ASSETS**                                                                                                                                        |   |                           |    |                   |   |
|                                                                                                                                              |   |                           |    |                   |   |
| Cash and cash equivalents                                                                                                                         |   | $                              | 63,868  |                   | $      | 75,758 |   |
| Short-term investments                                                                                                                            |   | 65,719                         |    | 65,705                 |   |
| Accounts receivable, less reserves of $8,645  and $8,194 for 2002 and 2001, respectively                                                          |   | 28,242                         |    | 39,768                 |   |
| Prepaids and other                                                                                                                                |   | 13,936                         |    | 12,816                 |   |
|                                                                                                                                              |   |                           |    |                   |   |
| Total current assets                                                                                                                              |   | 171,765                        |    | 194,047                |   |
|                                                                                                                                              |   |                           |    |                   |   |
| Property and equipment, net                                                                                                                       |   | 57,969                         |    | 67,219                 |   |
| Deferred tax asset                                                                                                                                |   | 2,857                          |    | 2,857                  |   |
| Long-term investments                                                                                                                             |   | 14,900                         |    | 22,135                 |   |
| Restricted investments                                                                                                                            |   | 29,949                         |    | 29,949                 |   |
| Equity investments                                                                                                                                |   | 5,012                          |    | 5,583                  |   |
| Goodwill and other intangibles                                                                                                                    |   | 59,980                         |    | 60,867                 |   |
| Other assets                                                                                                                                      |   | 8,392                          |    | 9,760                  |   |
|                                                                                                                                              |   |                           |    |                   |   |
| Total assets                                                                                                                                      |   | $                              | 350,824 |                   | $      | 392,417 |   |
|                                                                                                                                              |   |                           |    |                   |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                     |   |                           |    |                   |   |
|                                                                                                                                              |   |                           |    |                   |   |
| Accounts payable                                                                                                                                  |   | $                              | 12,034  |                   | $      | 11,276 |   |
| Accrued expenses                                                                                                                                  |   | 55,524                         |    | 61,712                 |   |
| Unearned revenue                                                                                                                                  |   | 22,792                         |    | 22,580                 |   |
| Deferred maintenance                                                                                                                              |   | 27,678                         |    | 30,337                 |   |
| Current portion of long-term debt                                                                                                                 |   | 977                            |    | 977                    |   |
|                                                                                                                                              |   |                           |    |                   |   |
| Total current liabilities                                                                                                                         |   | 119,005                        |    | 126,882                |   |
|                                                                                                                                              |   |                           |    |                   |   |
| Long-term debt, net of current portion                                                                                                            |   | 2,678                          |    | 2,922                  |   |
| Other noncurrent liabilities                                                                                                                      |   | 55,485                         |    | 59,466                 |   |
|                                                                                                                                              |   |                           |    |                   |   |
| Total liabilities                                                                                                                                 |   | 177,168                        |    | 189,270                |   |
|                                                                                                                                              |   |                           |    |                   |   |
| Commitments and Contingencies                                                                                                                     |   |                           |    |                   |   |
|                                                                                                                                              |   |                           |    |                   |   |
| Stockholders’ equity:                                                                                                                        |   |                           |    |                   |   |
| Convertible preferred stock, $0.0001 par  value; 10,000 shares authorized; none issued and outstanding                                            |   | —                         |    | —                 |   |
| Common stock, $0.0001 par value; 2,000,000  shares authorized; 288,294 and 284,794 shares issued and outstanding for 2002  and 2001, respectively |   | 29                             |    | 28                     |   |
| Additional paid-in capital                                                                                                                        |   | 1,209,283                      |    | 1,207,046              |   |
| Accumulated other comprehensive loss, net of  tax                                                                                                 |   | (852                           | )       | (5,245                 | )      |
| Accumulated deficit                                                                                                                               |   | (1,034,804                     | )       | (998,682               | )      |
| Total stockholders’ equity                                                                                                                   |   | 173,656                        |    | 203,147                |   |
|                                                                                                                                              |   |                           |    |                   |   |
| Total liabilities and stockholders’ equity                                                                                                   |   | $                              | 350,824 |                   | $      | 392,417 |   |

** **

***See Accompanying Notes to Condensed Consolidated FinancialStatements***

** **

**3**

----

 

**BROADVISION, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

**AND COMPREHENSIVE LOSS**

**(In thousands, except per share amounts; unaudited)**

** **
|                                                                                          |   | **Three  Months Ended  March 31,** |    |
|-----------------------------------------------------------------------------------------------|--------|------------------------------------|---------|
|                                                                                          |   | **2002**                           |    | **2001** |   |
|                                                                                          |   |                               |    |   |   |
| **Revenues:**                                                                                 |   |                               |    |   |   |
| Software licenses                                                                             |   | $                                  | 8,179   |   | $ | 43,140 |   |
| Services                                                                                      |   | 22,276                             |    | 49,589 |   |
| Total revenues                                                                                |   | 30,455                             |    | 92,729 |   |
|                                                                                          |   |                               |    |   |   |
| **Cost of revenues:**                                                                         |   |                               |    |   |   |
| Cost of software licenses                                                                     |   | 1,100                              |    | 2,240 |   |
| Cost of services                                                                              |   | 12,334                             |    | 38,978 |   |
| Total cost of revenues                                                                        |   | 13,434                             |    | 41,218 |   |
|                                                                                          |   |                               |    |   |   |
| Gross profit                                                                                  |   | 17,021                             |    | 51,511 |   |
|                                                                                          |   |                               |    |   |   |
| **Operating expenses:**                                                                       |   |                               |    |   |   |
| Research and development                                                                      |   | 13,975                             |    | 26,971 |   |
| Sales and marketing                                                                           |   | 16,178                             |    | 52,481 |   |
| General and administrative                                                                    |   | 6,193                              |    | 10,590 |   |
| Goodwill and intangible amortization                                                          |   | 887                                |    | 66,280 |   |
| Restructuring charge                                                                          |   | 5,380                              |    | — |   |
| Impairment of assets                                                                          |   | 2,276                              |    | — |   |
| Total operating expenses                                                                      |   | 44,889                             |    | 156,322 |   |
|                                                                                          |   |                               |    |   |   |
| Operating loss                                                                                |   | (27,868                            | )       | (104,811 | ) |
|                                                                                          |   |                               |    |   |   |
| Other (expense) income, net                                                                   |   | (8,077                             | )       | 497 |   |
|                                                                                          |   |                               |    |   |   |
| Loss before provision forincome taxes                                                         |   | (35,945                            | )       | (104,314 | ) |
|                                                                                          |   |                               |    |   |   |
| Provision for income taxes                                                                    |   | 177                                |    | 831 |   |
|                                                                                          |   |                               |    |   |   |
| Net loss                                                                                      |   | $                                  | (36,122 | ) | $ | (105,145 | ) |
|                                                                                          |   |                               |    |   |   |
| Basic and diluted net loss per share                                                          |   | $                                  | (0.13   | ) | $ | (0.39 | ) |
|                                                                                          |   |                               |    |   |   |
| **Shares used in computing:**                                                                 |   |                               |    |   |   |
| Basic and diluted net loss per share                                                          |   | 285,061                            |    | 271,011 |   |
|                                                                                          |   |                               |    |   |   |
| **Comprehensive loss:**                                                                       |   |                               |    |   |   |
| Net loss                                                                                      |   | $                                  | (36,122 | ) | $ | (105,145 | ) |
| Other comprehensive income, net of tax:                                                       |   |                               |    |   |   |   |   |
| Unrealized investment gains less reclassification adjustment for  losses included in net loss |   | 4,393                              |    | 654 |   |
| Total comprehensive loss                                                                      |   | $                                  | (31,729 | ) | $ | (104,491 | ) |

** **

*See AccompanyingNotes to Condensed Consolidated Financial Statements*

* *

*4*

----

 

***BROADVISION, INC. AND SUBSIDIARIES***

***CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS***

***(In thousands; unaudited)***

* *
|                                                                                        |   | **Three Months Ended March 31,** |    |
|---------------------------------------------------------------------------------------------|--------|----------------------------------|---------|
|                                                                                        |   | **2002**                         |    | **2001** |   |
|                                                                                        |   |                             |    |   |   |
| **Cash flows from operating activities:**                                                   |   |                             |    |   |   |
| Net loss                                                                                    |   | $                                | (36,122 | ) | $ | (105,145 | ) |
| Adjustments to reconcile net loss to net cash  (used for) provided by operating activities: |   |                             |    |   |   |
| Depreciation and amortization                                                               |   | 5,499                            |    | 5,791 |   |
| Provision for doubtful accounts                                                             |   | 31                               |    | 702 |   |
| Provision for sales returns                                                                 |   | 903                              |    | — |   |
| Amortization of prepaid royalties                                                           |   | 830                              |    | 1,136 |   |
| Amortization of prepaid compensation                                                        |   | —                           |    | 192 |   |
| Realized loss on cost method long-term  investments                                         |   | 8,550                            |    | 1,281 |   |
| Equity in net loss from unconsolidated  subsidiary                                          |   | —                           |    | 1,107 |   |
| Amortization of goodwill and other intangibles                                              |   | 887                              |    | 66,280 |   |
| Stock-based compensation charge                                                             |   | 608                              |    | — |   |
| Restructuring charge, non cash                                                              |   | 1,003                            |    | — |   |
| Loss on sale of assets                                                                      |   | 174                              |    | — |   |
| Impairment of assets                                                                        |   | 2,276                            |    | — |   |
| Changes in operating assets and liabilities:                                                |   |                             |    |   |   |
| Accounts receivable                                                                         |   | 10,592                           |    | 17,635 |   |
| Prepaids and other                                                                          |   | (1,120                           | )       | (1,267 | ) |
| Accounts payable and accrued expenses                                                       |   | (3,620                           | )       | (9,364 | ) |
| Restructuring reserves                                                                      |   | (7,755                           | )       | — |   |
| Unearned revenue and deferred maintenance                                                   |   | (2,447                           | )       | 479 |   |
| Other noncurrent assets                                                                     |   | 539                              |    | (546 | ) |
| Net cash used for operating activities                                                      |   | (19,172                          | )       | (21,719 | ) |
|                                                                                        |   |                             |    |   |   |
| **Cash flows from investing activities:**                                                   |   |                             |    |   |   |
| Purchase of property and equipment                                                          |   | (841                             | )       | (38,852 | ) |
| Proceeds from sale of assets                                                                |   | 240                              |    | — |   |
| Purchase of long-term investments                                                           |   | (2,349                           | )       | (24,029 | ) |
| Sales/maturity of long-term investments                                                     |   | 9,658                            |    | 30,820 |   |
| Purchase of short-term investments                                                          |   | (18,588                          | )       | (17,666 | ) |
| Sales/maturity of short-term investments                                                    |   | 17,776                           |    | 45,946 |   |
| Net cash provided by (used for) investing  activities                                       |   | 5,896                            |    | (3,781 | ) |
|                                                                                        |   |                             |    |   |   |
| **Cash flows from financing activities:**                                                   |   |                             |    |   |   |
| Proceeds from exercises of stock options, net                                               |   | 1,630                            |    | 7,351 |   |
| Repayments of borrowings                                                                    |   | (244                             | )       | (257 | ) |
| Net cash provided by financing activities                                                   |   | 1,386                            |    | 7,094 |   |
|                                                                                        |   |                             |    |   |   |
| Net decrease in cash and cash equivalents                                                   |   | (11,890                          | )       | (18,406 | ) |
| Cash and cash equivalents at beginning of  period                                           |   | 75,758                           |    | 153,137 |   |
| Cash and cash equivalents at end of period                                                  |   | $                                | 63,868  |   | $ | 134,731 |   |
|                                                                                        |   |                             |    |   |   |
| **Supplemental disclosures of cash flow information:**                                      |   |                             |    |   |   |
| Cash paid for interest                                                                      |   | $                                | 74      |   | $ | 118 |   |
| Cash paid for income taxes                                                                  |   | $                                | 178     |   | $ | 831 |   |

* *

*See AccompanyingNotes to Condensed Consolidated Financial Statements*

* *

*5*

----

 

***BROADVISION, INC. ANDSUBSIDIARIES***

***NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS***

** **

**Note 1.           Organization and Summary ofSignificant Accounting Policies**

 

***Nature of Business***

 

BroadVision, Inc. (collectively with its subsidiaries, “BroadVision” orthe “Company”) was incorporated in the state of Delaware on May 13, 1993.  The Company develops and sells a comprehensivesuite of enterprise business portal applications and technology that enableenterprise self-service (“ESS”) for conducting interactions, transactions andservices in a personalized self-service model. The Company’s enterprise business portal applications enable companiesto organize dynamic profiles of web and wireless users from volunteered dataand observed behavior, deliver highly specialized content in response to theseprofiles and securely execute transactions.

 

BroadVision Global Services, (“BVGS”), provides a full spectrum ofglobal services to help ensure success for businesses, including the Company’sup-front Solution Value Proposition, consulting services, and ongoing trainingand support.  The BVGS organizationconsists of business, content and creative and technical consultants withextensive experience in the design of online businesses and in theimplementation of enterprise self-service applications.

 

A significant element of the Company’s sales strategy is to engage instrategic business alliances to assist in marketing, selling and developingcustomer applications.

 

As of March 31, 2002, the Company had developed key strategic businessalliances with over 100 systems integration, design, consulting and otherservices organizations throughout the world. The Company’s platform alliances are partnerships formed to integratetechnologies to drive business growth. Additionally, the Company has developed key technology partnerships withleading web– and wireless–focused companies in areas complementaryto the Company’s solutions, such as data analysis and reporting, enterpriseapplication integration, enterprise Web management, call center management,content management, voice recognition, payment processing, auctioning and XML.These technology partnerships enhance the Company’s ability to base products onindustry standards and to take advantage of current and emerging technologies.

 

The Companysells its products and provides services worldwide through a direct sales forcein North America, Europe and Asia and through a channel of independentdistributors, value-added resellers (“VARs”) and application service providers(“ASPs”).  In addition, the sales of theCompany’s products are promoted through independent professional consulting organizationsknown as systems integrators.  TheCompany provides services worldwide through its BVGS organization andindirectly through distributors, VARs, ASPs, and systems integrators.

 

There has been a general downturn in the economy since the beginning of2001.  This downturn may continue in thefuture and has and could continue to have an impact on the Company’s futurefinancial results.  Comparisons offinancial performance made in this document are not necessarily indicative offuture performance.  The Companyannounced a corporate-wide reorganization and reduction in force and incurred acharge in fiscal 2001 of $153.3 million and during the first quarter of 2002 ofapproximately $5.4 million, related to these actions and a consolidation of theCompany’s facilities.  Please see Note 7of Notes to Condensed Consolidated Financial Statements.

 

***Basis of Presentation and Use of Estimates***

 

The accompanying consolidated financial statements include the accountsof the Company and its wholly-owned subsidiaries. All significant intercompanytransactions have been eliminated in consolidation.  In the Company’s opinion, the consolidated financial statementspresented herein include all necessary adjustments, consisting of normalrecurring adjustments, to fairly state the Company’s financial position,results of operations, and cash flows for the periods indicated.  The preparation of consolidated financialstatements in conformity with accounting principles generally accepted in theUnited States requires management to make certain assumptions and estimatesthat affect reported amounts of assets and liabilities as of the date of thefinancial statements and the reported amounts of revenues and expenses duringthe reporting period.  Actual resultscould differ from estimates.  Thefinancial results and related information as of March 31, 2002 and for thethree months ended March 31, 2002 and 2001 are unaudited. The balance sheet atDecember 31, 2001 has been derived from the audited consolidated financialstatements as of that date but does not necessarily reflect all of theinformational disclosures previously reported in accordance with accountingprinciples generally accepted in the United States.

 

6

----

 

The accompanyingconsolidated financial statements should be read in conjunction with theconsolidated financial statements and notes thereto included with the Company’sForm 10–K and other documents that have been filed with the Securitiesand Exchange Commission. The results of the Company’s operations for theinterim periods presented are not necessarily indicative of operating resultsfor the full fiscal year or any future interim periods.

* *

*Reclassifications**—*Certainprior period balances have been reclassified to conform to the current periodpresentation.

 

***Revenue Recognition***

 

*Overview*

 

The Company’srevenue consists of fees for licenses of the Company’s software products,maintenance, consulting services, and customer training. Software is generallylicensed for development use and for its use in deployment of the customer’swebsite. Fees for deployment licenses are generally based on the number ofpersons who register on a customer’s website using the Company’s software.  Software that is licensed on a per-CPU basisis inclusive of development and deployment. The Company’s revenue recognition policies are in accordance withStatement of Position (‘‘SOP’’) 97-2, Software Revenue Recognition, as amended.

 

*Software License Revenue*

 

The Companylicenses its products through its direct sales force and indirectly throughresellers. In general, software license revenues are recognized when anon-cancelable license agreement has been signed and the customer acknowledgesan unconditional obligation to pay, the software product has been delivered,there are no uncertainties surrounding product acceptance, the fees are fixedand determinable and collection is considered probable. If collectibility isnot considered probable, revenue is recognized when the fee is collected. Subscription-basedlicense revenues are recognized ratably over the subscription period.

 

Revenuesrecognized from multiple-element software arrangements are allocated to eachelement of the arrangement based on the fair values of the elements, such aslicenses for software products, maintenance, consulting services or customertraining. The determination of fair value is based on objective evidence, whichis specific to the Company. The Company limits its assessment of objectiveevidence for each element to either the price charged when the same element issold separately or the price established by management having the relevantauthority to do so, for an element not yet sold separately. If evidence of fairvalue of all undelivered elements exists but evidence does not exist for one ormore delivered elements, then revenue is recognized using the residual method.Under the residual method, the fair value of the undelivered elements isdeferred and the remaining portion of the arrangement fee is recognized as revenue.

 

The Companyrecords unearned revenue for software license agreements when cash has beenreceived from the customer and the agreement does not qualify for revenuerecognition under the Company’s revenue recognition policy. The Company recordsaccounts receivable for software license agreements when the agreementqualifies for revenue recognition but cash or other consideration has not beenreceived from the customer.

 

*Services Revenue*

 

Consultingservices revenues and customer training revenues are recognized as suchservices are performed. Maintenance revenues, which include revenues bundledwith software license agreements that entitle the customers to technicalsupport and future unspecified enhancements to the Company’s products, aredeferred and recognized ratably over the related agreement period, generallytwelve months.

 

7

----

 

The Company’sconsulting services are delivered through its BVGS organization, which consistsof consulting, maintenance, and training. Services that the Company providesare not essential to the functionality of the software. This group provides afull spectrum of global services to help ensure success for businesses,including the Company’s up-front Solution Value Proposition, consultingservices, and ongoing training and maintenance.  The BVGS organization consists of business, content and creativeand technical consultants with extensive experience in the design of onlinebusinesses and in the implementation of enterprise self-serviceapplications.  In accordance withFinancial Accounting Standards Board (“FASB”) Topic D-103, which the Companyadopted as of January 1, 2002, the Company records reimbursement by itscustomers for out-of-pocket expenses as an increase to services revenues.  Prior to January 1, 2002, the Companyrecorded reimbursement by its customers for out-of-pocket expenses as adecrease to cost of services.  TheCompany’s results of operations for the three months ended March 31, 2001 havebeen reclassified for comparable purposes in accordance with Topic D-103.  The effect of this reclassification was toincrease services revenues by $1.6 million and increase cost of services by$1.6 million.

 

***Net Earnings (Loss) Per Share***

 

Statement of FinancialAccounting Standard (“SFAS”) No. 128, *Earnings Per Share*, requires thepresentation of basic and diluted earnings per share. Earnings per share arecalculated by dividing net income available to common stockholders by aweighted average number of shares outstanding for the period. Basic earningsper share are determined solely on common shares whereas diluted earnings pershare include common equivalent shares, as determined under the treasury stockmethod.

 

The following table setsforth basic and diluted earnings per share computational data for the periodspresented (in thousands, except per share amounts, unaudited):

 
|                                                                                          |   | **Three Months Ended  March 31,** |       |
|-----------------------------------------------------------------------------------------------|--------|-----------------------------------|------------|
|                                                                                          |   | **2002**                          |       | **2001** |   |
|                                                                                          |   |                              | ** ** |   | ** ** |
| Net loss                                                                                      |   | $                                 | (36,122    | ) | $ | (105,145 | ) |
|                                                                                          |   |                              |       |   |   |
| Weighted average  common shares outstanding utilized for basic and diluted net loss per share |   | 285,061                           |       | 271,011 |   |
|                                                                                          |   |                              |       |   |   |
| Basic and  diluted net loss per share                                                         |   | $                                 | (0.13      | ) | $ | (0.39 | ) |

 

4,094,000 potentialcommon shares are excluded from the determination of diluted net loss per sharefor the three months ended March 31, 2002 as the effect of such shares isanti-dilutive.  17,712,000 potentialcommon shares are excluded from the determination of diluted net loss per sharefor the three months ended March 31, 2001 as the effect of such shares isanti-dilutive.

*** ***

***Allowances and Reserves***

 

Occasionally,the Company’s customers experience financial difficulty after the Companyrecords the sale but before payment has been received.  The Company maintains allowances fordoubtful accounts for estimated losses resulting from the inability of itscustomers to make required payments. The Company’s normal payment terms are 30 to 90 days from invoicedate.  If the financial condition of theCompany’s customers were to deteriorate, resulting in an impairment of theirability to make payments, additional allowances may be required.  The Company records estimated reductions torevenue for potential returns of products by its customers.  If market conditions were to decline, theCompany may experience larger volumes of returns resulting in an incrementalreduction of revenue at the time the return occurs.

*** ***

***Restructuring***

 

Basedon the downturn in the economy, the Company’s industry and its business, theCompany has recorded restructuring charges to align its cost structure withthese changing market conditions and to create a more efficientorganization.  To the extent actualevents and circumstances, such as the amount and timing of future sublease

 

8

----

 

income,differ from estimates made when the restructuring charges are recorded, theCompany may increase or decrease income in the period when such changes arenoted.

*** ***

***Legal Matters***

 

TheCompany’s current estimated range of liability related to pending litigation isbased on claims for which it is probable that a liability has been incurredand  the Company can estimate the amountand range of loss.  The Company hasrecorded the minimum estimated liability related to those claims, where thereis a range of loss.  Because of theuncertainties related to both the amount and range of loss on the remainingpending litigation, the Company is unable to make a reasonable estimate of theprobability of an unfavorable outcome or the liability that could result froman unfavorable outcome.  As additionalinformation becomes available, the Company will assess the probability and thepotential liability related to its pending litigation and revise its estimates,if necessary.  Such revisions in theCompany’s estimates of the potential liability could materially impact theCompany’s results of operations and financial position.

*** ***

***Foreign Currency Transactions***

 

The functional currencyof the Company’s foreign subsidiaries is the U.S. dollar.  Resulting foreign exchange gains and lossesare included in other (expense) income, net in the Condensed ConsolidatedStatements of Operations.

 

***Valuation ofLong-Lived Assets***

 

The Companyperiodically assesses the impairment of long-lived assets in accordance withthe provisions of SFAS No. 121, *Accountingfor the Impairment of Long-Lived Assets and for Long-Lived Assets to beDisposed of*and, effective January 1, 2002, SFAS No. 144, *Accounting for the Impairment or Disposal ofLong-Lived Assets.* The Company assesses the impairment of goodwilland identifiable intangible assets in accordance with SFAS No. 121, SFAS No.141, *Business Combinations*and,effective January 1, 2002, SFAS No. 142, *Goodwilland Other Intangible Assets* The Company adopted the provisions of SFAS No. 142 as of January 1, 2002and determined there was no accounting charge to record upon adoption.  The Company determines that an impairmenthas occurred when the asset’s undiscounted future cash flows are less than thecarrying amount of the asset. The Company calculates the impairment loss as theamount that the carrying value of the asset exceeds the discounted future cashflows. 

 

SFAS No. 142requires that goodwill and intangible assets with indefinite useful lives nolonger be amortized, but instead be tested for impairment at least annually inaccordance with the provisions of SFAS No. 142.  SFAS No. 142 also requires that intangible assets with definiteuseful lives be amortized over their respective estimated useful lives to theirestimated residual values, and reviewed for impairment in accordance with SFASNo. 121.  Goodwill is tested forimpairment at the reporting unit level. Each reporting unit is required to be tested for an indicator ofgoodwill impairment within six months of adoption of SFAS No. 142 and testedfor impairment by no later than the end of the year of adoption.  The fair value of each reporting unit iscompared to the carrying amount of the reporting unit.  To the extent the carrying amount of areporting unit exceeds the fair value of each reporting unit, an indicationexists that the reporting unit goodwill may be impaired and the Company mustthen compare the implied fair value of the reporting unit goodwill with thecarrying amount of the reporting unit goodwill, both of which would be measuredas of the date of adoption.  Usefullives of amortizable intangible assets are required to be reevaluated annuallyabsent a triggering event, with any changes in estimated useful lives beingaccounted for prospectively over the revised remaining useful life.    Nonamortizable intangible assets arereviewed annually for impairment and more frequently if events or circumstancesindicate that the asset may be impaired. Goodwill is tested for impairment annually or sooner if an event or circumstanceindicates that it is more likely than not that an impairment loss has beenincurred.  Examples of such events orcircumstances include, but are not limited to adverse changes in legal factors,business climate, or regulatory environment, unanticipated competition, loss ofkey personnel or a more-likely-than-not expectation that a reporting unit or asignificant portion of a reporting unit will be sold or otherwise disposedof.  When the Company determines thatthe carrying value of goodwill may not be recoverable based upon the existence ofone or more of the above indicators of impairment, the Company measures anyimpairment based on a projected discounted cash flows using a discount ratecommensurate with the risk inherent in its current business model. 

 

During thethird quarter of 2001, in accordance with SFAS No. 121 and APB Opinion No. 17, *Intangible Assets*, and prior to theadoption of SFAS No. 142, the Company performed an impairment analysis ofidentifiable intangible assets and goodwill recorded in connection with itsvarious acquisitions.  As a result, infiscal 2001, the Company recorded an impairment charge of $330.2 million forgoodwill and $6.2 million related to specific intangible assets; see Note 8 foradditional information.  The Companyassessed its long-lived assets as of December 31, 2001 and March 31, 2002 anddetermined that no additional impairment should be recorded.

 

The Companyadopted the provisions of SFAS No. 144, *Accountingfor the Impairment or Disposal of Long-Lived Assets* on January 1,2002.  See New Accounting Pronouncementsin Note 1 for additional information.

 

9

----

 

***Fair Value ofFinancial Instruments***

 

The Company’s financial instruments consist of cash and cashequivalents, short-term investments, long-term investments, equity investments,accounts receivable, accounts payable and debt.  The Company does not have any derivative financialinstruments.  The Company believes thereported carrying amounts of its financial instruments approximates fair value,based upon the maturities and nature of its cash equivalents, short-terminvestments, long-term investments, accounts receivable and payable, and basedon the current rates available to it on similar debt issues.  Additionally, the Company periodicallyevaluates the carrying value of all of its investments for other-than-temporaryimpairment when events and circumstances indicate that the book value of anasset may not be recoverable.  If suchassets are considered to be impaired, the impairment to be recognized ismeasured by the amounts by which the carrying amount exceeds its fair marketvalue.  The Company’s equity investmentsare comprised of investments in public and non-public technology-relatedcompanies.  The Company may recordfuture impairment charges due to continued economic decline and the potentialresulting negative impact on these companies. During the three months ended March 31, 2002, the Company recorded $8.5million in impairment charges on its cost method equity investments.  During the three months ended March 31,2001, the Company recorded $1.3 million in impairment charges on its costmethod equity investments and $1.1 million in equity in net losses of itsequity method investee.  The Companyrecorded no equity in net losses charges during the three months ended March31, 2002 as the Company did not have any equity method investments as of andduring the three months ended March 31, 2002.

 

***NewAccounting Pronouncements***

 

On June 29,2001, the FASB approved for issuance SFAS No. 141, *Business Combination*s, and SFAS No. 142, *Goodwill and Intangible Assets.*Majorprovisions of these Statements are as follows: all business combinationsinitiated after June 30, 2001 must use the purchase method of accounting; thepooling of interest method of accounting is prohibited except for transactionsinitiated before July 1, 2001; intangible assets acquired in a businesscombination must be recorded separately from goodwill if they arise fromcontractual or other legal rights or are separable from the acquired entity andcan be sold, transferred, licensed, rented or exchanged, either individually oras part of a related contract, asset or liability; goodwill and intangibleassets with indefinite lives are not amortized but are tested for impairment atleast annually using a fair value approach, except in certain circumstances,and whenever there is an impairment indicator; other intangible assets willcontinue to be valued and amortized over their estimated lives except assembledworkforce which, pursuant to SFAS No. 141, will not be recognized as anintangible asset apart from goodwill; in-process research and development willcontinue to be written off immediately; all acquired goodwill must be assignedto reporting units for purposes of impairment testing and segment reporting andeffective January 1, 2002, existing goodwill will no longer be subject toamortization. Upon adoption of SFAS No. 142, on January 1, 2002, the Company nolonger amortizes goodwill. Amortization of goodwill for the three months endedMarch 31, 2001 was $63.9 million. Additionally, upon adoption of SFAS No. 141 and 142 on January 1, 2002,the Company no longer amortizes its non-technology based intangible asset, orassembled workforce. Amortization for the non-technology based intangible assetwas $709,000 for the three months ended March 31, 2001. During fiscal 2001, theCompany recorded an impairment charge of $330.2 million related to goodwill and$6.2 million related to other intangible assets primarily as part of theInterleaf acquisition which closed on April 14, 2000. The Company adopted theprovisions of SFAS No. 142 as of January 1, 2002 and determined there was noaccounting charge to record upon adoption.

 

In June 2001,the FASB issued Statement No. 143, Accounting for Asset Retirement Obligations,which addresses financial accounting and reporting for obligations associatedwith the retirement of tangible long-lived assets and the associated assetretirement costs. The standard applies to legal obligations associated with theretirement of long-lived assets that result from the acquisition, construction,development and/or normal use of the asset. SFAS No. 143 requires that the fairvalue of a liability for an asset retirement obligation be recognized in theperiod in which it is incurred if a reasonable estimate of fair value can bemade. The fair value of the liability is added to the carrying amount of theassociated asset and this additional carrying amount is depreciated over thelife of the asset. The liability is accreted at the end of each period throughcharges to operating expense. If the obligation is settled for other than thecarrying amount of the liability, the Company will recognize a gain or loss onsettlement. The Company is required and plans to adopt the provisions of SFASNo. 143 for the quarter ending March 31, 2003. To accomplish this, the Companymust identify all legal obligations for asset retirement obligations, if any,and determine the fair value of these obligations on the date of adoption. Thedetermination of fair value is complex and will require the Company to gathermarket information and develop cash flow models. Additionally, the Company willbe required to develop processes to track and monitor these obligations.Because of the effort necessary to comply with the adoption of SFAS No. 143, itis not practical for management to estimate the impact of adopting thisStatement at the date of this report.

 

In August2001, the FASB issued SFAS No. 144, *Accountingfor the Impairment or Disposal of Long-Lived Asset*s, whichsupersedes both SFAS No. 121, *Accounting forthe Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of*and the accounting and reporting provisions of APB Opinion No. 30, *Reporting the Results of Operations—Reporting theEffects of Disposal of a Segment of a Business, and Extraordinary, Unusual andInfrequently Occurring Events and Transaction*s, for the disposal ofa segment of a business (as previously defined in that Opinion). SFAS No. 144retains the fundamental provisions in SFAS No. 121 for recognizing andmeasuring impairment losses on long-lived assets held for use and long-livedassets to be disposed of by sale, while also resolving significantimplementation issues associated with SFAS No. 121. For example, SFAS No. 144provides guidance on how a long-lived asset that is used as part of a groupshould be evaluated for impairment, establishes criteria for when a long-livedasset is held for sale, and prescribes the accounting for a long-lived assetthat will be disposed of other than by sale. SFAS No. 144 retains the basicprovisions of APB No. 30 on how to present discontinued operations in thestatement of operations but broadens that presentation to include a componentof an entity (rather than a segment of a business). Unlike SFAS No. 121, animpairment assessment under SFAS No. 144 will never result in a write-down ofgoodwill. Rather, goodwill is

 

10

----

 

evaluated for impairment underSFAS No. 142, *Goodwill and Other IntangibleAsset*s. The Company adopted SFAS No. 144 as of January 1, 2002. There was no material impact on the Company’s consolidated results ofoperations and financial position as a result of the adoption of SFAS No. 144.

 

In November2001, the staff of the FASB reached consensus on Topic No. D-103, on the topicof *Income Statement Characterization ofReimbursements Received for Out of Pocket Expenses Incurre*d. Thistopic addresses whether reimbursements received for out of pocket expensesincurred should be characterized in the income statement as revenue or as areduction of expenses incurred. The FASB staff concluded that reimbursementsreceived for out of pocket expenses incurred should be characterized as revenuein the income statement. This announcement will be applied in financialreporting periods beginning after December 15, 2001, and comparative financialstatements for prior periods will be reclassified to comply with the guidancein this announcement. The Company is currently recording reimbursement by itscustomers for out-of-pocket expenses as a component of services revenue.  Prior to adoption of Topic No. D-103 onJanuary 1, 2002, the Company recorded reimbursement by its customers for out-of-pocketexpenses as a reduction to cost of sales. Prior periods have been reclassifiedto comply with the guidance of Topic No. D-103.  The impact to the result of operations for the three months endedMarch 31, 2001 was to increase services revenue by $1.6 million and increasecost of services by $1.6 million.

 

**Note 2.           Selective Balance Sheet Detail**

 

Property and equipment**consistedof the following (in thousands):

 
|                                           |   | **March 31,  2002  (unaudited)** |   | **December 31,  2001** |   |
|------------------------------------------------|--------|----------------------------------|--------|------------------------|--------|
| Furniture and fixtures                         |   | $                                | 9,587  |                   | $      | 9,646 |   |
| Computers and software                         |   | 52,684                           |   | 59,182                 |   |
| Leasehold improvements                         |   | 37,383                           |   | 38,440                 |   |
|                                           |   | 99,654                           |   | 107,268                |   |
| Less accumulated depreciation and amortization |   | (41,685                          | )      | (40,049                | )      |
|                                           |   | $                                | 57,969 |                   | $      | 67,219 |   |

 

Accrued expensesconsisted of the following (in thousands):

 
|                       |   | **March 31,  2002  (unaudited)** |   | **December 31,  2001** |   |
|----------------------------|--------|----------------------------------|--------|------------------------|--------|
| Employee benefits          |   | $                                | 3,789  |                   | $      | 3,121 |   |
| Commissions and bonuses    |   | 3,110                            |   | 5,543                  |   |
| Sales and other taxes      |   | 10,221                           |   | 7,620                  |   |
| Restructuring (See Note 7) |   | 27,773                           |   | 32,454                 |   |
| Other                      |   | 10,631                           |   | 12,974                 |   |
|                       |   | $                                | 55,524 |                   | $      | 61,712 |   |

 

Other noncurrent liabilitiesconsisted of the following (in thousands):

 
|                       |   | **March 31,  2002  (unaudited)** |   | **December 31,  2001** |   |
|----------------------------|--------|----------------------------------|--------|------------------------|--------|
| Restructuring (See Note 7) |   | $                                | 54,344 |                   | $      | 58,335 |   |
| Other                      |   | 1,141                            |   | 1,131                  |   |
|                       |   | $                                | 55,485 |                   | $      | 59,466 |   |

** **

**Note 3.           Commercial Credit Facilities**

 

                The Company has a credit facility withSilicon Valley Bank that includes term loans in the form of promissory notesand a revolving line of credit (the “SVB Facility”).  In March 2002, the Company renewed and amended the SVB Facilityto increase the amount available under the revolving line of credit from $10.0million to $25.0 million and to extend the term of the revolving line of credituntil March 31, 2003.  Borrowings underthe SVB Facility are collateralized by substantially all of the Company’s ownedassets and the Company is subject to certain covenants, including restrictionson payment of dividends and other distributions and an obligation to maintain acertain amount of available cash, cash equivalents, short-term investments andlong-term investments (excluding equity investments).  As of March 31, 2002, the Company was in compliance with allspecified financial covenants.

 

Under therevolving line of credit portion of the SVB Facility, amounts borrowed bearinterest at the bank’s prime rate (4.75% as of March 31, 2002) and interest isdue monthly, with the principal due at expiration of the SVB Facility.  As of March 31, 2002 and December 31, 2001,the Company had no outstanding borrowings under this revolving line of credit.  However, commitments totaling $1.1 millionand $2.4 million in the form of standby letters of credit were issued under therevolving line of credit as of March 31, 2002 and December 31, 2001,respectively.  The Company has twooutstanding term loans under the SVB Facility. The total outstanding amount of these term loans were $3.7 million as ofMarch 31, 2002 and $3.9 million as of December 31, 2001.  Interest on these term loans are at thebank’s prime rate (4.75% as of March 31, 2002 and December 31, 2001) and primerate plus 1.25% (6.0% as of March 31, 2002 and December 31, 2001).  Principal and interest are due inconsecutive monthly payments through maturity of these term loans in March 31,2005 and September 30, 2006.  Principalpayments of $977,000 are due annually from 2000 through 2004, $611,000 due in2005, and a final payment of $357,000 due in 2006.

 

Additionally,the Company has commitments totaling $24.0 million and $22.6 million in theform of standby letters of credit issued from separate financial institutionsas of March 31, 2002 and December 31, 2001, respectively.  These letters of credit are collateralizedby a security agreement, under which the Company is required to maintain in arestricted, specified interest bearing account approximately $29.9 million ofavailable short-term investments as of March 31, 2002 and December 31,2001.  The $29.9 million has beenpresented as restricted investments in the accompanying balance sheet at March31, 2002, which represents a reclassification to the Company's previouslyreleased unaudited balance sheet, where such amounts were classified asshort-term investments.  The balanceswere also reclassified on the balance sheet as of December 31, 2001 to conformto the current period presentation.

 

 

11

----

 

 

**Note4.            Commitments andContingencies**

 

On February 15, 2002,BroadVision and Hewlett-Packard signed an agreement, which terminatedHewlett-Packard’s rights to resell BroadVision software effective February 15,2002.  In the event BroadVision becomesinsolvent, files a petition for relief under the United States Bankruptcy Code,or materially breaches the agreement, Hewlett-Packard will have rights to alimited term license for BroadVision’s business-to-business customer portalssoftware products and a limited use license for BroadVision’s One-to-OneEnterprise software product. Hewlett-Packard’s license will be limited in term until such time asHewlett-Packard has received monies for sale of the products up to a maximum of$12,000,000.

*** ***

***Leases***

The Company leases itsheadquarters facility and its other facilities under noncancelable operatinglease agreements expiring through the year 2013.  Under the terms of the agreements, the Company is required to payproperty taxes, insurance and normal maintenance costs.

 

A summary of futureminimum lease payments as of March 31, 2002 is as follows (in thousands);properties that are part of the restructuring have been excluded:

 
| **Year Ended December 31,** |   | **Operating  leases** |    |
|----------------------------------|--------|-----------------------|---------|
|                             |   |                  |    |
| 2002                             |   | $                     | 5,276   |   |
| 2003                             |   | 5,568                 |    |
| 2004                             |   | 8,010                 |    |
| 2005                             |   | 15,760                |    |
| 2006                             |   | 15,261                |    |
| 2007 and thereafter              |   | 174,416               |    |
| Total minimum lease payments     |   | $                     | 224,291 |   |

** **

**               **The Company'sfuture minimum lease commitments is exclusive of approximately $110.0 millionof estimated sublease income related to excess lease facilities, of whichapproximately $99.0 million in sublease agreements have yet to be negotiated.

 

Capital expenditures were$841,000 and $38.9 million for the three months ended March 31, 2002 and 2001,respectively.  The Company’s capitalexpenditures consisted of purchases of operating resources to manage itsoperations and included computer hardware and software, communicationsequipments, office furniture and fixtures and leasehold improvements.  The Company has no other significant capitalcommitments.  The Company hasconsolidated various facilities as part of its restructuring plan.  Please refer to Note 7 for additionalinformation.

 

***Restructuring***

As discussed in Note 7, the Company approved arestructuring plan during the first quarter of 2002 to, among other things,reduce its workforce and consolidate facilities.  These restructuring and asset impairment charges were taken toalign the Company’s cost structure with changing market conditions and tocreate a more efficient organization. The Company recorded similar charges during fiscal 2001 as a result ofthe Company’s 2001 restructuring plan. The Company recorded charges of $1.1 million during the first quarter offiscal 2002 related to severance and benefits expenses primarily in the form ofseverance, payroll taxes and COBRA benefits. As of March 31, 2002, approximately $1.2 million of severance andbenefits costs remains accrued as a result of the Company’s 2001 and firstquarter of fiscal 2002 restructuring and is expected to be fully paid by March31, 2003.  The Company recorded chargesof $4.1 million during the first quarter of fiscal 2002 related to facilitiesand excess assets primarily in the form of lease abandonment costs.  As of March 31, 2002, approximately $80.6million, net of expected sublease income of approximately $111.0 million, offacilities/excess assets costs remains accrued as a result of the Company’sfiscal 2001 restructuring and first quarter of fiscal 2002 restructuring and isexpected to be fully utilized by the end of the first quarter of fiscal2010.  The Company recorded charges of$155,000 of other costs incurred as a direct result of the restructuring planduring the first quarter of fiscal 2002. As of March 31, 2002, approximately$262,000 of other restructuring costs remains accrued as a result of theCompany’s fiscal 2001 during the first quarter of fiscal 2002 and first quarterof fiscal 2002 restructuring and is expected to be fully paid by the end of thethird quarter of fiscal 2002.

 

                As discussed in Note 9, as of May 9, 2002 theCompany entered into a termination agreement (“the Buildings 4 and 5Termination Agreement”) with its landlord in relation to two of its facilitieslocated in Redwood City, California whereby two of the Company’s leases wereterminated.  In conjunction with thetermination, the landlord will release all security deposits held by itrelating to these premises and the Company will pay to the landlord a total of$45.0 million as a termination fee (the “Termination Fee”).  The Company anticipates that payment of theTermination Fee will be funded partially by drawing down the available line ofcredit under the SVB Facility and partially with the Company’s available cash,cash equivalents and short-term investments.

 

     As a result of theBuildings 4 and 5 Termination Agreement, the Company expects to recordadditional restructuring expense of approximately $15.0 million in the secondquarter of fiscal 2002 based upon the difference between initial estimates usedin recorded the Company’s restructuring charges and the actual terms andconditions as per the Buildings 4 and 5 Termination Agreement.  Additionally, the Company’s summary offuture minimum lease payments as disclosed above is expected to decrease byapproximately $73.9 million for fiscal years 2007 and thereafter.

 

12

----

 

***Standby Letter of Credit Commitments***

*** ***

                As of March 31, 2002, the Company had $25.1 millionof outstanding commitments in the form of standby letters of credit in favor ofthe Company's various landlords to secure obligations under the Company'sfacility leases.

 

***Legal Proceedings***

 

In April 2001, severalpurported class action lawsuits were filed against the Company and certain ofits officers and directors. In each of the lawsuits, the plaintiffs sought toassert claims on behalf of a class of all persons who purchased securities ofBroadVision between January 26, 2001 and April 2, 2001. The complaints allegedthat BroadVision and the individual defendants violated federal securities lawsin connection with its reporting of financial results for the quarter endedDecember 31, 2000. The lawsuits were consolidated into a single action and alldefendants filed motions to dismiss the consolidated complaint. On February 22,2002, the Court granted these motions, dismissed the consolidated complaintwithout prejudice and ordered the lead plaintiff to file an amended complaintwithin 30 days. On March 25, 2002, the plaintiff filed its Second AmendedConsolidated Complaint, which added claims for breach of fiduciary duty andnamed members of the Company’s board of directors as additional defendants. Alldefendants filed motions to dismiss the Second Amended Consolidated Complainton May 10, 2002. The hearing on this motion to dismiss is scheduled for July26, 2002. The Company believes that the lawsuits are without merit andcontinues to defend itself vigorously.

 

On June 7, 2001, Verity,Inc. filed suit against the Company alleging copyright infringement, breach ofcontract, unfair competition and other claims. The Company has answered thecomplaint denying all allegations and is defending itself vigorously.

 

The Company is also subjectto various other claims and legal actions arising in the ordinary course ofbusiness. In the opinion of management, after consultation with legal counsel,the ultimate disposition of these matters is not expected to have a materialeffect on the Company’s business, financial condition or results of operations.Although management currently believes that the outcome of other outstandinglegal proceedings, claims and litigation involving the Company will not have amaterial adverse effect on its business, results of operations or financialcondition, litigation is inherently uncertain, and there can be no assurancethat existing or future litigation will not have a material adverse effect onthe Company’s business, results of operations or financial condition.

** **

**Note 5.           Geographic, Segment and SignificantCustomer Information**

 

The Company operates in one segment, electronicbusiness commerce solutions.  TheCompany’s reportable segment includes the Company’s facilities in North andSouth America (Americas), Europe and Asia Pacific and The Middle East(Asia/Pacific).  The Company’s chief operatingdecision maker is considered to be the Company’s Chief Executive Officer(“CEO”).  The CEO reviews financialinformation presented on a consolidated basis accompanied by disaggregatedinformation about revenues by geographic region and by product for purposes ofmaking operating decisions and assessing financial performance.

 

13

----

 

The disaggregated revenue information on a product basis reviewed bythe CEO is as follows (in thousands):

 
|                           |   | **Three Months Ended  March 31, 2002,  (unaudited)** |   |
|--------------------------------|--------|------------------------------------------------------|--------|
|                           |   | **2002**                                             |   | **2001** |   |
| Software  licenses:            |   |                                                 |   |   |   |
| One-To-One  Enterprise         |   | $                                                    | 533    |   | $ | 2,472 |   |
| One-To-One  Packaged Solutions |   | 7,646                                                |   | 40,668 |   |
| Services                       |   | 11,688                                               |   | 33,109 |   |
| Maintenance                    |   | 10,588                                               |   | 16,480 |   |
| Total Revenues                 |   | $                                                    | 30,455 |   | $ | 92,729 |   |
|                           |   |                                                 |   |   |   |
| Revenues:                      |   |                                                 |   |   |   |
| Americas                       |   | $                                                    | 18,202 |   | $ | 60,911 |   |
| Europe                         |   | 10,843                                               |   | 24,196 |   |
| Asia/Pacific                   |   | 1,410                                                |   | 7,622 |   |
| Total Company                  |   | $                                                    | 30,455 |   | $ | 92,729 |   |

 
|                |   | **March 31,  2002  (unaudited)** | ** ** | **December 31,  2001** | ** ** |
|---------------------|--------|----------------------------------|------------|-----------------------------|------------|
| Long-lived  assets: |   |                             |       |                        |       |
| Americas            |   | $                                | 122,198    |                        | $          | 131,874 |   |
| Europe              |   | 2,480                            |       | 3,547                       |       |
| Asia/Pacific        |   | 1,662                            |       | 2,425                       |       |
| Total Company       |   | $                                | 126,340    |                        | $          | 137,846 |   |

 

During the three monthsended March 30, 2002 no single customer accounted for more than 10% of theCompany’s total revenues.  During thethree months ended March 31, 2001, one customer accounted for more than 10% ofthe Company’s total revenues.

** **

**Note 6.           Acquisitions and Dispositions**

*** ***

***E-Publishing Corporation***

 

On April 30, 2001 and May15, 2001, the Company entered into agreements with third parties to sellcertain assets and liabilities of E-Publishing Corporation, a wholly-ownedsubsidiary of the Company, which the Company acquired as part of theacquisition of Interleaf in April 2000. The Company recorded a loss on sale of assets of approximately $1.3million.  The loss was included in otherexpense in the second quarter of 2001.

 

***Keyeon***

 

On June 29, 2001, theCompany completed its acquisition of Keyeon, LLC (“Keyeon”), formerly acorporate joint venture in which the Company held an interest of approximately36%.  The acquisition was completedprimarily to obtain technology to extend functionality of the Company’sexisting products.  As consideration forthe remaining interest in Keyeon, the Company issued 2,713,280 shares of itscommon stock valued at $13.6 million to the other former participants in thejoint venture which resulted in the Company owning 100% of the outstandingshares of Keyeon.  The acquisition wasaccounted for as a purchase.  Theacquired assets and assumed liabilities, and the related results of operations,are included in the consolidated financial statements of the Company from thedate of acquisition.  The purchase priceallocation is as follows (in thousands):

 
| Purchase price, net of cash  acquired                                          |   | $      | 6,395  |   |
|--------------------------------------------------------------------------------|--------|--------|--------|--------|
| Add: fair value of liabilities  assumed                                        |   | 4,007  |   |
| Total purchase consideration                                                   |   | 10,402 |   |
| Less: fair value allocated to  acquired assets                                 |   | 3,104  |   |
| Excess of purchase  consideration over acquired assets and assumed liabilities |   | 7,298  |   |
| Excess allocated to:                                                           |   |   |   |
| Acquired in-process technology                                                 |   | $      | 6,418  |   |
| Goodwill                                                                       |   | $      | 880    |   |

 

14

----

 

At March 31, 2002,accumulated amortization related to goodwill acquired in the Keyeon acquisitiontotaled $246,000.  Amortization of goodwillceased as of December 31, 2001.  Asdiscussed in Note 1, the Company will no longer amortize goodwill in accordancewith SFAS No. 142 but will periodically test for impairment under theprovisions of SFAS No. 142.  The Companyestimated that $6.4 million of the purchase price for Keyeon representedacquired in-process technology that had not yet reached technologicalfeasibility and had no alternative future use. Accordingly, this amount was immediately charged to expense during thefourth quarter of 2001.  The incomeapproach methodology was used to value the acquired in-process technology.  Under the income approach, fair valuereflects the present value of the projected free cash flows that will begenerated by the products, incorporating the acquired technologies underdevelopment, assuming they will be successfully completed.  These cash flows are discounted at a rateappropriate for the risk of the asset. The rate of return depends upon the stage of completion which wasestimated at fifty percent.  An overallafter-tax discount rate of thirty percent was applied to the cash flowsexpected to be generated by the products incorporating technology currentlyunder development. 

 

The following summary,prepared on an unaudited pro forma basis, reflects the condensed consolidatedresults of operations for the three month period ended March 31, 2001 assumingKeyeon had been acquired at the beginning of the period presented (inthousands, except per share data):

 

|                                  |   | **For the three  months ended  March 31,  2001** |   |
|---------------------------------------|--------|--------------------------------------------------|--------|
| Revenue                               |   | $                                                | 92,729 |   |
| Net loss                              |   | (107,056                                         | )      |
| Basic and  diluted net loss per share |   | $                                                | (0.39  | ) |

 

The pro forma results arenot necessarily indicative of what would have occurred if the acquisition hadbeen in effect for the period presented. In addition, they are not intended to be a projection of future resultsand do not reflect any synergies that might be affected from combinedoperations.

 

**Note7.            Restructuring Charges andAsset Impairments**

 

During the firstquarter of 2002, the Company approved a restructuring plan to, among otherthings, reduce its workforce and consolidate facilities.  These restructuring and asset impairmentcharges were taken to align the Company’s cost structure with changing marketconditions and to create a more efficient organization.  A pre-tax charge of $5.4 million wasrecorded in the first quarter of 2002 to provide for these actions and otherrelated items.  The Company recorded thelow-end of a range of assumptions modeled for the restructuring charges, inaccordance with SFAS No. 5, *Accounting forContingencies*.  The high-endof the range was estimated at approximately $6.3 million.  Adjustments to the restructuring reserveswill be made in future periods, if necessary, based upon the then currentactual events and circumstances. The following table summarizes chargesrecorded during the first quarter of 2002 for exit activities and assetwrite-downs (in thousands):

 
|                                                |   | **Severance  and Benefits** |   | **Facilities/Excess  Assets** |   | **Other** |   | **Total** |   |
|-----------------------------------------------------|--------|-----------------------------|--------|-------------------------------|--------|-----------|--------|-----------|--------|
| Reserve balances, December 31, 2001                 |   | $                           | 817    |                          | $      | 89,859    |   | $         | 113    |   | $ | 90,789 |   |
| Restructuring charges, quarter ended March 31, 2002 |   | 1,130                       |   | 4,095                         |   | 155       |   | 5,380     |   |
| Cash payments                                       |   | (700                        | )      | (12,342                       | )      | (6        | )      | (13,048   | )      |
| Non-cash portion                                    |   | —                      |   | (1,003                        | )      | —    |   | (1,003    | )      |
| Reserve balances, March  31, 2002                   |   | $                           | 1,247  |                          | $      | 80,609    |   | $         | 262    |   | $ | 82,118 |   |

 

15

----

 

The nature of the chargessummarized above is as follows:

 

Severance andbenefits – The Company recorded a charge of approximately $1.1 million relatedto severance benefits to terminated employees in the United States and variousinternational locations.  Costs incurredinclude severance, payroll taxes and COBRA benefits.  Approximately $817,000 of severance and benefits related costsremained accrued as of December 31, 2001 as a result of the Company’s 2001restructuring plan.  Approximately$700,000 of severance and benefits costs had been paid out during the threemonths ended March 31, 2002 and the remaining $1.2 million of severance, payrolltaxes and COBRA benefits is expected to be paid in full by March 31, 2003.  The Company terminated approximately 64employees in North and South America and approximately 41 employees throughoutEurope and the Asia Pacific during the first quarter of 2002.

 

Facilities/ExcessAssets – During the first quarter of 2002, the Company revised its estimatesand expectations with respect to its facilities disposition efforts due tofurther consolidation and abandonment of additional facilities and to accountfor changes in estimates used in the Company’s 2001 restructuring plan basedupon actual events and circumstances. Total lease termination costs include the impairment of related assets,remaining lease liabilities and brokerage fees offset by estimated subleaseincome.  The estimated costs ofabandoning these leased facilities, including estimated sublease income, werebased on market information analyses provided by a commercial real estatebrokerage firm retained by the Company. Based on the factors above, a facilities/excess assets charge of $4.1million was recorded in the first quarter of 2002 and includes asset impairmentcharges of approximately $1.0 million.

 

Approximately$89.9 million of facilities related costs remained accrued as of December 31,2001 as a result of the Company’s 2001 restructuring.  Net cash payments during the three months ended March 31, 2002related to abandoned facilities amounted to $12.3 million.  Actual future cash requirements may differmaterially from the accrual at March 31, 2002, particularly if actual subleaseincome is significantly different from current estimates.  As of March 31, 2002, $80.6 million of leasetermination costs, net of anticipated sublease income, is expected to beutilized by the end of the first quarter of fiscal 2010.

 

                As discussed in Note 9, as of May 9, 2002 theCompany entered into the Buildings 4 and 5 Termination Agreement with itslandlord in relation to two of its facilities located in Redwood City,California whereby two of the Company’s leases were terminated.  In conjunction with the termination, thelandlord will release all security deposits held by it relating to thesepremises and the Company will pay to the landlord a termination fee of $45.0million as a termination fee (the “Termination Fee”).  The Company anticipates that payment of the Termination Fee willbe funded partially by drawing down the available line of credit under the SVBFacility and partially with the Company’s available cash, cash equivalents andshort-term investments.

 

     As a result of theBuildings 4 and 5 Termination Agreement, the Company expects to recordadditional restructuring expense of approximately $15.0 million in the secondquarter of fiscal 2002 based upon the difference between initial estimates usedin recorded the Company’s restructuring charges and the actual terms andconditions as per the Buildings 4 and 5 Termination Agreement.  Additionally, the Company’s summary offuture minimum lease payments as disclosed in Note 4 is expected to decrease byapproximately $73.9 million for fiscal years 2007 and thereafter.

 

Other – TheCompany recorded a charge of approximately $155,000 during the first quarter of2002 for various incremental costs incurred as a direct result of therestructuring.  The remaining $262,000will be paid in full by the end of the third quarter of 2002.

 

**Note8.            Goodwilland Other Intangible Assets**

 

Goodwill and other intangibles consist of thefollowing (in thousands):

 
|                                |   | **March 31,  2002  (unaudited)** |    | **December  31,  2001** |   |
|-------------------------------------|--------|----------------------------------|---------|-------------------------|--------|
|                                |   |                             |    |                    |   |
| Goodwill                            |   | $                                | 437,206 |                    | $      | 437,206 |   |
| Completed technology                |   | 15,236                           |    | 15,236                  |   |
| Assembled workforce                 |   | 7,496                            |    | 7,496                   |   |
|                                |   | 459,938                          |    | 459,938                 |   |
| Less:                               |   |                             |    |                    |   |
| Accumulated amortization            |   | (399,958                         | )       | (399,071                | )      |
| Goodwill and other intangibles, net |   | $                                | 59,980  |                    | $      | 60,867 |   |

 

The Company periodically assesses theimpairment of long-lived assets in accordance with the provisions of SFAS No.121, *Accounting for the Impairment ofLong-Lived Assets and for Long-Lived Assets to be Disposed of*and,effective January 1, 2002, SFAS No. 144, *Accountingfor the Impairment or Disposal of the Long-Lived Assets*.  The Company assesses the impairment ofgoodwill and identifiable intangible assets in accordance with SFAS No. 121,SFAS No. 141, *Business Combinations*and,effective January 1, 2002, SFAS No. 142, *Goodwilland Other Intangible Assets*. The Company determines that an impairment has occurred when the asset’sundiscounted future cash flows are less than the carrying amount of the asset.The Company calculates the impairment loss as the amount that the carryingvalue of the asset exceeds the discounted future cash flows. SFAS No. 142requires that goodwill and intangible assets with indefinite useful lives nolonger be amortized, but instead be tested for impairment at least annually inaccordance with the provisions of SFAS No. 142.  SFAS No. 142 also requires that intangible assets with definiteuseful lives be amortized over their

 

16

----

 

respective estimated useful lives to theirestimated residual values, and reviewed for impairment in accordance with SFASNo. 121.  Goodwill is tested forimpairment at the reporting unit level. Each reporting unit is required to be tested for an indicator of goodwillimpairment within six months of adoption of SFAS No. 142 and tested for impairmentby no later than the end of the year of adoption.  The fair value of each reporting unit is compared to the carryingamount of the reporting unit.  To theextent the carrying amount of a reporting unit exceeds the fair value of eachreporting unit, an indication exists that the reporting unit goodwill may beimpaired and the Company must then compare the implied fair value of thereporting unit goodwill with the carrying amount of the reporting unitgoodwill, both of which would be measured as of the date of adoption.  Useful lives of amortizable intangibleassets are required to be reevaluated annually absent a triggering event, withany changes in estimated useful lives being accounted for prospectively overthe revised remaining useful life.  

 

Nonamortizable intangible assets are reviewedannually for impairment and more frequently if events or circumstances indicatethat the asset may be impaired. Goodwill is tested for impairment annually or sooner if an event orcircumstance indicates that it is more likely than not that an impairment losshas been incurred.  Examples of suchevents or circumstances include, but are not limited to adverse changes inlegal factors, business climate, or regulatory environment, unanticipatedcompetition, loss of key personnel or a more-likely-than-not expectation that areporting unit or a significant portion of a reporting unit will be sold orotherwise disposed of.  When the Companydetermines that the carrying value of goodwill may not be recoverable basedupon the existence of one or more of the above indicators of impairment, theCompany measures any impairment based on a projected discounted cash flowsusing a discount rate commensurate with the risk inherent in its currentbusiness model.  

 

During the third quarter offiscal 2001, in accordance with SFAS No. 121 and APB Opinion No.17 and prior to the adoption of SFAS No. 142, the Company performed animpairment analysis of identifiableintangible assets and goodwill recorded in connection with its various acquisitions.  The impairment assessment was performedprimarily as a result of the significant decline in the Company’s stock price,the net book value of assets significantly exceeding the Company’s marketcapitalization, the underperformance of the Interleaf acquisition relative toprojections, and the overall decline in industry growth rates which havenegatively impacted the Company’s revenues and forecasted revenue growth ratewhich indicate that this trend might continue for an indefinite period.  Also, current economic indicators forecastthat this trend may continue for an indefinite period.  SFAS No. 121 and APB Opinion No. 17 requirethat goodwill and other intangible assets be reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amount may not berecoverable.  The Company recorded acharge of $6.2 million related to specific intangible assets.  Because the Company had integrated theacquired companies’ operations, the Company performed the test for impairmentof goodwill at an overall enterprise level. The Company’s policy is to use a discounted cash flow approach.  This approach includes analyzing estimatedfuture cash flows over the remaining life of the goodwill as well as adisposition value at the end of the life of the goodwill.  The resulting value was then compared to thecarrying value of stockholders’ equity and the difference represents goodwilland other intangible assets impairment measured on a discounted basis.  Accordingly, the Company recorded animpairment charge of $330.2 million during the 2001 fiscal year forgoodwill.  To determine other than temporary impairment for identifiableintangibles, the sum of the current undiscounted cash flows was compared to thecurrent carrying value.  If theundiscounted cash flows were greater than or equal to the current carryingvalue the asset is deemed not to be impaired. If the undiscounted cash flows are less than the current carrying valuethen the asset is deemed impaired.  Adiscounted cash flow analysis is then prepared and the difference between thecarrying value and the discounted cash flows represents the charge taken inaccordance with SFAS No. 121.  Todetermine the impairment loss for goodwill, the Company determined the fairvalue using a business enterprise methodology which includes a terminal valueassigned to the entity.  This value isthen compared to the carrying value of stockholder’s equity, and if less, thedifference represents the impairment to be recorded.  The assumptions supporting the estimated future cash flows,including the estimated terminal values, reflect management’s bestestimates.  The discount rate was basedupon the weighted average cost of capital for comparable companies.

 

It is reasonably possible thatthe estimates and assumptions used under our assessment may change in the short term, resulting in theneed to further write-down the goodwill and other long-lived assets.  The Company assessed the carrying value ofgoodwill and other intangible assets during the fourth quarter of 2001 and nofurther impairment was deemed necessary.

 

As discussed in Note 1, uponadoption of SFAS No. 142, on January 1, 2002, the Company no longer amortizesgoodwill.  The Company has identifiedthe assembled workforce as an intangible asset which does not meet the criteriaof a recognizable intangible asset as defined by SFAS No. 142.  The remaining other intangible assets arebeing amortized on a straight-line basis over their remaining useful life of 12months as of March 31, 2002, subject to certain effects of the new accountingpronouncements described in Note 1. Amortization expense is estimated to be $3.5 million in 2002 and$887,000 in 2003.  The Company adoptedthe provisions of SFAS No. 142 as of January 1, 2002 and determined there wasno accounting charge to record upon adoption.

 

17

----

 

**Note9.            SubsequentEvents**

 

On April 24, 2002the Company announced initial plans of an additional reduction of the Company’sworkforce to occur during the second quarter of fiscal 2002.  As a result of this planned reduction,additional facility consolidations are expected in the second quarter of fiscal2002.

 

In April 2002, theCompany's board of directors approved a resolution to submit a proposal to theCompany's stockholders authorizing a one-for-five, one-for-six or one-for-ninereverse stock split, the ratio and timing of such split to be at the board ofdirectors discretion. At a stockholders’ meeting to be held in June 2002, thestockholders will vote on this proposal. 

 

On May 9, 2002,the Company and Pacific Shores Development LLC (“PacShores”) entered into (i)the First Amendment to Lease (Lease Termination and Mutual General ReleaseAgreement), made effective as of April 29, 2002 (the “Buildings 4 and 5Termination Agreement”) and (ii) the First Amendment to Lease made effective asof April 29, 2002 (the “Building 6 Amendment”).

 

Under the Buildings 4 and 5 Termination Agreement, the Triple NetBuilding Lease dated April 12, 2000 between PacShores, as Lessor, and theCompany, as Lessee, for Premises at Pacific Shores Center, Building 4, RedwoodCity, California and the Triple Net Building Lease dated February 16, 2000between PacShores, as Lessor, and the Company, as Lessee, for Premises atPacific Shores Center, Building 5, Redwood City, California, wereterminated.  In conjunction with thetermination, PacShores will release all security deposits held by it relatingto those premises and the Company will pay to PacShores a total of $45.0million as a termination fee (the “Termination Fee”).  Under the Building 6 Amendment, the parties release each otherfrom all claims and the Company agreed to provide an additional $3.5 million assecurity deposit in the form of letters of credit.

 

The Buildings 4 and 5 Termination Agreement and the Building 6Amendment, and the Company’s obligation to pay the Termination Fee, are subjectto the consent of PacShore’s lenders. The Company anticipates that payment of the Termination Fee will befunded partially by drawing down the available line of credit under the SVBFacility and partially with the Company’s available cash, cash equivalents andshort-term investments.

 

As a result of the Buildings 4 and 5 Termination Agreement, the Companyexpects to record additional restructuring expense of approximately $15.0million in the second quarter of fiscal 2002 based upon the difference betweeninitial estimates used in recording the Company's restructuring charges and theactual terms and conditions as per the Buildings 4 and 5 Termination Agreement.

 

**Item 2.            Management’s Discussion and Analysisof Financial Condition and Results of Operations**

** **

***Except for thehistorical information contained herein, the following discussion containsforward–looking statements that involve risks and uncertainties. TheCompany’s actual results could differ significantly from those discussedherein. Factors that could cause or contribute to such differences include, butare not limited to, those discussed herein and in the Company’s annual reporton Form 10–K and other documents filed with the Securities and ExchangeCommission. Any such forward–looking statements speak only as of the datesuch statements are made.***

** **

***Overview***

 

We develop andsell a comprehensive suite of enterprise business portal applications andtechnology that enable enterprise self-service ("ESS") for conductinginteractions, transactions and services in a personalized self-servicemodel.  Our enterprise business portalapplications enable companies to organize dynamic profiles of web and wirelessusers from volunteered data and observed behavior, deliver highly specializedcontent in response to these profiles and securely execute transactions.  As of March 31, 2002 more than 1,200companies and government entities around the globe use our applications toenable their enterprise self-service initiatives. They are leveraging the weband wireless technology in conjunction with our software to unify and extendtheir legacy applications, information and business processes to better servetheir employees, partners and customers in a personalized and collaborativeway.  Business managers are able tomodify business rules and content in real time, offering a personalizedexperience to each visitor. Because of the open architecture of ourapplications, they are easily integrated with our customers’ existing systemsand easily expanded as our customers’ needs and businesses grow.

 

We believe ourproducts enhance our customers’ revenue opportunities by enabling them toestablish more effective and efficient ‘‘one-to-one’’ relationships with theircustomers and business partners. Web and wireless users are engaged by highlypersonalized real-time interactions, are able to transact business securely andare encouraged to remain online and make return visits. Our applications alsoimprove the cost-effectiveness of one-to-one relationship management byenabling non-technical managers to modify business rules and content in realtime and by helping to reduce costs of customer acquisition and retention,business development and technical support as well as employee workplaceinitiatives. In addition, the packaged solution nature of our productsdecreases our customers’ time to deployment and allows them to easily manageand expand their web and wireless application usage in a cost-effective manner.

 

As of March31, 2002, we had developed key strategic business alliances with over 100systems integration, design, consulting, and other services organizationsthroughout the world.  Our platformalliances are partnerships formed to integrate technologies to drive businessgrowth.  Additionally, we have developedkey technology partnerships with leading web– and wireless–focusedcompanies in areas complementary to our solutions, such as data analysis andreporting, enterprise application integration, enterprise web management, callcenter management, content management, voice recognition, payment processing,auctioning and XML. These technology partnerships enhance our ability to baseproducts on industry standards and to take advantage of current and emergingtechnologies.

 

We sell our products and provide services worldwidethrough a direct sales force in North America, Europe and Asia and through achannel of independent distributors, value-added resellers (“VARs”) andapplication service providers (“ASPs”). In addition, the sales of our products are promoted through independentprofessional consulting organizations known as systems integrators.  We provide services worldwide through our BVGSorganization and indirectly through distributors, VARs, ASPs, and systemsintegrators.  We have operations inNorth America, Europe and Asia/Pacific.

 

18

----

 

***Recent Events***

 

We experienceda general downturn in the economy, our industry and our business, since thebeginning of 2001. This downturn may continue in the future and has had andcould continue to have an impact on our future financial results. As discussedin Note 7 of Notes to Condensed Consolidated Financial Statements, we haverecorded significant restructuring charges in connection with our reduction inworkforce and abandonment of certain operating facilities as part of ourprogram to restructure our operations and related facilities initiated in thesecond quarter of fiscal 2001. A pre-tax charge of $153.3 million was recordedduring fiscal 2001 and $5.4 million was recorded during the three months endedMarch 31, 2002 to provide for these actions and other related items. Leaseabandonment costs for the abandoned facilities were estimated to include theimpairment of assets, remaining lease liabilities and brokerage fees partiallyoffset by estimated sublease income. Estimates related to sublease costs andincome are based on assumptions regarding the period required to locate andcontract with suitable sublesees and sublease rates which was based upon markettrend information analyses. Adjustments to the restructuring reserve will bemade in future periods, if necessary, based upon the then current actual eventsand circumstances.  In April, 2002 weannounced plans for a further reduction in force to occur in the second quarterof fiscal 2002.  As a result of thisplanned reduction, additional facility consolidations are expected in thesecond quarter of fiscal 2002.

 

During thefirst quarter of 2002 we engaged a third-party firm to conduct a physicalinventory of our computer hardware assets located in North America.  We conducted an internal physical inventoryon computer hardware assets located outside of North America.  The objective of the physical inventory wasto verify the amount and location of our computer hardware.  As a result of the findings of the physicalinventory and related reconciliation with our asset records, we recorded anasset impairment charge of approximately $2.3 million in net book value relatedto computer hardware.

 

On April 15,2002, we filed a Form 8-K with the Securities and Exchange Commission to reportthat we had received notice from our independent public accountant, ArthurAndersen LLP, of its resignation as our auditor as a result of our plans tochange independent public accountants for the fiscal year ending December 31,2002 due to an anticipated future non-audit business relationship between thetwo companies.

 

As of May 9,2002, the Company and Pacific Shores Development LLC (“PacShores”) entered into(i) the First Amendment to Lease (Lease Termination and Mutual General ReleaseAgreement), made effective as of April 29, 2002 (the “Buildings 4 and 5Termination Agreement”) and (ii) the First Amendment to Lease made effective asof April 29, 2002 (the “Building 6 Amendment”).

 

Under the Buildings 4 and 5 Termination Agreement, the Triple NetBuilding Lease dated April 12, 2000 between PacShores, as Lessor, and theCompany, as Lessee, for Premises at Pacific Shores Center, Building 4, RedwoodCity, California. And the Triple Net Building Lease dated February 16, 2000between PacShores, as Lessor, and the Company, as Lessee, for Premises atPacific Shores Center, Building 5, Redwood City, California, wereterminated.  In conjunction with thetermination, PacShores will release all security deposits held by it relatingto those premises and the Company will pay to PacShores a total of $45.0million as a termination fee (the “Termination Fee”).  Under the Building 6 Amendment, the parties release each otherfrom all claims and the Company agreed to provide an additional $3.5 million assecurity deposit in the form of letters of credit.

 

The Buildings 4 and 5 Termination Agreement and the Building 6Amendment, and the Company’s obligation to pay the Termination Fee, are subjectto the consent of PacShore’s lenders. The Company anticipates that payment of the Termination Fee will befunded partially by drawing down the available line of credit under a revolvingcredit facility maintained with Silicon Valley Bank (See Note 3) and partiallywith the Company’s available cash, cash equivalents and short-term investments.

 

On May 13,2002, we filed a Form 8-K with the Securities and Exchange Commission to reportthe Company’s selection of its independent public accountants, BDO Seidman,LLP, as auditors for the fiscal year ending December 31, 2002.

 

Comparisons offinancial performance made in this document are not necessarily indicative offuture performance.

 

19

----

 

# ***Critical Accounting Policies***

 

BroadVision management’sdiscussion and analysis of our financial condition and results of operationsare based upon our consolidated financial statements, which have been preparedin accordance with accounting principles generally accepted in the UnitedStates. In preparing these financial statements, we are required to makeestimates and judgments that affect the reported amounts of assets,liabilities, revenues, and expenses, and related disclosures of contingentassets and liabilities. On an on-going basis, we evaluate our estimates,including those related to doubtful accounts, product returns, investments,goodwill and intangible assets, income taxes, restructuring, as well ascontingencies and litigation. We base our estimates on historical experienceand on various other assumptions that we believe are reasonable, the results ofwhich form the basis for making judgments about the carrying values of assetsand liabilities that are not readily apparent from other sources. Actualresults may differ from these estimates using different assumptions orconditions. We believe the following critical accounting policies reflect themore significant judgments and estimates used in the preparation of ourconsolidated financial statements.

 

## **Revenue Recognition**

 

*Overview*—Our revenues are derived from fees forlicenses of our software products, maintenance, consulting services andcustomer training. Software is generally licensed for development use and forits use in deployment of the customer’s website. Fees for deployment licensesare generally based on the number of persons who register on a customer’swebsite using our software. Our revenue recognition policies are in accordancewith Statement of Position (‘‘SOP’’) 97-2, *SoftwareRevenue Recognitio*n, as amended; SOP 98-9, *Software Revenue Recognition, With Respect to CertainTransactions*and the Securities and Exchange Commission’s StaffAccounting Bulletin, or SAB, No. 101, *RevenueRecognition in Financial Statement*s.

 

*SoftwareLicense Revenue*—Welicense our products through our direct sales force and indirectly throughresellers. In general, software license revenues are recognized when a non-cancelablelicense agreement has been signed and the customer acknowledges anunconditional obligation to pay, the software product has been delivered, thereare no uncertainties surrounding product acceptance, the fees are fixed anddeterminable and collection is considered probable. If collectibility is notconsidered probable, revenue is recognized when the fee is collected.Subscription-based license revenues are recognized ratably over thesubscription period. Revenues recognized from multiple-element softwarearrangements are allocated to each element of the arrangement based on the fairvalues of the elements, such as licenses for software products, maintenance,consulting services or customer training. The determination of fair value isbased on objective evidence, which is specific to us. We limit our assessmentof objective evidence for each element to either the price charged when thesame element is sold separately or the price established by management havingthe relevant authority to do so, for an element not yet sold separately. Ifevidence of fair value of all undelivered elements exists but evidence does notexist for one or more delivered elements, then revenue is recognized under theresidual method. Under the residual method, the fair value of the undeliveredelements is deferred and the remaining portion of the arrangement fee isrecognized as revenue. We record unearned revenue for software arrangementswhen cash has been received from the customer and the arrangement does notqualify for revenue recognition under our revenue recognition policy. We recordaccounts receivable for software arrangements when the arrangement qualifiesfor revenue recognition but cash or other consideration has not been receivedfrom the customer.

 

*ServicesRevenue*—Consultingservices revenues and customer training revenues are recognized as such services are performed. Maintenancerevenues, which include revenues bundled with software license agreements that entitle the customersto technical support and future unspecified enhancements to our products, are deferred and recognizedratably over the related agreement period, generally twelve months. Our professional services aredelivered through BVGS, which consists of consulting, maintenance and training. Services that weprovide are not essential to the functionality of our software. This group provides consultingservices, manages projects and client relationships, manages the needs of our partner community, providestraining-related services to employees, customers and partners, and also provides softwaremaintenance services, including technical support, to our customers and partners. We record reimbursement by ourcustomers for out-of-pocket expenses as a component of services revenue.

 

### **Allowances and Reserves**

 

Occasionally, our customersexperience financial difficulty after we record the sale but before weare paid. We maintain allowances for doubtfulaccounts for estimated losses resulting from the inability of our customers to make required payments.Our normal payment terms are 30 to 90 days from invoice date. If the financial condition of our customers were todeteriorate, resulting in an impairment of their ability to make payments, additional allowances may berequired. We record estimated reductionsto revenue for potential returns of products by our customers. If marketconditions were to decline, wemay experience larger volumes of returns resulting in an incremental reductionof revenue at the time thereturn occurs.

 

### **Impairment Assessments**

 

We record an investmentimpairment charge when we believe an investment has experienced adecline in value that is other thantemporary. Future adverse changes in market conditions or poor operating results of underlying investmentscould result in additional losses or an inability to recover the carrying value of our investments thatmay not be reflected in our investments’ current carrying value, thereby possibly requiring animpairment charge in the future. We periodically assess the value of goodwill and intangible assets to ensurethat the carrying amount of the assets are recoverable. It is possible that the estimates and assumptionsused in our assessment may change in the short term, which would result in further impairments ofgoodwill and intangible assets. For long-lived assets, accounting standards dictate that assetsbecome impaired when the undiscounted future cash flows expected to be generated by them are lessthan their carrying amounts. When that occurs, the affected assets are written down to their estimatedfair value. As described in ‘‘Recent Accounting Pronouncements’’ in this document, our accounting for goodwill willchange in 2002 upon adoption of SFASNo. 142.

 

# **Deferred Tax Assets**

 

We analyze our deferred taxassets with regards to potential realization. We have established avaluation allowance on a significant portionof our deferred tax assets based upon the uncertainty of their realization. We have consideredestimated future taxable income and ongoing prudent and feasible tax planning strategies in assessingthe amount of the valuation allowance.

 

# **Restructuring**

 

Based on the downturn in theeconomy, our industry and our business, we have recordedrestructuring charges to align our coststructure with these changing market conditions and to create a more efficient organization. To the extentactual events and circumstances, such as the amount and timing of future sublease income, differ fromestimates made when the restructuring charges are recorded, we may increase or decrease incomein the period such changes are noted.

 

# **Legal Matters**

 

Management’s currentestimated range of liability related to pending litigation is based on claimsfor which it is probable that aliability has been incurred and our management can estimate the amount andrange of loss. We have recorded the minimum estimated liability related to those claims, where there is a range ofloss. Because of the uncertainties relatedto both the amount and range of loss on the remaining pending litigation,management is unable to make a reasonableestimate of the probability of an unfavorable outcome and the liability thatcould result from an unfavorable outcome. As additional information becomes available, we will assess theprobability and the potential liability related to our pending litigation and revise our estimates, ifnecessary. Such revisions in our estimates of the potential liability could materially impact our results ofoperations and financial position.

 

20

----

 

***Results of Operations***

 

* *

***Three months ended March31, 2002 and 2001***

* *

***Revenues***

* *

*Total revenues*decreased 67% during the quarter ended March 31, 2002 to $30.5 million ascompared to $92.7 million for the quarter ended March 31, 2001.  A summary of our revenues by geographic regionis as follows:

 
|                    |   | **Software**               |   | **%**  |   | **Services** |   | **%**  |   | **Total** |   | **%**  |   |
|-------------------------|--------|----------------------------|--------|--------|--------|--------------|--------|--------|--------|-----------|--------|--------|--------|
|                    |   | **(dollars in thousands)** |   |
| **Three Months Ended:** |   |                       |   |   |   |         |   |   |   |      |   |   |   |
|                    |   |                       |   |   |   |         |   |   |   |      |   |   |   |
| March 31, 2002          |   |                       |   |   |   |         |   |   |   |      |   |   |   |
| Americas                |   | $                          | 3,959  |   | 48     | %            | $      | 14,243 |   | 64        | %      | $      | 18,202 |   | 60 | % |
| Europe                  |   | 4,179                      |   | 51     |   | 6,664        |   | 30     |   | 10,843    |   | 36     |   |
| Asia/Pacific            |   | 41                         |   | 1      |   | 1,369        |   | 6      |   | 1,410     |   | 4      |   |
| Total                   |   | $                          | 8,179  |   | 100    | %            | $      | 22,276 |   | 100       | %      | $      | 30,455 |   | 100 | % |
|                    |   |                       |   |   |   |         |   |   |   |      |   |   |   |
| March 31, 2001          |   |                       |   |   |   |         |   |   |   |      |   |   |   |
| Americas                |   | $                          | 26,158 |   | 61     | %            | $      | 34,753 |   | 70        | %      | $      | 60,911 |   | 66 | % |
| Europe                  |   | 13,273                     |   | 31     |   | 10,923       |   | 22     |   | 24,196    |   | 26     |   |
| Asia/Pacific            |   | 3,709                      |   | 8      |   | 3,913        |   | 8      |   | 7,622     |   | 8      |   |
| Total                   |   | $                          | 43,140 |   | 100    | %            | $      | 49,589 |   | 100       | %      | $      | 92,729 |   | 100 | % |

 

*Software license revenues*decreased 81% during the current quarter ended March 31, 2002 to $8.2 millionas compared to $43.1 million for the quarter ended March 31, 2001.   The decrease is attributable to an overalland

 

21

----

 

continued decline in theeconomy throughout the first quarter of 2002 in comparison to the same periodof 2001.  Continued economic uncertaintysurrounding the economic and information technology spending environmentsignificantly affected our license revenue during the first quarter of 2002.  Software license revenues for our Enterpriseapplications decreased to $533,000 for the quarter ended March 31, 2002 ascompared to $2.5 million for the quarter ended March 31, 2001.  Software license revenues for our packagedsolutions decreased to $7.6 million for the three months ended March 31, 2002as compared to $40.7 million for the quarter ended March 31, 2001.  Included in the Enterprise and packagedsolutions numbers are deployment license revenues, which decreased 77% to $2.5million during the three months ended March 31, 2002 as compared to $10.8million during the three months ended March 31, 2001.

 

*Services revenues*decreased 55% during the current quarter ended March 31, 2002 to$22.3 million as compared to $49.6 million for the quarter ended March 31,2001.  The decrease in professionalservices revenue is a result of decreased business volume associated withdecreased software license revenues over the past three quarters and an overalldecline in the economy.  Maintenancerelated fees for technical support and product upgrades were $10.6 million forthe quarter ended March 31, 2002 as compared to $16.5 million for the quarterended March 31, 2001.  The decrease inmaintenance revenues is due to a decrease in current transactions as well as renewalmaintenance for license transactions recorded in prior periods.

 

***Cost ofRevenues***

** **

Cost of software licensesinclude the costs of product media, duplication, packaging and othermanufacturing costs as well as royalties payable to third parties for softwarethat is either embedded in, or bundled and sold with, our products.

 

Cost of services consistsprimarily of employee–related costs, third–party consultant feesincurred on consulting projects, post–contract customer support andinstructional training services.

 

A summary of the cost ofrevenues for the periods presented is as follows, (in thousands):

 

|                           |   | **Three Months Ended March 31,** |       |
|--------------------------------|--------|----------------------------------|------------|
|                           |   | **2002**                         |       | **%** |   | **2001** |   | **%** |   |
|                           |   |                             | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Cost of software  licenses (1) |   | $                                | 1,100      |   | 13 | % | $ | 2,240 |   | 5 | % |
| Cost of services  (2)          |   | 12,334                           |       | 55 |   | 38,978 |   | 79 |   |
|                           |   |                             |       |   |   |   |   |   |   |
| Total cost of  revenues (3)    |   | $                                | 13,434     |   | 44 | % | $ | 41,218 |   | 44 | % |

 

----

          (1)    Percentage is calculated based on totalsoftware license revenues for the period indicated

          (2)    Percentage is calculated based on totalservices revenues for the period indicated

          (3)    Percentage is calculated based on totalrevenues for the period indicated

* *

*Cost of software licenses* decreased 51% inabsolute dollar terms during the current quarter ended March 31, 2002 to $1.1million as compared to $2.2 million for the quarter ended March 31, 2001.  In absolute dollar terms, the decrease incost of software licenses was principally a result of decreased sales withassociated royalties due with third party products.

 

*Cost of services* decreased 68% in absolutedollar terms during the current quarter ended March 31, 2002 to $12.3 millionas compared to $39.0 million for the quarter ended March 31, 2001. In absolutedollar terms, the decrease in cost of services for the three months ended March31, 2002 was the result of reductions in force that occurred in the second,third and fourth quarters of fiscal 2001 and the first quarter of fiscal 2002,resulting in decreased salary and related expenses in addition to a decrease inthe use of third party consultants.

*** ***

***OperatingExpenses and Other Income, net***

 

Research and developmentexpenses consist primarily of salaries, employee–related benefit costsand consulting fees incurred in association with the development of ourproducts. Costs incurred for the research and development of new software productsare expensed as incurred until such time that technological feasibility, in theform of a working model, is established at which time such costs arecapitalized and recorded at the lower of unamortized cost or net realizablevalue. The costs incurred subsequent to the establishment of a working modelbut

 

22

----

 

prior to general releaseof the product have not been significant. To date, we have not capitalized anycosts related to the development of software for external use.

 

Sales and marketingexpenses consist primarily of salaries, employee–related benefit costs,commissions and other incentive compensation, travel and entertainment andmarketing program-related expenditures such as collateral materials, tradeshows, public relations, advertising and creative services.

 

General andadministrative expenses consist primarily of salaries, employee–relatedbenefit costs, accounts receivable reserves expense and professional servicefees.

 

Operating expenses andother income, net consisted of the following: (in thousands)

 

|                                  |   | **Three Months Ended March 31,** |       |
|---------------------------------------|--------|----------------------------------|------------|
|                                  |   | **2002**                         |       | **% (1)** |   | **2001** |   | **% (1)** |   |
|                                  |   |                             | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Research and  development             |   | $                                | 13,975     |   | 46 | % | $ | 26,971 |   | 29 | % |
| Sales and  marketing                  |   | 16,178                           |       | 53 |   | 52,481 |   | 57 |   |
| General and  administrative           |   | 6,193                            |       | 20 |   | 10,590 |   | 11 |   |
| Goodwill and  intangible amortization |   | 887                              |       | 3 |   | 66,280 |   | 72 |   |
| Restructuring  charge                 |   | 5,380                            |       | 18 |   | — |   | — |   |
| Impairment of  assets                 |   | 2,276                            |       | 7 |   | — |   | — |   |
| Total Operating  Expenses             |   | $                                | 44,889     |   | 147 | % | $ | 156,322 |   | 169 | % |

 

----

          (1)    Expressed as a percent of total revenues forthe period indicated

* *

*Research and development expenses*decreased 48% during the current quarter ended March 31, 2002 to $14.0 millionas compared to $27.0 million for the quarter ended March 31, 2001.  The decrease in research and developmentexpenses is primarily attributable to compensation reductions through salaryreductions and reductions in force as well as other cost-cutting efforts put inplace during the second, third and fourth quarters of fiscal 2001 and the firstquarter of fiscal 2002.

* *

*Sales and marketing expenses* decreased 69%during the current quarter ended March 31, 2002 to $16.2 million as compared to$52.5 million for the quarter ended March 31, 2001.  The decrease was primarily a result of decreased salary expenseas a result of the reductions in force in addition to decreased commissionexpense as a result of decreases in license revenue.

* *

*General and administrative expenses*decreased 42% during the current quarter ended March 31, 2002 to $6.2 millionas compared to $10.6 million for the quarter ended March 31, 2001.  The decrease in general and administrativeexpenses is attributable to decreased salary expense as a result of reductionsin force as well as decreases in the general reserves of our accountsreceivable balance.

 

We are attempting toreduce expenses in an effort to return to profitability during a period whenrevenues have been less than originally expected.  Therefore, operating costs may decline in the near future butthere can be no assurance that such decline will be enough to return theCompany to profitability.  Shouldrevenues increase significantly, we would expect our expenses to increasecommensurate with increases in revenues.

* *

*Goodwilland intangible amortization.*** **As described in Note 1 in theNotes to the Condensed Consolidated Financial Statements above, we no longeramortize goodwill or the assembled workforce as we have identified theassembled workforce as an intangible asset which does not meet the criteria ofrecognizable intangible asset as defined by SFAS No. 142, *Goodwill and Other Intangible Assets*.  The remaining other intangible assets arebeing amortized on a straight-line basis over their remaining use life of 12months as of March 31, 2002.  Weperiodically assess goodwill and other intangibles for impairment as discussedin Note 8 of the Notes to the Condensed Consolidated Financial Statements.  The remaining intangible assets that arebeing amortized are a result of the Interleaf acquisition that was completed inApril of 2000.  We have accounted forthe acquisition as a purchase business combination.  Amortization expense is estimated to be $3.5 million in 2002 and$887,000 in 2003.  

 

23

----

 

*Restructuringcharge. *During thefirst quarter of 2002, we approved a restructuring plan to, among other things,reduce our workforce and consolidate facilities.  These restructuring and asset impairment charges were taken toalign our cost structure with changing market conditions and to create a moreefficient organization.  A pre-taxcharge of $5.4 million was recorded in the first quarter of 2002 which includesseverance and benefits charges, lease abandonment costs, asset impairmentcharges and other charges incurred as a direct result of therestructuring.  We determined a range ofexpected losses on lease abandonment. We accrued for losses at the low-end of a range in accordance with SFASNo. 5, *Accounting for Contingencies*.  The high-end of the range is estimated at$6.3 million, an increase in the restructuring charge of approximately$900,000.  Total severance and benefitscosts were $1.1 million during the three months ended March 31, 2002.  $817,000 of severance and benefits costswere unpaid as of December 31, 2001 as a result of the Company’s 2001restructuring.  Approximately $700,000was paid out during the first quarter of 2002 resulting in $1.2 million ofunpaid severance and benefits as of March 31, 2002 which is expected to be paidin full by March 31, 2003.  Weterminated approximately 64 employees in North and South America andapproximately 41 employees throughout Europe and Asia/Pacific during the threemonths ended March 31, 2002.  Totalfacilities and excess assets charges were $4.1 million and included $1.0million of asset impairment charges during the first quarter of 2002.  Approximately $89.9 million of facilitiesrelated costs were unpaid as of December 31, 2001 as a result of the Company’s2001 restructuring.  Approximately $12.3million was paid out during the first quarter of 2002, resulting inapproximately $80.6 million of unpaid facilities related charges, as of March31, 2002, which is expected to be paid in full by the end of the first quarterof fiscal 2010.  We recorded otherrestructuring charges of $155,000 for various incremental costs incurred as adirect result of the restructuring.  Asof March 31, 2002, approximately $262,000 of other restructuring costs remainsunpaid and is expected to be fully paid by the end of the third quarter of2002.  Actual future cash requirementsmay differ materially from the accrual at March 31, 2002, particularly ifactual sublease income is significantly different from current estimates.  Adjustments to the restructuring reserves willbe made in future periods, if necessary, based upon the then current actualevents and circumstances.

 

*Impairment of assets. *During the firstquarter of 2002 we engaged a third-party firm to conduct a physical inventoryof our computer hardware assets located in North America.  We conducted an internal physical inventoryon computer hardware assets located outside of North America.  The objective of the physical inventory wasto verify the amount and location of our computer hardware.  As a result of the findings of the physicalinventory and related reconciliation with our asset records, we recorded anasset impairment charge of approximately $2.3 million in net book value relatedto computer hardware.

 

*Other (expense) income, net. *Other (expense), netincreased by $8.6 million to expense of $8.1 million during the three monthsended March 31, 2002 as compared to income of $497,000 during the three monthsended March 31, 2001.  The increase innet expense is primarily due to a decrease in interest income of $2.2 millionas a result of decreased cash balances, a decrease in gains on sales ofinvestments of $500,000, an increase in realized losses in cost method equityinvestments of $7.4 million all partially offset by a decrease in loss oncurrency of $400,000 and a decrease in equity in net losses of an equityinvestee of $1.2 million as we did not have an equity method investment as ofand during the three months ended March 31, 2002.

*** ***

***IncomeTaxes***

 

During the quarter endedMarch 31, 2002, we recognized tax expense of $177,000.   The tax expense mainly relates to foreignwithholding taxes and state income taxes.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 
|                                                      |   | **March 31,  2002** |    | **December 31,  2001** |   |
|-----------------------------------------------------------|--------|---------------------|---------|-----------------------------|--------|
|                                                      |   | **(in thousands)**  |    |
| Cash, cash  equivalents and liquid short-term investments |   | $                   | 129,587 |                        | $      | 141,463 |   |
|                                                      |   |                |    |                        |   |
| Long-term liquid  investments                             |   | $                   | 14,900  |                        | $      | 22,135 |   |
|                                                      |   |                |    |                        |   |   |   |
| Restricted  investments                                   |   | 29,949              |    | 29,949                      |   |
|                                                      |   |                |    |                        |   |
| Working capital                                           |   | $                   | 52,760  |                        | $      | 67,165 |   |
|                                                      |   |                |    |                        |   |
| Working capital  ratio                                    |   | 1.4 : 1             |    | 1.5 : 1                     |   |

 

24

----

 

                At March 31, 2002, we had $174.4 million ofcash, cash equivalents, liquid short–term investments, long-terminvestments, and restricted investments, which represents a decrease of $19.1million as compared to December 31, 2001. We have a credit facility with Silicon Valley Bank that includes termloans in the form of promissory notes and a revolving line of credit (the “SVBFacility”).  Under the revolving line ofcredit portion of the SVB Facility, amounts borrowed bear interest at thebank’s prime rate (4.75% as of March 31, 2002) and interest is due monthly,with the principal due at expiration of the SVB Facility.  As of March 31, 2002 and December 31, 2001,we had no outstanding borrowings under this revolving line of credit.  However, commitments totaling $1.1 millionand $2.4 million in the form of standby letters of credit were issued under ourrevolving line of credit facility as of March 31, 2002 and December 31, 2001,respectively.  We have two outstandingterm loans under the SVB Facility.  Thetotal outstanding amount of these term loans were $3.7 million as of March 31,2002 and $3.9 million as of December 31, 2001. Interest on these term loans are at the bank’s prime rate (4.75% as ofMarch 31, 2002 and December 31, 2001) and prime rate plus 1.25% (6.0% as ofMarch 31, 2002 and December 31, 2001). Principal and interest are due in consecutive monthly payments throughmaturity of these term loans in March 31, 2005 and September 30, 2006.  Principal payments of $977,000 are dueannually from 2000 through 2004, $611,000 due in 2005, and a final payment of$357,000 due in 2006.  Commitmentstotaling $24.0 million and $22.6 million in the form of standby letters ofcredit were also issued from separate financial institutions as of March 31,2002 and December 31, 2001, respectively. These letters of credit are collateralized by a security agreement,under which we are required to maintain in a restricted specified interestbearing account approximately $29.9 million of available short-term investmentsas of March 31, 2002 and December 31, 2001. The $29.9 million has been presented as restricted investments in theaccompanying balance sheet at March 31, 2002, which represents areclassification to our previously released unaudited balance sheet, where suchamounts were classified as short-term investments.  The balances were also reclassified on the balance sheet as ofDecember 31, 2001 to conform to the current period presentation.

InMarch 2002, we renewed and amended the SVB Facility to increase the amountavailable under the revolving line of credit from $10.0 million to $25.0million and to extend the term of the revolving line of credit until March 31,2003.  Borrowings under the SVB Facilityare collateralized by substantially all of our owned assets and we are subjectto certain covenants, including restrictions on payment of dividends and otherdistributions as well as an obligation to maintain a certain amount ofavailable cash, cash equivalents, short-term investments and long-terminvestments (excluding equity investments). As of March 31, 2002, we were in compliance with all specified financialcovenants.

 

Cash used for operating activities was $19.2 millionfor the three months ended March 31, 2002 and $21.7 million for the threemonths ended March 31, 2001, respectively. The primary reason for the cash used for operating activities for thethree months ended March 31, 2002 is due to the net loss of $36.1 millionadjusted by approximately $21.2 million for certain non-cash items such asdepreciation expense, amortization of intangibles, impairment of assets as wellas a decrease in restructuring reserves of approximately $8.7 million, adecrease in unearned revenues and deferred maintenance of $2.4 million, adecrease in accounts payable and accrued expenses of $3.6 million, an increasein prepaid expenses of $1.1 million all partially offset by a decrease inaccounts receivable of $10.6 million and a decrease in other assets of$539,000.  Cash provided by investingactivities was $5.9 million for the three months ended March 31, 2002 and cashused for investing activities was $3.8 million for the three months ended March31, 2001.  Cash provided by investingactivities for the three months ended March 31, 2002 was primarily due to netsales/maturities of investments of $6.5 million and proceeds from sales ofassets of $240,000 partially offset by purchases of property and equipment of$841,000.  Cash provided by financingactivities was $1.4 million and $7.1 million for the three months ended March31, 2002 and 2001, respectively, and consists primarily of proceeds from theissuance of common stock related to the exercise of stock options.

 

Capital expenditures were$841,000 and $38.9 million for the three months ended March 31, 2002 and 2001,respectively.  Our capital expendituresconsisted of purchases of operating resources to manage our operations andincluded computer hardware and software, office furniture and fixtures andleasehold improvements.

 

In connection with ourrestructuring plan initiated during 2001, we consolidated various operatingfacilities during 2001 and the first quarter of 2002.  Lease termination costs include the abandonment of certain excesslease facilities for the remaining lease terms.  This cost totaled $143.8, including $36.8 million in leaseholdimprovements impairments, in 2001 and $4.1 million, including $1.0 million inleasehold improvements impairments, during the first quarter of 2002.  Total lease termination costs include theabandonment of leasehold improvements and the remaining lease liabilities andbrokerage fees, offset by estimated sublease income.  The estimated costs of abandoning these facilities, estimatedcosts to sublease as well as estimated sublease income, were based upon marketinformation analyses provided by a commercial real estate brokerage firmretained by us.  As of March 31, 2002,$80.6 million of lease termination costs, net of anticipated sublease income,remains accrued and is expected to be utilized by the first quarter of2010.  See Note 7 of Notes to CondensedConsolidated Financial Statements for additional information.

 

We expect to incursignificant operating expenses for the foreseeable future in order to executeour business plan.  As discussed in Note4 of Notes to Condensed Consolidated Financial Statements, our operating leasecommitments, which exclude facilities that are included in our restructuringplan, consist of the following future minimum lease payments as of March 31, 2002(in thousands):

 
| **Year Ended December 31,** |   | **Operating  leases** |    |
|----------------------------------|--------|-----------------------|---------|
|                             |   |                  |    |
| 2002                             |   | $                     | 5,276   |   |
| 2003                             |   | 5,568                 |    |
| 2004                             |   | 8,010                 |    |
| 2005                             |   | 15,760                |    |
| 2006                             |   | 15,261                |    |
| 2007 and thereafter              |   | 174,416               |    |
| Total minimum lease payments     |   | $                     | 224,291 |   |

 

25

----

 

                As discussedin Note 9 of Notes to Condensed Consolidated Financial Statements, on May 9,2002 we entered into the Buildings 4 and 5 Termination Agreement with one ofour landlords in relation to two of our facilities located in Redwood City,California whereby two of our leases were terminated.  In conjunction with the termination, subject to certainconditions, the landlord will release all security deposits held by it relatingto these premises and we will pay to the landlord a termination fee of $45.0million as a termination fee (the “Termination Fee”).  We anticipate that payment of the Termination Fee will be fundedpartially by drawing down the available line of credit under the SVB Facilityand partially with our available cash, cash equivalents and short-terminvestments.

     As a result of theBuildings 4 and 5 Termination Agreement, we expect to record additionalrestructuring expense of approximately $15.0 million in the second quarter offiscal 2002 based upon the difference between initial estimates used inrecorded our restructuring charges and the actual terms and conditions as perthe Buildings 4 and 5 Termination Agreement. Additionally, our summary of future minimum lease payments as disclosedabove is expected to decrease by approximately $73.9 million for fiscal years2007 and thereafter.

We anticipate that such operating expenses, as well as capitalexpenditures, will constitute a material use of our cash resources.  As a result, our net cash flows will dependheavily on the level of future sales, our ability to restructure operationssuccessfully and our ability to manage infrastructure costs.

We currently expect to fund our short-term working capital andoperating resource expenditure requirements, for at least the next twelvemonths, from our existing cash and cash equivalents and short-term investmentresources and our anticipated cash flows from operations.  However, we may find it necessary to obtainadditional equity or debt financing in order to support more rapid expansion,develop new or enhanced services, respond to competitive pressures, acquirecomplementary businesses or technologies or respond to unanticipatedrequirements.  We may seek to raiseadditional funds through private or public sales of securities, strategicrelationships, bank debt, financing under leasing arrangements orotherwise.  If additional funds areraised through the issuance of equity securities, the percentage ownership ofour stockholders will be reduced, stockholders may experience additionaldilution or such equity securities may have rights, preferences or privilegessenior to those of the holders of our common stock.  There can be no assurance that additional financing will beavailable on acceptable terms, if at all. If adequate funds are not available or are not available on acceptableterms, we may be unable to develop our products, take advantage of futureopportunities or respond to competitive pressures or unanticipatedrequirements, which could have a material adverse effect on our business,financial condition and future operating results.  We could experience unforeseen circumstances such as a worseningeconomic downturn, legal or lease settlements and less than anticipated cashinflows that may increase our use of available cash or need to obtainadditional financing.

***Factors That May Affect FutureOperating Results***

We may experience significant fluctuations inquarterly operating results that may be caused by many factors including, butnot limited to, those discussed below and herein, as set out in Items 7 and 7Ain our annual report on Form 10–K for the year ended December 31, 2001and elsewhere therein and as disclosed in other documents filed with theSecurities and Exchange Commission.

Significant fluctuations in future quarterly operatingresults may be caused by many factors including, among others, the timing ofintroductions or enhancements of products and services by us or ourcompetitors, market acceptance of new products, the mix of our products sold,changes in pricing policies by us or our competitors, our ability to retaincustomers, changes in our sales incentive plans, budgeting cycles of ourcustomers, customer order deferrals in anticipation of new products orenhancements by us or our competitors, nonrenewable of service agreements(which generally automatically renew for one year terms unless earlierterminated by either party upon 90–days notice), product life cycles,changes in strategy, seasonal trends, the mix of distribution channels throughwhich our products are sold, the mix of international and domestic sales, therate at which new sales people become productive, changes in the level ofoperating expenses to support projected growth and general economic conditions.We anticipate that a significant portion of our revenues will be derived from alimited number of orders, and the timing of receipt and fulfillment of any suchorders is expected to cause material fluctuations in our operating results,particularly on a quarterly basis. Due to the foregoing factors, quarterlyrevenues and operating results are difficult to forecast, and we believe thatperiod–to–period comparisons of our operating results will notnecessarily be meaningful and should not be relied upon as any indication offuture performance. ** **It is likely that our futurequarterly operating results from time to time will not meet the expectations ofmarket analysts or investors, which may have an adverse effect on the price ofour common stock.

We have experienced a decline in revenues sequentiallyfor the first three quarters of fiscal 2001 and the first quarter of 2002 andthe outlook on future quarters is unclear given the general economicconditions.  Furthermore, we incurrednet losses for the past eight quarters and have not achieved positive cash flowfrom operations in the last six quarters. We do not expect to be profitable from operations for additionalquarters and may continue to incur negative cash flow.  If the negative cash flow continues, ourliquidity and ability to operate our business would be severely and adverselyimpacted. Additionally, our ability to raise financial capital may be hindereddue to our operational losses and negative cash flows, reducing our operatingflexibility.

We are continuing efforts to reduce our expensestructure. We believe strict cost containment and expense reductions areessential to achieving positive cash flow and profitability. A number offactors could preclude us from successfully bringing costs and expenses in linewith our revenues, including unplanned-for use of cash, inability to accuratelyforecast business activities and further deterioration of our revenues.  If we are not able to effectively reduce ourcosts and achieve an expense structure commensurate with our business activitiesand revenues, we may have inadequate levels of cash for operations or forcapital requirements, which could significantly harm the our ability to operateour business. 

We recently renewed and amended the SVB Facility.  The SVB Facility is secured by substantiallyall of our owned assets. The primary financial covenant under the SVB Facilityobligates us to maintain certain levels of available cash, cash equivalents,short-term investments and long-term investments (excluding equityinvestments).  Falling below such levelswould be an event of default for which Silicon Valley Bank may, among otherthings, accelerate the payment of the facility.  While we plan to adhere to the financial covenants of the SVBFacility and avoid an event of default, in the event that it appears we areunable to avoid an event of default, it may be necessary or advisable to retireand terminate the SVB Facility and pay off all remaining balancesborrowed.  Such a payoff would furtherlimit our available cash and cash equivalents.

Our success depends largely on the skills, experienceand performance of key personnel.  If welose one or more key personnel, our business could be harmed.  Our future success depends on our ability tocontinue attracting and retaining highly skilled personnel.  We may not be successful in attracting,assimilating and retaining qualified personnel in the future.  Furthermore, the significant downturn in ourbusiness environment had a negative impact on our operations.  We are currently restructuring our operationsand have taken actions to reduce our workforce and implement other costcontainment activities. These actions could lead to disruptions in ourbusiness, reduced

26

----

 

employee morale andproductivity, increased attrition and problems with retaining existingemployees and recruiting future employees and increased financial costs.

 

Our common stock hastraded below one dollar and may be subject to de-listing from the NasdaqNational Market. The Nasdaq has a $1.00 per share minimum bid requirement,pursuant to which our common stock could be de-listed from the Nasdaq NationalMarket if it trades below $1.00 for thirty consecutive trading days and doesnot subsequently trade above $1.00 for 10 consecutive days. There can be noassurance that our trading price will trade above the Nasdaq requirements forthe necessary time periods mandated by the Nasdaq.  During the third and fourth quarters of 2001 and during the secondquarter of 2002, the minimum bid price of our common stock has closed, attimes, below $1.00 per share.  We areseeking approval from our stockholders at our annual stockholders' meeting tobe held in June 2002 to authorize a one-for-four, one-for-five or one-for-ninereverse stock split, the ratio and timing of such split to be at the discretionof the Company's board of directors.  Ifwe do not receive stockholder approval for such reverse stock split or if weare unable to meet the Nasdaq requirements to maintain listing on the NasdaqNational Market our common stock could trade on the OTC Bulletin Board or inthe “pink sheets” maintained by the National Quotation Bureau, Inc. Suchalternatives are generally considered to be less efficient markets, and ourstock price, as well as the liquidity of our common stock, will be adverselyimpacted as a result.

 

Some of these risks anduncertainties relate to the rapidly evolving nature of the markets in which weoperate. These related market risks include, among other things, the evolutionof the online commerce market, the dependence of online commerce on thedevelopment of the Internet and its related infrastructure, the uncertaintypertaining to widespread adoption of online commerce and the risk of governmentregulation of the Internet. Other risks and uncertainties relate to our abilityto, among other things, successfully implement our marketing strategies,respond to competitive developments, continue to develop and upgrade ourproducts and technologies more rapidly than our competitors, and commercializeour products and services by incorporating these enhanced technologies. Therecan be no assurance that we will succeed in addressing any or all of theserisks.

** **

**There has been a general downturn in theeconomy.  Therefore, financialcomparisons discussed herein may not be indicative of future performance.  If the economic environment continues todecline, our future results may be significantly impacted.  We believe that the current economic declinehas increased the average length of our sales cycle and our operating resultscould suffer and our stock price could decline if we do not achieve the levelof revenues we expect.**

** **

**Like other U.S. companies, our business andoperating results are subject to uncertainties arising out of the recent terroristattacks on the United States, including potential worsening or extension of thecurrent global slowdown, the economic consequences of military actions oradditional terrorist activities and associated political instability, and theimpact of heightened security concerns on domestic and international travel andcommerce.  Such uncertainties could alsolead to delays or cancellations of customer orders, a general decrease incorporate spending or our inability to effectively market and sell our products.  Any of these results could substantiallyharm our business and results of operations, causing a decrease in ourrevenues.**

** **

**Item 3.            Quantitative and QualitativeDisclosures about Market Risk**

 

Our exposureto market risk for changes in interest rates relates primarily to ourinvestment portfolio. We had no derivative financial instruments as of March31, 2002 and December 31, 2001. We place our investments in instruments thatmeet high credit quality standards and the amount of credit exposure to any oneissue, issuer and type of instrument is limited.

 

***Cash and Cash Equivalents, Short-Term Investments, Long-TermInvestments***

 

We considerall debt securities with remaining maturities of three months or less at thedate of purchase to be cash equivalents.

 

Our short-terminvestments consist of debt securities that are classified asavailable-for-sale. Our debt securities are carried at fair value with relatedunrealized gains or losses reported as other comprehensive income, net of tax.Included in our long-term investments are investments in debt securities thatare classified as available-for-sale. These securities have remainingmaturities greater than one year from March 31, 2002. These investments arecarried at fair value with related unrealized gains or losses reported as othercomprehensive income, net of tax.

 

All short-terminvestments have a remaining maturity of twelve months or less. Totalshort-term and long-term investment unrealized gains (losses) wereapproximately ($798,000) and $1.3 million for the three months ended March 31,2002 and 2001.  Total realized gainsduring the three months ended March 31, 2002 and 2001 were

 

27

----

 

$14,000 and $527,000 and areincluded in other income in the accompanying Condensed Consolidated Statementsof Operations.

 

Our cash andcash equivalents, short-term investments and long-term investments consisted ofthe following as of March 31, 2002 (in thousands):

 
|                      |   | **Amortized  Cost** |    | **Unrealized  Gains** |   | **Unrealized  Losses** |   | **Fair  Value** |   |
|---------------------------|--------|---------------------|---------|-----------------------|--------|------------------------|--------|-----------------|--------|
| Cash                      |   | $                   | 23,073  |                  | $      | —                 |   | $               | — |   | $ | 23,073 |   |
| Money market              |   | 35,499              |    | 279                   |   | —                 |   | 35,778          |   |
| Corporate notes/bonds     |   | 70,676              |    | 594                   |   | (53                    | )      | 71,217          |   |
| Government notes/bonds    |   | 44,247              |    | 202                   |   | (81                    | )      | 44,368          |   |
|                      |   | $                   | 173,495 |                  | $      | 1,075                  |   | $               | (134   | ) | $ | 174,436 |   |
| Cash and cash equivalents |   | $                   | 63,592  |                  | $      | 279                    |   | $               | (3     | ) | $ | 63,868 |   |
| Short-term investments    |   | 95,103              |    | 637                   |   | (72                    | )      | 95,668          |   |
| Long-term investments     |   | 14,800              |    | 159                   |   | (59                    | )      | $               | 14,900 |   |
|                      |   | $                   | 173,495 |                  | $      | 1,075                  |   | $               | (134   | ) | $ | 174,436 |   |

 

Included inthe table above are restricted investments of $29.9 million.

 

Our cash andcash equivalents, short-term investments and long-term investments consisted ofthe following as of December 31, 2001 (in thousands):

 
|                      |   | **Amortized  Cost** |    | **Unrealized  Gains** |   | **Unrealized  Losses** |   | **Fair  Value** |   |
|---------------------------|--------|---------------------|---------|-----------------------|--------|------------------------|--------|-----------------|--------|
| Cash                      |   | $                   | 25,874  |                  | $      | —                 |   | $               | — |   | $ | 25,874 |   |
| Money market              |   | 36,299              |    | 364                   |   | (1                     | )      | 36,662          |   |
| Corporate notes/bonds     |   | 75,842              |    | 1,056                 |   | (8                     | )      | 76,890          |   |
| Government notes/bonds    |   | 53,792              |    | 346                   |   | (17                    | )      | 54,121          |   |
|                      |   | $                   | 191,807 |                  | $      | 1,766                  |   | $               | (26    | ) | $ | 193,547 |   |
| Cash and cash equivalents |   | $                   | 75,393  |                  | $      | 366                    |   | $               | (1     | ) | $ | 75,758 |   |
| Short-term investments    |   | 94,773              |    | 895                   |   | (14                    | )      | 95,654          |   |
| Long-term investments     |   | 21,641              |    | 505                   |   | (11                    | )      | $               | 22,135 |   |
|                      |   | $                   | 191,807 |                  | $      | 1,766                  |   | $               | (26    | ) | $ | 193,547 |   |

 

Included inthe table above are restricted investments of $29.9 million.

 

Remainingmaturities of our long-term investments as of March 31, 2002 are as follows:

 
|                   |   | **2003** |   | **2004** |   | **Total** |   |
|------------------------|--------|----------|--------|----------|--------|-----------|--------|
| Corporate notes/bonds  |   | $        | 2,490  |     | $      | 5,876     |   | $ | 8,366 |   |
| Government notes/bonds |   | 6,534    |   | —   |   | 6,534     |   |
|                   |   | $        | 9,024  |     | $      | 5,876     |   | $ | 14,900 |   |

 

***Concentrations of Credit Risk***

 

Financialassets that potentially subject us to significant concentrations of credit riskconsist principally of cash, cash equivalents, short-term investments,long-term investments and trade accounts receivable. We analyzed our cash,short-term and long-term investment holdings as of March 31, 2002 for interestrate risk and estimated that the impact of a change in interest rates ofone-half of one percent would be approximately $476,000 on annual interestincome. We market and sell our products throughout the world and performongoing credit evaluations of our customers. We maintain reserves for potentialcredit losses. For the three months ended March 31, 2002, no one customeraccounted for more than 10% of total revenues. For the three months ended March 31, 2001, one customer accounted formore than 10% of total revenues.  As ofMarch 31, 2002 and December 31, 2001, no customer individually accounted formore than 10% of our accounts receivable.

 

***Fair Value of Financial Instruments***

 

Our financialinstruments consist of cash equivalents, short-term investments, long-terminvestments, accounts receivable, accounts payable and debt. We do not have anyderivative financial instruments. We believe the reported carrying amounts of ourfinancial instruments approximates fair value, based upon the short maturity ofcash equivalents, short-term investments, accounts receivable and payable, andbased on the current rates available to us on similar debt issues.

 

28

----

 

***Equity Investments***

 

Our equityinvestments consist of equity investments in public and non-public companiesthat are accounted for under either the cost method of accounting or the equitymethod of accounting. Equity investments are accounted for under the costmethod of accounting when we have a minority interest and do not have theability to exercise significant influence. These investments are classified asavailable for sale and are carried at fair value when readily determinablemarket values exist or at cost when such market values do not exist. We reviewfinancial information on all of our investees at each reporting period. Suchfinancial information may consist of financial statements, current stockprices, subsequent rounds of financing and other relevant information such asinvestor updates and press releases. Adjustments to fair value are recorded asa component of other comprehensive income (loss) unless the investments areconsidered permanently impaired in which case the adjustment is recorded as acomponent of other income (expense), net in the Consolidated Statement ofOperations. Equity investments are accounted for under the equity method ofaccounting when we have a minority interest and have the ability to exercisesignificant influence. These investments are classified as available for saleand are carried at cost with periodic adjustments to carrying value for ourequity in net income (loss) of the equity investee. Such adjustments arerecorded as a component of other income (expense), net. Any decline in value ofour investments, which is other than a temporary decline, is charged toearnings during the period in which the permanent impairment is evident.

 

The total fairvalue of our cost method long-term equity investments in public and non-publiccompanies was $5.0 million with a cost basis of $17.6 million as of March 31,2002. This includes $8.6 million of write-downs during the first quarter of2002 of investments due to an other than temporary decline in fair value. Thetotal unrealized loss in our cost method long-term equity investments was $0during the three months ended March 31, 2002.

 

**PARTII.  OTHER INFORMATION**

**Item 1.            LegalProceedings**

 

In April 2001, severalpurported class action lawsuits were filed against the Company and certain ofits officers and directors. In each of the lawsuits, the plaintiffs sought toassert claims on behalf of a class of all persons who purchased securities ofBroadVision between January 26, 2001 and April 2, 2001. The complaints allegedthat BroadVision and the individual defendants violated federal securities lawsin connection with its reporting of financial results for the quarter endedDecember 31, 2000. The lawsuits were consolidated into a single action and alldefendants filed motions to dismiss the consolidated complaint. On November 5,2001, BroadVision and the individual defendants filed motions to dismiss theconsolidated complaint. On February 22, 2002, the Court granted these motions,dismissed the consolidated complaint without prejudice and ordered the leadplaintiff to file an amended complaint within 30 days. On March 25, 2002, theplaintiff filed its Second Amended Consolidated Complaint, which added claimsfor breach of fiduciary duty and named members of the Company’s board ofdirectors as additional defendants. All defendants filed motions to dismiss theSecond Amended Consolidated Complaint on May 10, 2002. The hearing on thismotion to dismiss is scheduled for July 26, 2002. The Company believes that thelawsuits are without merit and continues to defend itself vigorously.

 

On June 7, 2001, Verity,Inc. filed suit against the Company alleging copyright infringement, breach ofcontract, unfair competition and other claims. The Company has answered the complaintdenying all allegations and is defending itself vigorously.

 

The Company is also subjectto various other claims and legal actions arising in the ordinary course ofbusiness. In the opinion of management, after consultation with legal counsel,the ultimate disposition of these matters is not expected to have a materialeffect on the Company’s business, financial condition or results of operations.Although management currently believes that the outcome of other outstandinglegal proceedings, claims and litigation involving the Company will not have amaterial adverse effect on its business, results of operations or financialcondition, litigation is inherently uncertain, and there can be no assurancethat existing or future litigation will not have a material adverse effect onthe Company’s business, results of operations or financial condition.

 

29

----

 

**Item 2.            Changes in Securities and Use ofProceeds**

** **

**        Notapplicable.**

** **

**Item 3.            Defaults Upon Senior Securities**

** **

**       **Not applicable.

** **

**Item 4.            Submission of Matters to a Vote ofSecurity Holders**

** **

**       **Not applicable.

** **

**Item 5.            Other Information**

** **

**        Notapplicable.**

** **

**Item 6.            Exhibits and Reports on Form 8-K**

 

(a)    Exhibits

 
| **Exhibits** |   | **Description**                                                                             |
|--------------|--------|---------------------------------------------------------------------------------------------|
| 10.27        |   | Amended and Restated Loan and Security Agreement  with Silicon Valley Bank, March 31, 2002. |

 

(b)   Reports on Form 8–K

 

On April 15, 2002,we filed a Form 8-K with the Securities and Exchange Commission by the Companyon April 8, 2002 reporting that the Company had received notice from itsindependent public accountants, Arthur Andersen LLP, of its resignation as theCompany’s auditors as a result of the Company’s plan to change independentpublic accountants for the fiscal year ending December 31, 2002 due to anunanticipated future non-audit business relationship between the two companies.

 

On May 13, 2002,we filed a Form 8-K with the Securities and Exchange Commission to report theCompany’s selection of its independent public accountants, BDO Seidman, LLP, asauditors for the fiscal year ending December 31, 2002.

 

30

----

 

**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
|   |         |   | **BROADVISION, INC.**                              |
|--------|--------------|--------|----------------------------------------------------|
|   |         |   |                                               |
| Date:  | May 16, 2002 | By:    | /s/  Pehong  Chen                             |   |
|   |         |   | Pehong Chen                                        |
|   |         |   | Chairman of the Board, President and Chief         |
|   |         |   | Executive Officer (Principal Executive Officer)    |
|   |         |   |                                               |
|   |         |   |                                               |
| Date:  | May 16, 2002 | By:    | /s/  Francis  Barton                          |   |
|   |         |   | Francis Barton                                     |
|   |         |   | Executive Vice President                           |
|   |         |   | and Chief Financial Officer                        |
|   |         |   | (Principal Financial and Chief Accounting Officer) |
|        |              |        |                                                    |  |  |

 

31

----