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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, DC  20549**

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**FORM 10-Q/A**

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**AMENDMENT NO. 1**

**(Mark One)**

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**ý**            QUARTERLY REPORT PURSUANT TO SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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**Forthe Quarter ended September 30, 2001**

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**OR**

 

**o**            TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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**0-28252**(Commission File Number)

 

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**BROADVISION,INC.**

(Exact name of registrant as specified in its charter)

 

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** **
| **Delaware**                                                    | **94-3184303**                            |
|-----------------------------------------------------------------|-------------------------------------------|
| (State or other jurisdiction of  incorporation or organization) | (I.R.S. Employer   Identification Number) |
|                                                            |                                      |
| **585 Broadway,**                                               |                                      |
| **Redwood City, California**                                    | **94063**                                 |
| (Address of principal executive offices)                        | (Zip code)                                |
|                                                            |                                      |
| **(650)  261-5100**                                             |
| (Registrant’s telephone  number, including area code)      |

 

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

 

As of March 26,2002 there were 286,844,515 shares of the Registrant’s Common Stock issued andoutstanding.

 

 

**BROADVISION, INC. ANDSUBSIDIARIESFORM 10-Q/AQuarter Ended September 30, 2001**

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**TABLE OF CONTENTS**

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BroadVision, Inc.

 

EXPLANATORY NOTE

 

This Form 10-Q/A amends the Registrant’squarterly Form 10-Q for the third fiscal quarter ended September 30, 2001 asfiled on November 14, 2001 and is being filed to reflect the restatement of theRegistrant’s consolidated financial statements for that period.  The restatement relates to amounts under asingle contract with a customer, which amounts we have subsequently determinedshould not have been recognized as revenue in the third quarter but should berecognized ratably over a four year period. This Form 10-Q/A revises the Consolidated Statements of Operations forthe three months ended September 30, 2001 and the Consolidated Statements ofOperations for the nine months ended September 30, 2001 as follows: softwarelicense revenues have been decreased by $3,381,000 and services revenues havebeen decreased by $145,000 for the three and nine months ended September 30,2001.  The dollar value, percentage ofrevenue and percentage changes over prior year revenue in Management’sDiscussion and Analysis of Financial Condition and Results of Operations havebeen changed to reflect the change in revenue. In addition, this Form 10-Q/A revises the Consolidated Balance Sheet asof September 30, 2001 as follows: unearned revenue has increased by$3,526,000.  The unearned revenue in therelated notes and Management’s Discussion and Analysis of Financial Conditionand Results of Operations have been changed to reflect these changes.

 

For purposes of this Form 10-Q/A, and inaccordance with Rule 12B-15 under the Securities Exchange Act of 1934, asamended, each item of the 2001 third quarter Form 10-Q as filed on November 14,2001 that was affected by the restatement has been amended and restated in itsentirety.  No attempt has been made inthis Form 10-Q/A to modify or update other disclosures as presented in theoriginal Form 10-Q except as required to reflect the effects of the restatement.  In particular, and without limitation, in“Item 2 — Management’s Discussion and Analysis of Financial Condition andResults of Operations,” the Company has given certain information about thebusiness environment applicable to the Company, the business outlook andcertain forward-looking information. This information has not been revised from the information provided inthe Form 10-Q for the quarter ended September 30, 2001 because it was notaffected by the restatement.

** **

 
| **PART I.**    | **FINANCIAL INFORMATION**                                                                                                       |
|----------------|---------------------------------------------------------------------------------------------------------------------------------|
| Item 1.        | Financial  Statements                                                                                                           |
|           | Condensed  Consolidated Balance Sheets-September 30, 2001and December 31, 2000                                             |
|           | Condensed Consolidated Statements of Operations and Comprehensive  Loss-Three and nine months ended September 30, 2001 and 2000 |
|           | Condensed  Consolidated Statements of Cash Flows-Nine months ended September 30, 2001  and 2000                                 |
|           | Notes to  Condensed Consolidated Financial Statements                                                                           |
| Item 2.        | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                     |
|           |                                                                                                                            |
| **SIGNATURES** |                                                                                                                            |

 

**PART I.  FINANCIALINFORMATION**

 

**Item 1.    Financial Statements**

 

**BROADVISION, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(In thousands, except per share data)**

** **
|                                                                                                                                              |   | **September  30,  2001**        |    | **December  31,  2000** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|---------|-------------------------|--------|
|                                                                                                                                              |   | **(unaudited)**                 |    |                    |   |
|                                                                                                                                              |   | **(as  restated,  See Note 1)** |    |                    |   |
| **ASSETS**                                                                                                                                        |   |                            |    |                    |   |
| Cash and cash equivalents                                                                                                                         |   | $                               | 123,703 |                    | $      | 153,137 |   |
| Short-term investments                                                                                                                            |   | 65,879                          |    | 69,397                  |   |
| Accounts receivable, less reserves of $8,593  and $4,015 for 2001 and 2000, respectively                                                          |   | 34,988                          |    | 104,811                 |   |
| Prepaids and other                                                                                                                                |   | 15,397                          |    | 17,417                  |   |
| Total current assets                                                                                                                              |   | 239,967                         |    | 344,762                 |   |
|                                                                                                                                              |   |                            |    |                    |   |
| Property and equipment, net                                                                                                                       |   | 80,464                          |    | 76,685                  |   |
| Deferred tax asset                                                                                                                                |   | 5,579                           |    | 5,579                   |   |
| Long-term investments                                                                                                                             |   | 32,581                          |    | 78,769                  |   |
| Equity investments                                                                                                                                |   | 9,329                           |    | 23,786                  |   |
| Goodwill and other intangibles                                                                                                                    |   | 74,305                          |    | 607,501                 |   |
| Other assets                                                                                                                                      |   | 7,394                           |    | 5,942                   |   |
| Total assets                                                                                                                                      |   | $                               | 449,619 |                    | $      | 1,143,024 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                     |   |                            |    |                    |   |
| Accounts payable                                                                                                                                  |   | $                               | 11,696  |                    | $      | 15,711 |   |
| Accrued expenses                                                                                                                                  |   | 69,640                          |    | 53,676                  |   |
| Unearned revenue                                                                                                                                  |   | 25,996                          |    | 16,330                  |   |
| Deferred maintenance                                                                                                                              |   | 29,015                          |    | 42,237                  |   |
| Current portion of long-term debt                                                                                                                 |   | 977                             |    | 977                     |   |
| Total current liabilities                                                                                                                         |   | 137,324                         |    | 128,931                 |   |
|                                                                                                                                              |   |                            |    |                    |   |
| Long-term debt, net of current portion                                                                                                            |   | 3,166                           |    | 3,897                   |   |
| Other noncurrent liabilities                                                                                                                      |   | 55,107                          |    | 898                     |   |
| Total liabilities                                                                                                                                 |   | 195,597                         |    | 133,726                 |   |
|                                                                                                                                              |   |                            |    |                    |   |
| Commitments                                                                                                                                       |   |                            |    |                    |   |
| 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; 283,888 and 270,066 shares issued and outstanding for 2001  and 2000, respectively |   | 28                              |    | 27                      |   |
| Additional paid-in capital                                                                                                                        |   | 1,205,842                       |    | 1,176,042               |   |
| Accumulated other comprehensive loss, net of  tax                                                                                                 |   | (8,491                          | )       | (4,348                  | )      |
| Accumulated deficit                                                                                                                               |   | (943,357                        | )       | (162,423                | )      |
| Total stockholders’ equity                                                                                                                   |   | 254,022                         |    | 1,009,298               |   |
| Total liabilities and stockholders’ equity                                                                                                   |   | $                               | 449,619 |                    | $      | 1,143,024 |   |

* *

*See AccompanyingNotes to Condensed Consolidated Financial Statements*

* *

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

** **
|                                                               |   | **Three Months Ended**

**September 30,** |     | **Nine Months Ended**

**September 30,** |   |
|--------------------------------------------------------------------|--------|-------------------------------------------|----------|------------------------------------------|--------|
|                                                               |   | **2001**                                  |     | **2000**                                 |   | **2001** |   | **2000** |   |
|                                                               |   | **(as  restated,  See Note 1)**           |     |                                     |   | **(as  restated,  See Note 1)** |   |   |   |
| **Revenues:**                                                      |   |                                      |     |                                     |   |   |   |   |   |
| Software licenses                                                  |   | $                                         | 16,292   |                                     | $      | 72,351 |   | $ | 80,461 |   | $ | 169,913 |   |
| Services                                                           |   | 31,412                                    |     | 47,843                                   |   | 115,807 |   | 107,126 |   |
| Total revenues                                                     |   | 47,704                                    |     | 120,194                                  |   | 196,268 |   | 277,039 |   |
| **Cost of  revenues:**                                             |   |                                      |     |                                     |   |   |   |   |   |
| Cost of software licenses                                          |   | 1,713                                     |     | 1,395                                    |   | 6,608 |   | 5,021 |   |
| Cost of services                                                   |   | 14,636                                    |     | 34,015                                   |   | 82,009 |   | 79,971 |   |
| Total cost of revenues                                             |   | 16,349                                    |     | 35,410                                   |   | 88,617 |   | 84,992 |   |
| Gross profit                                                       |   | 31,355                                    |     | 84,784                                   |   | 107,651 |   | 192,047 |   |
| **Operating  expenses:**                                           |   |                                      |     |                                     |   |   |   |   |   |
| Research and development                                           |   | 16,230                                    |     | 14,988                                   |   | 63,817 |   | 30,453 |   |
| Sales and marketing                                                |   | 25,895                                    |     | 43,799                                   |   | 120,142 |   | 102,569 |   |
| General and administrative                                         |   | 10,849                                    |     | 8,198                                    |   | 35,707 |   | 18,595 |   |
| Goodwill and intangible amortization                               |   | 66,493                                    |     | 66,308                                   |   | 199,070 |   | 121,659 |   |
| Charge for acquired in-process technology                          |   | —                                    |     | —                                   |   | — |   | 10,100 |   |
| Restructuring charge                                               |   | 9,847                                     |     | —                                   |   | 133,320 |   | — |   |
| Impairment of goodwill and other intangibles                       |   | 336,379                                   |     | —                                   |   | 336,379 |   | — |   |
| Total operating expenses                                           |   | 465,693                                   |     | 133,293                                  |   | 888,435 |   | 283,376 |   |
| Operating loss                                                     |   | (434,338                                  | )        | (48,509                                  | )      | (780,784 | ) | (91,329 | ) |
| Other income, net                                                  |   | 1,797                                     |     | 4,318                                    |   | 1,418 |   | 15,505 |   |
| Loss before provision for income taxes                             |   | (432,541                                  | )        | (44,191                                  | )      | (779,366 | ) | (75,824 | ) |
| Provision for income taxes                                         |   | 406                                       |     | 8,565                                    |   | 1,568 |   | 21,769 |   |
| Net loss                                                           |   | $                                         | (432,947 | )                                        | $      | (52,756 | ) | $ | (780,934 | ) | $ | (97,593 | ) |
| Basic and diluted net loss per share                               |   | $                                         | (1.55    | )                                        | $      | (0.20 | ) | $ | (2.85 | ) | $ | (0.38 | ) |
| **Shares  used in computing:**                                     |   |                                      |     |                                     |   |   |   |   |   |
| Basic and diluted net loss per share                               |   | 278,464                                   |     | 266,368                                  |   | 274,343 |   | 257,254 |   |
| **Comprehensive  loss:**                                           |   |                                      |     |                                     |   |   |   |   |   |
| Net loss                                                           |   | $                                         | (432,947 | )                                        | $      | (52,756 | ) | $ | (780,934 | ) | $ | (97,593 | ) |
| Other comprehensive loss, net of tax: Unrealized investment losses |   | (358                                      | )        | (5,160                                   | )      | (4,143 | ) | (26,070 | ) |
| Total comprehensive loss                                           |   | $                                         | (433,305 | )                                        | $      | (57,916 | ) | $ | (785,077 | ) | $ | (123,663 | ) |

 

*SeeAccompanying Notes to Condensed Consolidated Financial Statements*

 

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

 
|                                                                                        |   | **Nine Months Ended September 30,** |     |
|---------------------------------------------------------------------------------------------|--------|-------------------------------------|----------|
|                                                                                        |   | **2001**                            |     | **2000** |   |
|                                                                                        |   | **(unaudited)**                     |     |   |   |
|                                                                                        |   | **(as  restated,  See Note 1)**     |     |   |   |
| **Cash flows  from operating activities:**                                                  |   |                                |     |   |   |
| Net loss                                                                                    |   | $                                   | (780,934 | ) | $ | (97,593 | ) |
| Adjustments to reconcile net loss to net cash (used for) provided by  operating activities: |   |                                |     |   |   |
| Depreciation and amortization                                                               |   | 19,238                              |     | 7,347 |   |
| Amortization of deferred compensation                                                       |   | —                              |     | 226 |   |
| Accounts receivable reserves                                                                |   | 4,578                               |     | 1,359 |   |
| Amortization of prepaid royalties                                                           |   | 2,763                               |     | 996 |   |
| Amortization of prepaid compensation                                                        |   | 512                                 |     | 1,456 |   |
| Realized loss on cost method long-term investments                                          |   | 3,979                               |     | — |   |
| Equity in net loss from unconsolidated subsidiary                                           |   | 2,438                               |     | — |   |
| Charge for acquired in-process technology                                                   |   | —                              |     | 10,100 |   |
| Amortization of goodwill and other intangibles                                              |   | 199,070                             |     | 121,659 |   |
| Stock-based compensation charge                                                             |   | 350                                 |     | — |   |
| Restructuring charge, non cash                                                              |   | 121,547                             |     | — |   |
| Loss on sale of assets                                                                      |   | 1,147                               |     | — |   |
| Impairment of goodwill and other intangibles                                                |   | 336,379                             |     | — |   |
| Changes in operating assets and liabilities (net of acquisitions):                          |   |                                |     |   |   |
| Accounts receivable                                                                         |   | 65,046                              |     | (56,470 | ) |
| Prepaids and other                                                                          |   | 8,563                               |     | (7,510 | ) |
| Accounts payable and accrued expenses                                                       |   | (29,028                             | )        | 21,675 |   |
| Unearned revenue and deferred maintenance                                                   |   | (3,531                              | )        | 23,620 |   |
| Income tax benefit from stock option exercises                                              |   | —                              |     | 21,079 |   |
| Other noncurrent assets                                                                     |   | (2,258                              | )        | (2,838 | ) |
| Net cash (used for) provided by operating activities                                        |   | (50,141                             | )        | 45,106 |   |
| **Cash  flows from investing activities:**                                                  |   |                                |     |   |   |
| Purchase of property and equipment                                                          |   | (50,304                             | )        | (29,934 | ) |
| Purchase of long-term investments                                                           |   | (39,573                             | )        | (76,033 | ) |
| Sales/maturity of long-term investments                                                     |   | 84,299                              |     | — |   |
| Direct costs of purchase transaction, net of cash acquired                                  |   | —                              |     | (6,039 | ) |
| Cash acquired in purchase transaction                                                       |   | 7,171                               |     | — |   |
| Purchase of short-term investments                                                          |   | (95,853                             | )        | (175,947 | ) |
| Sales/maturity of short-term investments                                                    |   | 100,367                             |     | 92,956 |   |
| Net cash provided by (used for) investing activities                                        |   | 6,107                               |     | (194,997 | ) |
| **Cash  flows from financing activities:**                                                  |   |                                |     |   |   |
| Proceeds from issuance of common stock, net                                                 |   | 15,331                              |     | 27,757 |   |
| Repayments of borrowings                                                                    |   | (731                                | )        | (1,018 | ) |
| Payments on capital lease obligations                                                       |   | —                              |     | (270 | ) |
| Net cash provided by financing activities                                                   |   | 14,600                              |     | 26,469 |   |
| Net decrease in cash and  cash equivalents                                                  |   | (29,434                             | )        | (123,422 | ) |
| Cash and cash equivalents  at beginning of period                                           |   | 153,137                             |     | 279,823 |   |
| Cash and cash equivalents  at end of period                                                 |   | $                                   | 123,703  |   | $ | 156,401 |   |
| **Supplemental  disclosures of cash flow information:**                                     |   |                                |     |   |   |
| Cash paid for interest                                                                      |   | $                                   | 347      |   | $ | 422 |   |
| Cash paid for income taxes                                                                  |   | $                                   | 1,568    |   | $ | 1,165 |   |

 

*SeeAccompanying Notes to Condensed Consolidated Financial Statements*

 

**BROADVISION, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(AsRestated)**

 

**Note 1.   Restatement of the Three and Nine MonthsEnded September 30, 2001**

 

The restatement relates to amounts under asingle contract with a customer, which amounts we have subsequently determinedshould not have been recognized as revenue in the third quarter but should berecognized ratably over a four year period. As a result, the condensed consolidated financial statements included inthe Quarterly Report on Form 10Q filed on November 14, 2001 have beenrestated.  The restatement has resultedin an increase in net loss for the three and nine months ended September 30,2001 of $3,526,000 ($0.01 per share) and $3,526,000 ($0.02 per share),respectively.  Specifically, therestatement resulted in: reduction of $3,381,000 in software license revenues,reduction of $145,000 in services revenue and an increase of $3,526,000 inunearned revenues as of and for the three and nine months ended September 30,2001.

 

**Statementof Operations Data**

(in thousands)

** **
|                                 |   | **Three Months Ended September 30, 2001** |   |
|--------------------------------------|--------|-------------------------------------------|--------|
|                                 |   | **As Originally****Reported**             |   | **Restatement Adjustments** |   | **As Restated** |   |
| Software licenses revenues           |   | $                                         | 19,673 |   | $ | (3,381 | ) | $ | 16,292 |   |
| Services revenues                    |   | 31,557                                    |   | (145 | ) | 31,412 |   |
| Gross profit                         |   | 34,881                                    |   | (3,526 | ) | 31,355 |   |
| Net loss                             |   | (429,421                                  | )      | (3,526 | ) | (432,947 | ) |
| Basic and diluted net loss per share |   | $                                         | (1.54  | ) | $ | (0.01 | ) | $ | (1.55 | ) |

** **
|                                 |   | **Nine Months Ended September 30, 2001** |   |
|--------------------------------------|--------|------------------------------------------|--------|
|                                 |   | **As Originally****Reported**            |   | **Restatement Adjustments** |   | **As Restated** |   |
| Software licenses revenues           |   | $                                        | 83,842 |   | $ | (3,381 | ) | $ | 80,461 |   |
| Services revenues                    |   | 115,952                                  |   | (145 | ) | 115,807 |   |
| Gross profit                         |   | 111,177                                  |   | (3,526 | ) | 107,651 |   |
| Net loss                             |   | (777,408                                 | )      | (3,526 | ) | (780,934 | ) |
| Basic and diluted net loss per share |   | $                                        | (2.83  | ) | $ | (0.02 | ) | $ | (2.85 | ) |

 

**BalanceSheet Data**

(in thousands)

** **
|                |   | **September 30, 2001**        |   |
|---------------------|--------|-------------------------------|--------|
|                |   | **As Originally****Reported** |   | **Restatement Adjustments** |   | **As Restated** |   |
| Unearned revenue    |   | $                             | 22,470 |   | $ | 3,526 |   | $ | 25,996 |   |
| Accumulated deficit |   | (939,831                      | )      | (3,526 | ) | (943,357 | ) |
|                     |        |                               |        |  |  |  |  |  |  |  |

 

**Note 2.           Organization and Summary ofSignificant Accounting Policies**

 

***Nature of Business***

 

BroadVision, Inc.(collectively with its subsidiaries, “BroadVision” or “Company”) wasincorporated in the state of Delaware on May 13, 1993. The Companydevelops and sells an integrated suite of packaged applications for conductinge-business interactions, transactions and services. Global enterprises andgovernment entities use these applications to sell, buy and exchange goods,services and information over the Web and on wireless devices. The BroadVisione-business application suite enables an entity to establish and sustainhigh-yield relationships with customers, suppliers, partners, distributors,employees and other constituents in the extended enterprise. BroadVisionservices, supported by over 200 partner organizations worldwide, transformthese applications into business value for BroadVision’s customers throughconsulting, education and support services.

 

The BroadVisione-business application suite allows businesses to tailor Web and wirelesscontent to the needs and interests of individual users by personalizing contentand transactions on a real-time basis. The Company offers enterprise-class solutions to connect companies totheir customers, suppliers, partners and employees. These solutions enablecompanies to maintain and expand existing relationships in an onlineenvironment via a single, integrated e-business platform.

 

BroadVisionGlobal Services, or BVGS, provides a broad range of consulting, training andtechnical support services to all of the Company’s customers and implementationpartners. This organization provides business application and technicalexpertise, along with extensive product knowledge, to complement the Company’sproducts and provide solutions that meet customers’ unique businessrequirements. By using these services, customers are able to build customizedapplication solutions to maximize the benefits of one-to-one relationshipmanagement and self-service.

 

Asignificant element of the Company’s sales strategy is to engage in strategicbusiness alliances to assist in marketing, selling and developing customerapplications.

 

Asof September 30, 2001, the Company had developed key strategic businessalliances with over 200 systems integration, design, consulting and otherservices organizations throughout the world, including Accenture, DeloitteConsulting, Hewlett-Packard Consulting, IBM Global Services, KPMG Consulting,PricewaterhouseCoopers and Roundarch. The Company’s platform alliances are partnerships formed to integratetechnologies to drive business growth. Additionally, the Company has developed key technology partnerships withleading Web- and wireless-focused companies in areas complementary to theCompany’s solutions, such as data analysis and reporting, enterpriseapplication integration, enterprise Web management, call center management,content management, voice recognition, payment processing, auctioning and XML.These technology partnerships enhance the Company’s ability to base products onindustry standards and to take advantage of current and emerging technologies.These alliances include companies such as BEA Systems, Broadbase, Documentum,E.Piphany, Genesys, i2, Interwoven, Nuance, Tibco, WebMethods and Yantra.

 

The Company markets its products primarily through a directsales organization with operations in North America, South America, Europe andAsia/Pacific. The Company also contracts with third-party resellers,distributors and systems integrators in North America, South America, Europeand Asia/Pacific. The Company intends to increase the use of this distributionchannel.

 

Therehas been a general downturn in the economy since the beginning of 2001.  This downturn may continue in the future andhas and could continue to have an impact on the Company’s future financialresults.  Comparisons of financialperformance made in this document are not necessarily indicative of futureperformance.  The Company announced acorporate-wide reorganization and reduction in force and incurred a charge inthe third quarter of 2001 of approximately $9.8 million and approximately$123.5 million in the second quarter of 2001, related to these actions and aconsolidation of the Company’s facilities. Please see Note 8 of Notes to Condensed Consolidated FinancialStatements.

 

***Basis of Presentationand Use of Estimates***

 

The accompanyingconsolidated financial statements include the accounts of the Company and itswholly-owned subsidiaries. They have been prepared in accordance with theestablished guidelines for interim financial information as provided by theinstructions to Form 10-Q and Article 10 of Regulation S-X. All significantintercompany transactions have been eliminated in consolidation. The financialresults and related information as of September 30, 2001 and for the three andnine months ended September 30, 2001 and 2000 are unaudited. The balance sheetat December 31, 2000 has been derived from the audited consolidated financialstatements as of that date but does not necessarily reflect all of theinformational disclosures previously reported in accordance with accountingprinciples generally accepted in the United States. In the Company’s opinion,the consolidated financial statements presented herein include all necessaryadjustments, consisting of normal recurring adjustments, to fairly state theCompany’s financial position, results of operations, and cash flows for theperiods indicated. The preparation ofconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States requires management to make certainassumptions and estimates that affect reported amounts of assets andliabilities as of the date of the financial statements and the reported amountsof revenues and expenses during the reporting period. Actual results coulddiffer from estimates.

 

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

 

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

 

*RevenueRecognition*—TheCompany’s revenues are derived fromsoftware licensing arrangements and fees charged for services. Software isgenerally licensed for development use and for its use in deployment of thecustomer’s website. Deployment licenses are generally based on the number ofpersons who register on a customer’s website using the Company’s software. TheCompany’s revenue recognition policies are in accordance with Statement ofPosition (“SOP”) 97-2, *Software Revenue Recognition*, as amendedand SOP 98-9, *Software Revenue Recognition, With Respect to Certain Transactions*.In general, software license revenues are recognized when a non-cancelablelicense agreement has been signed and the customer acknowledges anunconditional obligation to pay, the software product has been delivered, thereare no uncertainties surrounding product acceptance, the fees are fixed anddeterminable and collection is considered probable; professional servicesrevenues are recognized as such services are performed; and maintenancerevenues, or post-contract customer support, or PCS, including revenues bundledwith software agreements which entitle the customers to technical support andfuture unspecified enhancements to the Company’s products, are deferred andrecognized ratably over the related contract period, generally twelve months.Revenues recognized from multiple-element software arrangements are allocatedto each element of the arrangement based on the fair values of the elements,such as software products, PCS, installation or training. The determination offair value is based on objective evidence which is specific to the Company. Ifevidence of fair value does not exist for all elements of a license agreementand PCS is the only undelivered element, then all revenue for the licensearrangement is recognized ratably over the term of the agreement as licenserevenue. If evidence of fair value of all undelivered elements exists butevidence 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 the arrangementfee is recognized as revenue. Services that the Company provides are notessential to the functionality of the software.

 

InDecember 1999 the Securities and Exchange Commission issued Staff AccountingBulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements.” SABNo. 101 provides guidance for revenue recognition under certain circumstances.SAB No. 101 became effective in the quarter beginning October 1, 2000. Theadoption of SAB No. 101 did not have a material impact on the Company’s resultsof operations, financial position or cash flows.

 

TheCompany records unearned revenue for software arrangements when cash has beenreceived from the customer and the arrangement does not qualify for revenuerecognition under the Company’s revenue recognition policy. The Company recordsaccounts receivable for software arrangements when the arrangement qualifiesfor revenue recognition but cash or other consideration has not been receivedfrom the customer.

 

TheCompany’s professional services are delivered through BVGS, which consists ofconsulting, customer support and training. These groups provide consulting services, manage projects and clientrelationships, manage the needs of the Company’s partner community, providetraining-related services to employees, customers and partners, and alsoprovide software maintenance services, including technical support, to theCompany’s customers and partners.

 

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

 

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

 
|                                                                                          |   | **Three Months Ended  September 30,** |     | **Nine Months Ended  September 30,** |   |
|-----------------------------------------------------------------------------------------------|--------|--------------------------------------------|----------|-------------------------------------------|--------|
|                                                                                          |   | **2001**                                   |     | **2000**                                  |   | **2001** |   | **2000** |   |
| Net loss                                                                                      |   | $                                          | (432,947 | )                                         | $      | (52,756 | ) | $ | (780,934 | ) | $ | (97,593 | ) |
| Weighted average common shares outstanding utilized for basic and  diluted net loss per share |   | 278,464                                    |     | 266,368                                   |   | 274,343 |   | 257,254 |   |
| Basic and diluted net loss  per share                                                         |   | $                                          | (1.55    | )                                         | $      | (0.20 | ) | $ | (2.85 | ) | $ | (0.38 | ) |

 

6,766 and 12,328potential common shares are excluded from the determination of diluted net lossper share for the three and nine months ended September 30, 2001, respectively,as the effect of such shares is anti-dilutive. 32,687 and 36,627 potential common shares are excluded from thedetermination of diluted net loss per share for the three and nine months endedSeptember 30, 2000, respectively, as the effect of such shares isanti-dilutive.

 

*ForeignCurrency Transactions*—Thefunctional currency of the Company’s foreign subsidiaries is the U.S.dollar.  Resulting foreign exchangegains and losses are included in the Condensed Consolidated Statements ofOperations and, to date, have not been significant.

 

*Impairmentof Long-Lived Assets*—TheCompany periodically assesses the impairment of long-lived assets, includingidentifiable intangibles, in accordance with the provisions of SFAS No. 121,“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assetsto be Disposed Of.”  The Company alsoperiodically assesses the impairment of enterprise level goodwill in accordancewith the provisions of Accounting Principles Board (“APB”) Opinion No. 17,“Intangible Assets.”  An impairmentreview is performed whenever events or changes in circumstances indicate thatthe carrying value may not be recoverable. Factors the Company considers important which could trigger animpairment include, but are not limited to, significant underperformancerelative to historical or projected future operating results, significantchanges in the manner of use of the acquired assets or the strategy for theCompany’s overall business, significant negative industry or economic trends, asignificant decline in the Company’s stock price for a sustained period and theCompany’s market capitalization relative to net book value.  When the Company determines that thecarrying value of goodwill or other intangible assets may not be recoverablebased upon the existence of one or more of the above indicators of impairment,the Company measures any impairment based on a projected discounted cash flowmethod using a discount rate commensurate with the risk inherent in its currentbusiness model.

 

*Fair Value of Financial Instruments*—The Company’s financial instruments consistof cash and cash equivalents, short-term investments, accounts receivable,long-term investments, equity investments, accounts payable and debt.  The Company does not have any derivativefinancial instruments.  The Companybelieves the reported carrying amounts of its financial instrumentsapproximates fair value, based upon the short maturity of cash equivalents,short-term investments, accounts receivable and payable, and based on thecurrent rates available to the Company on similar debt issues.  Additionally, the Company periodically evaluatesthe carrying value of all of its investments for permanent impairment whenevents and circumstances indicate that the book value of an asset may not berecoverable.  If such assets areconsidered to be impaired, the impairment to be recognized is measured by theamounts by which the carrying amount exceeds its fair market value.  The Company’s equity investments arecomprised of investments in public and non-public technology-relatedcompanies.  The Company may recordfuture impairment charges due to continued economic decline and the potentialresulting negative impact on these companies. During the three and nine months ended September 30, 2001, respectively,the Company recorded $837,000 and $4.0 million in impairment charges on itscost method long-term investments. There were no such charges during the three and nine months endedSeptember 30, 2000.

 

*New Accounting Pronouncements*—On June 29, 2001, the Financial Accounting Standard Board (“FASB”) approved forissuance SFAS No. 141, *Business Combinations*,and SFAS No. 142, *Goodwill and IntangibleAssets*. Major provisions of these Statements are as follows: allbusiness combinations initiated after June 30, 2001 must use the purchasemethod of accounting; the pooling of interest method of accounting isprohibited except for transactions initiated before July 1, 2001; intangibleassets acquired in a business combination must be recorded separately fromgoodwill if they arise from contractual or other legal rights or are separablefrom the acquired entity and can be sold, transferred, licensed, rented orexchanged, either individually or as part of a related contract, asset orliability; goodwill and intangible assets with indefinite lives are notamortized but are tested for impairment at least annually using a fair valueapproach, except in certain circumstances, and whenever there is an impairmentindicator; other intangible assets will continue to be valued and amortizedover their estimated lives except assembled workforce which, pursuant to SFASNo. 141, will not be recognized as an intangible asset apart from goodwill;in-process research and development will continue to be written offimmediately; all acquired goodwill must be assigned to reporting units forpurposes of impairment testing and segment reporting;  effective  January 1, 2002, existing goodwill will nolonger be subject to amortization. Goodwill arising between July 1, 2001 and December 31, 2001 will not besubject to amortization.

 

Upon adoption of SFAS No.142, on January 1, 2002, the Company will no longer amortize goodwill and,thereby eliminating annual goodwill amortization of approximately $43.2million, based on anticipated amortization for 2002.  Amortization for the nine months ended September 30, 2001 was$191.8 million.  Additionally, uponadoption of SFAS No. 141 and 142, the Company will no longer amortize itsnon-technology based intangible asset, or assembled workforce, therebyeliminating annual amortization of approximately $2.2 million based onanticipated amortization for 2002. Amortization for the non technology based intangible asset was $2.1million for the nine months ended September 30, 2001.  During the third quarter of 2001, the Company recorded animpairment charge of $330.2 million related to goodwill and $6.2 millionrelated to other intangible assets primarily as part of the Interleafacquisition which closed on April 14, 2000. Please see Note 9 for additional information.

 

**Note 3.           Selective Balance Sheet Detail**

 

Property and equipment consisted of the following (inthousands):

 
|                                            |   | **September 30,** |   | **December 31,** |   |
|-------------------------------------------------|--------|-------------------|--------|-----------------------|--------|
|                                            |   | **2001**          |   | **2000**              |   |
|                                            |   | **(unaudited)**   |   |                  |   |
| Furniture and  fixtures                         |   | $                 | 10,982 |                  | $      | 6,136 |   |
| Computers and  software                         |   | 67,020            |   | 56,654                |   |
| Leasehold  improvements                         |   | 41,280            |   | 34,465                |   |
|                                            |   | 119,282           |   | 97,255                |   |
| Less accumulated  depreciation and amortization |   | (38,818           | )      | (20,570               | )      |
|                                            |   | $                 | 80,464 |                  | $      | 76,685 |   |

 

Accrued expensesconsisted of the following (in thousands):

 
|                        |   | **September 30,** |   | **December 31,** |   |
|-----------------------------|--------|-------------------|--------|------------------|--------|
|                        |   | **2001**          |   | **2000**         |   |
|                        |   | **(unaudited)**   |   |             |   |
| Employee  benefits          |   | $                 | 4,431  |             | $      | 3,900 |   |
| Commissions and  bonuses    |   | 6,593             |   | 22,790           |   |
| Sales and other  taxes      |   | 7,015             |   | 11,439           |   |
| Restructuring  (See Note 7) |   | 40,503            |   | —           |   |
| Other                       |   | 11,098            |   | 15,547           |   |
|                        |   | $                 | 69,640 |             | $      | 53,676 |   |

 

Other noncurrentliabilities consisted of the following (in thousands):

 
|                        |   | **September 30,** |   | **December 31,** |   |
|-----------------------------|--------|-------------------|--------|------------------|--------|
|                        |   | **2001**          |   | **2000**         |   |
|                        |   | **(unaudited)**   |   |             |   |
| Restructuring  (See Note 7) |   | $                 | 54,107 |             | $      | — |   |
| Other                       |   | 1,000             |   | 898              |   |
|                        |   | $                 | 55,107 |             | $      | 898 |   |

 

**Note 4.           Commercial Credit Facilities**

 

The Company has variouscredit facilities with a commercial lender which include term debt in the formof notes payable and a revolving line of credit. As of September 30, 2001 andDecember 31, 2000, outstanding term debt borrowings were approximately $4.1million and $4.9 million, respectively. Borrowings bear interest at the bank’s prime rate (6.0% and 9.5% as ofSeptember 30, 2001 and December 31, 2000, respectively). Principal and interestare due in consecutive monthly payments through maturity based on the term ofthe facility. Principal payments of $977,000 are due annually from 2000 through2004, $611,000 due in 2005, and a final payment of $357,000 due in 2006. As ofSeptember 30, 2001 and December 31, 2000, the Company had no outstandingborrowings under its revolving line of credit. However, commitments totaling$2.4 million in the form of standby letters of credit were issued under itsrevolving line of credit facility as of September 30, 2001 and December 31,2000. Commitments totaling $22.7 million in the form of standby letters ofcredit were also issued from separate financial institutions as of September30, 2001. The commercial credit facilities include covenants which imposecertain restrictions on the payment of dividends and other distributions andrequired the Company to meet a financial covenant. Borrowings arecollateralized by a security interest in substantially all of the Company’sowned assets.  In August 2001 theCompany signed an amendment to the loan agreement which removes the financialcovenant and requires the Company to maintain a $10.0 million deposit in thebank.  No other advances will beavailable under the revolving line of credit.

 

**Note 5.           Commitments**

 

The Company currently has$4.1 million of outstanding term debt under its existing credit facility with acommercial bank.  Capital expenditureswere $50.3 million and $29.9 million for the nine months ended September 30,2001 and 2000, respectively.  TheCompany’s capital expenditures consisted of purchases of operating resources tomanage its operations and included computer hardware and software,communications equipments, office furniture and fixtures and leaseholdimprovements.  In February and April2000, the Company entered into new facility lease agreements for approximately519,000 square feet.  Lease paymentswill be made on an escalating basis with the total future minimum leasepayments amounting to $316.4 million, payable through the third quarter of2013.  Portions of these lease payments,along with expected sublease income, have been recorded as part of theCompany’s restructuring change recorded during the second quarter of 2001.  The Company has no other significant capitalcommitments.  The Company hasconsolidated various facilities as part of its restructuring plan for the threeand nine months ended September 30, 2001. Please refer to Note 8 for additional information.

 

**Note 6.           Geographic, Segment and SignificantCustomer Information**

 

The Company adopted theprovisions of SFAS No. 131, *Disclosure about Segments of an Enterprise andRelated Information*, during 1998. SFAS No. 131 establishes standardsfor the reporting by public business enterprises of information about operatingsegments, products and services, geographic areas and major customers.  The methodology for determining whatinformation to report is based on the way that management organizes the operatingsegments within the Company for making operational decisions and assessments offinancial performance.  The Company’schief operating decision maker is considered to be the Company’s ChiefExecutive Officer, or CEO.  The CEOreviews financial information presented on a consolidated basis accompanied bydisaggregated information about revenues by geographic region and by productfor purposes of making operating decisions and assessing financialperformance.  The Company operates inone segment, electronic business commerce solutions.

 

The Company sells itsproducts and provides services worldwide through a direct sales force andthrough a channel of independent distributors, value-added resellers (“VARs”)and application service providers (“ASPs”). In addition, the sales of the Company’s products are promoted throughindependent professional consulting organizations known as systems integrators.The Company provides services worldwide directly through its BroadVision GlobalServices organization and indirectly through distributors, VARs, ASPs andsystem integrators. The Company currently operates in three primarygeographical territories: NASA, which includes North and South America; EMEA,which includes Europe, the Middle East and Africa; and Asia/Pacific/Japan(APJ), which includes the Pacific Rim, the Far East and India. Disaggregatedfinancial information regarding the Company’s products and services andgeographic revenues is as follows (in thousands):

 

 
|                           |   | **Three Months  Ended  September 30,  (unaudited)** |   | **Nine Months  Ended  September 30,  (unaudited)** |   |
|--------------------------------|--------|----------------------------------------------------------|--------|---------------------------------------------------------|--------|
|                           |   | **2001**                                                 |   | **2000**                                                |   | **2001** |   | **2000** |   |
| Software  licenses:            |   |                                                     |   |                                                    |   |   |   |   |   |
| One-To-One  Enterprise         |   | $                                                        | 1,766  |                                                    | $      | 7,941 |   | $ | 5,879 |   | $ | 21,676 |   |
| One-To-One  Packaged Solutions |   | 14,526                                                   |   | 64,410                                                  |   | 74,582 |   | 148,237 |   |
| Services                       |   | 16,194                                                   |   | 35,054                                                  |   | 69,039 |   | 77,223 |   |
| Maintenance                    |   | 15,218                                                   |   | 12,789                                                  |   | 46,768 |   | 29,903 |   |
| Total Revenues                 |   | $                                                        | 47,704 |                                                    | $      | 120,194 |   | $ | 196,268 |   | $ | 277,039 |   |
| Revenues:                      |   |                                                     |   |                                                    |   |   |   |   |   |
| NASA                           |   | $                                                        | 23,832 |                                                    | $      | 79,607 |   | $ | 117,452 |   | $ | 190,920 |   |
| EMEA                           |   | 18,253                                                   |   | 30,921                                                  |   | 59,089 |   | 64,190 |   |
| APJ                            |   | 5,619                                                    |   | 9,666                                                   |   | 19,727 |   | 21,929 |   |
| Total Company                  |   | $                                                        | 47,704 |                                                    | $      | 120,194 |   | $ | 196,268 |   | $ | 277,039 |   |

 
|                  |   | **September 30,  2001  (unaudited)** |    | **December 31,  2000** |   |
|-----------------------|--------|--------------------------------------|---------|-----------------------------|--------|
| Identifiable  assets: |   |                                 |    |                        |   |
| NASA                  |   | $                                    | 401,961 |                        | $      | 1,102,343 |   |
| EMEA                  |   | 36,305                               |    | 33,254                      |   |
| APJ                   |   | 11,353                               |    | 7,427                       |   |
| Total Company         |   | $                                    | 449,619 |                        | $      | 1,143,024 |   |

 

During the three endedSeptember 30, 2001 and 2000 and during the nine months ended September 30,2000, no single customer accounted for more than 10% of the Company’s totalrevenues. During the nine months ended September 30, 2001, one customeraccounted for approximately 10% of the Company’s total revenues.

 

**Note 7.           Acquisitions**

 

*Interleaf*

 

On April 14, 2000, theCompany completed its acquisition of Interleaf, Inc. and its subsidiaries(“Interleaf”) pursuant to a statutory merger involving a stock-for-stockexchange. Interleaf’s software products and related services enable automatedelectronic business, or e-business, and also enable the extension of e-businessto wireless users. Interleaf provides customers with an integrated, easilyimplemented e-business solution based on extensible Markup Language, or XML,that enables the design, creation and management of XML-based content fortransformation and delivery over the Web and related services. As a result ofthe acquisition, the Company will have the ability to combine technologicalresources to develop a robust Web-based business solution and reduce time tomarket for the combined Company’s products. Through the acquisition of all ofthe equity securities of Interleaf, BroadVision acquired all of the assets andassumed liabilities of Interleaf and its existing operations which includedin-process technology. Pursuant to the terms of the Agreement and Plan ofMerger and Reorganization, dated as of January 26, 2000, each outstanding shareof Interleaf common stock was exchanged for 1.0395 shares of Company commonstock and all options to purchase shares of Interleaf common stock outstandingimmediately prior to the consummation of the merger were converted into optionsto purchase shares of Company common stock.

 

The Company issued14,391,991 shares of Company common stock with a fair market value of $686.9million and exchanged options to purchase 2,338,342 shares of Company commonstock with a fair market value of $102.7 million. The fair market value of theexchanged options to purchase 2,338,342 shares of Company common stock wascalculated using the Black-Scholes option-pricing model. In connection with theacquisition, the Company incurred transaction costs consisting primarily offinancial advisor, legal and accounting professional fees of $14.8 million,severance costs of $1.0 million and office closure costs of $1.3 million,resulting in a total purchase price of $806.7 million. The results ofoperations of Interleaf have been included with the Company’s results ofoperations since the April 14, 2000 acquisition date.

 

The acquisition wasaccounted for as a purchase business combination.  Under this accounting treatment, the purchase price is allocatedto the assets acquired and liabilities assumed based on the estimated fairvalues on the date of acquisition.

 

The total purchase pricepaid for the Interleaf acquisition was allocated as follows (in thousands):

 
| Property and equipment                                     |   | $       | 2,896   |   |
|------------------------------------------------------------|--------|---------|---------|--------|
| Net liabilities  assumed, excluding property and equipment |   | (1,041  | )       |
| Identifiable  intangible assets                            |   | 28,910  |    |
| In-process  technology                                     |   | 10,100  |    |
| Goodwill                                                   |   | 765,805 |    |
| Total                                                      |   | $       | 806,670 |   |

 

Based upon the Company’sestimates prepared in conjunction with a third-party valuation consultant,$10.1 million was allocated to acquired in-process technology and $28.9 millionwas allocated to intangible assets. The amounts allocated to intangible assetsinclude completed technologies of $20.4 million and assembled workforces of$8.5 million.

 

At September 30, 2001,accumulated amortization related to the goodwill and other intangible assetsacquired in the Interleaf acquisition totaled $386.3 million.  Goodwill amortization was $372.3 million andother intangible asset amortization was $14.0 million. The goodwill and otherintangible assets are being amortized over a three-year period.

 

During the third quarterof 2001, the Company recorded an impairment charge of $330.2 million related togoodwill and $6.2 million related to other intangible assets recorded as partof the Company’s various acquisitions, primarily the Interleafacquisition.  See Note 9 for additionalinformation.

 

The following summary,prepared on an unaudited pro forma basis, reflects the condensed consolidatedresults of operations for the nine month period ended September 30, 2000assuming Interleaf had been acquired at the beginning of the period presented(in thousands, except per share data):

 
|                                  |   | **For the nine  months  ended  September 30,** |       |
|---------------------------------------|--------|------------------------------------------------|------------|
|                                  |   | **2000**                                       | ** ** |
| Revenue                               |   | $                                              | 290,702    |   |
| Net loss                              |   | (172,584                                       | )          |
| Basic and  diluted net loss per share |   | $                                              | (0.65      | ) |

 

The pro forma results arenot necessarily indicative of what would have occurred if the acquisition hadbeen in effect for the period presented. In addition, they are not intended tobe a projection of future results and do not reflect any synergies that mightbe affected from combined operations. The charges for in-process technologyhave not been included in the unaudited pro forma results because they are nonrecurring.See Management’s Discussion and Analysis of Financial Condition and Results ofOperations for more information concerning the acquisition of Interleaf.

 

On April 30, 2001 and May15, 2001, the Company entered into agreements with third parties to sellcertain assets and liabilities of E-Publishing Corporation, formerly awholly-owned subsidiary of the Company, which the Company acquired as part ofthe acquisition of Interleaf in April 2000. The Company recorded a loss on sale of assets of approximately $1.3million which is included in other expense in the Condensed ConsolidatedStatements of Operations.

 

*Keyeon*

 

On June 29, 2001, theCompany completed its acquisition of Keyeon, LLC, formerly a joint venture inwhich the Company previously held an interest of approximately 36%.  As consideration for the acquisition, theCompany issued 2,713,280 shares of its common stock valued at $13.6 million tothe other former participants in the joint venture which resulted in theCompany owning 100% of the outstanding shares of Keyeon, LLC.  The acquisition was accounted for as apurchase.  The acquired assets andassumed liabilities, and the related results of operations, are included in theconsolidated financial statements of the Company from the date of acquisition.  The preliminary purchase price allocation isas follows (in thousands):

 

 
| Purchase price, net of cash acquired                                           |   | $      | 6,395  |   |
|--------------------------------------------------------------------------------|--------|--------|--------|--------|
| Add: fair value of liabilities assumed                                         |   | 3,199  |   |
| Total purchase consideration                                                   |   | 9,594  |   |
| Less: fair value allocated to acquired assets                                  |   | 7,388  |   |
| Excess of purchase consideration over acquired assets and assumed  liabilities |   | 2,206  |   |
| Excess allocated to:                                                           |   |   |   |
| Goodwill                                                                       |   | $      | 2,206  |   |

 

The following summary,prepared on an unaudited pro forma basis, reflects the condensed consolidatedresults of operations for the nine month period ended September 30, 2001assuming Keyeon had been acquired at the beginning of the period presented (inthousands, except per share data):

 
|                                  |   | **For the nine  months  ended  September 30,   2001** |    |
|---------------------------------------|--------|-------------------------------------------------------|---------|
| Revenue                               |   | $                                                     | 196,268 |   |
| Net loss                              |   | (785,485                                              | )       |
| Basic and  diluted net loss per share |   | $                                                     | (2.86   | ) |

 

The nine months endedSeptember 30, 2000 is not presented as Keyeon did not commence operations untilthe fourth quarter of 2000.  The proforma results are not necessarily indicative of what would have occurred if theacquisition had been in effect for the period presented.  In addition, they are not intended to be aprojection of future results and do not reflect any synergies that might beaffected from combined operations.

 

**Note 8.           Restructuring Charges and AssetImpairments**

 

During the third quarterand second quarter of 2001, the Company approved a restructuring plan to, amongother things, reduce its workforce and consolidate facilities.  These restructuring and asset impairmentcharges were taken to align the Company’s cost structure with changing marketconditions and to create a more efficient organization.  A pre-tax charge of $9.8 million wasrecorded in the third quarter of 2001 and a pre-tax charge of $123.5 million wasrecorded in the second quarter of 2001 to provide for these actions and otherrelated items.  The Company recorded thelow-end of a range of assumptions modeled for the restructuring charges, inaccordance with SFAS No. 5, “Accounting for Contingencies.”  The high-end of the range was estimated atapproximately $11.1 million for the third quarter charge and $137.2 million forthe second quarter charge.  Adjustmentsto the restructuring reserves will be made in future periods, if necessary,based upon the then current actual events and circumstances.

 

The following tablesummarizes charges recorded during the second quarter and third quarter of 2001for exit activities and asset write-downs (in thousands):

 
|                                                     |   | **Severance  and Benefits** |   | **Facilities/Excess  Assets** |   | **Other** |   | **Total** |   |
|----------------------------------------------------------|--------|-----------------------------|--------|-------------------------------|--------|-----------|--------|-----------|--------|
| Restructuring charges,  quarter ended June 30, 2001      |   | $                           | 5,070  |                          | $      | 118,351   |   | $         | 52     |   | $ | 123,473 |   |
| Cash payments                                            |   | (3,757                      | )      | (814                          | )      | (19       | )      | (4,590    | )      |
| Non-cash portion                                         |   | (527                        | )      | (26,563                       | )      | —    |   | (27,090   | )      |
| Reserve balances, June  30, 2001                         |   | $                           | 786    |                          | $      | 90,974    |   | $         | 33     |   | $ | 91,793 |   |
| Restructuring charges,  quarter ended September 30, 2001 |   | 1,906                       |   | 7,818                         |   | 123       |   | 9,847     |   |
| Cash payments                                            |   | (2,044                      | )      | (5,048                        | )      | (91       | )      | (7,183    | )      |
| Non-cash portion                                         |   | (30                         | )      | 183                           |   | —    |   | 153       |   |
| Reserve balances,  September 30, 2001                    |   | $                           | 618    |                          | $      | 93,927    |   | $         | 65     |   | $ | 94,610 |   |

 

The nature of the charges summarized above is as follows:

 

Severance and benefits —During the third quarter and second quarter of 2001, the Company recordedcharges of approximately $1.9 million and $5.1 million, respectively, relatedto severance benefits to terminated employees in the United States and variousinternational locations.  Approximately$5.8 million was paid out as of September 30, 2001 and $557,000 relates tonon-cash compensation.  The Companyterminated approximately 539 employees in North and South America andapproximately 147 employees throughout Europe and the Asia Pacific during thesecond and third quarters of 2001.

 

Facilities/Excess Assets— The Company recorded a charge of approximately $7.8 million and $118.4million during the third quarter and second quarter of  2001, respectively, related to theconsolidation of facilities and impairment of certain assets.  Included in these charges are approximately$26.4 million of asset impairments related to certain long-lived assets thatwere either abandoned during the quarter or for which the resulting estimatedfuture reduced cash flows were insufficient to cover the carrying amounts.  $25.5 million of the $26.4 million relatesto assets associated with facilities consolidation and approximately $852,000relates to other operating and capital assets. The remainder of the charges related to the consolidation of facilitiesand represents remaining lease commitments, net of expected sublease income.

 

Other — The Companyrecorded a charge of approximately $123,000 and $52,000 during the thirdquarter and second quarter of 2001, respectively, for various incremental costsincurred as a direct result of the restructuring.

 

**Note 9.           Impairment of Goodwill and OtherIntangible Assets**

 

TheCompany periodically assesses the impairment of long-lived assets, includingidentifiable intangibles, in accordance with the provisions of SFAS No.121.  The Company also periodicallyassesses the impairment of enterprise level goodwill in accordance with theprovisions of APB Opinion No. 17.    Based on quantitative and qualitativemeasures, the Company assesses the need to record impairment losses onlong-lived assets used in operations when impairment indicators are present.

 

As part of its review ofits third quarter financial results, the Company performed an impairmentassessment of identifiable intangible assets and goodwill recorded inconnection with its various acquisitions. The impairment assessment was performed primarily due to the significantdecline in the Company’s stock price, the net book value of assetssignificantly exceeding the Company’s market capitalization and the overalldecline in industry growth rates which have negatively impacted the Company’srevenues and forecasted revenue growth rate. Also, current economic indicatorsindicate that this trend may continue for an indefinite period.  As a result, the Company recorded a $336.4million impairment charge in the third quarter of 2001 to reduce goodwill by$330.2 million and other intangible assets by $6.2 million associated with theCompany’s acquisitions, primarily the Interleaf acquisition, to their estimatedfair value.  To determine other thantemporary impairment for identifiable intangibles, the sum of the undiscountedcash flows was compared to the current carrying value.  If the undiscounted cash flows were greaterthan or equal to the current carrying value the asset is deemed not to beimpaired. If the undiscounted cash flows are less than the current carryingvalue then the asset is deemed impaired. A discounted cash flow analysis isthen prepared and the difference between the carrying value and the discountedcash flows represents the charge taken in accordance withSFAS No. 121. To determine the impairment loss for goodwill, theCompany determined the fair value using a business enterprise methodology whichincludes a terminal value assigned to the entity. This value is then comparedto the carrying value, and if less, the difference represents the impairment tobe recorded. The assumptions supporting the estimated future cash flows,including the estimated terminal values, reflect management’s bestestimates.  It is reasonably possiblethat the estimates and assumptions used under our assessment may change in theshort term, resulting in the need to further write-down the goodwill and otherlong-lived assets.  In addition, it isreasonably possible that we may have additional reductions in goodwill if ourmarket capitalization is less than our net assets in future periods.

 

**Note 10.         Subsequent Events**

 

On October 24, 2001 theCompany announced initial plans of an additional reduction of the Company’sworkforce to occur during the fourth quarter of 2001.

**Note 11.         Legal Proceedings**

 

On April 20, 2001, theCompany filed a Form 8-K with the Securities and Exchange Commission reportingthat several purported class action lawsuits had been filed  against the Company and certain of itsofficers and directors.  In each of thelawsuits, the plaintiffs seek to assert claims on behalf of a class of allpersons who purchased securities of the Company between January 26, 2001 andApril 2, 2001.  The complaints allegethat the Company and the individual defendants violated federal securities lawsin connection with the Company’s reporting of financial results during suchperiod.  The  lawsuits have been consolidated into a single action, as iscustomary in such cases.  On November 5,2001, the Company and the individual defendants filed motions to dismiss theconsolidated complaint.  The Companybelieves that the lawsuits are without merit and continues to  defend itself vigorously.

 

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

 

In the Company’s opinion,these legal matters are not likely to have a material adverse effect on theCompany’s result of operations or financial position.

 

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

 

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

 

**Restatementof the Three and Nine Months Ended September 30, 2001**

 

The restatement relates toamounts under a single contract with a customer, which amounts we havesubsequently determined should not have been recognized as revenue in the thirdquarter but should be recognized ratably over a four year period.  As a result, the condensed consolidatedfinancial statements included in the Quarterly Report on Form 10-Q filed onNovember 14, 2001 have been restated. The restatement has resulted in an increase in net loss for the threeand nine months ended September 30, 2001 of $3,526,000 ($0.01 per share) and$3,526,000 ($0.02 per share), respectively. Specifically, the restatement resulted in: reduction of $3,381,000 insoftware license revenues, reduction of $145,000 in services revenue and anincrease of $3,526,000 in unearned revenues as of and for the three and ninemonths ended September 30, 2001.

 

**Overview**

 

BroadVision, Inc.(collectively with its subsidiaries, “BroadVision”, the “Company”, “us” or“we”) was incorporated in the state of Delaware on May 13, 1993. Wedevelop and sell an integrated suite of packaged applications for conductinge-business interactions, transactions and services. Global enterprises andgovernment entities use these applications to sell, buy and exchange goods,services and information over the Web and on wireless devices. The BroadVisione-business application suite enables an entity to establish and sustainhigh-yield relationships with customers, suppliers, partners, distributors,employees and other constituents in the extended enterprise. BroadVisionservices, supported by over 200 partner organizations worldwide, transformthese applications into business value for BroadVision’s customers throughconsulting, education, and support services.

 

The BroadVisione-business application suite allows businesses to tailor Web and wirelesscontent to the needs and interests of individual users by personalizing contentand transactions on a real-time basis.  We offer enterprise-class solutions to connect companies to theircustomers, suppliers, partners and employees. These solutions enable companiesto maintain and expand existing relationships in an online environment via asingle, integrated e-business platform.

 

BroadVisionGlobal Services, or BVGS, provides a broad range of consulting, training andtechnical support services to all of our customers and implementation partners.This organization provides business application and technical expertise, alongwith extensive product knowledge, to complement our products and providesolutions that meet customers’ unique business requirements. By using theseservices, customers are able to build customized application solutions tomaximize the benefits of one-to-one relationship management and self-service.

 

Asignificant element of our sales strategy is to engage in strategic businessalliances to assist in marketing, selling and developing customer applications.

 

Asof September 30, 2001, we had developed key strategic business alliances withover 200 systems integration, design, consulting and other servicesorganizations throughout the world, including Accenture, Deloitte Consulting,Hewlett-Packard Consulting, IBM Global Services, KPMG Consulting,PricewaterhouseCoopers and Roundarch. Our platform alliances are partnerships formed to integrate technologiesto drive business growth.  Additionally,we have developed key technology partnerships with leading Web- andwireless-focused companies in areas complementary to our solutions, such asdata analysis and reporting, enterprise application integration, enterprise Webmanagement, call center management, content management, voice recognition,payment processing, auctioning and XML. These technology partnerships enhanceour ability to base products on industry standards and to take advantage ofcurrent and emerging technologies. These alliances now include companies suchas BEA Systems, Broadbase, Documentum, E.Piphany, Genesys, i2, Interwoven,Nuance, Tibco, WebMethods and Yantra.

 

We market our products primarily through a directsales organization with operations in North America, South America, Europe andAsia/Pacific. We also contract with third-party resellers, distributors andsystems integrators in North America, South America, Europe and Asia /Pacific.We intend to increase the use of this distribution channel.

 

**Recent Events**

 

During the third quarterof 2001, based on a variety of factors and methodology as discussed in Note 9,the Company recorded an impairment charge related to goodwill and otherintangible assets recorded primarily as a result of the Interleaf acquisitionon April 14, 2000.  The Company recordedan impairment charge of $336.4 million during the three months ended September30, 2001.

 

During the third quarterof 2001, the Company approved a restructuring plan to, among other things,reduce its workforce and consolidate facilities.  These restructuring and asset impairment charges were taken toalign the Company’s cost structure with changing market conditions and tocreate a more efficient organization.  Apre-tax charge of $9.8 million was recorded in the third quarter to provide forthese actions and other related items. Please see Note 8 of Notes to Condensed Consolidated FinancialStatements for additional information.

 

Therehas been a general downturn in the economy, our industry and our business,since the beginning of 2001.  Thisdownturn may continue in the future and has had and could continue to have animpact on our future financial results. Comparisons of financial performance made in this document are notnecessarily indicative of future performance.

 

**Results of Operations**

 

*Revenues*

 

Ourrevenues are derived from software licensing arrangements and fees charged forservices. Software is generally licensed for development use and for its use indeployment of the customer’s website. Deployment licenses are generally basedon the number of persons who register on a customer’s website using oursoftware. Our revenue recognition policies are in accordance with Statement ofPosition (“SOP”) 97-2, *Software Revenue Recognition*, as amendedand SOP 98-9, *Software Revenue Recognition, With Respect to Certain Transactions*.In general, software license revenues are recognized when a non-cancelablelicense agreement has been signed and the customer acknowledges anunconditional obligation to pay, the software product has been delivered, thereare no uncertainties surrounding product acceptance, the fees are fixed anddeterminable and collection is considered probable; professional servicesrevenues are recognized as such services are performed; and maintenancerevenues, or post-contract customer support, or PCS, including revenues bundledwith software agreements which entitle the customers to technical support andfuture unspecified enhancements to our products, are deferred and recognizedratably over the related contract period, generally twelve months. Revenuesrecognized from multiple-element software arrangements are allocated to eachelement of the arrangement based on the fair values of the elements, such assoftware products, PCS, installation or training. The determination of fairvalue is based on objective evidence which is specific to us. If evidence offair value does not exist for all elements of a license agreement and PCS isthe only undelivered element, then all revenue for the license arrangement isrecognized ratably over the term of the agreement as license revenue. Ifevidence of fair value of all undelivered elements exists but evidence does notexist for one or more delivered elements, then revenue is recognized using theresidual method. Under the residual method, the fair value of the undeliveredelements is deferred and the remaining portion of the arrangement fee isrecognized as revenue. Services that we provide are not essential to thefunctionality of the software.

 

In December 1999, theSecurities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) No.101, “Revenue Recognition in Financial Statements.” SAB No. 101 providesguidance for revenue recognition under certain circumstances. SAB No. 101became effective in the quarter beginning October 1, 2000. The adoption of SABNo. 101 did not have a material impact on our results of operations, financialposition or cash flows.

 

Werecord unearned revenue for software arrangements when cash has been receivedfrom the customer and the arrangement does not qualify for revenue recognitionunder our revenue recognition policy. We record accounts receivable forsoftware arrangements when the arrangement qualifies for revenue recognitionbut cash or other consideration has not been received from the customer.

 

Our professional servicesare delivered through BVGS, which consists of consulting, customer support andtraining.  These groups provideconsulting services, manage projects and client relationships, manage the needsof our partner community, provide training-related services to employee,customers and partners, and also provide software maintenance services,including technical support, to the Company’s customers and partners.

 

*Three and nine months ended September 30, 2001 and September30, 2000*

 

*Total  revenues* decreased 60% during the quarter endedSeptember 30, 2001 to $47.7 million as compared to $120.2 million for thequarter ended September 30, 2000. Total revenues decreased 29% during the ninemonths ended September 30, 2001 to $196.3 million as compared to $277.0 millionfor the nine months ended September 30, 2000. A summary of our revenues by geographic region is as follows:

 
|                    |   | **Software**                |       | **%**  |   | **Services** |   | **%**   |   | **Total** |   | **%**  |    |
|-------------------------|--------|-----------------------------|------------|--------|--------|--------------|--------|---------|--------|-----------|--------|--------|---------|
|                    |   | **(dollars in  thousands)** | ** ** |
| **Three Months Ended:** |   |                        |       |   |   |         |   |    |   |      |   |   |    |
| September 30, 2001      |   |                        |       |   |   |         |   |    |   |      |   |   |    |
| NASA                    |   | $                           | 4,117      |   | 25     | %            | $      | 19,715  |   | 63        | %      | $      | 23,832  |   | 50 | % |
| EMEA                    |   | 8,857                       |       | 54     |   | 9,396        |   | 30      |   | 18,253    |   | 38     |    |
| APJ                     |   | 3,318                       |       | 21     |   | 2,301        |   | 7       |   | 5,619     |   | 12     |    |
| Total                   |   | $                           | 16,292     |   | 100    | %            | $      | 31,412  |   | 100       | %      | $      | 47,704  |   | 100 | % |
| September 30, 2000      |   |                        |       |   |   |         |   |    |   |      |   |   |    |
| NASA                    |   | $                           | 42,005     |   | 58     | %            | $      | 37,602  |   | 78        | %      | $      | 79,607  |   | 66 | % |
| EMEA                    |   | 22,840                      |       | 32     |   | 8,081        |   | 17      |   | 30,921    |   | 26     |    |
| APJ                     |   | 7,506                       |       | 10     |   | 2,160        |   | 5       |   | 9,666     |   | 8      |    |
| Total                   |   | $                           | 72,351     |   | 100    | %            | $      | 47,843  |   | 100       | %      | $      | 120,194 |   | 100 | % |
| **Nine Months Ended:**  |   |                        |       |   |   |         |   |    |   |      |   |   |    |
| September 30, 2001      |   |                        |       |   |   |         |   |    |   |      |   |   |    |
| NASA                    |   | $                           | 40,108     |   | 50     | %            | $      | 77,344  |   | 67        | %      | $      | 117,452 |   | 60 | % |
| EMEA                    |   | 29,987                      |       | 37     |   | 29,102       |   | 25      |   | 59,089    |   | 30     |    |
| APJ                     |   | 10,366                      |       | 13     |   | 9,361        |   | 8       |   | 19,727    |   | 10     |    |
| Total                   |   | $                           | 80,461     |   | 100    | %            | $      | 115,807 |   | 100       | %      | $      | 196,268 |   | 100 | % |
| September 30, 2000      |   |                        |       |   |   |         |   |    |   |      |   |   |    |
| NASA                    |   | $                           | 108,134    |   | 64     | %            | $      | 82,786  |   | 77        | %      | $      | 190,920 |   | 69 | % |
| EMEA                    |   | 44,918                      |       | 26     |   | 19,272       |   | 18      |   | 64,190    |   | 23     |    |
| APJ                     |   | 16,861                      |       | 10     |   | 5,068        |   | 5       |   | 21,929    |   | 8      |    |
| Total                   |   | $                           | 169,913    |   | 100    | %            | $      | 107,126 |   | 100       | %      | $      | 277,039 |   | 100 | % |
|                         |        |                             |            |        |        |              |        |         |        |           |        |        |         |  |  |  |  |  |  |  |  |  |  |

 

There has been a generaleconomic decline since the beginning of 2001 that may continue.  Therefore, financial comparisons discussedherein may not be indicative of future performance.

 

*Software  license revenues* decreased 77% during thecurrent quarter ended September 30, 2001 to $16.3 million as compared to $72.4million for the quarter ended September 30, 2000.   Software license revenues decreased 53% during the nine monthsended September 30, 2001 to $80.5 million as compared to $169.9 million for thenine months ended September 30, 2000. The decreases are attributable to an overall decline in the economythroughout the first three quarters of 2001 in comparison to the same period of2000.  Continued economic uncertaintysurrounding the economic and information technology spending environmentsignificantly affected our license revenue during the first three quarters of2001.  Software license revenues for ourEnterprise applications decreased to $1.8 million for the quarter endedSeptember 30, 2001 and $5.9 for the nine months ended September 30, 2001 ascompared to $7.9 million for the quarter ended September 30, 2000 and $21.7million for the nine months ended September 30, 2000.  Software license revenues for our packaged solutions decreased to$14.5 million and $74.6 million for the quarter ended and nine months endedSeptember 30, 2001, respectively, as compared to $64.4 million and $148.2million for the quarter ended and nine months ended September 30, 2000,respectively.   During the quarter endedSeptember 30, 2001, we signed license agreements with 33 new customers ascompared to 142 new customers for the quarter ended September 30, 2000.   During the nine months ended September 30,2001, we signed license agreements with 115 new customers as compared to 413new customers for the nine months ended September 30, 2000.  As of September 30, 2001, we had a totalinstalled base of more than 1,280 accounts as compared to 1,169 accounts as ofDecember 31, 2000 and 1,062 accounts as of September 30, 2000.

 

*Total*s*ervices revenues* decreased 34%during the current quarter ended September 30, 2001 to $31.4 million ascompared to $47.8 million for the quarter ended September 30, 2000.  Total services revenues increased 8% duringthe nine months ended September 30, 2001 to $115.8 million as compared to$107.1 million for the nine months ended September 30, 2000.

 

The decrease inprofessional services revenue during the third quarter of 2001 is a result ofdecreased business volume associated with decreased software license revenuesover the past three quarters and an overall decline in the economy.  The increase in professional servicesrevenue during the nine months ended September 30, 2001 is a result of higherlevels of consulting related services and higher customer support revenuesderived from  increased license revenuesin fiscal 2000. Maintenance related fees for technical support and productupgrades were $15.2 million for the quarter ended September 30, 2001 ascompared to $12.8 million for the quarter ended September 30, 2000.  Maintenance related fees for technicalsupport and product upgrades were $46.8 million for the nine months endedSeptember 30, 2001 as compared to $29.9 million for the nine months endedSeptember 30, 2000.  The increase inmaintenance revenues is due to an increased installed base consisting ofmaintenance revenues associated with current transactions as well as renewalmaintenance for license transactions recorded in prior periods.

 

**Cost of Revenues**

 

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

 

Cost of services consistsprimarily of employee-related costs, third-party consultant fees incurred onconsulting projects, post-contract customer support and instructional trainingservices.

 

A summary of the cost ofrevenues for the periods presented is as follows:

 
|                             |   | **Three Months Ended  September 30,** |       | **Nine Months  Ended September 30,** |   |
|----------------------------------|--------|--------------------------------------------|------------|-------------------------------------------|--------|
|                             |   | **2001**                                   |       | **%**                                     |   | **2000** |   | **%** |   | **2001** |   | **%** |   | **2000** |   | **%** |   |
|                             |   | **(dollars in  thousands)**                | ** ** |
| Cost of software  licenses (1)   |   | $                                          | 1,713      |                                      | 11     | % | $ | 1,395 |   | 2 | % | $ | 6,608 |   | 8 | % | $ | 5,021 |   | 3 | % |
| Cost of services  (2)            |   | 14,636                                     |       | 47                                        |   | 34,015 |   | 71 |   | 82,009 |   | 71 |   | 79,971 |   | 75 |   |
| Total cost of  revenues (3) |   | $                                          | 16,349     |                                      | 34     | % | $ | 35,410 |   | 29 | % | $ | 88,617 |   | 45 | % | $ | 84,992 |   | 31 | % |

 

----

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

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

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

 

*Cost of software licenses* increased 23% inabsolute dollar terms during the current quarter ended September 30, 2001 to$1.7 million as compared to $1.4 million for the quarter ended September 30,2000.  Cost of software licensesincreased 32% during the nine months ended September 30, 2001 to $6.6 millionas compared to $5.0 million for the nine months ended September 30, 2000.

 

In absolute dollar terms,the increase in cost of software licenses was principally a result of a higherlevel of sales with associated royalties due with third party products.

 

*Cost of services* decreased 57% during thecurrent quarter ended September 30, 2001 to $14.6 million as compared to $34.0million for the quarter ended September 30, 2000. Cost of services increased 3%during the nine months ended September 30, 2001 to $82.0 million as compared to$80.0 million during the nine months ended September 30, 2000.  In absolute dollar terms, the decrease incost of services for the three months ended September 30, 2001 was the resultof reductions in force that occurred in the second and third quarter of 2001resulting in decreased salary and salary related expenses and a decrease in theuse of third party consultants.  Theincrease in cost of services in absolute dollar terms for the nine months endedSeptember 30, 2001 was a result of higher business volumes in early 2001 asevidenced by increased services revenues. As a percentage of services revenue, the decrease in cost of services isa result of reductions in force during the second and third quarters of 2001resulting in lower salary related costs.

 

**Operating Expenses and Other Income,net**

 

Research and developmentexpenses consist primarily of salaries, employee-related benefit costs andconsulting fees incurred in association with the development of our products.Costs incurred for the research and development of new software products areexpensed as incurred until such time that technological feasibility, in theform of a working model, is established at which time such costs arecapitalized and recorded at the lower of unamortized cost or net realizablevalue. The costs incurred subsequent to the establishment of a working modelbut prior to general release of the product have not been significant. To date,we have not capitalized any costs related to the development of software forexternal use.

 

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

 

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

 
|                                          |   | **Three Months  Ended September 30,** |       | **Nine Months  Ended September 30,** |   |
|-----------------------------------------------|--------|--------------------------------------------|------------|-------------------------------------------|--------|
|                                          |   | **2001**                                   |       | **% (1)**                                 |   | **2000** |   | **% (1)** |   | **2001** |   | **% (1)** |   | **2000** |   | **% (1)** |   |
|                                          |   | **(dollars in  thousands)**                | ** ** |
| Research and  development                     |   | $                                          | 16,230     |                                      | 34     | % | $ | 14,988 |   | 13 | % | $ | 63,817 |   | 33 | % | $ | 30,453 |   | 11 | % |
| Sales and  marketing                          |   | 25,895                                     |       | 54                                        |   | 43,799 |   | 36 |   | 120,142 |   | 61 |   | 102,569 |   | 37 |   |
| General and  administrative                   |   | 10,849                                     |       | 23                                        |   | 8,198 |   | 7 |   | 35,707 |   | 18 |   | 18,595 |   | 7 |   |
| Goodwill and  intangible amortization         |   | 66,493                                     |       | 139                                       |   | 66,308 |   | 55 |   | 199,070 |   | 102 |   | 121,659 |   | 44 |   |
| Charge for  acquired in-process technology    |   | —                                     |       | —                                    |   | — |   | — |   | — |   | — |   | 10,100 |   | 3 |   |
| Restructuring charge                          |   | 9,847                                      |       | 21                                        |   | — |   | — |   | 133,320 |   | 68 |   | — |   | — |   |
| Impairment of  goodwill and other intangibles |   | 336,379                                    |       | 705                                       |   | — |   | — |   | 336,379 |   | 171 |   | — |   | — |   |
| Total Operating  Expenses                     |   | $                                          | 465,693    |                                      | 976    | % | $ | 133,293 |   | 111 | % | $ | 888,435 |   | 453 | % | $ | 283,376 |   | 102 | % |

 

----

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

 

*Research and development expenses*increased 8% during the current quarter ended September 30, 2001 to $16.2million as compared to $15.0 million for the quarter ended September 30,2000.  Research and development expensesincreased 110% during the nine months ended September 30, 2001 to $63.8 millionas compared to $30.5 million for the nine months ended September 30, 2000.  The increase in research and developmentexpenses is primarily attributable to increased efforts involved in theenhancement of existing applications and the development of our next generationof products partially offset by compensation reductions and cost-cuttingefforts put in place during the second and third quarter of 2001.

 

*Sales and marketing expenses* decreased 41%during the current quarter ended September 30, 2001 to $25.9 million ascompared to $43.8 million for the quarter ended September 30, 2000.  Sales and marketing expenses increased 17%during the nine months ended September 30, 2001 to $120.1 million as comparedto $102.6 million during the nine months ended September 30, 2000.  Sales and marketing expenses decreasedduring the three months ended September 30, 2001 as a result of decreasedsalary expense as a result of the second and third quarter reductions in forcein addition to decreased commission expense as a result of decreases in licenserevenue.  The increase in sales andmarketing expense during the nine months ended September 30, 2001 reflect thecost of increased sales and marketing personnel from additional hiresthroughout the fourth quarter of 2000, expenditures made to develop and expand sales distribution channels, andcosts incurred for increased training activities all partially offset by decreasesin salary related expenses as a result of the second and third quarterreductions in force and decreased commission expense as a result of decreasedlicense revenues.

 

*General and administrative expenses*increased 32% during the current quarter ended September 30, 2001 to $10.8million as compared to $8.2 million for the quarter ended September 30,2000.  General and administrativeexpenses increased 92% during the nine months ended September 30, 2001 to $35.7million as compared to $18.6 million during the nine months ended September 30,2000.  The increase in general andadministrative expenses is attributable to higher professional fees primarilydue to increased legal expenses and increases in the general reserves of our accounts receivable balance.

 

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

 

*Amortizationof goodwill and other intangibles.*****As described in Note 7 in the Notes to the CondensedConsolidated Financial Statements above, we acquired Interleaf in the quarterended June 30, 2000. We have accounted for the acquisition as a purchasebusiness combination. As a result of this transaction, we had recorded goodwilland other intangible assets on the balance sheet of $794.7 million.Amortization of goodwill and other intangibles assets related to the Interleafacquisition was $66.2 million and $198.7 million for the quarter ended and thenine months ended September 30, 2001, respectively.  As reported in Note 7, we acquired Keyeon LLC on June 29,2001.  We have accounted for thisacquisition as a purchase business combination.  As a result of this transaction, we recorded goodwill and otherintangible assets on the balance sheet of $2.2 million.  Amortization of goodwill and otherintangible assets related to the Keyeon acquisition was $184,000 during thethree and nine months ended September 30, 2001.  As reported in Note 9, we recorded an impairment charge on goodwilland other intangible assets during the third quarter ended September 30, 2001of $336.4 million.

 

*Restructuring. *During the third andsecond quarters of 2001, we approved a restructuring plan to, among otherthings, reduce our workforce and consolidate facilities.  These restructuring and asset impairmentcharges were taken to align our cost structure with changing market conditionsand to create a more efficient organization. Pre-tax charges of $9.8 million and $123.5 million were recorded in thethird quarter and second quarter of 2001, respectively, to provide for theseactions and other related items.

 

In connection with therestructuring plan recorded in the third quarter, we expect to saveapproximately $15 million in salary expense over the next twelve months.  We expect facility related cash outlaysassociated with the third quarter restructuring charge to be approximately $4.6million over the next twelve months.  Additionally,we expect sublease income associated with these facilities or approximately$1.2 million over the next twelve months.  Please see Note 8 of Notes to Condensed Consolidated FinancialStatements for additional information.

 

*Impairmentof Goodwill and Other Intangible Assets.*During the thirdquarter of 2001, we determined that the goodwill and other intangible assetsrelated to our various acquisitions may have become impaired.  In accordance with SFAS No. 121 and APB No.17, we performed an impairment analysis. These standards require that goodwill and other intangible assets bereviewed for impairment whenever events or changes in circumstances indicatethat the carrying amount may not be recoverable.  Because we had integrated the acquired companies’ operations, wewere required to test for impairment at an overall enterprise level.  Our policy is to use a discounted cash flowapproach.  This approach includesanalyzing estimated future cash flows over the remaining life of the goodwilland other intangible assets as well as a disposition value at the end of thelife of the goodwill and other intangible assets.  The resulting value was then compared to the carrying value ofstockholders’ equity and the difference represents goodwill and otherintangible assets impairment measured on a discounted basis.  Accordingly, we recorded an impairmentcharge of $336.4 million during the three months ended September 30, 2001.  Please see Note 9 for additionalinformation.

 

*Other Income, net*

 

Other income, netconsists of interest income, interest expense net of other non-operating expenses.  Other income, net decreased to $1.8 millionfor the three months ended September 30, 2001 as compared to $4.3 millionduring the three months ended September 30, 2000.  The main reason for the decrease is a decrease in interest incomeof approximately $2.1 million to $2.7 million for the quarter ended September30, 2001 as compared to $4.8 million for the quarter ended September 30, 2000as a result of a decrease in available cash and investments.  Other income, net decreased to $1.4 millionfor the nine months ended September 30, 2001 as compared to $15.5 million forthe nine months ended September 30, 2000. Interest income decreased approximately $3.5 million to $9.3 million forthe nine months ended September 30, 2001 as compared to $12.8 million for thenine months ended September 30, 2000 as a result of a decrease in overall cashand investments.  Losses on assetdisposals increased approximately $1.1 million for the nine months endedSeptember 30, 2001 as compared to the same period in 2000.  This increase is due to a loss ofapproximately $1.1 million on the sale of various computers and relatedequipment and furniture of E-Publishing Corporation, formerly our wholly-ownedsubsidiary recorded during the second quarter of 2000.  Gains on sales of investments decreased $3.4million for the nine months ended September 30, 2001 as compared to the sameperiod during 2000.  We experienced anincrease in net losses from an unconsolidated subsidiary of $2.4 million forthe nine months ended September 30, 2001 and an increase in realized losses oncost method investments of $3.9 million for the nine months ended September 30,2001.

**Income Taxes**

 

During the quarter endedSeptember 30, 2001, we recognized tax expense of $406,000.   We recognized income tax expense of $1.6million during the nine months ended September 30, 2001.  The tax expense during both periods mainlyrelates to foreign withholding taxes and state income taxes.

 

**Litigation Settlement**

 

On February 22, 2000, wereached a settlement agreement and entered into a license agreement with ArtTechnology Group (“ATG”) in connection with the lawsuit filed by us on December11, 1998 against ATG alleging infringement of our U.S. Patent No. 5,710,887. Inaccordance with the terms of the agreement, we granted ATG a nonexclusive,nontransferable, worldwide, perpetual license and we were paid $8.0 million byATG at the effective date of the settlement and began to receive in quarterlyinstallment payments commencing on February 24, 2000 (four consecutivequarterly payments of $750,000 during 2000 and eight consecutive quarterlypayments of $500,000 during 2001 and 2002) which will total $7.0 million.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 
|                                                      |   | **September 30,  2001** |       | **December 31,  2000** |   |
|-----------------------------------------------------------|--------|-------------------------|------------|-----------------------------|--------|
|                                                      |   | **(in thousands)**      | ** ** |
| Cash, cash  equivalents and liquid short-term investments |   | $                       | 189,582    |                        | $      | 222,534 |   |
| Long-term liquid  investments                             |   | $                       | 32,581     |                        | $      | 78,769 |   |
| Working capital                                           |   | $                       | 102,643    |                        | $      | 215,831 |   |
| Working capital  ratio                                    |   | 1.8 : 1                 |       | 2.7 : 1                     |   |

 

At September 30, 2001, wehad $222.2 million of cash, cash equivalents and liquid short-term andlong-term investments, which represents a decrease of $79.1 million as comparedto December 31, 2000. We currently have $4.1 million of outstanding term debtunder our existing credit facility with a commercial bank.

 

Cash used for operatingactivities was $50.1 million for the nine months ended September 30, 2001 andcash provided by operating activities was $45.1 million for the nine monthsended September 30, 2000. Net cash used for operating activities for the ninemonths ended September 30, 2001 was primarily attributed to a decrease inaccounts payable and accrued expenses, the net loss for the nine months (lessnon-cash expenses), all partially offset by a decrease in accounts receivableand prepaid expenses.  Cash provided byinvesting activities was $6.1 million for the nine months ended September 30,2001 and cash used for investing activities was $195.0 million for the ninemonths ended September 30, 2000.  Cashprovided by investing activities for the nine months ended September 30, 2001was primarily due to cash acquired in a purchase transaction of approximately$7.2 million, net sales/maturities of investments of approximately $49.2million, partially offset by approximately $50.3 million in purchases ofproperty and equipment.  Cash providedby financing activities was $14.6 million and $26.5 million for the nine monthsended September 30, 2001 and 2000, respectively, and consists primarily ofproceeds from the issuance of common stock.

 

Capital expenditures were$50.3 million and $29.9 million for the nine months ended September 30, 2001and 2000, respectively.  Our capitalexpenditures consisted of purchases of operating resources to manage our operationsand included computer hardware and software, office furniture and fixtures andleasehold improvements.  In February andApril 2000, we entered into new facility lease agreements for approximately519,000 square feet.  Lease paymentswill be made on an escalating basis with the total future minimum leasepayments amounting to $316.4 million, payable through the third quarter of2013. Portions of these lease payments, along with expected sublease income,have been recorded as part of our restructuring charge recorded during thesecond quarter of 2001.

 

In connection with thethird quarter restructuring plan described in Note 8 of the accompanying Notesto Condensed Consolidated Financial Statements, we expect to pay outapproximately $618,000 of severance related costs and approximately $65,000 ofother restructuring costs over the next twelve months.  We expect facility related cash outlaysassociated with the third quarter restructuring charge to be approximately $4.6million over the next twelve months and an additional $7.6 million from October1, 2002 through September 30, 2006. Additionally, we expect sublease income associated with these facilitiesof approximately $1.2 million over the next twelve months and $5.0 million fromOctober 1, 2002 through September 30, 2006. We expect cash outlays, net ofexpected sublease income, totaling approximately $77.0 million relating to ourrestructuring charge recorded in the second quarter of 2001, payable throughthe fourth quarter of 2008. The total cash outlay is expected to be funded fromexisting cash balances and internally generated cash flows from operations.

 

We believe that ouravailable cash and short-term investment resources and cash generated fromoperations will be sufficient to meet our expected working capital and capitalexpenditure requirements for at least the next 12 months. This estimate is aforward-looking statement that involves risks and uncertainties, and actualresults may vary as a result of a number of factors, including those discussedunder “Factors Affecting Quarterly Operating Results” below and elsewhereherein. We may need to raise additional funds in order to support more rapidexpansion, develop new or enhanced services, respond to competitive pressures,acquire complementary businesses or technologies or respond to unanticipatedrequirements. We may seek to raise additional funds through private or publicsales of securities, strategic relationships, bank debt, financing underleasing arrangements or otherwise. No other advances will be available underour revolving line of credit. If additional funds are raised through theissuance of equity securities, the percentage ownership of the stockholders ofthe Company will be reduced, stockholders may experience additional dilution orsuch equity securities may have rights, preferences or privileges senior tothose of the holders of our common stock. There can be no assurance thatadditional financing will be available on acceptable terms, if at all. Ifadequate funds are not available or are not available on acceptable terms, wemay be unable to develop our products, take advantage of future opportunitiesor respond to competitive pressures or unanticipated requirements, which couldhave a material adverse effect on our business, financial condition andoperating results.

 

**FactorsThat 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, 2000  and elsewheretherein and as disclosed in other documents filed with the Securities andExchange Commission.

 

Significant fluctuationsin future quarterly operating results may be caused by many factors including,among others, the timing of introductions or enhancements of products andservices by us or our competitors, market acceptance of new products, the mixof our products sold, changes in pricing policies by us or our competitors, ourability to retain customers, changes in our sales incentive plans, budgetingcycles of our customers, customer order deferrals in anticipation of newproducts or enhancements by us or our competitors, nonrenewal of serviceagreements (which generally automatically renew for one year terms unlessearlier terminated by either party upon 90-days notice), product life cycles,changes in strategy, seasonal trends, the mix of distribution channels throughwhich our products are sold, the mix of international and domestic sales, therate at which new sales people become productive, changes in the level ofoperating expenses to support projected growth and general economic conditions.We anticipate that a significant portion of our revenues will be derived from alimited number of orders, and the timing of receipt and fulfillment of any suchorders is expected to cause material fluctuations in our operating results,particularly on a quarterly basis. Due to the foregoing factors, quarterlyrevenues and operating results are difficult to forecast, and we believe thatperiod-to-period comparisons of our operating results will not necessarily bemeaningful and should not be relied upon as any indication of futureperformance. ** **It is likely that our future quarterly operatingresults from time to time will not meet the expectations of market analysts orinvestors, which may have an adverse effect on the price of our common stock.

 

Our success dependslargely on the skills, experience and performance of key personnel.  If we lose one or more key personnel, ourbusiness could be harmed.  Our futuresuccess depends on our ability to continue attracting and retaining highlyskilled personnel.  We may not besuccessful in attracting, assimilating and retaining qualified personnel in thefuture.

 

Some of these risks anduncertainties relate to the new and rapidly evolving nature of the markets inwhich we operate. These related market risks include, among other things, theearly stage of the developing online commerce market, the dependence of onlinecommerce on the development of the Internet and its related infrastructure, theuncertainty pertaining to widespread adoption of online commerce and the riskof government regulation of the Internet. Other risks and uncertainties relateto our 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 economy.  We had revisedour projected estimate of revenue range for fiscal 2001.  If the economic environment continues todecline, our future results may be significantly impacted.  We believe that the current economic declinehas increased the average length of our sales cycle and our operating resultscould suffer and our stock price could decline if we do not achieve the levelof revenues we expect.

 

Like other U.S.companies, our business and operating results are subject to uncertaintiesarising out of the recent terrorist attacks on the United States, includingpotential worsening or extension of the current global slowdown, the economicconsequences of military actions or additional terrorist activities andassociated political instability, and the impact of heightened securityconcerns on domestic and international 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 these results could substantially harmour business and results of operations, causing a decrease in our revenues.

 

**SIGNATURES**

 

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

 
|   |          |   | **BROADVISION, INC.**                                                                                    |
|--------|---------------|--------|----------------------------------------------------------------------------------------------------------|
|   |          |   |                                                                                                     |
| Date:  | April 1, 2002 | By:    | /s/  Pehong  Chen                                                                                   |
|   |          |   | Pehong Chen  Chairman of the Board, President and Chief  Executive Officer (Principal Executive Officer) |

 
|   |          |   |                                                                                                                      |
|--------|---------------|--------|---------------------------------------------------------------------------------------------------------------------------|
| Date:  | April 1, 2002 | By:    | /s/  Francis  Barton                                                                                                 |
|   |          |   | Francis Barton  Executive Vice President  and Chief Financial Officer  (Principal Financial and Chief Accounting Officer) |