**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, DC  20549**

** **

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** **

**FORM 10-Q**

 

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| **(Mark One)**                           |
|------------------------------------------|
|                                     |   |   |
| **ý**                               |   | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                     |   |   |
| **For the Quarter ended March 31, 2003** |
|                                     |   |   |
| **OR**                                   |
|                                     |   |   |
| **o**                                    |   | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                     |
| **0-28252**                              |
| **(Commission File Number)**             |
|                                          |  |  |  |  |

 

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| **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) 542-5100**                                              |
| (Registrant’s telephone number, including area code)       |

 

Indicate bycheck mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15 (d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes   ýNo   o

 

Indicate bycheck mark whether the registrant is an accelerated filer (as defined in Rule12b-2 of the Exchange Act).  Yes  oNo  ý

 

As of  May 7, 2003, there were 32,723,949 shares ofthe Registrant’s Common Stock issued and outstanding.

 

 

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**BROADVISION, INC. AND SUBSIDIARIESFORM 10-QQuarter Ended March 31, 2003**

 

**TABLE OF CONTENTS**

** **
| **PART I.**    | **FINANCIAL INFORMATION**                                                                                                                     |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------|
| Item 1.        | Financial Statements                                                                                                                          |
|           | Condensed Consolidated Balance Sheets—March  31, 2003  and December 31, 2002                                                   |
|           | Condensed Consolidated Statements of Operations and  Comprehensive  Income (Loss)—Three  months ended March 31, 2003  and 2002 |
|           | Condensed Consolidated Statements of Cash Flows—Three months  ended  March 31, 2003 and 2002                                        |
|           | 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                                                                                   |
| Item 4.        | Controls and Procedures                                                                                                                       |
|           |                                                                                                                                          |
| **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

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**PARTI.  FINANCIAL INFORMATION**

**Item1.    Financial Statements**

 

**BROADVISION, INC. ANDSUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEE**TS**(In thousands, except per share data)**

** **
|                                                                                                                                                                                              |   | **March 31,  2003** |    | **December  31,  2002** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|---------|-------------------------|--------|
|                                                                                                                                                                                              |   | **(unaudited)**     |    |                    |   |
| **ASSETS**                                                                                                                                                                                        |   |                |    |                    |   |
|                                                                                                                                                                                              |   |                |    |                    |   |
| Cash and cash equivalents                                                                                                                                                                         |   | $                   | 98,975  |                    | $      | 77,386 |   |
| Short-term investments                                                                                                                                                                            |   | 3,649               |    | 24,484                  |   |
| Accounts receivable, less allowance for  doubtful accounts and reserves of $4,781 as of March 31, 2003 and $5,502 as  of December 31, 2002                                                        |   | 14,790              |    | 22,917                  |   |
| Prepaids and other                                                                                                                                                                                |   | 5,723               |    | 9,181                   |   |
|                                                                                                                                                                                              |   |                |    |                    |   |
| Total current assets                                                                                                                                                                              |   | 123,137             |    | 133,968                 |   |
|                                                                                                                                                                                              |   |                |    |                    |   |
| Property and equipment, net                                                                                                                                                                       |   | 22,950              |    | 26,600                  |   |
| Long-term investments                                                                                                                                                                             |   | 152                 |    | 587                     |   |
| Restricted cash                                                                                                                                                                                   |   | 16,759              |    | 16,704                  |   |
| Equity investments                                                                                                                                                                                |   | 1,809               |    | 2,083                   |   |
| Goodwill                                                                                                                                                                                          |   | 53,421              |    | 53,421                  |   |
| Other intangibles, net                                                                                                                                                                            |   | 3,012               |    | 3,899                   |   |
| Other assets                                                                                                                                                                                      |   | 2,683               |    | 2,874                   |   |
|                                                                                                                                                                                              |   |                |    |                    |   |
| Total assets                                                                                                                                                                                      |   | $                   | 223,923 |                    | $      | 240,136 |   |
|                                                                                                                                                                                              |   |                |    |                    |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                     |   |                |    |                    |   |
|                                                                                                                                                                                              |   |                |    |                    |   |
| Bank borrowings and current portion of  long-term debt                                                                                                                                            |   | $                   | 25,977  |                    | $      | 25,977 |   |
| Accounts payable                                                                                                                                                                                  |   | 8,462               |    | 8,105                   |   |
| Accrued expenses                                                                                                                                                                                  |   | 46,721              |    | 55,787                  |   |
| Unearned revenue                                                                                                                                                                                  |   | 10,510              |    | 14,158                  |   |
| Deferred maintenance                                                                                                                                                                              |   | 20,773              |    | 24,325                  |   |
|                                                                                                                                                                                              |   |                |    |                    |   |
| Total current liabilities                                                                                                                                                                         |   | 112,443             |    | 128,352                 |   |
|                                                                                                                                                                                              |   |                |    |                    |   |
| Long-term debt, net of current portion                                                                                                                                                            |   | 1,701               |    | 1,945                   |   |
| Other noncurrent liabilities                                                                                                                                                                      |   | 66,529              |    | 68,206                  |   |
|                                                                                                                                                                                              |   |                |    |                    |   |
| Total liabilities                                                                                                                                                                                 |   | 180,673             |    | 198,503                 |   |
|                                                                                                                                                                                              |   |                |    |                    |   |
| Commitments and Contingencies (Note 4)                                                                                                                                                            |   |                |    |                    |   |
|                                                                                                                                                                                              |   |                |    |                    |   |
| 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;  32,685 shares  issued and outstanding as of March 31, 2003 and 32,440 shares issued and  outstanding as of December 31, 2002 |   | 3                   |    | 3                       |   |
| Additional paid-in capital                                                                                                                                                                        |   | 1,211,110           |    | 1,210,797               |   |
| Accumulated other comprehensive loss, net  of tax                                                                                                                                                 |   | 4                   |    | 37                      |   |
| Accumulated deficit                                                                                                                                                                               |   | (1,167,867          | )       | (1,169,204              | )      |
| Total stockholders’ equity                                                                                                                                                                   |   | 43,250              |    | 41,633                  |   |
|                                                                                                                                                                                              |   |                |    |                    |   |
| Total liabilities and stockholders’ equity                                                                                                                                                   |   | $                   | 223,923 |                    | $      | 240,136 |   |

 

*See AccompanyingNotes to Condensed Consolidated Financial Statements*

 

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**BROADVISION, INC. ANDSUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSAND COMPREHENSIVE LOSS(In thousands, except per share amounts; unaudited)**

 
|                                                                                 |   | **Three  Months Ended  March 31,** |   |
|--------------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                                 |   | **2003**                           |   | **2002** |   |
| **Revenues:**                                                                        |   |                               |   |   |   |
| Software licenses                                                                    |   | $                                  | 7,975  |   | $ | 8,179 |   |
| Services                                                                             |   | 16,480                             |   | 22,276 |   |
| Total revenues                                                                       |   | 24,455                             |   | 30,455 |   |
|                                                                                 |   |                               |   |   |   |
| **Cost of revenues:**                                                                |   |                               |   |   |   |
| Cost of software licenses                                                            |   | 388                                |   | 1,100 |   |
| Cost of services                                                                     |   | 6,558                              |   | 12,334 |   |
| Total cost of revenues                                                               |   | 6,946                              |   | 13,434 |   |
|                                                                                 |   |                               |   |   |   |
| Gross profit                                                                         |   | 17,509                             |   | 17,021 |   |
|                                                                                 |   |                               |   |   |   |
| **Operating expenses:**                                                              |   |                               |   |   |   |
| Research and development                                                             |   | 6,151                              |   | 13,975 |   |
| Sales and marketing                                                                  |   | 6,832                              |   | 16,178 |   |
| General and administrative                                                           |   | 2,288                              |   | 6,193 |   |
| Intangible amortization                                                              |   | 887                                |   | 887 |   |
| Restructuring charge                                                                 |   | 1,035                              |   | 5,380 |   |
| Impairment of assets                                                                 |   | —                             |   | 2,276 |   |
| Total operating expenses                                                             |   | 17,193                             |   | 44,889 |   |
|                                                                                 |   |                               |   |   |   |
| Operating income (loss)                                                              |   | 316                                |   | (27,868 | ) |
|                                                                                 |   |                               |   |   |   |
| Interest income                                                                      |   | 434                                |   | 1,525 |   |
| Other income (expense), net                                                          |   | 642                                |   | (9,602 | ) |
|                                                                                 |   |                               |   |   |   |
| Income (loss) before provision for income  taxes                                     |   | 1,392                              |   | (35,945 | ) |
|                                                                                 |   |                               |   |   |   |
| Provision for income taxes                                                           |   | 55                                 |   | 177 |   |
|                                                                                 |   |                               |   |   |   |
| Net income (loss)                                                                    |   | $                                  | 1,337  |   | $ | (36,122 | ) |
|                                                                                 |   |                               |   |   |   |
| Basic net income (loss) per share                                                    |   | $                                  | 0.04   |   | $ | (1.14 | ) |
| Diluted net income (loss) per share                                                  |   | $                                  | 0.04   |   | $ | (1.14 | ) |
|                                                                                 |   |                               |   |   |   |
| **Shares used in computing:**                                                        |   |                               |   |   |   |
| Basic net income (loss) per share                                                    |   | 32,447                             |   | 31,673 |   |
| Diluted net income (loss) per share                                                  |   | 34,727                             |   | 31,673 |   |
|                                                                                 |   |                               |   |   |   |
| **Comprehensive loss:**                                                              |   |                               |   |   |   |
| Net income (loss)                                                                    |   | $                                  | 1,337  |   | $ | (36,122 | ) |
| Other comprehensive (loss) income, net of  tax: Unrealized investment (losses) gains |   | (33                                | )      | 4,393 |   |
| Total comprehensive income (loss)                                                    |   | $                                  | 1,304  |   | $ | (31,729 | ) |

 

*See AccompanyingNotes to Condensed Consolidated Financial Statements*

 

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**BROADVISION,INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands; unaudited)**

 
|                                                                                                 |   | **Three  Months Ended March 31,** |   |
|------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                                                 |   | **2003**                          |   | **2002** |   |
| **Cash flows from operating activities:**                                                            |   |                              |   |   |   |
| Net income (loss)                                                                                    |   | $                                 | 1,337  |   | $ | (36,122 | ) |
| Adjustments to reconcile net income (loss)  to net cash provided by (used for) operating activities: |   |                              |   |   |   |
| Depreciation and amortization                                                                        |   | 3,444                             |   | 5,499 |   |
| Provision for doubtful accounts and  reserves                                                        |   | (488                              | )      | 934 |   |
| Amortization of prepaid royalties                                                                    |   | 358                               |   | 830 |   |
| Realized loss on cost method long-term  investments                                                  |   | 35                                |   | 8,550 |   |
| Amortization of other intangibles                                                                    |   | 887                               |   | 887 |   |
| Stock-based compensation charge                                                                      |   | 49                                |   | 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                                                                                  |   | 8,615                             |   | 10,592 |   |
| Prepaids and other                                                                                   |   | 3,100                             |   | (1,120 | ) |
| Accounts payable and accrued expenses                                                                |   | (3,882                            | )      | (3,620 | ) |
| Restructuring reserves                                                                               |   | (6,145                            | )      | (7,755 | ) |
| Unearned revenue and deferred maintenance                                                            |   | (7,200                            | )      | (2,447 | ) |
| Other noncurrent assets                                                                              |   | 191                               |   | 539 |   |
| Net cash provided by (used for) operating  activities                                                |   | 301                               |   | (19,172 | ) |
|                                                                                                 |   |                              |   |   |   |
| **Cash flows from investing activities:**                                                            |   |                              |   |   |   |
| Purchase of property and equipment                                                                   |   | (132                              | )      | (841 | ) |
| Transfer from (to) restricted cash                                                                   |   | (55                               | )      | — |   |
| Proceeds from sale of assets                                                                         |   | —                            |   | 240 |   |
| Purchase of long-term investments                                                                    |   | (2,729                            | )      | (2,349 | ) |
| Sales/maturity of long-term investments                                                              |   | 3,403                             |   | 9,658 |   |
| Purchase of short-term investments                                                                   |   | (2,917                            | )      | (18,588 | ) |
| Sales/maturity of short-term investments                                                             |   | 23,698                            |   | 17,776 |   |
| Net cash provided by investing activities                                                            |   | 21,268                            |   | 5,896 |   |
|                                                                                                 |   |                              |   |   |   |
| **Cash flows from financing activities:**                                                            |   |                              |   |   |   |
| Proceeds from issuance of common stock, net                                                          |   | 264                               |   | 1,630 |   |
| Repayments of borrowings                                                                             |   | (244                              | )      | (244 | ) |
| Net cash provided by financing activities                                                            |   | 20                                |   | 1,386 |   |
|                                                                                                 |   |                              |   |   |   |
| Net increase (decrease) in cash and cash  equivalents                                                |   | 21,589                            |   | (11,890 | ) |
| Cash and cash equivalents at beginning of  period                                                    |   | 77,386                            |   | 75,758 |   |
| Cash and cash equivalents at end of period                                                           |   | $                                 | 98,975 |   | $ | 63,868 |   |
|                                                                                                 |   |                              |   |   |   |
| **Supplemental disclosures of cash flow information:**                                               |   |                              |   |   |   |
| Cash paid for interest                                                                               |   | $                                 | 373    |   | $ | 74 |   |
| Cash paid for income taxes                                                                           |   | $                                 | 211    |   | $ | 178 |   |

 

*See AccompanyingNotes to Condensed Consolidated Financial Statements*

 

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**BROADVISION, INC. ANDSUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

 

**Note 1.   Organizationand Summary of Significant Accounting Policies**

 

***Natureof Business***

 

BroadVision develops,markets and supports enterprise portal applications that enable companies tounify their e-business infrastructure and conduct both interactions andtransactions with employees, partners, and customers through a personalizedself-service model that increases revenues, reduces costs, and improvesproductivity. As of March 31 2003, more than 1,200 companies and governmententities around the globe use the Company’s applications to facilitate their portal-basedcommerce and information access initiatives.

 

BroadVision was founded in1993 and has been a publicly traded corporation since 1996. BroadVisionpioneered web-based e-commerce and was among the first to offer pre-integrated,packaged applications to power enterprise business portals.

 

BroadVision’s enterpriseportal applications allow organizations to unify and extend their key businessapplications, information, and business processes by taking advantage of thepower of the web and new wireless and mobile devices to allow customers,partners, and employees to do business on their own terms, in a personalizedand collaborative way.  BroadVisionsolutions allow multiple constituents to serve themselves from anywhere, atanytime, through any web device. BroadVision enterprise portal applications enable organizations tocreate business value by transforming the way they do business; moving businessinteractions and transactions from a manual, human-assisted paradigm to anautomated, personalized self-service model that enhances growth, reduces costsand improves productivity.

 

The Company believes itsproducts improve its customers’ revenue opportunities by enabling them toestablish more effective and efficient one-to-one relationships with their customersand business partners. Web and wireless users are engaged by highlypersonalized real-time interactions, able to transact business securely andencouraged to remain online and make return visits.  The Company’s applications also improve the cost-effectiveness ofone-to-one relationship management by enabling non-technical managers to modifybusiness rules and content in real time and by helping to reduce the cost ofcustomer acquisition and retention, business development, technical support andemployee workplace initiatives. Because the Company provides pre-integrated,packaged solutions, time to deployment is shorter and customers are able tomanage and maintain their web and wireless applications in a cost-effectivemanner. Because of the Company’s commitment to open standards and openarchitecture, BroadVision applications integrate with its customers’ existingsystems and expand as its customers’ needs and businesses grow.

 

Supporting this applicationinfrastructure, as of March 31, 2003, are more than 100 partner firms aroundthe world who are working to ensure the Company’s joint customers’ successthrough complementary technology, applications, tools and services offeringsthat extend and enhance BroadVision customers’ implementations.

 

BroadVision markets itsproducts and services worldwide through a direct sales force and independentdistributors, value-added resellers (“VARs”) and application service providers(“ASPs”). In addition, its sales are promoted through independent professionalconsulting organizations, known as systems integrators. The Company hasoperations in North America, Europe, and Asia/Pacific.

 

BroadVision Global Services(“BVGS”) organization provides a full spectrum of global services to helpensure success for businesses, including strategic services, implementationservices, migration services and ongoing training and maintenance.

 

***Basisof Presentation and Use of Estimates***

 

The accompanyingconsolidated financial statements include the accounts of the Company and itswholly owned subsidiaries. All significant intercompany transactions have beeneliminated in consolidation.  In the Company’s opinion, the consolidatedfinancial statements presented herein include all necessary adjustments,consisting of normal recurring adjustments, to fairly state the Company’sfinancial position, results of operations and

 

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cash flows for the periodsindicated.  The preparation of consolidated financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make certain assumptions and estimates thataffect 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 results could differ from estimates. The financial results and related information as of March 31, 2003 and for thethree months ended March 31, 2003 and 2002 are unaudited. The consolidatedbalance sheet at December 31, 2002 has been derived from the auditedconsolidated financial statements as of that date but does not necessarilyreflect all of the informational disclosures previously reported in accordancewith accounting principles generally accepted in the United States of America.

 

The accompanying condensedconsolidated 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 Securities andExchange Commission (“SEC”). 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 periods.

 

***Revenue Recognition***

 

*Overview*

 

The Company’s revenueconsists of fees for licenses of the Company’s software products, maintenance,consulting services and customer training. The Company generally charges feesfor licenses of its software products either based on the number of personsregistered to use the product or based on the number of Central ProcessingUnits (“CPUs”) on which the product is installed. Licenses for software wherebyfees charged are based upon the number of persons registered to use the productare differentiated between licenses for development use and licenses for use indeployment of the customer’s website. Licenses for software whereby fees charged are on a per-CPU basis do notdifferentiate between development and deployment usage. The Company’s revenuerecognition policies are in accordance with Statement of Position (“SOP”) No.97-2, *Software Revenue Recognition*,as amended; SOP No. 98-9, *Software RevenueRecognition, With Respect to Certain Transactions*and the Securitiesand Exchange Commission’s Staff Accounting Bulletin No. 101, *Revenue Recognition in Financial Statements*.

 

*SoftwareLicense Revenue*

 

The Company licenses itsproducts through its direct sales force and indirectly through resellers. Ingeneral, software license revenues are recognized when a non-cancelable licenseagreement has been signed and the customer acknowledges an unconditionalobligation to pay, the software product has been delivered, there are nouncertainties surrounding product acceptance, the fees are fixed and determinableand collection is considered probable. Delivery is considered to have occurredwhen title and risk of loss have been transferred to the customer, whichgenerally occurs when media containing the licensed programs is provided to acommon carrier. In case of electronic delivery, delivery occurs when thecustomer is given access to the licensed programs. If collectibility is notconsidered probable, revenue is recognized when the fee is collected.  Subscription-based license revenues arerecognized ratably over the subscription period. The Company enters intoreseller arrangements that typically provide for sublicense fees payable to theCompany based upon a percentage of list price. The Company does not grant itsresellers the right of return.

 

The Company recognizesrevenue using the residual method pursuant to the requirements of SOP No. 97-2,as amended by SOP No. 98-9. 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 the Company. The Companylimits its assessment of objective evidence for each element to either theprice charged when the same element is sold separately or the price establishedby management having the relevant authority to do so, for an element not yetsold separately. If evidence of fair value of all undelivered elements existsbut evidence does not exist for one or more delivered elements, then revenue isrecognized using the residual method. Under the residual method, the fair valueof the undelivered elements is deferred and the remaining portion of thearrangement fee is recognized as revenue.

 

The Company records unearnedrevenue for software license agreements when cash has been received from thecustomer and the agreement does not qualify for revenue recognition underthe Company’s revenue recognition

 

7

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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.

 

*ServicesRevenue*

 

Consulting services revenuesand customer training revenues are recognized as such services are performed.Maintenance revenues, which include revenues bundled with software licenseagreements that entitle the customers to technical support and futureunspecified enhancements to the Company’s products, are deferred and recognizedratably over the related agreement period, generally twelve months.  The Company’s consulting services, whichconsist of consulting, maintenance and training, are delivered through BVGS.Services that the Company provides are not essential to the functionality ofthe software.

 

***Stock Split***

 

On July 24, 2002, theCompany announced that its Board of Directors had approved a one-for-ninereverse split of the Company’s common stock. The reverse split was effectiveJuly 29, 2002. Each nine shares of outstanding common stock of the Companyautomatically converted into one share of common stock. The accompanyingconsolidated financial statements and related financial information containedherein have been retroactively restated to give effect for this stock split.

 

***Employee Stock Option and Purchase Plans***

 

The Companyaccounts for employee stock-based awards in accordance with the provisions ofAccounting Principles Board (“APB”) Opinion No. 25, *Accounting for Stock Issued to Employees*,Financial Accounting Standards Board Interpretation No. 44 (“FIN 44”), *Accounting for Certain Transactions Involving StockCompensation—an Interpretation of APB No. 25, and related interpretations*.As such, compensation expense is recorded on the date of grant only if thecurrent market price of the underlying stock exceeded the exercise price onsuch date. Pursuant to Statement of Financial Accounting Standards (“SFAS”)No. 123, *Accounting for Stock-BasedCompensation*, the Company discloses the pro forma effects of usingthe fair value method of accounting for stock-based compensation arrangements.The Company accounts for equity instruments issued to non-employees inaccordance with the provisions of SFAS No. 123 and Emerging Issues TaskForce (“EITF”) 96-18, *Accounting for EquityInstruments That Are Issued to Other Than Employees For Acquiring or inConjunction with Selling Goods or Services*.

 

The Companyapplies APB Opinion Number 25, *Accountingfor Stock Issued to Employees*, and related interpretations whenaccounting for its stock option and stock purchase plans. In accordance withAPB No. 25, the Company applies the intrinsic value method in accountingfor employee stock options. Accordingly, the Company generally recognizes nocompensation expense with respect to stock-based awards to employees.

 

During thethree months ended March 31, 2003, the Company recorded compensation expense of$49,000. This charge was recorded as a result of granting a third-partyconsultant common stock in the Company. The charge was calculated based upon the market value of the underlyingstock.  During the three months endedMarch 31, 2002, the Company recorded compensation expense of $608,000.  This charge was recorded as a result ofgranting terminated employees continued vesting of their stock options for aperiod beyond their actual termination date. The compensation charge wascalculated using the Black-Scholes model.

 

We havedetermined pro forma information regarding net income and earnings per share asif we had accounted for employee stock options under the fair value method asrequired by SFAS Number 123, Accounting for Stock Compensation. The fair valueof these stock-based awards to employees was estimated using the Black-Scholesoption pricing model. Had compensation cost for the Company’s stock option planand employee stock purchase plan been determined consistent with SFASNo. 123, the Company’s reported net income (loss) and net earnings (loss)per share would have been changed to the amounts indicated below (in thousandsexcept per share data):

 

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|                                                                                                                                          |   | **Three Months Ended  March 31,** |       |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|------------|
|                                                                                                                                          |   | **2003**                          |       | **2002** |   |
| Net income (loss) as reported                                                                                                                 |   | $                                 | 1,337      |   | $ | (36,122 | ) |
| Add: Stock-based employee compensation  expense included in reported net loss, net of related tax effects                                     |   | 49                                |       | 608 |   |
| Deduct: Total stock-based employee  compensation expense determined under fair value based method for all awards,  net of related tax effects |   | (1,655                            | )          | (24,840 | ) |
| Pro forma net loss                                                                                                                            |   | (269                              | )          | (60,354 | ) |
|                                                                                                                                          |   |                              |       |   |   |
| Earnings (loss) per share:                                                                                                                    |   |                              | ** ** |   | ** ** |
| Basic—as reported                                                                                                                        |   | $                                 | 0.04       |   | $ | (1.14 | ) |
| Basic—pro forma                                                                                                                          |   | $                                 | (0.01      | ) | $ | (1.91 | ) |
|                                                                                                                                          |   |                              |       |   |   |
| Diluted—as reported                                                                                                                      |   | $                                 | 0.04       |   | $ | (1.14 | ) |
| Diluted—pro forma                                                                                                                        |   | $                                 | (0.01      | ) | $ | (1.91 | ) |

 

**NetEarnings (Loss) Per Share**

 

SFAS No. 128, *Earnings PerShare*, requires the presentation of basic and diluted earnings pershare. Earnings per share are calculated by dividing net income available tocommon stockholders by a weighted average number of shares outstanding for theperiod. Basic earnings per share are determined solely on common shares whereasdiluted earnings per share include common equivalent shares, as determinedunder the treasury stock method.

 

The followingtable sets forth basic and diluted earnings per share computational data forthe periods presented (in thousands, except per share amounts, unaudited):

 
|                                                                                         |   | **Three  Months Ended  March 31,** |   |
|----------------------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                                         |   | **2003**                           |   | **2002** |   |
| Net income (loss)                                                                            |   | $                                  | 1,337  |   | $ | (36,122 | ) |
|                                                                                         |   |                               |   |   |   |
| Weighted average common shares outstanding  utilized for basic net income (loss) per share   |   | 32,447                             |   | 31,673 |   |
| Potential common shares                                                                      |   | 2,280                              |   | — |   |
| Weighted average common shares outstanding  utilized for diluted net income (loss) per share |   | 34,727                             |   | 31,673 |   |
| Basic net income (loss) per share                                                            |   | $                                  | 0.04   |   | $ | (1.14 | ) |
| Diluted net income (loss) per share                                                          |   | $                                  | 0.04   |   | $ | (1.14 | ) |

 

For the three months endedMarch 31, 2002, 455,000 potential common shares are excluded from thedetermination of diluted net loss per share as the effect of such shares isanti-dilutive.

 

9

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***Allowances and Reserves***

 

Occasionally,the Company’s customers experience financial difficulty after the Companyrecords the revenue but before payment has been received. The Company maintainsallowances for doubtful accounts for estimated losses resulting from theinability of its customers to make required payments. The Company’s normalpayment terms are 30 to 90 days from invoice date. If the financial conditionof the Company’s customers were to deteriorate, resulting in an impairment oftheir ability to make payments, additional allowances may be required

 

***Restructuring***

 

The Companyhas approved certain restructuring plans to, among other things, reduce its workforceand consolidate facilities. These restructuring charges were taken to align theCompany’s cost structure with changing market conditions and to create a moreefficient organization. The Company’s restructuring charges are comprisedprimarily of: (i) severance and benefits termination costs related to thereduction of the Company’s workforce; (ii) lease termination costs and/orcosts associated with permanently vacating its facilities; (iii) otherincremental costs incurred as a direct result of the restructuring plan; and(iv) impairment costs related to certain long-lived assets abandoned. TheCompany accounts for each of these costs in accordance with SEC StaffAccounting Bulletin No. 100, *Restructuringand Impairment Charges.*

 

The Company accounts for severance and benefits termination costs inaccordance with EITF Issue No. 94-3, *LiabilityRecognition for Certain Employee Termination Benefits and Other Costs to Exitan Activity (Including Certain Costs Incurred in a Restructuring)*for exit or disposal activities initiated prior to December 31, 2002.Accordingly, the Company records the liability related to these terminationcosts when the following conditions have been met: (i) management with theappropriate level of authority approves a termination plan that commits theCompany to such plan and establishes the benefits the employees will receiveupon termination; (ii) the benefit arrangement is communicated to theemployees in sufficient detail to enable the employees to determine the terminationbenefits; (iii) the plan specifically identifies the number of employeesto be terminated, their locations and their job classifications; and(iv) the period of time to implement the plan does not indicate changes tothe plan are likely. The termination costs recorded by the Company are notassociated with nor do they benefit continuing activities.  The Company accounts for severance andbenefits termination costs for exit or disposal activities initiated after December31, 2002 in accordance with SFAS No. 146, *Accountingfor Costs Associated with Exit Activities*.  SFAS No. 146 requires that a liability for a cost associated withan exit or disposal activity be recognized and measured initially at fair valueonly when the liability is incurred. This differs from EITF 94-3, which required that a liability for an exitcost be recognized at the date of an entity’s commitment to an exit plan.

 

The Company accounts for the costs associated with lease terminationand/or abandonment in accordance with EITF 88-10, *Costs Associated with Lease Modification or Termination*.Accordingly, the Company records the costs associated with lease terminationand/or abandonment when the leased property has no substantive future use orbenefit to the Company. Under EITF 88-10, the Company records the liabilityassociated with lease termination and/or abandonment as the sum of the totalremaining lease costs and related exit costs, less probable sublease income.The Company accounts for costs related to long-lived assets abandoned inaccordance with SFAS No. 144, *Accountingfor the Impairment or Disposal of Long-Lived Assets,*and,accordingly, charges to expense the net carrying value of the long-lived assetswhen the Company ceases to use the assets.

 

Inherent in the estimation of the costs related to the Company’srestructuring efforts are assessments related to the most likely expectedoutcome of the significant actions to accomplish the restructuring. Indetermining the charge related to the restructuring, the majority of estimatesmade by management related to the charge for excess facilities. In determiningthe charge for excess facilities, the Company was required to estimate futuresublease income, future net operating expenses of the facilities, and brokeragecommissions, among other expenses. The most significant of these estimatesrelated to the timing and extent of future sublease income in which to reducethe Company’s lease obligations. Specifically, in determining the restructuringobligations related to facilities as of March 31, 2003, the Companyreduced its lease obligations by estimated sublease income of$30.3 million. The Company based its estimates of sublease income, inpart, on the opinions of independent real estate experts, current marketconditions and rental rates, an assessment of the time period over whichreasonable estimates could be made, the status of negotiations with potentialsubtenants, and the location of the respective facility, among other factors.

 

Theseestimates, along with other estimates made by management in connection with therestructuring, may vary significantly depending, in part, on factors that maybe beyond the Company’s control. Specifically, these

 

10

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estimates will depend on theCompany’s success in negotiating with lessors, the time periods required tolocate and contract suitable subleases and the market rates at the time of suchsubleases. Adjustments to the facilities reserve will be required if actuallease exit costs or sublease income differ from amounts currently expected. TheCompany will review the status of restructuring activities on a quarterly basisand, if appropriate, record changes to its restructuring obligations in currentoperations based on management’s most current estimates.

 

***Legal Matters***

 

The Company’scurrent estimated range of liability related to pending litigation is based onclaims for which it is probable that a liability has been incurred and theCompany can estimate the amount and range of loss. The Company has recorded theminimum estimated liability related to those claims, where there is a range ofloss. Because of the uncertainties related to both the determination of theprobability of an unfavorable outcome and the amount and range of loss in the eventof an unfavorable outcome, the Company is unable to make a reasonable estimateof the liability that could result from the remaining pending litigation. Asadditional information becomes available, the Company will assess the potentialliability related to its pending litigation and revise its estimates, ifnecessary. Such revisions in the Company’s estimates of the potential liabilitycould materially impact the Company’s results of operations and financialposition.

 

***Foreign Currency Transactions***

 

The functional currency ofthe Company’s foreign subsidiaries is the U.S. dollar. Foreign exchange gainsand losses resulting from the remeasurement of foreign currency assets andliabilities are included in other income (expense), net in the Condensed ConsolidatedStatements of Operations.

 

***Valuation of Long-Lived Assets***

 

The Companyperiodically assesses the impairment of long-lived assets in accordance withthe provisions of SFAS No. 144, *Accountingfor the Impairment or Disposal of Long-Lived Assets*. The Companyassesses the impairment of goodwill and identifiable intangible assets inaccordance with SFAS No. 141, Business Combinations and SFAS No. 142,Goodwill and Other Intangible Assets.

 

***Fair Value of Financial Instruments***

 

The Company’s financialinstruments consist of cash and cash equivalents, short-term investments,restricted cash, long-term investments, equity investments, accountsreceivable, accounts payable and debt. The Company does not have any derivativefinancial instruments. The Company believes the reported carrying amounts ofits financial instruments approximates fair value, based upon the maturitiesand nature of its cash equivalents, short-term investments, long-terminvestments, accounts receivable and payable, and based on the current ratesavailable 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 such assets are considered to be impaired, theimpairment to be recognized is measured by the amounts by which the carryingamount exceeds its fair market value. The Company’s equity investments arecomprised of investments in public and non-public technology-related companies.The Company may record future impairment charges due to continued economicdecline and the potential resulting negative impact on these companies. Duringthe three months ended March 31, 2003, impairment charges on the Company’s costmethod equity investments were not significant. During the three months endedMarch 31, 2002, the Company recorded $8.6 million in impairment charges on itscost method equity investments.

 

***New Accounting Pronouncements***

 

In January 2003, the FASBissued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable InterestEntities,” which addresses consolidation by business enterprises of variableinterest entities that either: (i) do not have sufficient equity investment atrisk to permit the entity to finance its activities without additionalsubordinated financial support, or (ii) the equity investors lack an essentialcharacteristic of a controlling financial interest. FIN 46 requires disclosureof Variable Interest Entities (“VIEs”) in financial statements issued afterJanuary 31, 2003, if it is reasonably possible that as of the transition date:(i) the company will be the primary beneficiary of an existing VIE that willrequire consolidation or, (ii) the company will hold a significant variableinterest in, or have significant

 

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involvement with, an existingVIE. The company does not have any entities that will require disclosure or newconsolidation as a result of adopting the provisions of FIN 46.

 

**Note2.   Selective Balance Sheet Detail**

 

Property andequipment consisted of the following (in thousands):

 
|                                            |   | **March 31,  2003** |   | **December 31,  2002** |   |
|-------------------------------------------------|--------|---------------------|--------|-----------------------------|--------|
|                                            |   | **(unaudited)**     |   |                        |   |
| Furniture and fixtures                          |   | $                   | 9,149  |                        | $      | 9,138 |   |
| Computers and software                          |   | 49,650              |   | 49,579                      |   |
| Leasehold improvements                          |   | 21,506              |   | 21,456                      |   |
|                                            |   | 80,305              |   | 80,173                      |   |
| Less accumulated depreciation and  amortization |   | (57,355             | )      | (53,573                     | )      |
|                                            |   | $                   | 22,950 |                        | $      | 26,600 |   |

 

Accruedexpenses consisted of the following (in thousands):

 
|                       |   | **March 31,  2003** |   | **December  31,  2002** |   |
|----------------------------|--------|---------------------|--------|-------------------------|--------|
|                       |   | **(unaudited)**     |   |                    |   |
| Employee benefits          |   | $                   | 2,097  |                    | $      | 2,081 |   |
| Commissions and bonuses    |   | 1,471               |   | 2,027                   |   |
| Sales and other taxes      |   | 8,452               |   | 11,956                  |   |
| Restructuring (See Note 6) |   | 24,647              |   | 29,056                  |   |
| Other                      |   | 10,054              |   | 10,667                  |   |
|                       |   | $                   | 46,721 |                    | $      | 55,787 |   |

Othernoncurrent liabilities consisted of the following (in thousands):

 
|                       |   | **March 31,  2003** |   | **December 31,  2002** |   |
|----------------------------|--------|---------------------|--------|-----------------------------|--------|
|                       |   | **(unaudited)**     |   |                        |   |
| Restructuring (See Note 6) |   | $                   | 65,403 |                        | $      | 67,139 |   |
| Other                      |   | 1,126               |   | 1,067                       |   |
|                       |   | $                   | 66,529 |                        | $      | 68,206 |   |

 

**Note3.   Commercial Credit Facilities**

 

The Companyhas various credit facilities with a commercial lender which include term debtin the form of notes payable and a revolving line of credit. In March 2002, theCompany renewed and amended its revolving credit facility. The amount availableunder the revolving line of credit was increased from $10.0 million to $25.0million. The Company further renewed and amended its revolving creditfacility in March 2003 under similar terms. Borrowings under the revolving lineof credit are collateralized by all of the Company’s assets and bear interestat the bank’s prime rate (4.25% as of March 31, 2003). Interest is due monthlyand principal is due at expiration in February 2004. The amended and restatedloan and security agreement requires the Company to maintain certain levels incash and cash equivalents, short-term investments and long-term investments(excluding equity investments). Additionally, the amended and restated loan andsecurity agreement requires the Company to maintain certain levels on depositwith the Company’s commercial lender and certain quarterly net income (loss)levels.  At March 31, 2003 and December31, 2002, $25.0 million was outstanding.

 

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As of March 31, 2003 andDecember 31, 2002, outstanding term debt borrowings were approximately $2.7million and $2.9 million, respectively. Borrowings bear interest at the bank’s prime rate (4.25% as of March 31,2003 and December 31, 2002) and prime rate plus 1.25% (5.50% as of March 31, 2003and December 31, 2002). Principal and interest are due in consecutive monthlypayments through maturity based on the terms of the facilities. 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.

 

Commitmentstotaling $16.8 million and $16.7 million in the form of standby letters ofcredit were issued on the Company’s behalf from financial institutions as ofMarch 31, 2003 and December 31, 2002, respectively, in favor of the Company’svarious landlords to secure obligations under the Company’s facility leases.

 

**Note4.   Commitments and Contingencies**

 

In November 2002, the FASBissued FASB Interpretation No. 45 (“FIN 45”), *Guarantor’sAccounting and Disclosure Requirements for Guarantees, Including IndirectGuarantees of Indebtedness of Others—an interpretation of FASB Statements No.5, 57 and 107 and rescission of FIN 34*.  FIN 45 requires that disclosures be made by a guarantor in itsinterim and annual financial statements about its obligations under certainguarantees that it has issued and clarifies that a guarantor is required torecognize, at the inception of a guarantee, a liability for the fair value ofthe obligation undertaken in issuing the guarantee.  FIN 45 does not apply to certain guarantee contracts, such asresidual value guarantees provided by lessees in capital leases, guaranteesthat are accounted for as derivatives, guarantees that represent contingentconsideration in a business combination, guarantees issued between eitherparents and their subsidiaries or corporations under common control, a parent’sguarantee of a subsidiary’s debt to a third party, and a subsidiary’s guaranteeof the debt owed to a third party by either its parent or another subsidiary  of that parent.  This interpretation is effective on a prospective basis forguarantees issued or modified after December 31, 2002 and for financialstatements of interim or annual periods ending after December 15, 2002.  This interpretation did not have a materialimpact on the Company’s financial position or results of operations.

 

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 becomes insolvent, files a petition for reliefunder the United States Bankruptcy Code, or materially breaches the agreement,Hewlett-Packard will have rights to a limited term license for BroadVision’sbusiness-to-business customer portals software products and a limited uselicense for BroadVision’s One-to-One Enterprise 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$12.0 million. In addition, the Company will pay back to Hewlett-Packard aportion of the unused prepaid royalty payments, received from Hewlett-Packardin prior periods totaling approximately $2.4 million. The amounts payable underthis agreement are due quarterly and are included in Accrued Liabilities in theaccompanying consolidated balance sheets.

 

*Warrantiesand Indemnification*

 

                The Company provides a warranty to itscustomers that its software will perform substantially in accordance with documentationtypically for a period of 90 days following receipt of the software. TheCompany also indemnifies certain customers from third party claims ofintellectual property infringement relating to the use of its products.Historically, costs related to these guarantees have not been significant andthe Company is unable to estimate the maximum potential impact of theseguarantees on its future results of operations.

 

                The Company has agreements whereby itindemnifies its officers and directors for certain events or occurrences whilethe officer is, or was, serving in such capacity. The term of theindemnification period is for so long as such officer or director is subject toan indemnifiable event by reason of the fact that such person was serving insuch capacity. The maximum potential amount of future payments the Companycould be required to make under these indemnification agreements is unlimited;however, the Company has a director and officer insurance policy that limitsits exposure and enables the Company to recover a portion of any future amountspaid. As a result of the Company's insurance policy coverage, the Companybelieves the estimated fair value of these indemnification agreements isinsignificant. Accordingly, the Company has no liabilities recorded for theseagreements as of March 31, 2003. The Company assesses the need for anindemnification reserve on a quarterly basis and there can be no guarantee thatan indemnification reserve will not become necessary in the future.

 

*Leases*

 

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

 

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A summary of total futureminimum lease payments under noncancelable operating lease agreements, togetherwith amounts included in restructuring reserves is as follows (in thousands):

 
| **Years Ended December 31,** |   | **Operating  Leases** |    |
|-----------------------------------|--------|-----------------------|---------|
| 2003                              |   | $                     | 19,520  |   |
| 2004                              |   | 25,855                |    |
| 2005                              |   | 25,652                |    |
| 2006                              |   | 22,620                |    |
| 2007                              |   | 20,495                |    |
| 2008 and thereafter               |   | 81,487                |    |
|                              |   |                  |    |
| Total minimum lease payments      |   | $                     | 195,629 |   |

 

As of March 31, 2003, $80.1million of future minimum lease payments, net of anticipated sublease income,is accrued in the Company’s restructuring accruals. The restructuring accrualsare net of approximately $43.7 million of sublease income of whichapproximately $30.3 million represents estimated sublease income for subleaseagreements yet to be negotiated and the remaining $13.4 million representssublease income to be received under non-cancelable sublease agreements signedprior to March 31, 2003.

 

*StandbyLetter of Credit Commitments*

 

As of March 31, 2003, theCompany had $16.8 million of outstanding commitments in the form of standbyletters of credit in favor of the Company’s various landlords to secureobligations under the Company’s facility leases.

 

*LegalProceedings*

 

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 trialdate is set for September 2, 2003 in San Jose, California, in the United StatesDistrict Court, Northern District, San Jose Division. The Company is unable toestimate the amount or range of any potential loss from this matter.

 

On July 18, 2002, AvalonPartners, Inc., doing business as Cresa Partners (“Cresa”), filed a suitagainst the Company in the Superior Court of the State of California, San MateoCounty, claiming broker commissions related to the Company’s termination andrestructuring of certain facilities leases associated with the Company’srestructuring plans taken during the second quarter of 2002. The matter wassettled by way of a settlement agreement executed by both parties in March 2003under which the Company made a one-time payment of $2.2 million in April 2003.

 

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.

 

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**Note 5.   Geographic,Segment and Significant Customer Information**

 

The Companyoperates in one segment, electronic business commerce solutions. The Company’sreportable segment includes the Company’s facilities in North and South America(“Americas”), Europe and Asia Pacific and the Middle East (“Asia/Pacific”). TheCompany’s chief operating decision maker is considered to be the Company’sChief Executive Officer (“CEO”). The CEO reviews financial informationpresented on a consolidated basis accompanied by disaggregated informationabout revenues by geographic region and by product for purposes of makingoperating decisions and assessing financial performance.

 

Thedisaggregated revenue information reviewed by the CEO is as follows (inthousands):

 
|              |   | **Three months ended  March 31,** |   |
|-------------------|--------|-----------------------------------|--------|
|              |   | **2003**                          |   | **2002** |   |
| Software licenses |   | $                                 | 7,975  |   | $ | 8,179 |   |
| Services          |   | 6,471                             |   | 11,688 |   |
| Maintenance       |   | 10,009                            |   | 10,588 |   |
| Total revenues    |   | $                                 | 24,455 |   | $ | 30,455 |   |

 

The Company sells its products and provides services worldwide througha direct sales force and through a channel of independent distributors, VARsand application service providers ASPs. In addition, the sales of the Company’sproducts are promoted through independent professional consulting organizationsknown as systems integrators. The Company provides services worldwide throughits BroadVision Global Services Organization and indirectly throughdistributors, VARs, ASPs, and systems integrators. The Company currentlyoperates in three primary geographical territories, Americas, Europe andAsia/Pacific.

 

Disaggregatedfinancial information regarding the Company’s products and services andgeographic revenues is as follows (in thousands):

 
|          |   | **Three months ended March 31,** |   |
|---------------|--------|----------------------------------|--------|
|          |   | **2003**                         |   | **2002** |   |
| Revenues:     |   |                             |   |   |   |
| Americas      |   | $                                | 13,308 |   | $ | 18,202 |   |
| Europe        |   | 8,321                            |   | 10,843 |   |
| Asia/Pacific  |   | 2,826                            |   | 1,410 |   |
| Total Company |   | $                                | 24,455 |   | $ | 30,455 |   |

 
|               |   | **March 31,  2003** | ** ** | **December  31,  2002** | ** ** |
|--------------------|--------|---------------------|------------|-------------------------|------------|
| Long-lived assets: |   |                |       |                    |       |
| Americas           |   | $                   | 80,407     |                    | $          | 84,727 |   |
| Europe             |   | 864                 |       | 1,175                   |       |
| Asia/Pacific       |   | 796                 |       | 892                     |       |
| Total Company      |   | $                   | 82,067     |                    | $          | 86,794 |   |

 

During thethree months ended March 31, 2003 and 2002 no customer accounted for 10% ormore of the Company’s revenues.

 

**Note6.   Restructuring Charges**

 

The Companyapproved restructuring plans to, among other things, reduce its workforce andconsolidate facilities. These restructuring charges were taken to align theCompany’s cost structure with changing market conditions and to create a more efficientorganization. A pre-tax charge of $1.0 million was recorded during the threemonths ended March 31, 2003 and a pre-tax charge of $5.4 million wasrecorded during the three months ended March 31, 2002 to provide for theseactions and other related items. The Company recorded the low-end of a range ofassumptions modeled for the restructuring charges, in accordance with SFASNo. 5, *Accounting for Contingencies*.The high-end of the range was not materially different from the low end of therange for the charge

 

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related to the three monthsended March 31, 2003. Adjustments to the restructuring reserves will be made infuture periods, if necessary, based upon the then current actual events andcircumstances.

 

The followingtable summarizes charges recorded during the three months ended March 31, 2003for exit activities (in thousands):

 
|                                     |   | **Severance  and Benefits** |   | **Facilities** |   | **Other** |   | **Total** |   |
|------------------------------------------|--------|-----------------------------|--------|----------------|--------|-----------|--------|-----------|--------|
| Reserve balances, December 31, 2002 |   | $                           | 1,425  |           | $      | 94,691    |   | $         | 79     |   | $ | 96,195 |   |
| Restructuring charges                    |   | (138                        | )      | 1,173          |   | —    |   | 1,035     |   |
| Cash payments                            |   | (174                        | )      | (6,959         | )      | (47       | )      | (7,180    | )      |
| Reserve balances, March 31, 2003    |   | $                           | 1,113  |           | $      | 88,905    |   | $         | 32     |   | $ | 90,050 |   |

 

The nature of the charges summarized above is as follows:

 

Severance andbenefits–The Company recorded a charge of approximately $(138,000) duringthe three months ended March 31, 2003. This charge relates primarily to the reversal of severance recorded inprior periods for an individual who continued to provide service for theCompany.  As such, any payments to suchindividual represent salary expense in the Company’s statement of operations asopposed to severance expense included in restructuring.  Remaining costs included in the company’sseverance accrual represent costs incurred for severance, payroll taxes andCOBRA benefits. Approximately $1.4 million of severance and benefits costs wereaccrued at December 31, 2002 as a result of the Company’s 2002 restructuringplan. Approximately $174,000 of severance and benefits costs were paid outduring the three months ended March 31, 2003 and the remaining$1.1 million is expected to be paid in full by March 31, 2004.

 

Facilities—Duringthe three months ended March 31, 2003, the Company recorded a charge of $1.2million, primarily related to the Company’s revision of some of its estimateswith respect to anticipated future subleases. This revision was necessary due to a further decline in the market forcommercial real estate.  The Companyobtained the adjusted rates based upon current market indicators andinformation obtained from a third party real estate expert.

 

Approximately$94.7 million of facilities related costs remained accrued as ofDecember 31, 2002 as a result of the Company’s 2002 restructuring plan.Net cash payments during the three months ended March 31, 2003 related toabandoned facilities amounted to $7.0 million. Actual future cashrequirements may differ materially from the accrual at March 31, 2003,particularly if actual sublease income is significantly different fromhistorical estimates. As of March 31, 2003, $88.9 million of leasetermination costs, net of anticipated sublease income, is expected to be paidby the end of the second quarter of fiscal 2013. The Company expects to payapproximately $23.5 million over the next twelve months and the remaining$65.4 million from April 1, 2004 through June of fiscal 2013. The$88.9 million is net of approximately $43.7 million of estimatedsublease income of which approximately $30.3 million represents sublease agreementsyet to be negotiated.

 

Other—TheCompany recorded charges in prior periods resulting in an accrued balance of$79,000 as of December 31, 2002 for various incremental costs incurred as adirect result of the restructuring plan. The Company paid out approximately$47,000 during the three months ended March 31, 2003.  The remaining reserve balance of $32,000 is expected to be paidin full by the end of the first quarter of 2004.

 

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**Note7.   Goodwilland Other Intangible Assets**

 

Goodwill and other intangiblesconsist of the following (in thousands):

 
|                                |   | **March 31,  2003** |    | **December 31,********2002** |   |
|-------------------------------------|--------|---------------------|---------|------------------------------|--------|
| Goodwill                            |   | $                   | 437,206 |                         | $      | 437,206 |   |
| Other intangibles                   |   | 22,732              |    | 22,732                       |   |
|                                |   | 459,938             |    | 459,938                      |   |
| Less: Accumulated amortization |   | (403,505            | )       | (402,618                     | )      |
| Goodwill and other intangibles, net |   | $                   | 56,433  |                         | $      | 57,320 |   |

 

OnJanuary 1, 2002, the Company adopted SFAS No. 142, *Goodwill and Intangible Assets.*Under SFASNo. 142, goodwill and intangible assets with indefinite lives are nolonger subject to amortization but are tested for impairment at least annuallyusing a fair value approach, and whenever there is an impairment indicator.Other intangible assets continue to be valued and amortized over theirestimated lives.

 

Pursuant toSFAS No. 142, the Company is required to test its goodwill for impairmentupon adoption and annually or more often if events or changes in circumstancesindicate that the asset might be impaired. While there was no accounting chargeto record upon adoption, at September 30, 2002, the Company concludedthat, based on the existence of impairment indicators, including a decline inits market value, it would be required to test goodwill for impairment. SFASNo. 142 provides for a two-stage approach to determining whether and byhow much goodwill has been impaired. Since the Company has only one reportingunit for purposes of applying SFAS No. 142, the first stage requires acomparison of the fair value of the Company to its net book value. If the fairvalue is greater, then no impairment is deemed to have occurred. If the fairvalue is less, then the second stage must be completed to determine the amount,if any, of actual impairment. The Company completed the first stage and hasdetermined that its fair value at September 30, 2002 exceeded its net bookvalue on that date, and as a result, no impairment of goodwill was recorded inthe consolidated financial statements. The Company obtained an independentappraisal of fair value to support its conclusion. Additionally, the Companyconcluded that, based upon the market value of its stock in relation to theCompany’s net book value at December 31, 2002 and March 31, 2003, therewas no additional impairment of goodwill warranted.

 

The process ofevaluating the potential impairment of goodwill is highly subjective andrequires significant judgment. In estimating the fair value of the Company, theCompany made estimates and judgments about future revenues and cash flows. TheCompany’s forecasts were based on assumptions that are consistent with theplans and estimates the Company is using to manage the business. Changes inthese estimates could change the Company’s conclusion regarding impairment ofgoodwill and potentially result in a non-cash goodwill impairment charge forall or a portion of the goodwill balance at March 31, 2003.

 

Upon adoptionof SFAS No. 142, on January 1, 2002, the Company no longer amortizesgoodwill. Additionally, upon adoption of SFAS No. 141 and 142, the Companyno longer amortizes its non-technology based intangible asset, or assembledworkforce. The remaining other intangible assets have been fully amortized asof March 31, 2003.

 

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**Item2****.    Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

*Except for the historical informationcontained herein, the following discussion contains forward-looking statementsthat involve risks and uncertainties. The Company’s actual results could differsignificantly from those discussed herein. Factors that could cause orcontribute to such differences include, but are not limited to, those discussedherein and in the Company’s annual report on Form 10-K and other documentsfiled with the Securities and Exchange Commission. Any such forward-lookingstatements speak only as of the date such statements are made.*

 

**Overview**

 

We develop, market and support enterprise portal applications thatenable companies to unify their e-business infrastructure and conduct bothinteractions and transactions with employees, partners, and customers through apersonalized self-service model that increases revenues, reduces costs, andimproves productivity. As of March 31, 2003, more than 1,200 companies andgovernment entities around the globe use our applications to facilitate theirportal-based commerce and information access initiatives.

 

BroadVision was founded in 1993 and has been a publicly tradedcorporation since 1996. We pioneered web-based e-commerce and were among thefirst to offer pre-integrated, packaged applications to power enterprisebusiness portals.

 

Our enterprise portal applications allow organizations to unify andextend their key business applications, information, and business processes bytaking advantage of the power of the web and new wireless and mobile devices toallow customers, partners, and employees to do business on their own terms, ina personalized and collaborative way. Our solutions allow multiple constituentsto serve themselves from anywhere, at anytime, through any web device. Ourenterprise portal applications enable organizations to create business value bytransforming the way they do business; moving business interactions andtransactions from a manual, human-assisted paradigm to an automated, personalizedself-service model that enhances growth, reduces costs and improvesproductivity.

 

We believe our products improve our customers’ revenue opportunities byenabling them to establish more effective and efficient one-to-onerelationships with their customers and business partners. Web and wirelessusers are engaged by highly personalized real-time interactions, able totransact business securely and encouraged to remain online and make returnvisits. Our applications also improve the cost-effectiveness of one-to-onerelationship management by enabling non-technical managers to modify businessrules and content in real time and by helping to reduce the cost of customeracquisition and retention, business development, technical support and employeeworkplace initiatives. Because we provide pre-integrated, packaged solutions,time to deployment is shorter and customers are able to manage and maintaintheir web and wireless applications in a cost-effective manner. Because of ourcommitment to open standards and open architecture, BroadVision applicationsintegrate with our customers’ existing systems and expand as our customers’needs and businesses grow.

 

Supporting this application infrastructure, as of March 31, 2003,are more than 100 partner firms around the world who are working to ensure ourjoint customers’ success through complementary technology, applications, toolsand services offerings that extend and enhance BroadVision customers’implementations.

 

We market our products and services worldwide through a direct salesforce and independent distributors, value-added resellers ("VARs")and application service providers ("ASPs"). In addition, our salesare promoted through independent professional consulting organizations, knownas systems integrators. We have operations in North America, Europe, andAsia/Pacific.

 

BroadVision Global Services ("BVGS") organization provides afull spectrum of global services to help ensure success for businesses,including strategic services, implementation services, migration services andongoing training and maintenance.

 

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**RecentEvents**

 

We haveexperienced a general downturn in the economy, our industry and our businesssince the beginning of 2001. This downturn is likely to continue in the futureand has had and is likely to continue to have an impact on our financialresults. As discussed in Note 6 of Notes to Condensed ConsolidatedFinancial Statements, we have recorded significant restructuring charges inconnection with our reduction in workforce and abandonment of certain operatingfacilities as part of our program to restructure our operations and relatedfacilities initiated in the second quarter of fiscal 2001. A pre-tax charge of$1.0 million was recorded during the three months ended March 31, 2003 and$5.4 million was recorded during the three months ended March 31, 2002 toprovide for these actions and other related items. Costs for the abandonedfacilities were estimated to include the impairment of assets, remaining leaseliabilities and brokerage fees partially offset by estimated sublease income.Estimates related to sublease costs and income are based on assumptionsregarding the period required to locate and contract with suitable sublesseesand sublease rates which were based upon market trend information analyses.Adjustments to the restructuring reserve will be made in future periods, ifnecessary, based upon the then current actual events and circumstances.

 

OnJuly 18, 2002, Avalon Partners, Inc., doing business as Cresa Partners,filed a suit against us in the Superior Court of the State of California, SanMateo County, claiming broker commissions related to our termination andrestructuring of certain facilities leases associated with our restructuring planstaken during the second quarter of 2002. The matter was settled by wayof a settlement agreement executed by both parties in March 2003 under whichthe Company made a one-time payment of $2.2 million in April 2003.

 

Werenewed and amended our revolving credit facility in March 2003. Borrowingsunder the revolving line of credit are collateralized by all of our assets andbear interest at the bank’s prime rate (4.25% as of March 31, 2003). Interestis due monthly and principal is due at expiration in February 2004. The amendedand restated loan and security agreement requires us to maintain certain levelsin cash and cash equivalents, short-term investments and long-term investments(excluding equity investments). Additionally, the amended and restated loan andsecurity agreement requires us to maintain certain levels on deposit with ourcommercial lender and certain quarterly net income (loss) levels.  At March 31, 2003 and December 31, 2002,$25.0 million was outstanding.

 

**CriticalAccounting Policies**

 

Thismanagement’s discussion and analysis of our financial condition and results ofoperations are based upon our condensed consolidated financial statements,which have been prepared in accordance with accounting principles generallyaccepted in the United States of America. In preparing these financialstatements, we are required to make estimates and judgments that affect thereported amounts of assets, liabilities, revenues and expenses, and relateddisclosures of contingent assets and liabilities. On an ongoing basis, weevaluate our estimates, including those related to doubtful accounts, productreturns, investments, goodwill and intangible assets, income taxes andrestructuring, as well as contingencies and litigation. We base our estimateson historical experience and on various other assumptions that we believe arereasonable, the results of which form the basis for making judgments about thecarrying values of assets and liabilities that are not readily apparent fromother sources. Actual results may differ from these estimates using differentassumptions or conditions. We believe the following critical accountingpolicies reflect the more significant judgments and estimates used in thepreparation of our consolidated financial statements.

 

***Revenue Recognition***

 

*Overview*—Ourrevenues are derived from fees for licenses of our software products,maintenance, consulting services and customer training. We generally chargefees for licenses of our software products either based on the number ofpersons registered to use the product or based on the number of CentralProcessing Units (“CPUs”) on which the product is installed. Licenses forsoftware whereby fees charged are based upon the number of persons registeredto use the product are differentiated between licenses for development use andlicenses for use in deployment of the customer’s website. Licenses for softwarewhereby fees charged are on a per-CPU basis do not differentiate betweendevelopment and deployment usage. Our revenue recognition policies are inaccordance with Statement of Position (“SOP”) No. 97-2, *Software Revenue Recognition*, as amended;SOP No. 98-9, *Software RevenueRecognition, With Respect to Certain Transactions*and the Securitiesand Exchange Commission’s Staff Accounting Bulletin No. 101, *Revenue Recognition in Financial Statements.*

 

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*Software License Revenue*—Welicense our products through our 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. Delivery is consideredto have occurred when title and risk of loss have been transferred to thecustomer, which generally occurs when media containing the licensed programs isprovided to a common carrier. In case of electronic delivery, delivery occurswhen the customer is given access to the licensed programs. If collectibilityis not considered probable, revenue is recognized when the fee is collected.Subscription-based license revenues are recognized ratably over thesubscription period. We enter into reseller arrangements that typically providefor sublicense fees payable to us based upon a percentage of list price. We donot grant our resellers the right of return.

 

We recognizerevenue using the residual method pursuant to the requirements of SOPNo. 97-2, as amended by SOP No. 98-9. Revenues recognized frommultiple-element software arrangements are allocated to each element of thearrangement based on the fair values of the elements, such as licenses forsoftware products, maintenance, consulting services or customer training. Thedetermination of fair value is based on objective evidence, which is specificto us. We limit our assessment of objective evidence for each element to eitherthe price charged when the same element is sold separately or the priceestablished by management having the relevant authority to do so, for anelement not yet sold separately. If evidence of fair value of all undeliveredelements exists but evidence does not exist for one or more delivered elements,then revenue is recognized under the residual method. Under the residualmethod, the fair value of the undelivered elements is deferred and theremaining portion of the arrangement fee is recognized as revenue.

 

We recordunearned revenue for software arrangements when cash has been received from thecustomer and the arrangement does not qualify for revenue recognition under ourrevenue recognition policy. We record accounts receivable for softwarearrangements when the arrangement qualifies for revenue recognition but cash orother consideration has not been received 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 our products, are deferred andrecognized ratably over the related agreement period, generally twelve months.Our professional services which consist of consulting, maintenance and trainingare delivered through BVGS. Services that we provide are not essential to thefunctionality of our software. This group provides consulting services, managesprojects and client relationships, manages the needs of our partner community,provides training-related services to employees, customers and partners, andalso provides software maintenance services, including technical support, toour customers and partners. We record reimbursement by our customers forout-of-pocket expenses as a component of services revenue.

 

***Allowances and Reserves***

 

Occasionally,our customers experience financial difficulty after we record the revenue butbefore we are paid. We maintain allowances for doubtful accounts for estimatedlosses resulting from the inability of our customers to make required payments.Our normal payment terms are 30 to 90 days from invoice date. If thefinancial condition of our customers were to deteriorate, resulting in animpairment of their ability to make payments, additional allowances may berequired. We record estimated reductions to revenue for potential returns ofproducts by our customers. If market conditions were to decline, we may experiencelarger volumes of returns resulting in an incremental reduction of revenue atthe time the return occurs.

 

***Impairment Assessments***

 

We adoptedStatement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill andOther Intangible Assets,” on January 1, 2002. This standard requires thatgoodwill no longer be amortized, and instead, be tested for impairment on aperiodic basis.

 

Pursuant toSFAS No. 142, we are required to test goodwill for impairment uponadoption and annually or more often if events or changes in circumstancesindicate that the asset might be impaired. While there was no accounting chargeto record upon adoption, at September 30, 2002, we concluded that, basedon the existence of

 

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impairment indicators,including a decline in our market value, we would be required to test goodwillfor impairment. SFAS No. 142 provides for a two-stage approach todetermining whether and by how much goodwill has been impaired. Since we haveonly one reporting unit for purposes of applying SFAS No. 142, the firststage requires a comparison of the fair value of the Company to its net bookvalue. If the fair value is greater, then no impairment is deemed to haveoccurred. If the fair value is less, then the second stage must be completed todetermine the amount, if any, of actual impairment. We completed the firststage and determined that our fair value at September 30, 2002 exceededour net book value on that date, and as a result, no impairment of goodwill wasrecorded in the consolidated financial statements. We obtained an independentappraisal of fair value to support our conclusion. We also determined that ourfair value exceeded our net book value as of March 31, 2003 and therefore, noadditional impairment was warranted.

 

The process ofevaluating the potential impairment of goodwill is highly subjective andrequires significant judgment. In estimating our fair value, we made estimatesand judgments about future revenues and cash flows. Our forecasts were based onassumptions that are consistent with the plans and estimates we are using tomanage our business. Changes in these estimates could change our conclusionregarding impairment of goodwill and potentially result in a non-cash goodwillimpairment charge, for all or a portion of the goodwill balance atMarch 31, 2003. For long-lived assets, accounting standards dictate thatassets become impaired when the undiscounted future cash flows expected to begenerated by them are less than their carrying amounts. When that occurs, theaffected assets are written down to their estimated fair value.

 

***Deferred Tax Assets***

 

We analyze ourdeferred tax assets with regard to potential realization. We have established avaluation allowance on our deferred tax assets to the extent that we determinedthat it is more likely than not that some portion or all of the deferred taxasset will not be realized based upon the uncertainty of their realization. Wehave considered estimated future taxable income and ongoing prudent andfeasible tax planning strategies in assessing the amount of the valuationallowance. Based upon this analysis, we recorded a valuation allowance for ourdeferred tax assets during the three months ended June 30, 2002, whichresulted in a charge of $6.3 million.

 

***Accounting for Stock-Based Compensation***

 

We applyAccounting Principles Board (“APB”) Opinion Number 25, *Accounting for Stock Issued to Employees*,and related interpretations when accounting for our stock option and stockpurchase plans. In accordance with APB No. 25, we apply the intrinsicvalue method in accounting for employee stock options. Accordingly, wegenerally recognize no compensation expense with respect to stock-based awardsto employees.

 

During thethree months ended March 31, 2003, we recorded compensation expense of$49,000 which is included in general and administrative expense in theConsolidated Statement of Operations. This charge was recorded as a result ofgranting common stock to a third party consultant.  The charge was calculated as the fair market value of the stockdetermined by the stock price of the underlying stock.  During the three months ended March 31,2002, we recorded compensation expense of $608,000.  This charge related to terminated employees who were grantedcontinued vesting of their stock options for a period beyond their actualtermination date. The compensation charge was calculated using theBlack-Scholes model.

 

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We havedetermined pro forma information regarding net income and earnings per share asif we had accounted for employee stock options under the fair value method asrequired by SFAS Number 123, *Accounting forStock Compensation*. The fair value of these stock-based awards toemployees was estimated using the Black-Scholes option pricing model. Hadcompensation cost for the Company’s stock option plan and employee stockpurchase plan been determined consistent with SFAS No. 123, the Company’sreported net income (loss) and net earnings (loss) per share would have beenchanged to the amounts indicated below (in thousands except per share data):

 
|                                                                                                                                          |   | **Three months ended  March 31,** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                                                                                          |   | **2003**                          |   | **2002** |   |
| Net income (loss) as reported                                                                                                                 |   | $                                 | 1,337  |   | $ | (36,122 | ) |
| Add: Stock-based employee compensation  expense included in reported net loss, net of related tax effects                                     |   | 49                                |   | 608 |   |
| Deduct: Total stock-based employee  compensation expense determined under fair value based method for all awards,  net of related tax effects |   | (1,655                            | )      | (24,840 | ) |
| Pro forma net loss                                                                                                                            |   | (269                              | )      | $ | (60,354 | )  |
| Earnings (loss) per share:                                                                                                                    |   |                              |   |   |   |
| Basic—as reported                                                                                                                        |   | $                                 | 0.04   |   | (1.14 | ) |
| Basic—pro forma                                                                                                                          |   | $                                 | (0.01  | ) | $ | (1.91 | ) |
| Diluted—as reported                                                                                                                      |   | 0.04                              |   | (1.14 | ) |
| Diluted—pro forma                                                                                                                        |   | $                                 | (0.01  | ) | $ | (1.91 | ) |

 

***Restructuring***

 

Ourrestructuring charges are comprised primarily of: (i) severance andbenefits termination costs related to the reduction of our workforce;(ii) lease termination costs and/or costs associated with permanentlyvacating our facilities; and (iii) impairment costs related to certainlong-lived assets abandoned. We account for each of these costs in accordancewith SEC Staff Accounting Bulletin No. 100, Restructuring and ImpairmentCharges

 

We account forseverance and benefits termination costs in accordance with EITF IssueNo. 94-3, *Liability Recognition forCertain Employee Termination Benefits and Other Costs to Exit an Activity(Including Certain Costs Incurred in a Restructuring)* for exit ordisposal activities initiated prior to December 31, 2002. Accordingly, werecord the liability related to these termination costs when the followingconditions have been met: (i) management with the appropriate level ofauthority approves a termination plan that commits us to such plan andestablishes the benefits the employees will receive upon termination;(ii) the benefit arrangement is communicated to the employees insufficient detail to enable the employees to determine the terminationbenefits; (iii) the plan specifically identifies the number of employeesto be terminated, their locations and their job classifications; and(iv) the period of time to implement the plan does not indicate changes tothe plan are likely. The termination costs recorded by us are not associatedwith nor do they benefit continuing activities.  We account for severance and benefits termination costs for exitor disposal activities initiated after December 31, 2002 in accordance withSFAS No. 146, *Accounting for CostsAssociated with Exit Activities*. SFAS No. 146 requires that a liability for a cost associated with an exitor disposal activity be recognized and measured initially at fair value onlywhen the liability is incurred.  Thisdiffers from EITF 94-3, which required that a liability for an exit cost berecognized at the date of an entity’s commitment to an exit plan.

 

We account forthe costs associated with lease termination and/or abandonment in accordancewith EITF 88-10, *Costs Associated with LeaseModification or Termination*. Accordingly, we record the costsassociated with lease termination and/or abandonment when the leased propertyhas no substantive future use or benefit to us. Under EITF 88-10, we record theliability associated with lease termination and/or abandonment as the sum ofthe total remaining lease costs and related exit costs, less probable subleaseincome. We account for costs related to long-lived assets abandoned inaccordance with SFAS No. 144, *Accountingfor the Impairment or Disposal of Long-Lived Assets,*and,accordingly, charges to expense the net carrying value of the long-lived assetswhen we cease to use the assets.

 

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Inherent inthe estimation of the costs related to our restructuring efforts areassessments related to the most likely expected outcome of the significantactions to accomplish the restructuring. In determining the charge related tothe restructuring, the majority of estimates made by management related to thecharge for excess facilities. In determining the charge for excess facilities,we were required to estimate future sublease income, future net operatingexpenses of the facilities, and brokerage commissions, among other expenses.The most significant of these estimates related to the timing and extent offuture sublease income in which to reduce our lease obligations. Specifically,in determining the restructuring obligations related to facilities as ofMarch 31, 2003, we reduced our lease obligations by estimated subleaseincome of $30.3 million. We based our estimates of sublease income, inpart, on the opinions of independent real estate experts, current marketconditions and rental rates, an assessment of the time period over whichreasonable estimates could be made, the status of negotiations with potentialsubtenants, and the location of the respective facility, among other factors.

 

Theseestimates, along with other estimates made by management in connection with therestructuring, may vary significantly depending, in part, on factors that maybe beyond our control. Specifically, these estimates will depend on our successin negotiating with lessors, the time periods required to locate and contractsuitable subleases and the market rates at the time of such subleases.Adjustments to the facilities reserve will be required if actual lease exitcosts or sublease income differ from amounts currently expected. We will reviewthe status of restructuring activities on a quarterly basis and, ifappropriate, record changes to our restructuring obligations in currentoperations based on management’s most current estimates.

 

***Legal Matters***

 

Management’scurrent estimated range of liability related to pending litigation is based onclaims for which it is probable that a liability has been incurred and ourmanagement can estimate the amount and range of loss. We have recorded theminimum estimated liability related to those claims, where there is a range ofloss. Because of the uncertainties related to both the determination of theprobability of an unfavorable outcome and the amount and range of loss in theevent of an unfavorable outcome, management is unable to make a reasonableestimate of the liability that could result from the remaining pendinglitigation. As additional information becomes available, we will assess theprobability and the potential liability related to our pending litigation andrevise our estimates, if necessary. Such revisions in our estimates of thepotential liability could materially impact our results of operations andfinancial position.

 

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***Results ofOperations***

 

**Three months ended March 31, 2003 and 2002**

 

***Revenues***

 

*Total revenues*decreased 20% during the quarter ended March 31, 2003 to $24.5 million ascompared to $30.5 million for the quarter ended March 31, 2002.  A summary of our revenues by geographicregion is as follows:

 
|                    |   | **Software**               |   | **%**  |   | **Services** |   | **%**  |   | **Total** |   | **%**  |   |
|-------------------------|--------|----------------------------|--------|--------|--------|--------------|--------|--------|--------|-----------|--------|--------|--------|
|                    |   | **(dollars in thousands)** |   |
| **Three Months Ended:** |   |                       |   |   |   |         |   |   |   |      |   |   |   |
|                    |   |                       |   |   |   |         |   |   |   |      |   |   |   |
| March 31, 2003          |   |                       |   |   |   |         |   |   |   |      |   |   |   |
| Americas                |   | $                          | 4,396  |   | 55     | %            | $      | 8,912  |   | 54        | %      | $      | 13,308 |   | 54 | % |
| Europe                  |   | 1,685                      |   | 21     |   | 6,636        |   | 40     |   | 8,321     |   | 34     |   |
| Asia Pacific            |   | 1,894                      |   | 24     |   | 932          |   | 6      |   | 2,826     |   | 12     |   |
| Total                   |   | $                          | 7,975  |   | 100    | %            | $      | 16,480 |   | 100       | %      | $      | 24,455 |   | 100 | % |
|                    |   |                       |   |   |   |         |   |   |   |      |   |   |   |
| 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 | % |

 

The Company operates in a competitive industry.  There have been declines in both thetechnology industry and in general economic conditions since the beginning of2001.  These declines may continue.  Financial comparisons discussed herein maynot be indicative of future performance.

* *

*Software license revenues* decreased 2% duringthe quarter ended March 31, 2003 to $8.0 million as compared to $8.2 millionfor the quarter ended March 31, 2002.  The decrease was attributable to continued economic uncertaintysurrounding the economic and information technology spending environments andsurrounding the outcome of the war in Iraq.

 

*Services revenues* decreased 26% during thequarter ended March 31, 2003 to $16.5 million as compared to $22.3 millionfor the quarter ended March 31, 2002. The decrease in professional services revenue was a result of decreasedbusiness volume associated with decreased software license revenues and anoverall decline in the economy. Maintenance related fees for technical support and product updates were$10.0 million for the quarter ended March 31, 2003 as compared to $10.6 millionfor the quarter ended March 31, 2002. The decrease in maintenance revenues was due to a decrease inmaintenance revenues associated with current transactions as well as renewalmaintenance for license transactions recorded in prior periods.  Consulting services revenues were $6.5million for the three months ended March 31, 2003 as compared to $11.7 millionfor the three months ended March 31, 2002. The decrease is a result of a corresponding decline in license revenuesand continued economic uncertainty surrounding the economic and informationtechnology spending environments and surrounding the outcome of the war inIraq.

 

***Cost of Revenues***

 

Cost oflicense revenues include the costs of product media, duplication, packaging andother manufacturing costs as well as royalties payable to third parties forsoftware that is either embedded in, or bundled and licensed with, ourproducts.

 

Cost ofservices consists primarily of employee-related costs, third-party consultantfees incurred on consulting projects, post-contract customer support andinstructional training services.

 

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A summary of the cost of revenues for the periods presented is asfollows, (in thousands):

 
|                         |   | **Three Months Ended March 31,** |   |
|------------------------------|--------|----------------------------------|--------|
|                         |   | **2003**                         |   | **%** |   | **2002** |   | **%** |   |
|                         |   |                             |   |   |   |   |   |   |   |
| Cost of software licenses(1) |   | $                                | 388    |   | 5 | % | $ | 1,100 |   | 13 | % |
| Cost of services(2)          |   | 6,558                            |   | 40 |   | 12,334 |   | 55 |   |
|                         |   |                             |   |   |   |   |   |   |   |
| Total cost of revenues(3)    |   | $                                | 6,946  |   | 28 | % | $ | 13,434 |   | 44 | % |

 

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(1)           Percentage is calculated based ontotal software license revenues for the period indicated

(2)           Percentage is calculated based ontotal services revenues for the period indicated

(3)           Percentageis calculated based on total revenues for the period indicated

 

*Cost of softwarelicenses* decreased 65% in absolute dollar terms duringthe quarter ended March 31, 2003 to $388,000 as compared to $1.1 million forthe quarter ended March 31, 2002.  Thedecrease in cost of software licenses was principally a result of decreasedlicenses of third-party products. Licenses of such products often generate royalties due to the thirdparty.  Additionally, we recorded a$3.2 million writeoff of pre-paid royalties for software we no longerintend to utilize. This charge was taken during the fourth quarter of fiscal year2002. This charge resulted in a decrease of approximately $340,000 in royaltyexpense during the three months ended March 31, 2003 as compared to the sameperiod in fiscal year 2002.

 

*Cost of services*decreased 47% during the current quarter ended March 31, 2003 to $6.6 millionas compared to $12.3 million for the quarter ended March 31, 2002. Thisdecrease was the result of reductions in force that occurred primarilythroughout the first, second and third quarters of 2002, resulting in decreasedsalary and related expenses in addition to a decrease in the use of third partyconsultants.  Additionally, during thethree months ended March 31, 2003, we recorded an aggregate of $1.4 millioncredit related to telecommunications costs renegotiated during the quarter.  Of such amount, $473,000 was recorded incost of services.

 

***Operating Expenses and Other Income, net***

 

Research anddevelopment expenses consist primarily of salaries, employee-related benefitcosts and consulting fees incurred in association with the development of ourproducts. Costs incurred for the research and development of new softwareproducts are expensed as incurred until such time that technologicalfeasibility, in the form of a working model, is established at which time suchcosts are capitalized and recorded at the lower of unamortized cost or netrealizable value. The costs incurred subsequent to the establishment of aworking model but prior to general release of the product have not beensignificant. To date, we have not capitalized any costs related to thedevelopment of software for external use.

 

Sales andmarketing expenses consist primarily of salaries, employee-related benefitcosts, commissions and other incentive compensation, travel and entertainmentand marketing program-related expenditures such as collateral materials, tradeshows, public relations, advertising and creative services.

 

General andadministrative expenses consist primarily of salaries, employee-related benefitcosts, accounts receivable reserves expense and professional service fees.

 

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Operatingexpenses consisted of the following: (in thousands)

 
|                       |   | **Three Months Ended March 31,** |   |
|----------------------------|--------|----------------------------------|--------|
|                       |   | **2003**                         |   | **%(1)** |   | **2002** |   | **%(1)** |   |
|                       |   |                             |   |   |   |   |   |   |   |
| Research and development   |   | $                                | 6,151  |   | 25 | % | $ | 13,975 |   | 46 | % |
| Sales and marketing        |   | 6,832                            |   | 28 |   | 16,178 |   | 53 |   |
| General and administrative |   | 2,288                            |   | 9 |   | 6,193 |   | 20 |   |
| Intangible amortization    |   | 887                              |   | 4 |   | 887 |   | 3 |   |
| Restructuring charge       |   | 1,035                            |   | 4 |   | 5,380 |   | 18 |   |
| Impairment of assets       |   | —                           |   | — |   | 2,276 |   | 7 |   |
| Total Operating Expenses   |   | $                                | 17,193 |   | 70 | % | $ | 44,889 |   | 147 | % |

 

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(1)                                  Expressed as apercent of total revenues for the period indicated

 

*Research anddevelopment expenses* decreased 56% during the quarterended March 31, 2003 to $6.8 million as compared to $16.2 million for thequarter ended March 31, 2002.  Thedecrease in research and development expenses was primarily attributable tocompensation reductions through salary reductions and reductions in force aswell as other cost-cutting efforts put in place primarily during fiscal 2002,including reductions in facilities and communications costs.  Additionally, during the three months endedMarch 31, 2003, we recorded an aggregate of $1.4 million credit related to telecommunicationscosts renegotiated during the quarter. Of such amount, $531,000 was recorded in research and developmentexpenses.

* *

*Sales and marketingexpenses* decreased 58% during the quarter ended March31, 2003 to $6.8 million as compared to $16.2 million for the quarter endedMarch 31, 2002.  The decrease wasprimarily due to decreased salary expense as a result of the reductions inforce, in addition to decreased facility, travel and marketing program costs asa result of various cost-cutting actions taken during fiscal year 2002.   Additionally, during the three months endedMarch 31, 2003, we recorded an aggregate of $1.4 million in credit related totelecommunications costs renegotiated during the quarter.  Of such amount, $259,000 was recorded insales and marketing expense.

* *

*General andadministrative expenses* decreased 63% during thequarter ended March 31, 2003 to $2.3 million as compared to $6.2 million forthe quarter ended March 31, 2002.  Thedecrease in general and administrative expenses is attributable to decreasedsalary expense as a result of reductions in force as well as decreases in thereserves of our accounts receivable balance and decreases in facilities andprofessional services expenses as a result of cost cutting measures implementedduring fiscal 2002.   Additionally,during the three months ended March 31, 2003, we recorded an aggregate of $1.4million in credit related to telecommunications costs renegotiated during thequarter.  Of such amount, $130,000 wasrecorded in cost of services.

 

*Amortization of goodwill and otherintangibles.*****Asdescribed in Note 7 in the Notes to the Condensed Consolidated FinancialStatements above, we no longer amortize goodwill or the assembled workforce aswe have identified the assembled workforce as an intangible asset which does notmeet the criteria of recognizable intangible asset as defined by SFAS No.142.  The remaining other intangibleassets have been fully amortized as of March 31, 2003.  We periodically assess goodwill and otherintangibles for impairment as discussed in Note 7 of Notes to the CondensedConsolidated Financial Statements.  Theremaining intangible assets that are being amortized are a result of theacquisition of Interleaf, Inc. that was completed in April of 2000.  We have accounted for the acquisition as a purchasebusiness combination.  It is possiblethat we may continue to expand our business through acquisitions and internaldevelopment.  Any additionalacquisitions or impairment of goodwill and other purchased intangibles couldresult in additional merger and acquisition related expenses.

 

*Restructuring charge*—Duringthe three months ended March 31, 2003 and 2002, we approved restructuring plansto, among other things, reduce our workforce and consolidate facilities. Theserestructuring and asset impairment charges were taken to align our coststructure with changing market conditions and to create a more efficientorganization. A pre-tax charge of $1.0 million was recorded during thethree months ended March 31, 2003 and a pre-tax charge of $5.4 million wasrecorded during the three months ended March 31, 2002 to provide for theseactions and other related items. We recorded the low-end of a range ofassumptions modeled for the

 

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restructuring charges, inaccordance with SFAS No. 5, *Accountingfor Contingencies*. The high-end of the range for the chargerecorded during the three months ended March 31, 2003 was not materiallydifferent from the charge recorded. Adjustments to the restructuring reserveswill be made in future periods, if necessary, based upon the then currentactual events and circumstances.

 

Severance andbenefits**— We recorded a creditof approximately $(138,000) during the three months ended March 31,2003.  This credit relates primarily tothe reversal of severance recorded in prior periods for an individual whocontinued to provide service to us.  Assuch, any payments to such individual represent salary expense in our condensedconsolidated statement of operations as opposed to severance expense includedin restructuring.  Remaining costsincluded in our severance accrual represent costs incurred for severance,payroll taxes and COBRA benefits. Approximately $1.4 million of severance andbenefits costs were accrued at December 31, 2002 as a result of our 2002restructuring plan. Approximately $174,000 of severance and benefits costs hadbeen paid out during the three months ended March 31, 2003 and the remaining$1.1 million of severance, payroll taxes and COBRA benefits is expected tobe paid in full by March 31, 2004.

 

Facilities—Duringthe three months ended March 31, 2003, we recorded a charge of $1.2 millionprimarily related to our revision of some of our estimates with respect toexpected sublease rates.  This revisionwas necessary due to a continued decline in the commercial real estatemarket.  We obtained the adjusted ratesbased upon current market indicators and information obtained from a thirdparty real estate expert.

 

Approximately$94.7 million of facilities related costs remained accrued as ofDecember 31, 2002 as a result of our restructuring plan. Net cash paymentsduring the three months ended March 31, 2003 related to abandoned facilitiesamounted to $7.0 million. Actual future cash requirements may differmaterially from the accrual at March 31, 2003, particularly if actualsublease income is significantly different from historical estimates. As ofMarch 31, 2003, $88.9 million of lease termination costs, net ofanticipated sublease income, is expected to be paid by the end of the secondquarter of fiscal 2013. We expect to pay approximately $23.5 million overthe next twelve months and the remaining $65.4 million from April 1,2004 through June of fiscal 2013. The $88.9 million is net of approximately$43.7 million of estimated sublease income of which approximately$30.3 million represents sublease agreements yet to be negotiated.

 

Other—Werecorded charges in prior periods resulting in an accrued balance of $79,000 asof December 31, 2002 for various incremental costs incurred as a direct resultof the restructuring plan. We paid out approximately $47,000 during the threemonths ended March 31, 2003.  Theremaining reserve balance of $32,000 is expected to be paid in full by the endof the first quarter of 2004.

 

Actual futurecash requirements may differ materially from the restructuring accruals atMarch 31, 2003, particularly if actual sublease income is significantlydifferent from current estimates. Adjustments to the restructuring accrualswill be made in future periods, if necessary, based upon the then currentactual events and circumstances.

 

* Interest Income*—Interestincome decreased to $434,000 for the three months ended March 31, 2002 from$1.5 million for the three months ended March 31, 2002. The decrease wasattributable to decreased cash and investments balances from 2002 to 2003.

 

*Other income (expense), net*forthe three months ended March 31, 2003 was income of $642,000 as compared toexpense of $9.6 million in 2002. The main reason for the decrease in otherexpense is due to a decrease in realized losses on cost method investments of$8.5 million and a decrease in losses on foreign currency of $746,000.

 

* Impairment of assets*—Duringthe first quarter of 2002, we engaged a third party firm to conduct a physicalinventory of our computer hardware assets located in North America. Weconducted an internal physical inventory on computer hardware assets locatedoutside of North America. The objective of the physical inventory was to verifythe amount and location of our computer hardware. As a result of the findingsof the physical inventory and related reconciliation with our asset records, werecorded an asset impairment charge of approximately $2.3 million net bookvalue related to computer hardware during the first quarter of fiscal 2002.During the third quarter of 2002, we conducted an additional review ofremaining computer and communication related assets not reviewed during thefirst quarter inventory and recorded an asset impairment charge of $853,000 asa result of the findings of our inventory and related reconciliation with ourasset records.

 

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We areattempting to reduce expenses in an effort to maintain our recently achievedprofitability during a period when revenues have been less than originallyexpected. Therefore, operating costs may decline in the near future, but therecan be no assurance that such decline will be enough to return BroadVision toprofitability. Should revenues increase significantly, we would expect ourexpenses to increase commensurate with increases in revenues.

 

***Income Taxes***

 

During thequarter ended March 31, 2003, we recognized tax expense of $55,000.   The tax expense mainly relates to foreignwithholding taxes and state income taxes.

 

***Liquidity and Capital Resources***
|                                                      |   | **March 31,****2003** |    | **December  31,****2002** |   |
|-----------------------------------------------------------|--------|-----------------------|---------|---------------------------|--------|
|                                                      |   |                  |    |                      |   |
| Cash, cash equivalents and liquid  short-term investments |   | $                     | 102,624 |                      | $      | 101,870 |   |
| Long-term liquid investments                              |   | $                     | 152     |                      | $      | 587 |   |
| Restricted cash and investments                           |   | $                     | 16,759  |                      | $      | 16,704 |   |
| Working capital (1)                                       |   | $                     | 10,694  |                      | $      | 5,616 |   |
| Working capital ratio                                     |   | 1.1                   |    | 1.0                       |   |

 

(1) Working capital iscalculated as follows:

 
|                |   | **March 31,  2003** |    | **December  31,  2002** |   |
|---------------------|--------|---------------------|---------|-------------------------|--------|
|                |   |                |    |                    |   |
| Current assets      |   | $                   | 123,137 |                    | $      | 133,968 |   |
| Current liabilities |   | $                   | 112,443 |                    | $      | 128,352 |   |
| Working capital     |   | $                   | 10,694  |                    | $      | 5,616 |   |

 

                We believe working capital provides investorsa clear picture of the net assets available to meet short-term businessrequirements.

 

As ofMarch 31, 2003, cash, cash equivalents, liquid short-term investments,liquid long-term investments and restricted cash and investments totaled$119.5 million, which represents an increase of $374,000 as compared toDecember 31, 2002. This increase was attributable to net cash provided byoperations. We have a credit facility with Silicon Valley Bank that includesterm loans in the form of promissory notes and a revolving line of credit (the“SVB Facility”) for up to $25.0 million. Under the revolving line ofcredit portion of the SVB Facility, amounts borrowed bear interest at thebank’s prime rate (4.25% as of March 31, 2003) and interest is duemonthly, with the principal due in February 2004. We have two outstanding termloans under the SVB Facility. The total outstanding amounts of these term loanswere $2.7 million as of March 31, 2003 and $2.9 million as ofDecember 31, 2002. Interest on these term loans are at the bank’s primerate (4.25% as of March 31, 2003 and 4.25% as of December 31, 2002)and prime rate plus 1.25% (5.5% as of March 31, 2003 and 5.5% as ofDecember 31, 2002), respectively. Principal and interest are due inconsecutive monthly payments through maturity of these term loans inMarch 31, 2005 and September 30, 2006, respectively. 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.

 

During thesecond quarter of 2002, we drew down $25.0 million on our revolving lineof credit.  We renewed and amended ourrevolving credit facility in March 2003 which changed the principal duedate from March 2003 to February 2004. The amount available under therevolving line of credit remains unchanged at $25.0 million. Borrowingsunder the renewed revolving line of credit are collateralized by all of ourassets. Interest is due monthly and principal is due at expiration. The amendedand restated loan and security agreement requires us to maintain certain levelsin cash and cash equivalents, short-term investment and long-term investments(excluding equity investments). Additionally, the amended and restated loan andsecurity agreement requires us to maintain certain levels on deposit with ourcommercial lender and certain quarterly net income (loss) levels.

 

As ofMarch 31, 2003 and December 31, 2002, commitments totaling$16.8 million and $16.7 million, respectively, in the form of standbyletters of credit were issued and outstanding from financial institutions infavor of our various landlords to secure obligations under our facility leases.These letters of credit are collateralized by a security agreement, under whichwe are required to maintain in a restricted specified interest bearing accountapproximately $16.8 million and $16.7 million of available cashequivalents as of March 31, 2003 and December 31, 2002, respectively.The $16.8 million and the $16.7 million have been presented asrestricted cash in the accompanying condensed consolidated balance sheet atMarch 31, 2003 and December 31, 2002, respectively.

 

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*Cash Provided by (Used For) Operating Activities*

 

Cash providedby operating activities was $301,000 for the three months ended March 31, 2003and cash used for operating activities was $(19.2) million during the threemonths ended March 31, 2002, respectively. The primary reason for the net cashprovided by operating activities for the three months ended March 31, 2003 isdue to the net income of $1.3 million adjusted by $4.3 million for certainnon-cash items such as depreciation expense, amortization of prepaid royalties,amortization of intangibles and accounts receivable reserves as well as adecrease  in accounts receivable of $8.6million and a decrease in prepaids and other of $3.1 million, all partiallyoffset by a decrease in accounts payable and accrued expenses of $3.9 million,a decrease in restructuring reserves of $6.1 million and a decrease in unearnedrevenues and deferred maintenance of $7.2 million.  Cash used for operating activities was $(36.2) million for thethree months ended March 31, 2002 and was primarily attributed to the net lossof $(36.1) million less non-cash charges such as intangible amortization,depreciation and amortization, impairment assets, non-cash portion of therestructuring charge and realized losses on cost method investments. Other keycontributors included decreases in accounts payable and accrued expenses,unearned revenue and deferred maintenance, decreases in restructuring reservesand increases in prepaids and others, all partially offset by decreases inaccounts receivable and other noncurrent assets.

 

*Cash Provided By (Used For) Investing Activities*

 

Cash providedby investing activities was $21.3 million for the three months ended March31, 2003 and was primarily due to net sales/maturities of investments of$21.5 million. Cash provided by investing activities was $5.9 millionfor the three months ended March 31, 2002 and consists primarily of $6.5million of net sales/maturities of investments partially offset by $841,000 ofpurchases of property and equipment.

 

*Cash Provided By Financing Activities*

 

Cash providedby financing activities was $20,000 for the three months ended March 31, 2003and consists of $264,000 in proceeds from the issuance of common stockpartially offset by $244,000 of repayments of borrowings.  Cash provided by financing activities forthe three months ended March 31, 2002 was $1.4 million and consisted of $1.6million in proceeds from the issuance of common stock partially offset byrepayments of borrowings of $244,000.

 

Capital expenditureswere $132,000 and $841,000 during the three months ended March 31, 2003 and2002, respectively. Our capital expenditures consisted of purchases ofoperating resources to manage our operations and consisted primarily ofcomputer hardware and software.

 

In connectionwith our restructuring plan initiated during 2001, we consolidated variousoperating facilities during 2001 and 2002. Lease termination costs include theabandonment of certain excess lease facilities for the remaining lease terms. Thesecosts totaled $1.2 million during the three months ended March 31, 2003and $4.1 million during the three months ended March 31, 2002. Total leasetermination costs include the abandonment of leasehold improvements and theremaining lease liabilities and brokerage fees, offset by estimated subleaseincome. The estimated costs of abandoning these facilities, estimated costs tosublease as well as estimated sublease income, were based upon marketinformation analyses provided by a commercial real estate brokerage firmretained by us.

 

On May 9,2002, the Company and Pacific Shores Development (“PacShores”) entered into(i) the Buildings 4 and 5 Termination Agreement and (ii) the Building6 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, were terminated.In conjunction with the termination, PacShores released all security depositsheld by it relating to those premises in exchange for our payment to PacShoresa total of $45.0 million as the termination fee. Under the Building 6Amendment, the parties released each other from all claims and we agreed toprovide an additional $3.5 million as security deposit in the form of lettersof credit. This letter of credit is included as restricted cash in ourCondensed Consolidated Balance Sheet as of March 31, 2003 and December 31,2002. We paid the termination fee in full during the second quarter of 2002 bypayment of approximately $20.0 million from existing cash and investmentsand by drawing down approximately $25.0 million from our line of credit.The $25.0 million line of credit, as amended, is due inFebruary 2004.

 

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We expect toincur significant operating expenses for the foreseeable future in order toexecute our business plan. A summary of total future minimum lease payments asof March 31, 2003, under noncancelable operating lease agreements,together with amounts included in restructuring reserves is as follows (inthousands);

 
| **Years Ended December 31,** |   | **Operating  Leases** |    |
|-----------------------------------|--------|-----------------------|---------|
|                              |   |                  |    |
| 2003                              |   | $                     | 19,520  |   |
| 2004                              |   | 25,855                |    |
| 2005                              |   | 25,652                |    |
| 2006                              |   | 22,620                |    |
| 2007                              |   | 20,495                |    |
| 2008 and  thereafter              |   | 81,487                |    |
| Total minimum  lease payments     |   | $                     | 195,629 |   |

 

As ofMarch 31, 2003, $80.1 million of future minimum lease payments, netof anticipated sublease income, is accrued in our restructuring accruals. Therestructuring accruals are net of approximately $43.7 million of subleaseincome of which approximately $30.3 million represents estimated subleaseincome for sublease agreements yet to be negotiated and the remaining$13.4 million represents sublease income to be received undernon-cancelable sublease agreements signed by March 31, 2003.

 

The followingtable summarizes our contractual obligations and the effect such obligationsare expected to have on our liquidity and cash flows in future years. Theoperating leases include facilities included in the restructuring and exclude$43.7 million of sublease income of which approximately $30.3 millionrepresents estimated sublease income for sublease agreements yet to benegotiated.

 
| **(in thousands)**              |   | **Total** |    | **Less than  1 year** |   | **1-3 years** |   | **4-5 years** |   | **Over  5 years** |   |
|---------------------------------|--------|-----------|---------|-----------------------|--------|---------------|--------|---------------|--------|-------------------|--------|
| Long-term debt                  |   | $         | 2,678   |                  | $      | 977           |   | $             | 1,701  |              | $      | — |   | $ | — |   |
| SVB Facility                    |   | 25,000    |    | 25,000                |   | —        |   | —        |   | —            |   |
| Hewlett-Packard agreement       |   | 1,042     |    | 1,042                 |   | —        |   | —        |   | —            |   |
| Non-cancelable operating leases |   | 195,629   |    | 19,520                |   | 51,507        |   | 43,115        |   | 81,487            |   |
|                            |   | $         | 224,349 |                  | $      | 46,539        |   | $             | 53,208 |              | $      | 43,115 |   | $ | 81,487 |   |

 

The followingtable summarizes our letters of credit and the effect such letters of creditcould have on our liquidity and cash flows in future periods if the letters ofcredit were drawn upon. Restricted cash and investments represent thecollateral for these letters of credit.

 
| **(in thousands)** |   | **Total** |   | **Less than  1 year** |   | **1-3 years** |   | **4-5 years** |   | **Over  5 years** |   |
|--------------------|--------|-----------|--------|-----------------------|--------|---------------|--------|---------------|--------|-------------------|--------|
| Letters of credit  |   | $         | 16,759 |                  | $      | —        |   | $             | 436    |              | $      | 1,919 |   | $ | 14,404 |   |
|                    |        |           |        |                       |        |               |        |               |        |                   |        |  |  |  |  |  |

 

We anticipatethat such operating expenses, as well as capital expenditures, will constitutea material use of our cash resources. As a result, our net cash flows willdepend heavily on the level of future sales, our ability to restructureoperations successfully and our ability to manage infrastructure costs.

 

We currentlyexpect to fund our short-term working capital and operating resourceexpenditure requirements, for at least the next twelve months, from ourexisting cash and cash equivalents and short-term investment resources, ouranticipated cash flows from operations and anticipated cash flows fromsubleases. However, we could experience unforeseen circumstances such as aworsening economic downturn, legal or lease settlements and less thananticipated cash inflows from operations, invested assets, and subleases thatmay increase our use of available cash or need to obtain additional financing.Also, we may find it necessary to obtain additional equity or debt financing inorder to support more rapid expansion, develop new or enhanced services,respond to competitive pressures, acquire complementary businesses ortechnologies or respond to unanticipated requirements.

 

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We may seek toraise additional funds through private or public sales of securities, strategicrelationships, bank debt, financing under leasing arrangements or otherwise. Ifadditional funds are raised through the issuance of equity securities, thepercentage ownership of our stockholders will be reduced, stockholders mayexperience additional dilution or such equity securities may have rights,preferences or privileges senior to those of the holders of our common stock.There can be no assurance that additional financing will be available onacceptable terms, if at all. If adequate funds are not available or are notavailable on acceptable terms, we may be unable to develop our products, takeadvantage of future opportunities or respond to competitive pressures orunanticipated requirements, which could have a material adverse effect on ourbusiness, financial condition and future operating results.

 

*Factors That May Affect Future Operating Results*

 

We may experiencesignificant fluctuations in quarterly operating results that may be caused bymany factors including, but not limited to, those discussed below and herein,as set out in Items 7 and 7A in our annual report on Form 10-K for the yearended December 31, 2002 and elsewhere therein and as disclosed in otherdocuments filed with the Securities and Exchange Commission.

 

Significantfluctuations in future quarterly operating results may be caused by manyfactors including, among others, the timing of introductions or enhancements ofproducts and services by us or our competitors, market acceptance of newproducts, the mix of our products sold, changes in pricing policies by us orour competitors, our ability to retain customers, changes in our salesincentive plans, budgeting cycles of our customers, customer order deferrals inanticipation of new products or enhancements by us or our competitors,nonrenewal of maintenance agreements (which generally automaticallyrenew for one year terms unless earlier terminated by either party upon 90-daysnotice), product life cycles, changes in strategy, seasonal trends, the mix ofdistribution channels through which our products are sold, the mix ofinternational and domestic sales, the rate at which new sales people becomeproductive, changes in the level of operating expenses to support projectedgrowth and general economic conditions. We anticipate that a significantportion of our revenues will be derived from a limited number of orders, andthe timing of receipt and fulfillment of any such orders is expected to causematerial fluctuations in our operating results, particularly on a quarterlybasis. Due to the foregoing factors, quarterly revenues and operating resultsare difficult to forecast, and we believe that period-to-period comparisons ofour operating results will not necessarily be meaningful and should not berelied upon as any indication of future performance. It is likely that ourfuture quarterly operating results from time to time will not meet theexpectations of market analysts or investors, which may have an adverse effecton the price of our common stock.

 

We are continuing efforts toreduce and control our expense structure. We believe strict cost containmentand expense reductions are essential to achieving positive cash flow andprofitability. A number of factors could preclude us from successfully bringingcosts and expenses in line with our revenues, including unplanned uses of cash,the inability to accurately forecast business activities and furtherdeterioration of our revenues. If we are not able to effectively reduce ourcosts and achieve an expense structure commensurate with our businessactivities and revenues, we may have inadequate levels of cash for operationsor for capital requirements, which could significantly harm our ability tooperate our business.

 

We recently renewed andamended the SVB Facility during the second quarter of fiscal 2002 and again duringthe first quarter of 2003. The SVB Facility is secured by substantially all ofour 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 levels would be an event of default for whichSilicon Valley Bank may, among other things, accelerate the payment of thefacility. 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 balances borrowed.Such a payoff would further limit our available cash and cash equivalents.

 

Our success depends largelyon the skills, experience and performance of key personnel. If we lose one ormore key personnel, our business could be harmed. Our future success depends onour ability to continue attracting and retaining highly skilled personnel. Wemay not be successful in attracting, assimilating and retaining qualifiedpersonnel in the future. Furthermore, the significant downturn in our businessenvironment had a negative impact on our operations. We are currentlyrestructuring our operations and have taken actions to reduce our workforce andimplement other cost containment activities. These actions could lead todisruptions in our business, reduced

 

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

 

We effected a one-for-ninereverse stock split in July 2002.  Prior to the effective time of thereverse stock split, our common stock was trading below $1.00 per share. The Nasdaq National Market has a $1.00 per share minimum bid requirement,pursuant to which our common stock could be de-listed from Nasdaq if it tradesbelow $1.00 for thirty consecutive trading days and does not subsequently tradeabove $1.00 for 10 consecutive days.  There can be no assurance that ourtrading price will remain above the $1.00 per share requirement for thenecessary time period mandated by Nasdaq.  If we do not meet the Nasdaqrequirements to maintain our listing on The Nasdaq National Market, our commonstock could trade on the OTC Bulletin Board or in the “pink sheets” maintainedby the National Quotation Bureau, Inc. Such alternatives are generallyconsidered to be less efficient markets, and our stock price, as well as theliquidity of our common stock, would be adversely impacted by a Nasdaqdelisting.

 

Some of theserisks and uncertainties relate to the rapidly evolving nature of the markets inwhich we operate. These related market risks include, among other things, theevolution of the online commerce market, the dependence of online commerce onthe development of the Internet and its related infrastructure, the uncertaintypertaining to widespread adoption of online commerce and the risk ofgovernment regulation of the Internet. Other risks and uncertainties relate toour ability to, among other things, successfully implement our marketingstrategies, respond to competitive developments, continue to develop andupgrade our products and technologies more rapidly than our competitors, andcommercialize our products and services by incorporating these enhancedtechnologies. There can be no assurance that we will succeed in addressing anyor all of these risks.

 

There has been a generaldownturn in the Unites States of America and global economy.  If the economic environment continues todecline or if the current global slowdown worsens or becomes prolonged, ourfuture results may be significantly impacted. We believe that the currenteconomic decline has increased the average length of our sales cycle and ouroperating results could suffer and our stock price could decline if we do notachieve the level of revenues we expect. Financial comparisons discussed herein may not be indicative of futureperformance.

 

Like other U.S. companies,our business and operating results are subject to uncertainties arising out ofthe terrorist attacks on the United States, including the economic consequencesof military actions or additional terrorist activities and associated politicalinstability, and the impact of heightened security concerns on domestic andinternational travel and commerce. Such uncertainties could also lead to delaysor cancellations of customer orders, a general decrease in corporate spendingor our inability to effectively market and sell our products. Any of theseresults could substantially harm our business and results of operations,causing a decrease in our revenues.

 

***Related Party Transactions***

 

Mr. Pehong Chen, our CEO andChairman of the Board, served as a director of Brience, Inc. a provider ofsoftware products.  From February 2001 to February 2002, we had a resellerrelationship with Brience whereby we agreed to resell the Brience productlicenses with our product.  One end-customer installation that resultedfrom the reseller relationship was not concluded until the three months endedSeptember 30, 2002.  During the three and nine months ended September 30,2002, we paid to Brience approximately $175,000 in license fees for the resellof the Brience product to that end-customer.  During the three monthsended March 31, 2003, we paid no royalties to Brience.  Mr. Chen resignedfrom the Brience board of directors on September 12, 2002.

 

We also have an investmentof 19.9% in Roundarch, a CRM services company. We have a reseller relationshipwith Roundarch whereby Roundarch resells and integrates our software productswith other third party software products into CRM customer installations. During the three months ended March 31, 2003, transactions involving Roundarchcomprised no more than **$**23,000 ofour revenue.  During the three months ended March 31, 2002, transactionsinvolving Roundarch comprised no more than $36,000 of our revenue.

 

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**Item 3.           Quantitative andQualitat****ive Disclosures 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, 2003 and December 31, 2002. We place our investments in instrumentsthat meet high credit quality standards and the amount of credit exposure toany one issue, issuer and type of instrument is limited.

 

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

 

We consider all debt andequity securities with maturities of three months or less at the date ofpurchase to be cash equivalents. Our short-term investments consist of debt andequity securities that are classified as available-for-sale. Our debtsecurities are carried at fair value with related unrealized gains or lossesreported as other comprehensive income (loss), net of tax. Our long-terminvestments include debt securities that are classified as available-for-sale.These securities have remaining maturities greater than one year fromMarch 31, 2003. These investments are carried at fair value with relatedunrealized gains or losses reported as other comprehensive income, net of tax.

 

All short term investmentshave a remaining maturity of twelve months or less. Total short-term andlong-term investment unrealized gains (losses) were $(54,000) and$(798,000) for the three months ended March 31, 2003 and 2002,respectively.

 

Our cash andcash equivalents, short-term investments and long-term investments consisted ofthe following as of March 31, 2003 (in thousands):

 
|                                  |   | **Amortized  costs** |    | **Unrealized  gains** |   | **Unrealized  losses** |   | **Fair  value** |   |
|---------------------------------------|--------|----------------------|---------|-----------------------|--------|------------------------|--------|-----------------|--------|
| Cash                                  |   | $                    | 77,761  |                  | $      | —                 |   | $               | — |   | $ | 77,761 |   |
| Money market                          |   | 26,191               |    | —                |   | —                 |   | 26,191          |   |
| Corporate notes/bonds                 |   | 12,156               |    | 5                     |   | —                 |   | 12,161          |   |
| Government notes/bonds                |   | 3,421                |    | 1                     |   | —                 |   | 3,422           |   |
|                                  |   | 119,529              |    | 6                     |   | —                 |   | 119,535         |   |
|                                  |   |                 |    |                  |   |                   |   |            |   |
| Included in cash and cash equivalents |   | 115,734              |    | —                |   | —                 |   | 115,734         |   |
| Included in short-term investments    |   | 3,644                |    | 5                     |   | —                 |   | 3,649           |   |
| Included in long-term investments     |   | 151                  |    | 1                     |   | —                 |   | 152             |   |
|                                  |   | $                    | 119,529 |                  | $      | 6                      |   | $               | — |   | $ | 119,535 |   |

 

Included in the table abovein cash and cash equivalents are $16.8 million of non-current restrictedcash and investments.

 

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Our cash and cashequivalents, short-term investments and long-term investments consisted of thefollowing as of December 31, 2002 (in thousands):

 
|                                  |   | **Amortized  costs** |    | **Unrealized  gains** |   | **Unrealized  losses** |   | **Fair   value** |   |
|---------------------------------------|--------|----------------------|---------|-----------------------|--------|------------------------|--------|------------------|--------|
| Cash                                  |   | $                    | 36,070  |                  | $      | —                 |   | $                | — |   | $ | 36,070 |   |
| Money market                          |   | 36,232               |    | —                |   | —                 |   | 36,232           |   |
| Corporate notes/bonds                 |   | 23,369               |    | 50                    |   | (1                     | )      | 23,418           |   |
| Government notes/bonds                |   | 23,430               |    | 11                    |   | —                 |   | 23,441           |   |
|                                  |   | $                    | 119,101 |                  | $      | 61                     |   | $                | (1     | ) | $ | 119,161 |   |
|                                  |   |                 |    |                  |   |                   |   |             |   |
| Included in cash and cash equivalents |   | $                    | 94,090  |                  | $      | —                 |   | $                | — |   | $ | 94,090 |   |
| Included in short-term investments    |   | 24,428               |    | 57                    |   | (1                     | )      | 24,484           |   |
| Included in long-term investments     |   | 583                  |    | 4                     |   | —                 |   | 587              |   |
|                                  |   | $                    | 119,101 |                  | $      | 61                     |   | $                | (1     | ) | $ | 119,161 |   |

 

Included in the table abovein short-term investments are non-current restricted cash and investments of$16.7 million.

 

Remainingmaturities of our long-term investments as of March 31, 2003 are asfollows (in thousands):

 
|                  |   | **2004** |   |
|-----------------------|--------|----------|--------|
| Corporate notes/bonds |   | $        | 152    |   |
|                       |        |          |        |  |

 

***Concentrations of Credit Risk***

 

Financialassets that potentially subject us to significant concentrations of credit riskconsist principally of cash, cash equivalents, short-term investments, andtrade accounts receivable. We maintain our cash and cash equivalents andshort-term investments with over seven separate financial institutions. Wemarket and sell our products throughout the world and perform ongoing creditevaluations of our customers. We maintain reserves for potential credit losses.For the three months ended March 31, 2003 and 2002, no one customer accountedfor more than 10% of total revenue. As of March 31, 2003 and 2002, no onecustomer accounted for more than 10% of our accounts receivable.

 

***Fair Value of Financial Instruments***

 

Our financial instrumentsconsist of cash equivalents, short-term investments, accounts receivable,long-term investments, accounts payable and debt. We do not have any derivativefinancial instruments. We believe the reported carrying amounts of itsfinancial instruments approximates fair value, based upon the short maturity ofcash equivalents, short-term investments, long-term investments, accountsreceivable and payable, and based on the current rates available to it onsimilar debt issues.

 

***Equity Investments***

 

Our equity investmentsconsist of equity investments in public and non-public companies that areaccounted for under the cost method of accounting. Equity investments areaccounted for under the cost method of accounting when we have a minorityinterest and do not have the ability to exercise significant influence. Theseinvestments are classified as available for sale and are carried at fair valuewhen readily determinable market values exist or at cost when such marketvalues do not exist. Adjustments to fair value are recorded as a component ofother comprehensive income unless the investments are considered permanentlyimpaired in which case the adjustment is recorded as a component of otherincome (expense), net in the consolidated statement of operations.

 

The total fair value of ourcost method long-term equity investments in public and non-public companies asof March 31, 2003 was $1.8 million. This includes $35,000 ofwrite-downs during the three months ended March 31, 2003 due to an other-than-temporarydecline in fair value. There were no unrealized gains or losses recorded duringthe three months ended March 31, 2003 related to long-term equity investments.

 

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Our exposure to market riskfor changes in interest rates relates primarily to our investment portfolio. Wehad no derivative financial instruments as of March 31, 2003 and December 31,2002. We place our investments in instruments that meet high credit qualitystandards and the amount of credit exposure to any one issue, issuer and typeof instrument is limited.  Our interest rate risk related to borrowingshistorically has been minimal as interest expense related to borrowings hasbeen immaterial for the three months ended March 31, 2003 and 2002.

 

During the second quarter offiscal 2002, we drew down $25.0 million on our revolving line of credit. Interest is payable monthly at the bank’s prime rate (4.25% annually as ofMarch 31, 2003) and principal is due in full in February 2004.  Additionally,we have two outstanding term loans as of March 31, 2003.  Interest onthose term loans are at the bank’s prime rate (4.25% as of March 31, 2003) andprime rate plus 1.25% (5.5% as of March 31, 2003).

 

**ITEM 4.           CONTROLS AND****PROCEDURES**

 

(a)  Basedon their evaluation of our disclosure controls and procedures conducted within90 days of the date of filing this report on Form 10-Q, our ChiefExecutive Officer and Chief Financial Officer have concluded that ourdisclosure controls and procedures (as defined in Rules 13a-14(c) and15d-14(c) promulgated under the Securities Exchange Act of 1934) are effective.

 

(b)  Therehave been no significant changes (including corrective actions with regard tosignificant deficiencies or material weaknesses) in our internal controls or inother factors that could significantly affect these controls subsequent to thedate of the evaluation referenced in paragraph (a) above.

 

*Limitations on the Effectiveness of Controls*

 

Ourmanagement, including our Chief Executive Officer and Chief Financial Officer,does not expect that our disclosure controls and procedures or our internalcontrols will prevent all error and fraud. A control system, no matter how wellconceived and operated, can provide only reasonable, not absolute, assurancethat the objectives of the control system are met. Further, the design of acontrol system must reflect the fact that there are resource constraints, andthe benefits of controls must be considered relative to their costs. Because ofthe inherent limitations in all control systems, no evaluation of controls canprovide absolute assurance that all control issues and instances of fraud, ifany, within the company have been detected. These inherent limitations includethe realities that judgments in decision-making can be faulty, and thatbreakdowns can occur because of simple error or mistake. Additionally, controlscan be circumvented by the individual acts of some persons, by collusion of twoor more people, or by management override of the control. The design of anysystem of controls also is based in part upon certain assumptions about thelikelihood of future events, and there can be no assurance that any design willsucceed in achieving its stated goals under all potential future conditions;over time, control may become inadequate because of changes in conditions, orthe degree of compliance with the policies or procedures may deteriorate.Because of the inherent limitations in a cost-effective control system,misstatements due to error or fraud may occur and not be detected.

 

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**PART II.  OTHER INFORMATION**

 
| **Item 1.** |   | **Legal  Proceedings** |
|-------------|--------|------------------------|

 

On July 18,2002, Avalon Partners, Inc., doing business as Cresa Partners (“Cresa”), fileda suit against the Company in the Superior Court of the State of California,San Mateo County, claiming broker commissions related to the Company’stermination and restructuring of certain facilities leases associated with ourrestructuring plans taken during the second quarter of 2002. The matterwas settled by way of a settlement agreement executed by both parties in March2003 under which the Company made a one-time payment of $2.2 million in April2003.

 

We are alsosubject to various other claims and legal actions arising in the ordinarycourse of business. In the opinion of management, after consultation with legalcounsel, the ultimate disposition of these matters is not expected to have amaterial effect on our business, financial condition or results of operations.Although management currently believes that the outcome of other outstandinglegal proceedings, claims and litigation involving us will not have a materialadverse effect on our business, results of operations or financial condition,litigation is inherently uncertain, and there can be no assurance that existingor future litigation will not have a material adverse effect on our business,results of operations or financial condition.

  
| **Item 2.** |   | **Changes  in Securities and Use of Proceeds**           |
|-------------|--------|----------------------------------------------------------|
|        |   | Not applicable.                                          |
|        |   |                                                     |
| **Item 3.** |   | **Defaults  Upon Senior Securities**                     |
|        |   | Not applicable.                                          |
|        |   |                                                     |
| **Item 4.** |   | **Submission  of Matters to a Vote of Security Holders** |
|        |   | Not applicable.                                          |
|        |   |                                                     |
| **Item 5.** |   | **Other  Information**                                   |
|        |   | Not applicable.                                          |
|        |   |                                                     |
| **Item 6.** |   | **Exhibits  and Reports on Form 8-K**                    |
|        |   | (a)                                                      | Exhibits |
|        |   |                                                     | **Exhibits** |   | **Description** |
|        |   |                                                     | 10.34 |   | Offer letter, dated March  4, 2003 by and between the Company and William Meyer. |
|        |   |                                                     | 99.1 |   | Certification pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002. |
|        |   |                                                     |
|        |   | (b)                                                      | Reports on Form 8-K |
|        |   |                                                     | On April 23, 2003, the  Company filed a current report on Form 8-K related to the announcement of its  financial results for the quarter ended March 31, 2003. |

 

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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.

 

 
|               |   | **BROADVISION,  INC.**                                                                                               |
|--------------------|--------|----------------------------------------------------------------------------------------------------------------------|
| Date: May 14, 2003 | By:    | /s/  Pehong Chen                                                                                                |   |   |
|               |   | Pehong Chen  Chairman of the Board, President and Chief Executive Officer (Principal  Executive Officer)             |
| Date: May 14, 2003 | By:    | /s/  William E. Meyer                                                                                           |   |   |
|               |   | William E. Meyer  Executive Vice President and Chief Financial Officer  (Principal Financial and Accounting Officer) |

 

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**CERTIFICATIONS**

 

I, PehongChen, certify that:

 

1.    Ihave reviewed this quarterly report on Form 10-Q ofBroadVision, Inc.;

2.    Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

3.    Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

4.    Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

a)    Designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

b)    Evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report(the “Evaluation Date”); and

c)    Presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

5.    Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

a)    Allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

b)    Anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

6.    Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| Date:  | May 14, 2003 |                         |
|--------|--------------|------------------------------|
|   |         | /s/    PEHONG CHEN |   |
|   |         | Pehong Chen                  |
|   |         | *Chief Executive Officer*    |

 

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I, William E.Meyer, certify that:

 

1.    Ihave reviewed this quarterly report on Form 10-Q ofBroadVision, Inc.;

2.    Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterly report;

3.    Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

4.    Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

a)    Designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

b)    Evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report(the “Evaluation Date”); and

c)    Presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

5.    Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

a)    Allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

b)    Anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

6.    Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| Date:  | May 14, 2003 |
|--------|--------------|
|   |         | /s/    WILLIAM E. MEYER |   |
|   |         | William E.  Meyer |
|   |         | *Chief Financial Officer* |

 

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