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**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION****Washington, DC  20549**

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**FORM10-Q******

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

**Forthe Quarter ended June 30, 2001**

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

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

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**BROADVISION,INC.******(Exact name of registrant as specified in its charter)****

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

             As of  August 8, 2001, there were 278,578,696 shares of the Registrant’sCommon Stock issued and outstanding.

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**BROADVISION,INC. AND SUBSIDIARIESFORM 10–QQuarter Ended June 30, 2001**

**TABLEOF CONTENTS**

 

| **PART I.**    | **FINANCIAL INFORMATION**                                                                                                                   |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------|
| Item 1.        | Financial Statements                                                                                                                        |
|           | Condensed  Consolidated Balance Sheets—June 30, 2001   and December 31, 2000                                                 |
|           | Condensed  Consolidated Statements of Operations and Comprehensive  Loss—Three and six months ended June 30,  2001  and 2000 |
|           | Condensed  Consolidated Statements of Cash Flows—Six months ended  June 30, 2001 and 2000                                         |
|           | Notes  to Condensed Consolidated Financial Statements                                                                                       |
| Item  2.       | Management’s  Discussion and Analysis of Financial Condition and  Results of Operations                                           |
| Item  3.       | Quantitative  and Qualitative Disclosures about Market Risk                                                                                 |
|           |                                                                                                                                        |
| **PART II.**   | **OTHER INFORMATION**                                                                                                                       |
| Item 1.        | Legal Proceedings                                                                                                                           |
| Item  2.       | Changes  in Securities and Use of Proceeds                                                                                                  |
| Item 3.        | Defaults  upon Senior Securities                                                                                                            |
| Item  4.       | Submission  of Matters to a Vote of Security Holders                                                                                        |
| Item 5.        | Other Information                                                                                                                           |
| Item 6.        | Exhibits  and Reports on Form 8-K                                                                                                           |
|           |                                                                                                                                        |
| **SIGNATURES** |

** **

 

**PART I.  FINANCIAL INFORMATION**

**Item 1.****FinancialStatements**

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

 

|                                          | **June 30, 2001****(unaudited)**                                                                                                                  |      | **December 31,  2000** |      |
|-----------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|-----------|------------------------|-----------|
|                                          | ****                                                                                                                                              |      | ****                   |      |
| **ASSETS**                                    |                                                                                                                                              |      |                   |      |
|                                          |                                                                                                                                              |      |                   |      |
|                                          | Cash and cash equivalents                                                                                                                         | $         | 137,641                |      | $ | 153,137 |   |
|                                          | Short-term investments                                                                                                                            | 48,465    |                   | 69,397    |   |
|                                          | Accounts receivable, less reserves of  $6,312 and $4,015 for 2001 and 2000, respectively                                                          | 55,810    |                   | 104,811   |   |
|                                          | Prepaids and other                                                                                                                                | 22,714    |                   | 17,417    |   |
|                                          |                                                                                                                                                   |      |                        |      |
|                                          | Total current assets                                                                                                                              | 264,630   |                   | 344,762   |   |
|                                          |                                                                                                                                              |      |                   |      |
|                                          | Property and equipment, net                                                                                                                       | 85,713    |                   | 76,685    |   |
|                                          | Deferred tax asset                                                                                                                                | 5,579     |                   | 5,579     |   |
|                                          | Long-term investments                                                                                                                             | 53,138    |                   | 78,769    |   |
|                                          | Equity investments                                                                                                                                | 11,221    |                   | 23,786    |   |
|                                          | Goodwill and other intangibles                                                                                                                    | 476,951   |                   | 607,501   |   |
|                                          | Other assets                                                                                                                                      | 6,151     |                   | 5,942     |   |
|                                          |                                                                                                                                                   |      |                        |      |
|                                          | Total assets                                                                                                                                      | $         | 903,383                |      | $ | 1,143,024 |   |
|                                          |                                                                                                                                                   |      |                        |      |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY** |                                                                                                                                              |      |                   |      |
|                                          |                                                                                                                                              |      |                   |      |
|                                          | Accounts payable                                                                                                                                  | $         | 20,454                 |      | $ | 15,711 |   |
|                                          | Accrued expenses                                                                                                                                  | 73,804    |                   | 53,676    |   |
|                                          | Unearned revenue                                                                                                                                  | 29,564    |                   | 16,330    |   |
|                                          | Deferred maintenance                                                                                                                              | 35,001    |                   | 42,237    |   |
|                                          | Current portion of long-term debt                                                                                                                 | 977       |                   | 977       |   |
|                                          |                                                                                                                                                   |      |                        |      |
|                                          | Total current liabilities                                                                                                                         | 159,800   |                   | 128,931   |   |
|                                          |                                                                                                                                              |      |                   |      |
|                                          | Long-term debt, net of current portion                                                                                                            | 3,410     |                   | 3,897     |   |
|                                          | Other noncurrent liabilities                                                                                                                      | 55,860    |                   | 898       |   |
|                                          |                                                                                                                                                   |      |                        |      |
|                                          | Total liabilities                                                                                                                                 | 219,070   |                   | 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; 278,208 and 270,066 shares issued and  outstanding for 2001 and 2000, respectively | 28        |                   | 27        |   |
|                                          | Additional paid-in capital                                                                                                                        | 1,202,828 |                   | 1,176,042 |   |
|                                          | Accumulated other comprehensive loss, net of  tax                                                                                                 | (8,133    | )                      | (4,348    | ) |
|                                          | Accumulated deficit                                                                                                                               | (510,410  | )                      | (162,423  | ) |
|                                          |                                                                                                                                                   |      |                        |      |
|                                          | Total stockholders’ equity                                                                                                                   | 684,313   |                   | 1,009,298 |   |
|                                          |                                                                                                                                                   |      |                        |      |
|                                          | Total liabilities and stockholders’ equity                                                                                                   | $         | 903,383                |      | $ | 1,143,024 |   |
|                                          |                                                                                                                                                   |      |                        |      |
|                                               |                                                                                                                                                   |           |                        |           |  |  |  |  |

*SeeAccompanying Notes to Condensed Consolidated Financial Statements*

 

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

|                                   | **Three Months Ended  June 30,**           |     | **Six Months Ended  June 30,** |
|----------------------------------------|--------------------------------------------|----------|--------------------------------|
|                                   | ****                                       |     | ****                           |   |
|                                   | **2001**                                   |     | **2000**                       |   | **2001** |   | **2000** |   |
|                                   | ****                                       |     | ****                           |   | **** |   | **** |   |
| **Revenues:**                          |                                       |     |                           |   |   |   |   |   |
|                                   | Software licenses                          | $        | 21,029                         |   | $ | 56,848 |   | $ | 64,169 |   | $ | 97,562 |   |
|                                   | Services                                   | 36,416   |                           | 38,496 |   | 84,395 |   | 59,283 |   |
|                                   |                                       |          |                           |  |   |  |   |  |   |
|                                   | Total revenues                             | 57,445   |                           | 95,344 |   | 148,564 |   | 156,845 |   |
|                                   |                                       |     |                           |   |   |   |   |   |
| **Cost of revenues:**                  |                                       |     |                           |   |   |   |   |   |
|                                   | Cost of software licenses                  | 2,655    |                           | 1,563 |   | 4,895 |   | 3,626 |   |
|                                   | Cost of services                           | 30,005   |                           | 30,282 |   | 67,373 |   | 45,956 |   |
|                                   |                                       |          |                           |  |   |  |   |  |   |
|                                   | Total cost of revenues                     | 32,660   |                           | 31,845 |   | 72,268 |   | 49,582 |   |
|                                   |                                            |     |                                |   |  |   |  |   |
|                                   | Gross profit                               | 24,785   |                           | 63,499 |   | 76,296 |   | 107,263 |   |
|                                   |                                       |     |                           |   |   |   |   |   |
| **Operating expenses:**                |                                       |     |                           |   |   |   |   |   |
|                                   | Research and development                   | 20,616   |                           | 9,706 |   | 47,587 |   | 15,465 |   |
|                                   | Sales and marketing                        | 41,766   |                           | 33,570 |   | 94,247 |   | 58,770 |   |
|                                   | General and administrative                 | 14,268   |                           | 6,786 |   | 24,858 |   | 10,344 |   |
|                                   | Goodwill and intangible amortization       | 66,297   |                           | 55,351 |   | 132,577 |   | 55,404 |   |
|                                   | Charge for acquired in-process  technology | -        |                           | 10,100 |   | - |   | 10,100 |   |
|                                   | Restructuring charge                       | 123,473  |                           | - |   | 123,473 |   | - |   |
|                                   |                                       |          |                           |  |   |  |   |  |   |
|                                   | Total operating expenses                   | 266,420  |                           | 115,513 |   | 422,742 |   | 150,083 |   |
|                                   |                                            |     |                                |   |  |   |  |   |
|                                   | Operating loss                             | (241,635 | )                              | (52,014 | ) | (346,446 | ) | (42,820 | ) |
|                                   |                                       |     |                           |   |   |   |   |   |
| Other (expense) income, net            | (876                                       | )        | 3,940                          |   | (379 | ) | 11,187 |   |
|                                   |                                            |     |                                |   |  |   |  |   |
| Loss before provision for income taxes | (242,511                                   | )        | (48,074                        | ) | (346,825 | ) | (31,633 | ) |
|                                   |                                       |     |                           |   |   |   |   |   |
| Provision for income taxes             | 331                                        |     | 6,797                          |   | 1,162 |   | 13,204 |   |
|                                   |                                            |     |                                |   |  |   |  |   |
|                                   | Net loss                                   | $        | (242,842                       | ) | $ | (54,871 | ) | $ | (347,987 | ) | $ | (44,837 | ) |
|                                   |                                            |     |                                |   |  |   |  |   |
| Basic loss per share                   | $                                          | (0.89    | )                              | $ | (0.21 | ) | $ | (1.28 | ) | $ | (0.18 | ) |
|                                   |                                            |     |                                |   |  |   |  |   |
| Diluted loss per share                 | $                                          | (0.89    | )                              | $ | (0.21 | ) | $ | (1.28 | ) | $ | (0.18 | ) |
|                                   |                                            |     |                                |   |  |   |  |   |
| **Shares used in  computing:**         |                                       |     |                           |   |   |   |   |   |
|                                   | Basic loss per share                       | 273,426  |                           | 258,935 |   | 272,205 |   | 252,288 |   |
|                                   |                                            |     |                                |   |  |   |  |   |
|                                   | Diluted loss per share                     | 273,426  |                           | 258,935 |   | 272,205 |   | 252,288 |   |
|                                   |                                            |     |                                |   |  |   |  |   |
| **Comprehensive loss:**                |                                       |     |                           |   |   |   |   |   |
| Net loss                               | $                                          | (242,842 | )                              | $ | (54,871 | ) | $ | (347,987 | ) | $ | (44,837 | ) |
| Other comprehensive loss, net of tax:  |                                       |     |                           |   |   |   |   |   |
|                                   | Unrealized investment losses               | (4,439   | )                              | (22,097 | ) | (3,785 | ) | (20,909 | ) |
|                                   |                                       |          |                           |  |   |  |   |  |   |
| Total comprehensive loss               | $                                          | (247,281 | )                              | $ | (76,968 | ) | $ | (351,772 | ) | $ | (65,746 | ) |
|                                   |                                            |     |                                |   |  |   |  |   |
|                                        |                                            |          |                                |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

*SeeAccompanying Notes to Condensed Consolidated Financial Statements*

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

|                                                                                        | **Six Months Ended June 30,**                                                                  |     |
|---------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------|----------|
|                                                                                        | ****                                                                                           |     |
|                                                                                        | **2001**                                                                                       |     | **2000** |   |
|                                                                                        | ****                                                                                           |     | **** |   |
|                                                                                        | **(unaudited)**                                                                                |     |
|                                                                                        |                                                                                           |     |
| **Cash flows from operating activities:**                                                   |                                                                                           |     |   |   |
| Net loss                                                                                    | $                                                                                              | (347,987 | ) | $ | (44,837 | ) |
| Adjustments to reconcile net loss to net cash  (used for) provided by operating activities: |                                                                                           |     |   |   |
|                                                                                        | Depreciation and amortization                                                                  | 12,159   |   | 4,481 |   |
|                                                                                        | Amortization of deferred compensation                                                          | -        |   | 159 |   |
|                                                                                        | Accounts receivable reserves                                                                   | 2,297    |   | 696 |   |
|                                                                                        | Amortization of prepaid royalties                                                              | 2,368    |   | 592 |   |
|                                                                                        | Amortization of prepaid compensation                                                           | 366      |   | 1,034 |   |
|                                                                                        | Realized loss on cost method long-term  investments                                            | 3,142    |   | - |   |
|                                                                                        | Equity in net loss from unconsolidated  subsidiary                                             | 2,438    |   | - |   |
|                                                                                        | Charge for acquired in-process technology                                                      | -        |   | 10,100 |   |
|                                                                                        | Amortization of goodwill and other intangibles                                                 | 132,577  |   | 55,404 |   |
|                                                                                        | Restructuring charge, non cash                                                                 | 118,883  |   | - |   |
|                                                                                        | Changes in operating assets and liabilities:                                                   |     |   |   |   |
|                                                                                        | Accounts receivable                                                                            | 46,505   |   | (30,108 | ) |
|                                                                                        | Prepaids and other                                                                             | 1,787    |   | (3,205 | ) |
|                                                                                        | Accounts payable and accrued liabilities                                                       | (12,515  | ) | 4,841 |   |
|                                                                                        | Unearned revenue and deferred maintenance                                                      | 5,998    |   | 24,291 |   |
|                                                                                        | Income tax benefit from stock option exercises                                                 | -        |   | 13,131 |   |
|                                                                                        | Other noncurrent assets                                                                        | (986     | ) | (1,990 | ) |
|                                                                                        |                                                                                                |     |  |   |
|                                                                                        | Net cash (used for) provided by operating  activities                                          | (32,968  | ) | 34,589 |   |
|                                                                                        |                                                                                           |     |   |   |
| **Cash flows from investing activities:**                                                   |                                                                                           |     |   |   |
|                                                                                        | Purchase of property and equipment                                                             | (47,510  | ) | (17,168 | ) |
|                                                                                        | Purchase of long-term investments                                                              | (38,063  | ) | (14,218 | ) |
|                                                                                        | Sales/maturity of long-term investments                                                        | 62,107   |   | - |   |
|                                                                                        | Direct costs of purchase transaction, net of  cash acquired                                    | -        |   | (4,428 | ) |
|                                                                                        | Cash acquired in purchase transaction                                                          | 7,171    |   | - |   |
|                                                                                        | Purchase of short-term investments                                                             | (29,200  | ) | (200,122 | ) |
|                                                                                        | Sales/maturity of short-term investments                                                       | 50,786   |   | 55,607 |   |
|                                                                                        |                                                                                                |     |  |   |
|                                                                                        | Net cash provided by (used for) investing  activities                                          | 5,291    |   | (180,329 | ) |
|                                                                                        |                                                                                           |     |   |   |
| **Cash flows from financing activities:**                                                   |                                                                                           |     |   |   |
|                                                                                        | Proceeds from issuance of common stock, net                                                    | 12,694   |   | 15,539 |   |
|                                                                                        | Repayments of borrowings                                                                       | (513     | ) | (542 | ) |
|                                                                                        | Payments on capital lease obligations                                                          | -        |   | (250 | ) |
|                                                                                        |                                                                                                |     |  |   |
|                                                                                        | Net cash provided by financing activities                                                      | 12,181   |   | 14,747 |   |
|                                                                                        |                                                                                           |     |   |   |
| Net decrease in cash and cash equivalents                                                   | (15,496                                                                                        | )        | (130,993 | ) |
| Cash and cash equivalents at beginning of  period                                           | 153,137                                                                                        |     | 279,823 |   |
|                                                                                        |                                                                                                |     |  |   |
| Cash and cash equivalents at end of period                                                  | $                                                                                              | 137,641  |   | $ | 148,830 |   |
|                                                                                        |                                                                                                |     |  |   |
| **Supplemental disclosures of cash flow information:**                                      |                                                                                           |     |   |   |
|                                                                                        | Cash paid for interest                                                                         | $        | 186 |   | $ | 283 |   |
|                                                                                        |                                                                                                |     |  |   |
|                                                                                        | Cash paid for income taxes                                                                     | $        | 1,162 |   | $ | 593 |   |
|                                                                                        |                                                                                                |     |  |   |
| **Non-cash investing and financing activities:**                                            |                                                                                           |     |   |   |
|                                                                                        | Long-term investment acquired in exchange for  common stock                                    | -        |   | 3,000 |   |
|                                                                                        | In connection with the acquisition of  Interleaf, the following non-cash transaction occurred: |     |   |   |   |
|                                                                                        | Fair value of assets acquired, including cash                                                  | -        |   | (822,609 | ) |
|                                                                                        | Liabilities assumed                                                                            | -        |   | 28,576 |   |
|                                                                                        | Issuance of common stock                                                                       | -        |   | 789,605 |   |
|                                                                                        |                                                                                           |          |   |  |   |
|                                                                                        | Cash paid for acquisition and acquisition  costs                                               | $        | - |   | $ | 4,428 |   |
|                                                                                        | In connection with the acquisition of Keyeon,  the following non-cash transaction occurred:    |     |   |   |   |
|                                                                                        | Fair value of assets acquired, excluding cash                                                  | (9,396   | ) | - |   |
|                                                                                        | Liabilities assumed                                                                            | 3,001    |   | - |   |
|                                                                                        | Issuance of common stock                                                                       | 13,566   |   | - |   |
|                                                                                        |                                                                                           |          |   |  |   |
|                                                                                        | Cash acquired in purchase transaction                                                          | $        | 7,171 |   | $ | - |   |
|                                                                                             |                                                                                                |          |  |  |  |  |  |  |  |  |  |  |  |  |

*SeeAccompanying Notes to Condensed Consolidated Financial Statements*

 

**BROADVISION, INC. AND SUBSIDIARIESNOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

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

***Nature of Business***

             BroadVision, Inc. (collectively with itssubsidiaries, the "Company") was incorporated in the state ofDelaware on May 13, 1993. The Company develops and sells an integratedsuite of packaged applications for conducting e–business interactions,transactions and services. Global enterprises and government entities use theseapplications to sell, buy and exchange goods, services and information over theWeb and on wireless devices. The BroadVision e–business application suiteenables an entity to establish and sustain high–yield relationships withcustomers, suppliers, partners, distributors, employees and other constituentsin the extended enterprise. BroadVision services, supported by over 200 partnerorganizations worldwide, transform these applications into business value forBroadVision's customers through consulting, education and support services inmore than 34 countries.

             TheBroadVision e–business application suite allows businesses to tailor Weband wireless content to the needs and interests of individual users bypersonalizing content and transactions on a real–time basis.   The Company offers enterprise–classsolutions to connect companies to their customers, suppliers, partners andemployees. These solutions enable companies to maintain and expand existingrelationships in an online environment via a single, integrated e–businessplatform.

             BroadVision GlobalServices, or BVGS, provides a broad range of consulting, training and technicalsupport services to all of the Company’s customers and implementation partners.This organization provides business application and technical expertise, alongwith extensive product knowledge, to complement the Company’s products andprovide solutions that meet customers' unique business requirements. By usingthese services, customers are able to build customized application solutions tomaximize the benefits of one–to–one relationship management andself–service.

             A significantelement of the Company’s sales strategy is to engage in strategic businessalliances to assist in marketing, selling and developing customer applications.

             As of June 30, 2001, the Company had developed keystrategic business alliances with over 200 systems integration, design, consultingand other services organizations throughout the world, including Accenture,Deloitte Consulting, Hewlett–Packard Consulting, IBM Global Services,KPMG Consulting, Leapnet, PricewaterhouseCoopers and Roundarch.  The Company’s platform alliances are partnershipsformed to integrate technologies to drive business growth.  Additionally, the Company has developed keytechnology partnerships with leading Web– and wireless–focusedcompanies in areas complementary to the Company’s solutions, such as data analysisand reporting, enterprise application integration, enterprise Web management,call center management, content management, voice recognition, paymentprocessing, auctioning and XML. These technology partnerships enhance theCompany’s ability to base products on industry standards and to take advantageof current and emerging technologies. These alliances include companies such asBEA Systems, Broadbase, Documentum, E.Piphany, Genesys, i2, Interwoven, Nuance,Tibco, WebMethods and Yantra.

             TheCompany markets its products primarily through a direct salesorganization with operations in North America, South America, Europe, Australiaand Asia/Pacific.  A component of theCompany’s strategy is continued expansion of international activities. TheCompany intends to broaden its presence in international markets by expandingits international sales force and by entering into additional distributionagreements. The Company also contracts with third–party resellers,distributors and systems integrators in North America, South America, Europe,Australia and Asia /Pacific. The Company intends to increase the use of thisdistribution channel.

             There has been a general downturn in the economy overthe last several months.  This downturnmay continue in the future and could have an impact on the Company’s futurefinancial results.  Comparisons offinancial performance made in this document are not necessarily indicative offuture performance.  Based upon thecurrent economic environment, the Company had adjusted its estimates ofexpected fiscal 2001 revenues.  TheCompany also announced a corporate-wide reorganization and reduction in forceand incurred a charge in the second quarter of 2001 of approximately $123.5million related to these actions and a consolidation of the Company’sfacilities.  Included in this charge isapproximately $26.6 million of asset impairments related to certain long-livedassets. Please see Note 7 of Notes to Condensed Consolidated FinancialStatements.

 

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

             Theaccompanying consolidated financial statements include the accounts of theCompany. They have been prepared in accordance with the established guidelinesfor interim financial information as provided by the instructions to Form 10–Qand Article 10 of Regulation S–X. All significant intercompanytransactions have been eliminated in consolidation. The financial results andrelated information as of June 30, 2001 and for the three and six months endedJune 30, 2001 and 2000 are unaudited. The balance sheet at December 31, 2000has been derived from the audited consolidated financial statements as of thatdate but does not necessarily reflect all of the informational disclosurespreviously reported in accordance with generally accepted accounting principles.In the Company’s opinion, the consolidated financial statements presentedherein include all necessary adjustments, consisting of normal recurringadjustments, to fairly state the Company’s financial position, results ofoperations, and cash flows for the periods indicated. The preparation of consolidated financial statements in conformity withaccounting principles generally accepted in the United States requiresmanagement to make certain assumptions and estimates that affect reportedamounts of assets and liabilities as of the date of the financial statementsand the reported amounts of revenues and expenses during the reporting period.Actual results could differ from estimates.

             The accompanying consolidatedfinancial statements should be read in conjunction with the consolidatedfinancial statements and notes thereto included with the Company’s Form 10–Kand other documents that have been filed with the Securities and ExchangeCommission. The results of the Company’s operations for the interim periodspresented are not necessarily indicative of operating results for the fullfiscal year or any future interim periods.

             *Reclassifications**—*Certain prior period balances have beenreclassified to conform to the current period presentation.

             *RevenueRecognition*—The Company’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 CertainTransactions*. In general, software license revenues are recognizedwhen a non–cancelable license agreement has been signed and the customeracknowledges an unconditional obligation to pay, the software product has beendelivered, there are no uncertainties surrounding product acceptance, the feesare fixed and determinable and collection is considered probable; professionalservices revenues are recognized as such services are performed; andmaintenance revenues, or post–contract customer support, or PCS,including revenues bundled with software agreements which entitle the customersto technical support and future unspecified enhancements to the Company’sproducts, are deferred and recognized ratably over the related contract period,generally twelve months. Revenues recognized from multiple–elementsoftware arrangements are allocated to each element of the arrangement based onthe fair values of the elements, such as software products, post contractcustomer support, installation or training. The determination of fair value isbased on objective evidence which is specific to the Company. 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 the Company provides are not essential tothe functionality of the software.

             The Company records unearned revenue for softwarearrangements when cash has been received from the customer and the arrangementdoes not qualify for revenue recognition under the Company’s revenuerecognition policy. The Company records accounts receivable for softwarearrangements when the arrangement qualifies for revenue recognition but cash orother consideration has not been received from the customer.

 

             The Company’s professional servicesare delivered through BVGS, which consists of consulting, customer support andBroadVision University.    These  groups provide consulting services, manageprojects and client relationships, manage the needs of the Company’s partnercommunity, provide training–related services to employees, customers andpartners, and also provide software maintenance services, including technicalsupport, to the Company’s customers and partners. Revenue from consultingservices is typically recognized as services are performed. Maintenance feesrelating to technical support and upgrades are recognized ratably over themaintenance period.

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

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

 

|                                                                          | **Three Months Ended  June 30,**                                                                       |       | **Six Months Ended  June 30,** |       |
|-------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
|                                                                          | ****                                                                                                        |       | ****                                |       |
|                                                                          | **2001**                                                                                                    |       | **2000**                            |       | **2001** |   | **2000** |   |
|                                                                          | ****                                                                                                        | ** ** | ****                                | ** ** | **** | ** ** | **** | ** ** |
| Net loss                                                                      | $                                                                                                           | (242,842   | )                                   | $          | (54,871 | ) | $ | (347,987 | ) | $ | (44,837 | ) |
|                                                                          |                                                                                                             |       |                                     |       |  |   |  |   |
| Weighted average common shares outstanding  utilized for basic loss per share | 273,426                                                                                                     |       | 258,935                             |       | 272,205 |   | 252,288 |   |
|                                                                          |                                                                                                        |       |                                |       |   |   |   |   |
| Weighted average common equivalent shares  outstanding:                       |                                                                                                        |       |                                |       |   |   |   |   |
|                                                                          | Employee common stock options                                                                               | —     |                                | —     |   | — |   | — |   |
|                                                                          | Common stock warrants                                                                                       | —     |                                | —     |   | — |   | — |   |
|                                                                          |                                                                                                             |       |                                     |       |  |   |  |   |
|                                                                          | Total weighted average common and common  equivalent shares outstanding utilized for diluted loss per share | 273,426    |                                | 258,935    |   | 272,205 |   | 252,288 |   |
|                                                                          |                                                                                                             |       |                                     |       |  |   |  |   |
| Basic loss per share                                                          | $                                                                                                           | (0.89      | )                                   | $          | (0.21 | ) | $ | (1.28 | ) | $ | (0.18 | ) |
|                                                                          |                                                                                                             |       |                                     |       |  |   |  |   |
| Diluted loss per share                                                        | $                                                                                                           | (0.89      | )                                   | $          | (0.21 | ) | $ | (1.28 | ) | $ | (0.18 | ) |
|                                                                          |                                                                                                             |       |                                     |       |  |   |  |   |
|                                                                               |                                                                                                             |            |                                     |            |  |  |  |  |  |  |  |  |  |  |

             11,940 and 15,116 potential commonshares are excluded from the determination of diluted net loss per share forthe three and six months ended June 30, 2001, respectively, as the effect ofsuch shares is anti-dilutive.  36,436and 38,618 potential common shares are excluded from the determination ofdiluted net loss per share for the three and six months ended June 30, 2000,respectively, as the effect of such shares is anti-dilutive.

             *Foreign Currency 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.

             *Fair Valueof Financial Instruments*—TheCompany’s financial instruments consist of cash and cash equivalents,short-term investments, accounts receivable, long-term investments, equityinvestments, accounts payable and debt. The Company does not have any derivative financial instruments.  The Company believes the reported carryingamounts of its financial instruments approximates fair value, based upon theshort maturity of cash equivalents, short term investments, accounts receivableand payable, and based on the current rates available to the Company on similardebt issues.  Additionally, the Companyperiodically evaluates the carrying value of all of its investments forpermanent impairment when events and circumstances indicate that the book valueof an asset may not be recoverable.  Ifsuch assets are considered to be impaired, the impairment to be recognized ismeasured by the amounts by which the carrying amount exceeds its fair marketvalue.  The Company’s equity investmentsare comprised of investments in public and non-public technology-relatedcompanies.  The Company may recordfuture impairment charges due to continued economic decline and the potentialresulting negative impact on these companies. During the three and six months ended June 30, 2001, the Companyrecorded $1.9 million and $3.1 million in impairment charges on its cost methodlong-term investments.  There were nosuch charges during the three and six months ended June 30, 2000.

 

             *New Accounting Pronouncements*—OnJune 29, 2001, the Financial Accounting Standard Board (FASB) approved for issuance SFAS No. 141, *Business Combinations*, and SFAS No. 142, *Goodwill and Intangible Assets*. Majorprovisions of these Statements are as follows: all business combinationsinitiated after June 30, 2001 must use the purchase method of accounting; thepooling of interest method of accounting is prohibited except for transactionsinitiated before July 1, 2001; intangible assets acquired in a business combination must be recordedseparately from goodwill if they arise from contractual or other legal rightsor are separable from the acquired entity and can be sold,  transferred, licensed, rented or exchanged,either individually or as part of a related contract, asset or  liability; goodwill and intangible assets with indefinite lives are not amortizedbut are tested for impairment annually using a fair value approach, except incertain circumstances,  and wheneverthere is an impairment indicator; other intangible assets will continue to bevalued and amortized over their estimated lives; in-process research anddevelopment will continue to be written off immediately; all acquired goodwillmust be assigned to reporting units for purposes of impairment testing andsegment  reporting;  effective January 1, 2002, existing goodwill will no longer be subject toamortization.  Goodwill arising betweenJuly 1, 2001 and December 31, 2001 will not be subject to amortization.

             Uponadoption of SFAS No. 142, on January 1, 2002, the Company will no longeramortize goodwill, thereby eliminating annual goodwill amortization ofapproximately $256.2 million, based on anticipated amortization for 2002.  Amortization for the six months ended June30, 2001 was $127.6 million.

**Note 2.**             **Selective Balance Sheet Detail**

             Property and equipment consisted ofthe following (in thousands):

 

|                                             | **June 30,  2001** |       | **December 31,  2000** |       |
|--------------------------------------------------|--------------------|------------|-----------------------------|------------|
|                                             | ****               | ** ** | ****                        | ** ** |
| Furniture and fixtures                           | $                  | 7,284      |                        | $          | 6,136 |   |
| Computers and software                           | 70,002             |       | 56,654                      |       |
| Leasehold improvements                           | 66,747             |       | 34,465                      |       |
|                                             |                    |       |                             |       |
|                                             | 144,033            |       | 97,255                      |       |
| Less: accumulated depreciation and  amortization | (58,320            | )          | (20,570                     | )          |
|                                             |                    |       |                             |       |
|                                             | $                  | 85,713     |                        | $          | 76,685 |   |
|                                             |                    |       |                             |       |

 

             Accrued expenses consisted of thefollowing (in thousands):

 

|                       | **June 30,  2001** |       | **December 31,  2000** |       |
|----------------------------|--------------------|------------|------------------------|------------|
|                       | ****               | ** ** | ****                   | ** ** |
| Employee benefits          | $                  | 4,384      |                   | $          | 3,900 |   |
| Commissions and bonuses    | 13,627             |       | 22,790                 |       |
| Sales and other taxes      | 7,576              |       | 11,439                 |       |
| Restructuring (See Note 7) | 36,107             |       | -                      |       |
| Other                      | 12,110             |       | 15,547                 |       |
|                       |                    |       |                        |       |
|                       | $                  | 73,804     |                   | $          | 53,676 |   |
|                       |                    |       |                        |       |

 

Other noncurrent liabilitiesconsisted of the following (in thousands):

 

|                       | **June 30,  2001** |       | **December 31,  2000** |       |
|----------------------------|--------------------|------------|------------------------|------------|
|                       | ****               | ** ** | ****                   | ** ** |
| Restructuring (See Note 7) | $                  | 55,386     |                   | $          | - |   |
| Other                      | 474                |       | 898                    |       |
|                       |                    |       |                        |       |
|                       | $                  | 55,860     |                   | $          | 898 |   |
|                       |                    |       |                        |       |

** **

 

**Note 3.**             **Commercial Credit Facilities**

             The Company has various creditfacilities with a commercial lender which include term debt in the form ofnotes payable and a revolving line of credit that provides for up to $10.0million of additional borrowings based on eligible accounts receivable. As ofJune 30, 2001 and December 31, 2000, outstanding term debt borrowings wereapproximately $4.4 million and $4.9 million, respectively.  Borrowings bear interest at the bank’s primerate (6.75% and 9.5% as of June 30, 2001 and December 31, 2000, respectively).Principal and interest are due in consecutive monthly payments through maturitybased on the term of the facility. Principal payments of $977,000 are dueannually from 2000 through 2004, $611,000 due in 2005, and a final payment of$357,000 due in 2006. As of June 30, 2001 and December 31, 2000, the Companyhad no outstanding borrowings under its revolving line of credit. However,commitments totaling $2.4 million in the form of standby letters of credit wereissued under its revolving line of credit facility as of June 30, 2001 andDecember 31, 2000, respectively. Commitments totaling $22.9 million in the formof standby letters of credit were also issued from separate financialinstitutions as of June 30, 2001. The commercial credit facilities includecovenants which impose certain restrictions on the payment of dividends andother distributions and requires the Company to meet a financial covenant.Borrowings are collateralized by a security interest in substantially all ofthe Company’s owned assets.  As of June30, 2001, the Company was not in compliance with its financial covenant due toits net operating loss for the three and six months then ended.  In August, 2001 this covenant was waived bythe commercial lender.  Also in August,2001 the Company has signed an amendment to the loan agreement which removes thefinancial covenant and requires the Company to maintain a $10.0 million depositin the bank.  Additionally, no otheradvances will be made under the revolving line of credit.

**Note 4.**             **Commitments**

             The Company currently has $4.4 million ofoutstanding term debt under its existing credit facility with a commercialbank.  Capital expenditures were $47.5million and $17.2 million for the six months ended June 30, 2001 and 2000,respectively.  The Company’s capitalexpenditures consisted of purchases of operating resources to manage itsoperations and consisted of computer hardware and software, communicationsequipments, office furniture and fixtures and leasehold improvements.  In February and April 2000, the Company enteredinto new facility lease agreements for approximately 519,000 square feetcurrently under construction.  Leasepayments will be made on an escalating basis with the total future minimumlease payments amounting to $316.4 million. As of June 30, 2001, the Company had paid approximately $49 million forimprovements to the facility.  The totalestimated cost of improvements is approximately $52 million, but is subject tochange.  The Company has no othersignificant capital commitments.  TheCompany has consolidated various facilities as part of its restructuring planfor the three and six months ended June 30, 2001.  Please refer to Note 7 for additional information regarding therestructuring and related asset impairment.

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

             The Company adopted the provisionsof SFAS No. 131, *Disclosure about Segmentsof an Enterprise and Related Information*, during 1998. SFAS No. 131establishes standards for the reporting by public business enterprises ofinformation about operating segments, products and services, geographic areasand major customers. The methodology for determining what information to reportis based on the way that management organizes the operating segments within theCompany for making operational decisions and assessments of financialperformance.  The Company’s chiefoperating decision maker is considered to be the Company’s Chief ExecutiveOfficer, or CEO.  The CEO reviewsfinancial 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 its products andprovides services worldwide through a direct sales force and through a channelof independent distributors, value–added resellers (“VARs”) andapplication service providers (“ASPs”). In addition, the sales of the Company’sproducts are promoted through independent professional consulting organizationsknown as systems integrators. The Company provides services worldwide directlythrough its BroadVision Global Services organization and indirectly throughdistributors, VARs, ASPs and system integrators. The Company currently operatesin three primary geographical territories: NASA, which includes North and SouthAmerica; EMEA, which includes Europe, the Middle East and Africa; andAsia/Pacific/Japan “APJ”, which includes the Pacific Rim, the Far East andIndia. Disaggregated financial information regarding the Company’s products andservices and geographic revenues is as follows (in thousands):

 

|               | **Three Months Ended  June 30,**   |   | **Six Months Ended  June 30,** |   |
|--------------------|-----------------------------------------|--------|-------------------------------------|--------|
|               | ****                                    |   | ****                                |   |
|               | **2001**                                |   | **2000**                            |   | **2001** |   | **2000** |   |
| Software licenses: |                                         |   |                                     |   |  |   |  |   |
|               | One–To–One Enterprise         | $      | 1,641                               |   | $ | 8,031 |   | $ | 4,113 |   | $ | 13,735 |   |
|               | One–To–One Packaged Solutions | 19,388 |                                | 48,817 |   | 60,056 |   | 83,827 |   |
| Services           | 21,346                                  |   | 28,491                              |   | 52,845 |   | 42,168 |   |
| Maintenance        | 15,070                                  |   | 10,005                              |   | 31,550 |   | 17,115 |   |
|               |                                         |   |                                     |   |  |   |  |   |
|               | Total Revenues                          | $      | 57,445                              |   | $ | 95,344 |   | $ | 148,564 |   | $ | 156,845 |   |
|               |                                         |   |                                     |   |  |   |  |   |
| Revenues:          |                                    |   |                                |   |   |   |   |   |
|               | NASA                                    | $      | 33,905                              |   | $ | 64,028 |   | $ | 93,621 |   | $ | 111,313 |   |
|               | EMEA                                    | 16,961 |                                | 21,646 |   | 40,836 |   | 33,269 |   |
|               | APJ                                     | 6,579  |                                | 9,670  |   | 14,107 |   | 12,263 |   |
|               |                                    |        |                                |        |   |  |   |  |   |
|               | Total Company                           | $      | 57,445                              |   | $ | 95,344 |   | $ | 148,564 |   | $ | 156,845 |   |
|               |                                    |        |                                |        |   |  |   |  |   |

 

|                 |          | **June 30,  2001** |   | **December 31,  2000** | ** ** |
|----------------------|---------------|--------------------|--------|-----------------------------|------------|
| Identifiable assets: |          |                    |   |                             |       |
|                 | NASA          |               | $      | 858,234                     |       | $ | 1,102,343 |   |
|                 | EMEA          |               | 35,196 |                        | 33,254     |   |
|                 | APJ           |               | 9,953  |                        | 7,427      |   |
|                 |          |               |        |                        |            |   |
|                 | Total Company |               | $      | 903,383                     |       | $ | 1,143,024 |   |
|                 |          |                    |   |                             |       |

             Prior periods have been restated toreflect changes in software license classifications.  During the three months ended June 30, 2001 and 2000 and duringthe six months ended June 31, 2000, no single customer accounted for more than10% of the Company’s total revenues. During the six months ended June 31, 2001, one customer accounted formore than 10% of the Company’s total revenues.

**Note 6.**             **Acquisitions**

*Interleaf*

             On April 14, 2000, the Companycompleted 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, orXML, that enables the design, creation and management of XML–basedcontent for transformation and delivery over the Web and related services. As aresult of the acquisition, the Company will have the ability to combinetechnological resources to develop a robust Web–based business solutionand reduce time to market for the combined Company’s products. Through theacquisition of all of the equity securities of Interleaf, BroadVision acquiredall of the assets and assumed liabilities of Interleaf and its existingoperations which included in–process technology. Pursuant to the terms ofthe Agreement and Plan of Merger and Reorganization, dated as of January 26,2000, each outstanding share of Interleaf common stock was exchanged for 1.0395shares of Company common stock and all options to purchase shares of Interleafcommon stock outstanding immediately prior to the consummation of the mergerwere converted into options to purchase shares of Company common stock.

             The Company issued 14,391,991shares of Company common stock with a fair market value of $686.9 million andexchanged options to purchase 2,338,342 shares of Company common stock with afair market value of $102.7 million. The fair market value of the exchangedoptions to purchase 2,338,342 shares of Company common stock was valued usingthe 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 was accounted foras a purchase business combination. Under this accounting treatment, the purchase price is allocated to theassets acquired and liabilities assumed based on the estimated fair values onthe date of acquisition.

             The total purchase price paid forthe 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’s estimatesprepared in conjunction with a third–party valuation consultant, $10.1million 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 June 30, 2001, accumulatedamortization related to the goodwill and other intangible assets acquired inthe Interleaf acquisition totaled $320.1 million. Goodwill amortization was$308.5 million and other intangible asset amortization was $11.6 million. Thegoodwill and other intangible assets are being amortized over a three–yearperiod.

             The following summary, prepared onan unaudited pro forma basis, reflects the condensed consolidated results ofoperations for the six month period ended June 30, 2000 assuming Interleaf hadbeen acquired at the beginning of the period presented (in thousands, exceptper share data):

|                                 | **For the six months ended June  30,** |       |
|--------------------------------------|----------------------------------------|------------|
|                                 | **2000**                               | ** ** |
|                                 | ****                                   |       |
| Revenue                              | $                                      | 170,508    |   |
| Net loss                             | (120,121                               | )          |
| Basic and diluted net loss per share | $                                      | (0.47      | ) |

             The pro forma results are notnecessarily indicative of what would have occurred if the acquisition had beenin 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. The charges for in–process technologyhave not been included in the unaudited pro forma results because they arenonrecurring. See Management’s Discussion and Analysis of Financial Conditionand Results of Operations for more information concerning the acquisition ofInterleaf.

             On April 30, 2001 and May 15, 2001,the Company entered into agreements with third parties to sell certain assetsand liabilities of E-Publishing Corporation, formerly a wholly-owned subsidiaryof the Company, which the Company added as part of the acquisition of Interleafin April, 2000.  The Company recorded aloss on sale of assets of approximately $1.3 million which is included in otherexpense in the Condensed Consolidated Statements of Operations.

*Keyeon*

             On June 29, 2001, the Companycompleted its acquisition of Keyeon, LLC, formerly a joint venture in which theCompany previously held an interest of approximately 36%.  As consideration for the acquisition, theCompany issued 2,713,280 shares of its common stock to the other formerparticipants in the joint venture to result in the Company owning 100% of theoutstanding member interests  of Keyeon,LLC.  The acquisition was accounted foras a purchase.  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 allocationbased on estimated fair values, was as follows (in thousands):

| Purchase price, net of cash acquired          | $                                                                              | 6,395  |   |
|-----------------------------------------------|--------------------------------------------------------------------------------|--------|--------|
| Add: fair value of liabilities assumed        | 3,001                                                                          |   |
|                                          |                                                                                |   |
|                                          | Total purchase consideration                                                   | 9,396  |   |
| Less: fair value allocated to acquired assets | 7,388                                                                          |   |
|                                          |                                                                                |   |
|                                          | Excess of purchase consideration over acquired  assets and assumed liabilities | 2,008  |   |
| Excess allocated to:                          |                                                                           |   |
|                                          | Goodwill and other intangible assets                                           | $      | 2,008  |   |
|                                          |                                                                                |   |

             The following summary, prepared onan unaudited pro forma basis, reflects the condensed consolidated results ofoperations for the six month period ended June 30, 2001 assuming Keyeon hadbeen acquired at the beginning of the period presented (in thousands, exceptper share data):

|                                  | **For the six months ended June 30,** |     |
|---------------------------------------|---------------------------------------|----------|
|                                  | **2001**                              |     |
|                                  |                                       |     |
| Revenue                               | $                                     | 148,564  |   |
| Net  Loss                             | $                                     | (352,505 | ) |
| Basic  and diluted net loss per share | $                                     | (1.29    | ) |
|                                       |                                       |          |  |  |

             The six months ended June 30, 2000is not presented as Keyeon did not commence operations until the fourth quarterof 2000.  The pro forma results are notnecessarily indicative of what would have occurred if the acquisition had beenin effect for the periods 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.

             The Company expects to amortize thegoodwill and other intangible assets over its estimated life of three yearsthrough December 31, 2001.

**Note 7.              Restructuring Charges and Asset Impairments**             During the second quarter of 2001, the Companyapproved a restructuring plan to, among other things, reduce its workforce andconsolidate facilities.  Theserestructuring and asset impairment charges were taken to align the Company’scost structure with changing market conditions and to create a more efficientorganization.  A pre-tax charge of$123.5 million was recorded in the second quarter to provide for these actionsand other related items.  The Companyrecorded the low-end of a range of assumptions modeled for the restructuringcharge, in accordance with SFAS No. 5, *Accounting for Contingencies*, whichyielded a restructuring charge of $123.5 million.  The high-end of the range was estimated at approximately $137.2million.  Adjustments to therestructuring reserves will be made in future periods, if necessary, based uponthe then current actual events and circumstances.

The followingtable summarizes charges recorded during the second quarter for exit activitiesand asset write-downs (in thousands):

 

|                             | **Severance and Benefits** |   | **Facilities/Excess Assets** |   | **Other** |   | **Total** |   |
|----------------------------------|----------------------------|--------|------------------------------|--------|-----------|--------|-----------|--------|
| Restructuring  charges           | $                          | 5,070  |                         | $      | 118,351   |   | $         | 52     |   | $ | 123,473 |   |
| Cash  charges                    | (3,757                     | )      | (814                         | )      | (19       | )      | (4,590    | )      |
| Non-cash  charges                | (527                       | )      | (26,563                      | )      | -         |   | (27,090   | )      |
|                             |                            |   |
| Reserve  balances, June 30, 2001 | $                          | 786    |                         | $      | 90,974    |   | $         | 33     |   | $ | 91,793 |   |
|                             |                            |   |

The nature ofthe charges summarized above is as follows:

             Severance and benefits – The Company recorded a chargeof approximately $5.1 million related to severance benefits to terminatedemployees in the United States and various international locations.  Approximately $3.8 million was paid out asof June 30, 2001 and $527,000 relates to non-cash charges.  The Company terminated approximately 418employees in North and South America and approximately 77 employees throughoutEurope and the Asia Pacific. Terminations occurred in all employee groups.

             Facilities/Excess Assets – TheCompany recorded a charge of approximately $118.4 million related to theconsolidation of facilities and impairment of certain assets.  Included in this charge is approximately$26.6 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.  $25.7 million of the $26.6 million relatesto assets associated with facilities consolidation and approximately $852,000relates to other operating and capital assets. Also included in the charge is approximately $91.8 million related tothe consolidation of facilities and represents remaining lease commitments, netof expected sublease income.

             Other – The Company recorded acharge of approximately $52,000 for various incremental costs incurred as adirect result of the restructuring.

 

**Note 8.              Stock Option Exchange Program**

             On April 25, 2001, the Company announceda voluntary stock option exchange program, or Offer, for its employees anddirectors.  Under the program, Companyemployees had the opportunity, if they so chose, to cancel outstanding“underwater” stock options, which are options that have an exercise price thatis higher than the price of the Company’s common stock on the date that theOffer expires, previously granted to them in exchange for an equal number ofnew options to be granted at a future date. The Offer was open until 5:00 p.m., Pacific Daylight Time, on May 25,2001.  The exercise price of these newoptions will be equal to the fair market value of the Company’s common stock onthe date of grant, which will be November 27, 2001.  Acceptance of the Offer required a participant electing toexchange any underwater options to also exchange any other options granted tohim or her during the six months before or after the Expiration Date.  The exchange program was designed to complywith Financial Accounting Standards Board, or FASB, Interpretation No. 44, *Accountingfor Certain Transactions Involving Stock Compensation*, and is notexpected to result in any additional compensation charges or variable planaccounting.  Employees located in Swedenwere not eligible to participate in this program.

**Note 9.              Subsequent Events**

             On July 25, 2001 the Companyannounced initial plans of additional cost controls, including an additionalworkforce reduction of approximately 15% to 20% of the Company’s approximately1,500 employees as of June 30, 2001. The Company also plans additional consolidation of various offices andexpects to complete the plan by September 30, 2001.

**Note10.            Legal Proceedings**

             OnApril 20, 2001, the Company filed a Form 8-K with the Securities and ExchangeCommission reporting that several purported class action lawsuits had beenfiled in the United States District Court for the Northern California Districtof California against the Company and certain of its officers and directors. Ineach of the lawsuits, the plaintiffs seek to assert claims on behalf of a classof all persons who purchased securities of the Company between January 26, 2001and April 2, 2001. The complaints allege that the Company and the individualdefendants violated federal securities laws in connection with the Company’sreporting of financial results during such period. The Company expects that allof the lawsuits will eventually be consolidated into a single action, as iscustomary in such cases. The Company believes that the lawsuits are withoutmerit and it will defend itself vigorously.

             OnJune 7, 2001, Verity, Inc. filed suit in the United States District Court forthe Northern California District of California against the Company allegingcopyright infringement, breach of contract, unfair competition and otherclaims. The Company has answered the complaint denying all allegations and willdefend itself vigorously.

**Item 2.**             **Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

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

**Overview**

             BroadVision, Inc. (collectively with itssubsidiaries, the "Company", “us” or “we”) was incorporated in thestate of Delaware on May 13, 1993. We develop and sell an integrated suiteof packaged applications for conducting e–business interactions,transactions and services. Global enterprises and government entities use theseapplications to sell, buy and exchange goods, services and information over theWeb and on wireless devices. The BroadVision e–business application suiteenables an entity to establish and sustain high–yield relationships withcustomers, suppliers, partners, distributors, employees and other constituentsin the extended enterprise. BroadVision services, supported by over 200 partnerorganizations worldwide, transform these applications into business value forBroadVision's customers through consulting, education and support services inmore than 34 countries.

             TheBroadVision e–business application suite allows businesses to tailor Weband wireless content to the needs and interests of individual users bypersonalizing content and transactions on a real–time basis.   We offer enterprise–class solutionsto connect companies to their customers, suppliers, partners and employees.These solutions enable companies to maintain and expand existing relationshipsin an online environment via a single, integrated e–business platform.

             BroadVision GlobalServices, or BVGS, provides a broad range of consulting, training and technicalsupport services to all of our customers and implementation partners. Thisorganization provides business application and technical expertise, along withextensive product knowledge, to complement our products and provide solutionsthat meet customers' unique business requirements. By using these services,customers are able to build customized application solutions to maximize thebenefits of one–to–one relationship management and self–service.

             A significantelement of our sales strategy is to engage in strategic business alliances toassist in marketing, selling and developing customer applications.

 

             As of June 30, 2001, we had developed key strategicbusiness alliances with over 200 systems integration, design, consulting andother services organizations throughout the world, including Accenture,Deloitte Consulting, Hewlett–Packard Consulting, IBM Global Services,KPMG Consulting, Leapnet, PricewaterhouseCoopers and Roundarch.  Our platform alliances are partnershipsformed to integrate technologies to drive business growth.  Additionally, we have developed keytechnology partnerships with leading Web– and wireless–focusedcompanies in areas complementary to our solutions, such as data analysis andreporting, enterprise application integration, enterprise Web management, callcenter management, content management, voice recognition, payment processing,auctioning and XML. These technology partnerships enhance our ability to baseproducts on industry standards and to take advantage of current and emergingtechnologies. These alliances include companies such as BEA Systems, Broadbase,Documentum, E.Piphany, Genesys, i2, Interwoven, Nuance, Tibco, WebMethods andYantra.

             We market ourproducts primarily through a direct sales organization with operations in NorthAmerica, South America, Europe, Australia and Asia/Pacific.  A component of our strategy is continuedexpansion of international activities. We intend to broaden our presence ininternational markets by expanding our international sales force and byentering into additional distribution agreements. We also contract with third–partyresellers, distributors and systems integrators in North America, SouthAmerica, Europe, Australia and Asia /Pacific. We intend to increase the use ofthis distribution channel.

**Recent Events**

             On April 25, 2001, we announced a voluntarystock option exchange program, or Offer, for our employees and directors.  Under the program, our employees had theopportunity, if they so chose, to cancel outstanding “underwater” stockoptions, which are options that had an exercise price that was higher than theprice of our common stock on the date that the Offer expired, previouslygranted to them in exchange for an equal number of new options to be granted ata future date.  The Offer was open until5:00 p.m., Pacific Daylight Time, on May 25, 2001.  The exercise price of these new options will be equal to the fairmarket value of our common stock on the date of grant, which will be November27, 2001.  Acceptance of the Offerrequired a participant electing to exchange any underwater options to alsoexchange any other options granted to him or her during the six months beforeor after the Expiration Date.  Theexchange program was designed to comply with Financial Accounting StandardsBoard, or FASB, Interpretation No. 44, *Accounting for Certain Transactions Involving StockCompensation*, and is not expected to result in any additionalcompensation charges or variable plan accounting.  Employees located in Sweden were not eligible to participate inthis program.

             On April 30, 2001 and May 15, 2001,we entered into agreements with third parties to sell certain assets andliabilities of E-Publishing Corporation, formerly a wholly-owned subsidiary ofthe Company, which we added as part of the acquisition of Interleaf in April,2000.  We recorded a loss on sale ofassets of approximately $1.3 million which is included in other expense in theCondensed Consolidated Statements of Operations.

             OnJune 29, 2001, we completed our acquisition of Keyeon, LLC, formerly a jointventure in which we previously held an interest of approximately 36%.  As consideration for the acquisition, weissued 2,713,280 shares of our common stock to the other former participants inthe joint venture, which resulted in our owning 100% of the outstanding memberinterests in Keyeon, LLC.  Theacquisition was accounted for as a purchase. The acquired assets and assumed liabilities, and the related results ofoperations, are included in the consolidated financial statements from the dateof acquisition.  See Note 6 of Notes toCondensed Consolidated Financial Statements for additional information.

             During the second quarter of 2001,we approved a restructuring plan to, among other things, reduce our workforceand consolidate facilities.  Theserestructuring and asset impairment charges were taken to align our coststructure with changing market conditions and to create a more efficientorganization.  A pre-tax charge ofapproximately $123.5 million was recorded in the second quarter to provide forthese actions and other related items.  Included in the pre-tax charge of $123.5 million is $26.6 millionfor asset write-downs related to the impairment of certain long-lived assetsthat were either abandoned during the quarter, or for which the resultingestimated future reduced cash flows were insufficient to cover the carryingamounts.  Please see Note 7 of Notes toCondensed Consolidated Financial Statements for additional information.

 

             There has been a general downturn in the economy overthe last several months.  This downturnmay continue in the future and could have an impact on our future financialresults.  Comparisons of financialperformance made in this document are not necessarily indicative of futureperformance.  Based upon the currenteconomic environment, we had adjusted our estimates of expected fiscal 2001revenues. We plan to implement additional cost controls, including anadditional workforce reduction of approximately 15% to 20% of our approximately1,500 employees as of June 30, 2001. We also plan additional consolidation ofvarious offices and expect to complete implementation of the plan by September30, 2001.

**Results of Operations**

*Revenues*

             Our revenues are derived from software licensingarrangements and fees charged for services. Software is generally licensed fordevelopment use and for its use in deployment of the customer's website.Deployment licenses are generally based on the number of persons who registeron a customer's website using our software. Our revenue recognition policiesare in accordance with Statement of Position ("SOP") 97–2, *SoftwareRevenue Recognition*, as amended and SOP 98–9, *SoftwareRevenue Recognition, With Respect to Certain Transactions*. Ingeneral, 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 revenuesbundled with software agreements which entitle the customers to technicalsupport and future unspecified enhancements to our products, are deferred andrecognized ratably over the related contract period, generally twelve months.Revenues recognized from multiple–element software arrangements areallocated to each element of the arrangement based on the fair values of theelements, such as software products, post contract customer support,installation or training. The determination of fair value is based on objectiveevidence which is specific to us. If evidence of fair value does not exist forall elements of a license agreement and PCS is the only undelivered element,then all revenue for the license arrangement is recognized ratably over theterm of the agreement as license revenue. If evidence of fair value of allundelivered elements exists but evidence does not exist for one or moredelivered elements, then revenue is recognized using the residual method. Underthe residual method, the fair value of the undelivered elements is deferred andthe remaining portion of the arrangement fee is recognized as revenue. Servicesthat we provide are not essential to the functionality of the software.

             We record unearned revenue for software arrangementswhen cash has been received from the customer and the arrangement does notqualify for revenue recognition under our revenue recognition policy. We recordaccounts receivable for software arrangements when the arrangement qualifiesfor revenue recognition but cash or other consideration has not been receivedfrom the customer.

             Our professional services aredelivered through BVGS, which consists of consulting, customer support andBroadVision University.  These groupsprovide consulting services, manage projects and client relationships, managethe needs of our partner community, provide training-related services toemployee, customers and partners, and also provide software maintenanceservices, including technical support, to our customers and partners.   Revenue from consulting services istypically recognized as services are performed. Maintenance fees relating totechnical support and upgrades are recognized ratably over the maintenanceperiod.

 

*Three and six months endedJune 30, 2001 and June 30, 2000*

             *Total revenues* decreased 40% during the quarter ended June 30,2001 to $57.4 million as compared to $95.3 million for the quarter ended June30, 2000. Total revenues decreased 5% during the six months ended June 30, 2001to $148.6 million as compared to $156.8 million for the six months ended June30, 2000.  A summary of our revenues bygeographic region is as follows:

|                    | **Software**               |   | **%**  |   | **Services** |       | **%**  |       | **Total** |       | **%**  |       |
|-------------------------|----------------------------|--------|--------|--------|--------------|------------|--------|------------|-----------|------------|--------|------------|
|                    | ****                       |   | ****   |   | ****         |       | ****   |       | ****      |       | ****   |       |
|                    | **(dollars in thousands)** |   |
| **Three Months Ended:** |                       |   |   |   |         |       |   |       |      |       |   |       |
|                    |                       |   |   |   |         | ** ** |   | ** ** |      | ** ** |   | ** ** |
| June 30, 2001           |                       |   |   |   |         |       |   |       |      |       |   |       |
|                    | NASA                       | $      | 9,574  |   | 46           | %          | $      | 24,331     |      | 67         | %      | $          | 33,905 |   | 59 | % |
|                    | EMEA                       | 8,116  |   | 39     |         | 8,845      |   | 24         |      | 16,961     |   | 30         |   |
|                    | APJ                        | 3,339  |   | 15     |         | 3,240      |   | 9          |      | 6,579      |   | 11         |   |
|                    |                       |        |   |        |         |            |   |            |      |            |   |            |   |
|                    | Total                      | $      | 21,029 |   | 100          | %          | $      | 36,416     |      | 100        | %      | $          | 57,445 |   | 100 | % |
|                    |                            |   |        |   |              |       |        |       |           |       |        |       |
| June 30, 2000           |                       |   |   |   |         |       |   |       |      |       |   |       |
|                    | NASA                       | $      | 34,368 |   | 60           | %          | $      | 29,660     |      | 77         | %      | $          | 64,028 |   | 67 | % |
|                    | EMEA                       | 14,819 |   | 26     |         | 6,827      |   | 18         |      | 21,646     |   | 23         |   |
|                    | APJ                        | 7,661  |   | 14     |         | 2,009      |   | 5          |      | 9,670      |   | 10         |   |
|                    |                       |        |   |        |         |            |   |            |      |            |   |            |   |
|                    | Total                      | $      | 56,848 |   | 100          | %          | $      | 38,496     |      | 100        | %      | $          | 95,344 |   | 100 | % |
|                    |                            |   |        |   |              |       |        |       |           |       |        |       |
| **Six Months Ended:**   |                       |   |   |   |         |       |   |       |      |       |   |       |
|                    |                       |   |   |   |         | ** ** |   | ** ** |      | ** ** |   | ** ** |
| June 30, 2001           |                       |   |   |   |         |       |   |       |      |       |   |       |
|                    | NASA                       | $      | 35,991 |   | 56           | %          | $      | 57,630     |      | 68         | %      | $          | 93,621 |   | 63 | % |
|                    | EMEA                       | 21,130 |   | 33     |         | 19,706     |   | 23         |      | 40,836     |   | 28         |   |
|                    | APJ                        | 7,048  |   | 11     |         | 7,059      |   | 9          |      | 14,107     |   | 9          |   |
|                    |                       |        |   |        |         |            |   |            |      |            |   |            |   |
|                    | Total                      | $      | 64,169 |   | 100          | %          | $      | 84,395     |      | 100        | %      | $          | 148,564 |   | 100 | % |
|                    |                            |   |        |   |              |       |        |       |           |       |        |       |
| June 30, 2000           |                       |   |   |   |         |       |   |       |      |       |   |       |
|                    | NASA                       | $      | 66,129 |   | 68           | %          | $      | 45,184     |      | 76         | %      | $          | 111,313 |   | 71 | % |
|                    | EMEA                       | 22,078 |   | 23     |         | 11,191     |   | 19         |      | 33,269     |   | 21         |   |
|                    | APJ                        | 9,355  |   | 9      |         | 2,908      |   | 5          |      | 12,263     |   | 8          |   |
|                    |                       |        |   |        |         |            |   |            |      |            |   |            |   |
|                    | Total                      | $      | 97,562 |   | 100          | %          | $      | 59,283     |      | 100        | %      | $          | 156,845 |   | 100 | % |
|                    |                       |        |   |        |         |            |   |            |      |            |   |            |   |
|                         |                            |        |        |        |              |            |        |            |           |            |        |            |  |  |  |  |  |

             There has been a general economicdecline during the past several months that may continue.  Therefore, financial comparisons discussedherein may not be indicative of future performance.

             *Software license revenues* decreased 63%during the current quarter ended June 30, 2001 to $21.0 million as compared to$56.8 million for the quarter ended June 30, 2000.   Software license revenues decreased 34% during the six monthsended June 30, 2001 to $64.2 million as compared to $97.6 million for the sixmonths ended June 30, 2000.  Thedecreases are attributable to an overall decline in the economy throughout thefirst half of 2001 in comparison to the same period of 2000.  Continued uncertainty surrounding theeconomic and information technology spending environment significantly affectedour license revenue during the first half of 2001.  Software license revenues for our Enterprise applicationsdecreased to $1.6 million for the quarter ended June 30, 2001 and $4.1 for thesix months ended June 30, 2001 as compared to $8.0 million for the quarterended June 30, 2000 and $13.7 million for the six months ended June 30,2000.  Software license revenues for ourpackaged solutions decreased to $19.4 million and $60.1 million for the quarterended and six months ended June 30, 2001, respectively, as compared to $48.8million and $83.8 million for the quarter ended and six months ended June 30,2000, respectively.   During the quarterended June 30, 2001, we signed license agreements with 36 new customers ascompared to 161 new customers for the quarter ended June 30, 2000.   During the six months ended June 30, 2001,we signed license agreements with 82 new customers as compared to 271 newcustomers for the six months ended June 30, 2000.  As of June 30, 2001, we had a total installed base of more than1,250 accounts as compared to 1,169 accounts as of December 31, 2000 and 920accounts as of June 30, 2000.

             *Total services revenues* decreased 5%during the current quarter ended June 30, 2001 to $36.4 million ascompared to $38.5 million for the quarter ended June 30, 2000.  Total services revenues increased 42% duringthe six months ended June 30, 2001 to $84.4 million as compared to $59.3million for the six months ended June 30, 2000. The decrease in servicesrevenues for the three months ended June 30, 2001 is primarily a result of thecontinued decline in the overall economy and uncertainty surrounding theeconomic and information technology spending environment.

 

             The increase in professional servicesrevenue for the six months ended June 30, 2001 is a result of higher levels ofconsulting related services associated with increased business volumes andhigher customer support revenues derived from a larger installed customer base.Maintenance related fees for technical support and product upgrades were $15.1million for the quarter ended June 30, 2001 as compared to $10.0 million forthe quarter ended June 30, 2000. Maintenance related fees for technical support and product upgrades were$31.6 million for the six months ended June 30, 2001 as compared to $17.1million for the six months ended June 30, 2000.  The increase in maintenance revenues is a result of licenserevenues as noted above and renewals of recurring maintenance.

**Cost of Revenues**

             Cost of license revenues includethe costs of product media, duplication, packaging and other manufacturingcosts as well as royalties payable to third parties for software that is eitherembedded in, or bundled and sold with, our products.

             Cost of services consists primarilyof employee–related costs, third–party consultant fees incurred onconsulting projects, post–contract customer support and instructionaltraining services.

             A summary of the cost of revenuesfor the periods presented is as follows:

|                          | **Three Months Ended  June 30,** |       | **Six Months Ended  June 30,** |   |
|-------------------------------|---------------------------------------|------------|-------------------------------------|--------|
|                          | ****                                  |       | ****                                |   |
|                          | **2001**                              |       | **%**                               |   | **2000** |   | **%** |   | **2001** |   | **%** |   | **2000** |   | **%** |   |
|                          | ****                                  |       | ****                                |   | **** |   | **** |   | **** |   | **** |   | **** |   | **** |   |
|                          | **(dollars in thousands)**            | ** ** |
| Cost of software licenses (1) | $                                     | 2,655      |                                | 13     | % |  $ | 1,563 |   | 3 | % |  $ | 4,895 |   | 8 | % |  $ | 3,626 |   | 4 | % |
| Cost of services (2)          | 30,005                                |       | 82                                  |   | 30,282 |   | 79 |   | 67,373 |   | 80 |   | 45,956 |   | 78 |   |
|                          |                                       |       |                                |   |  |   |   |   |  |   |   |   |  |   |   |   |
| Total cost of revenues (3)    | $                                     | 32,660     |                                | 57     | % |  $ | 31,845 |   | 33 | % |  $ | 72,268 |   | 49 | % |  $ | 49,582 |   | 32 | % |
|                          |                                       |       |                                |   |  |   |   |   |  |   |   |   |  |   |   |   |

----

             (1)         Percentageis calculated based on total software license revenues for the period indicated             (2)         Percentage is calculated based on total services revenuesfor the period indicated             (3)         Percentage is calculated based on total revenues for theperiod indicated

             *Cost of software licenses* increased 70%in absolute dollar terms during the current quarter ended June 30, 2001 to $2.7million as compared to $1.6 million for the quarter ended June 30, 2000.  Cost of software licenses increased 35%during the six months ended June 30, 2001 to $4.9 million as compared to $3.6million for the six months ended June 30, 2000.

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

             *Cost of services* decreased 1%during the current quarter ended June 30, 2001 to $30.0 million as compared to$30.3 million for the quarter ended June 30, 2000. Cost of services increased47% during the six months ended June 30, 2001 to $67.4 million as compared to$46.0 million during the six months ended June 30, 2000.  The decrease in cost of services for thethree months ended June 30, 2001 is primarily a result of a decrease inservices related revenues for the same period. In absolute dollar terms, theincrease in cost of services for the six months ended June 30, 2001 was aresult of higher business volumes as evidenced by increased services revenues.Overall, costs increased as a result of opening new training and customersupport facilities as well as additions to our professional services staff andthe employment of outside consultants to meet short–term consultingdemands. As a percentage of services revenue, the increase in cost of servicesis a result of hiring new employees within BVGS who do not generate revenueduring their internal training period and an excess of staff throughout thefirst quarter which was subsequently reduced by the second quarter reduction inforce.

 

**Operating Expenses and OtherIncome, net**

             Research and development expensesconsist 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 marketing expensesconsist 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 and administrative expensesconsist primarily of salaries, employee–related benefit costs andprofessional service fees.

|                                            | **Three Months Ended  June 30,** |       | **Six Months Ended  June 30,** |   |
|-------------------------------------------------|---------------------------------------|------------|-------------------------------------|--------|
|                                            | ****                                  |       | ****                                |   |
|                                            | **2001**                              |       | **% (1)**                           |   | **2000** |   | **% (1)** |   | **2001** |   | **% (1)** |   | **2000** |   | **% (1)** |   |
|                                            | ****                                  |       |
|                                            | **(dollars in thousands)**            | ** ** |
| Research and development                        | $                                     | 20,616     |                                | 36     | % | $ | 9,706 |   | 10 | % | $ | 47,587 |   | 32 | % | $ | 15,465 |   | 10 | % |
| Sales and marketing                             | 41,766                                |       | 73                                  |   | 33,570 |   | 35 |   | 94,247 |   | 64 |   | 58,770 |   | 38 |   |
| General and administrative                      | 14,268                                |       | 25                                  |   | 6,786 |   | 7 |   | 24,858 |   | 17 |   | 10,344 |   | 7 |   |
| Goodwill and intangible amortization            | 66,297                                |       | 115                                 |   | 55,351 |   | 58 |   | 132,577 |   | 89 |   | 55,404 |   | 35 |   |
| Charge for acquired in–process  technology | —                                |       | —                              |   | 10,100 |   | 11 |   | — |   | — |   | 10,100 |   | 6 |   |
| Restructuring charge                            | 123,473                               |       | 215                                 |   | — |   | — |   | 123,473 |   | 83 |   | — |   | — |   |
|                                            |                                       |       |                                     |   |  |   |  |   |  |   |  |   |  |   |  |   |
| Total Operating Expenses                        | $                                     | 266,420    |                                | 464    | % | $ | 115,513 |   | 121 | % | $ | 422,742 |   | 285 | % | $ | 150,083 |   | 96 | % |
|                                            |                                       |       |                                     |   |  |   |  |   |  |   |  |   |  |   |  |   |

----

             **(1)**        **Expressed as a percent of total revenues for theperiod indicated**

             *Research and development expenses* increased112% during the current quarter ended June 30, 2001 to $20.6 million ascompared to $9.7 million for the quarter ended June 30, 2000.  Research and development expenses increased208% during the six months ended June 30, 2001 to $47.6 million as compared to$15.5 million for the six months ended June 30, 2000.  The increase in research and development expenses is primarilyattributable to increased personnel involved in the enhancement of existingapplications and the development of our next generation of products.

             *Sales and marketing expenses* increased 24%during the current quarter ended June 30, 2001 to $41.8 million as compared to$33.6 million for the quarter ended June 30, 2000.  Sales and marketing expenses increased 60% during the six monthsended June 30, 2001 to $94.2 million as compared to $58.8 million during thesix months ended June 30, 2000.  Theincreases in sales and marketing expenses reflect the cost of increased salesand marketing personnel from additional hires and expenditures made to developand expand sales distribution channels.

             *General and administrative expenses* increased110% during the current quarter ended June 30, 2001 to $14.3 million ascompared to $6.8 million for the quarter ended June 30, 2000.  General and administrative expenses increased140% during the six months ended June 30, 2001 to $24.9 million as compared to$10.3 million during the six months ended June 30, 2000.  The increase in general and administrativeexpenses is attributable to additional administrative and management personnel,higher professional fees, additional infrastructure to support the expansion ofour operations and increases in the general reserves of our accounts receivablebalance.

             We are attempting to reduceexpenses in an effort to return to profitability during a period when revenueshave been less than originally expected. Therefore, operating costs may decline in the near future but there canbe no assurance that such decline will be enough to return us to profitability.  Should revenues increase significantly, wewould expect our expenses to increase commensurate with increases in revenuesonce we have reached an appropriate level of spending as a percentage of totalrevenues.

 

*             Amortizationof goodwill and other intangibles.*As described in Note 6 in the Notes to theCondensed Consolidated Financial Statements above, we acquired Interleaf in thequarter ended June 30, 2000. We have accounted for the acquisition as apurchase business combination. As a result of this transaction, we had recordedgoodwill and 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 $132.5 million for the quarter ended and thesix months ended June 30, 2001, respectively. As also reported in Note 6, we acquired Keyeon on June 29, 2001.  We have accounted for this acquisition as apurchase business combination.  As aresult of this transaction, we had recorded goodwill and other intangibleassets on the balance sheet of $2.0 million. There has been no amortization of the goodwill and other intangibleassets associated with the Keyeon transaction because the transaction wascompleted at the end of the second quarter.

             *Restructuring.* During the second quarter of 2001, we approved a restructuringplan to, among other things, reduce our workforce and consolidatefacilities.  These restructuring andasset impairment charges were taken to align our cost structure with changingmarket conditions and to create a more efficient organization.  We recorded a pre-tax charge of $123.5million which included $26.6 million for asset write-downs related to theimpairment of certain long-lived assets that were either abandoned during thequarter, or for which the resulting estimated future reduced cash flows wereinsufficient to cover the carrying amounts.

             In connection with the restructuring plan, we expectto save approximately $40.0 million in salary expense over the next twelvemonths.  We expect facility related cashoutlays associated with the restructuring charge to be approximately $35.5million over the next twelve months. Additionally, we expect sublease income associated with these facilitiesof approximately $3.7 million over the next twelve months. Please seeNote 7 of Notes to Condensed Consolidated Financial Statements for additionalinformation.

             *Other(Expense) Income, net *Other (expense)income, net consists of interest income, interest expense and othernon-operating expenses.  Other (expense)income, net decreased to ($876,000) for the three months ended June 30, 2001 ascompared to $3.9 million during the three months ended June 30, 2000.  Other (expense) income, net decreased to($379,000) for the six months ended June 30, 2001 as compared to $11.2 millionfor the six months ended June 30, 2000. Interest income decreased approximately $900,000 to $3.0 million for thequarter ended June 30, 2001 as compared to $3.9 million for the quarter endedJune 30, 2000 and interest income decreased $1.3 million to $6.6 million forthe six months ended June 30, 2001 as compared to $7.9 million for the sixmonths ended June 30, 2000 as a result of a decrease in overall cash andinvestments.  Losses on asset disposalsincreased approximately $1.4 million and $1.5 million for the three and sixmonths ended June 30, 2001, respectively, as compared to the same periods in2000.  This increase is primarilyrelated to a loss of approximately $1.3 million on the sale of various computersand related equipment and furniture of E-Publishing Corporation, formerly ourwholly owned subsidiary.  Gains on salesof investments increased $963,000 for the quarter ended June 30, 2001 ascompared to the quarter ended June 30, 2000. Gains on sales of investments decreased approximately $1.9 millionduring the six months ended June 30, 2001 as compared to the six months endedJune 30, 2000.  We also experienced anincrease in equity in net losses from an unconsolidated subsidiary of $1.3million for the quarter ended June 30, 2001 and $2.4 million for the six monthsended June 30, 2001 and an increase in realized losses on cost-methodinvestments of $1.9 million for the quarter ended June 30, 2001 and $3.1million for the six months ended June 30, 2001.  Foreign currency exchange losses decreased approximately $526,000during the three months ended June 30, 2001. Foreign currency exchange losses increased approximately $552,000 duringthe six months ended June 30, 2001 as compared to the six months ended June 30,2000. Other expense increased by approximately $805,000 and $814,000 for thethree and six months ended June 30, 2001, respectively, as a result of variousother items.

**Income Taxes**

             During the quarter ended June 30,2001, we recognized tax expense of $331,000.  We recognized income tax expense of $1.2 million during the six monthsended June 30, 2001.  The tax expenseduring both periods mainly relates to foreign withholding taxes and stateincome taxes.

**Litigation Settlement**

             On February 22, 2000, we reached asettlement agreement and entered into a license agreement with Art TechnologyGroup, or ATG, in connection with the lawsuit filed by us on December 11, 1998against 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 quarterlyinstallment payments commencing on February 24, 2000 (four consecutive quarterlypayments of $750,000 during 2000 and eight consecutive quarterly payments of$500,000 during 2001 and 2002) which will total $7.0 million.

**LIQUIDITYAND CAPITAL RESOURCES**

|                                                           | **June 30,  2001** |    | **December 31,  2000** |   |
|----------------------------------------------------------------|--------------------|---------|-----------------------------|--------|
|                                                           | ****               |    | ****                        |   |
|                                                           | **(in thousands)** |    |
| Cash, cash equivalents and liquid short–term  investments | $                  | 186,106 |                        | $      | 222,534 |   |
|                                                           |                    |    |                             |   |
| Long-term liquid investments                                   | $                  | 53,138  |                        | $      | 78,769 |   |
|                                                           |                    |    |                             |   |
| Working capital                                                | $                  | 104,830 |                        | $      | 215,831 |   |
|                                                           |                    |    |                             |   |
| Working capital ratio                                          | 1.7:1              |    | 2.7:1                       |   |
|                                                           |                    |    |                             |   |

             At June 30, 2001, we had $239.2million of cash, cash equivalents and liquid short–term and long-terminvestments, which represents a decrease of $62.1 million as compared toDecember 31, 2000. We currently have $4.4 million of outstanding term debtunder our existing credit facility with a commercial bank.

             Cash used for operating activitieswas $33.0 million for the six months ended June 30, 2001 and cash provided byoperating activities was $34.6 million for the six months ended June 30, 2000.Net cash used for operating activities for the six months ended June 30, 2001was primarily attributed to a decrease in accounts payable and accruedliabilities and increase in other noncurrent assets, the net loss for theperiod less non-cash charges and, all partially offset by a decrease inaccounts receivable and prepaid expenses along with an increase in unearnedrevenue and deferred maintenance.  Cashprovided by investing activities was $5.3 million for the six months ended June30, 2001 and cash used for investing activities was $180.3 million for the sixmonths ended June 30, 2000.  Cashprovided by investing activities for the six months ended June 30, 2001 wasprimarily due to cash acquired in a purchase transaction of approximately $7.2million, net sales/maturities of investments of approximately $45.6 million,partially offset by approximately $47.5 million in purchases of property andequipment.  Cash provided by financingactivities was $12.2 million and $14.7 million for the six months ended June30, 2001 and 2000, respectively, and consists primarily of proceeds from theissuance of common stock.

             Capital expenditures were $47.5million and $17.2 million for the six months ended June 30, 2001 and 2000,respectively.  Our capital expendituresconsisted of purchases of operating resources to manage our operations andconsisted of 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 currently under construction.  Lease payments will be made on an escalating basis with the totalfuture minimum lease payments amounting to $316.4 million.  As of June 30, 2001, we have paidapproximately $49 million for improvements to the facility.  The total estimated cost of improvements isapproximately $52 million , but is subject to change.

             In connection with therestructuring plan described in Note 7 of the accompanying Notes to CondensedConsolidated Financial Statements, we expect to pay out approximately $786,000of severance related costs and approximately $32,000 of other restructuringcosts throughout the remainder of 2001. We expect facility related cash outlays associated with the restructuringcharge to be approximately $35.5 million over the next twelve months and anadditional $150.6 million from July 1, 2002 through December 31, 2008.  Additionally, we expect sublease incomeassociated with  these facilities ofapproximately $3.7 million over the next twelve months, and $102.3 million fromJuly 1, 2002 through December 31, 2008. The total cash outlay is expected to be funded from existing cashbalances and internally generated cash flows from operations.

             We believe that our available cashand short–term investment resources, cash generated from operations andamounts available under our commercial credit facilities will be sufficient tomeet our expected working capital and capital expenditure requirements for atleast the next 12 months. This estimate is a forward–looking statementthat involves risks and uncertainties, and actual results may vary as a resultof a number of factors, including those discussed under “Factors AffectingQuarterly Operating Results” below and elsewhere herein. We may need to raiseadditional funds in order to support more rapid expansion, develop new orenhanced services, respond to competitive pressures, acquire complementarybusinesses or technologies or respond to unanticipated requirements. We mayseek to raise additional funds through private or public sales of securities,strategic relationships, bank debt, financing under leasing arrangements orotherwise. If additional funds are raised through the issuance of equitysecurities, the percentage ownership of our stockholders will be reduced, stockholdersmay experience additional dilution or such equity securities may have rights,preferences or privileges senior to those of the holders of our common stock.There can be no assurance that additional financing will be available onacceptable terms, if at all. If adequate funds are not available or are notavailable on acceptable terms, we may be unable to develop our products, takeadvantage of future opportunities or respond to competitive pressures orunanticipated requirements, which could have a material adverse effect on ourbusiness, financial condition and operating results.

 

**Factors That May Affect FutureOperating Results**

             We may experience significantfluctuations in quarterly operating results that may be caused by many factorsincluding, but not limited to, those discussed below and herein, as set out inItems 7 and 7A in our annual report on Form 10–K for the year endedDecember 31, 2000  and elsewhere thereinand as disclosed in other documents filed with the Securities and ExchangeCommission.

             Significant fluctuations in futurequarterly operating results may be caused by many factors including, amongothers, the timing of introductions or enhancements of products and services byus or our competitors, market acceptance of new products, the mix of ourproducts 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 lifecycles, changes in strategy, seasonal trends, the mix of distribution channelsthrough which our products are sold, the mix of international and domesticsales, the rate at which new sales people become productive, changes in thelevel of operating expenses to support projected growth and general economicconditions. We anticipate that a significant portion of our revenues will bederived from a limited number of orders, and the timing of receipt andfulfillment of any such orders is expected to cause material fluctuations inour operating results, particularly on a quarterly basis. Due to the foregoingfactors, quarterly revenues and operating results are difficult to forecast,and we believe that period–to–period comparisons of our operatingresults will not necessarily be meaningful and should not be relied upon as anyindication of future performance.  It is likely that our future quarterlyoperating results from time to time will not meet the expectations of marketanalysts or investors, which may have an adverse effect on the price of ourcommon stock.

             Our success depends largely on theskills, experience and performance of key personnel.  If we lose one or more key personnel, our business could beharmed.  Our future success depends onour ability to continue attracting and retaining highly skilled personnel.  We may not be successful in attracting,assimilating and retaining qualified personnel in the future.

             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 general downturnin the economy.  We had revised ourprojected estimate of revenue range for fiscal 2001.  If the economic environment continues to decline, our futureresults may be significantly impacted. We believe that the current economic decline has increased the averagelength of our sales cycle and our operating results could suffer and our stockprice could decline if we do not achieve the level of revenues we expect.

 

**Item3.**             **Quantitativeand Qualitative Disclosures about Market Risk**

             We develop products in the UnitedStates and market our products throughout the world.  As a result, our financial results could be affected by factorssuch as changes in currency exchange rates or weak economic conditions in foreignmarkets.  The majority of our sales aremade in United States dollars.  Ourexposure to market risk for changes in interest rates relates primarily to ourinvestment portfolio. We had no derivative financial instruments as of June 30,2001 or December 31, 2000. We invest in instruments that meet high creditquality standards and the amount of credit exposure to any one issue, issuerand type of instrument is limited. We do not expect any material loss withrespect to the investment portfolio. Investments are carried at market value.  The following represents our investmentportfolio as of June 30, 2001 by maturity:

 

| (in thousands)              | Year Ended December 31, 2001 |   | Year Ended December 31, 2002 |   | Year Ended December 31, 2003 |   | Year Ended December 31, 2004 |   | Year Ended December 31, 2005 |   | Thereafter |   | Total  |
|-----------------------------|------------------------------|--------|------------------------------|--------|------------------------------|--------|------------------------------|--------|------------------------------|--------|------------|--------|--------|
|                        |                         |   |                         |   |                         |   |                         |   |                         |   |       |   |   |
| Cash equivalents            | $                            | 52,302 |                         | $      | -                            |   | $                            | -      |                         | $      | -          |   | $      | - |   | $ | - |   | $ | 52,302 |
| Short-term investments      | $                            | 18,276 |                         | $      | 28,822                       |   | $                            | -      |                         | $      | -          |   | $      | - |   | $ | - |   | $ | 47,098 |
| Long-term investments       | $                            | -      |                         | $      | 24,216                       |   | $                            | 17,994 |                         | $      | 10,928     |   | $      | - |   | $ | - |   | $ | 53,138 |
|                        |                              |   |                              |   |                              |   |                              |   |                              |   |            |   |        |
| Total investment Securities | $                            | 70,578 |                         | $      | 53,038                       |   | $                            | 17,994 |                         | $      | 10,928     |   | $      | - |   | $ | - |   | $ | 152,538 |
|                        |                              |   |                              |   |                              |   |                              |   |                              |   |            |   |        |

             Not included in the above arechecking and money market accounts of $85.3 million of cash and cashequivalents, $1.4 million of short term marketable securities in common stockand $11.2 million in equity investments.

*Equity Investments*

             Equity investments consist ofinvestments in non-public and publicly traded companies that are accounted forunder either the cost method of accounting or the equity method of accounting.

             Equity investments are accountedfor under the cost method of accounting when we have a minority interest and donot have the ability to exercise significant influence.  These investments are classified asavailable for sale and are carried at fair value when readily determinablemarket values exist or cost when such market values do not exist.  Adjustments to fair value are recorded as acomponent of other comprehensive (loss) income unless the investments are consideredpermanently impaired in which case the adjustment is recorded as a component ofother income (expense), net in the condensed consolidated statements ofoperations.  During the three and sixmonths ended June 30, 2001, we recorded impairment charges related tocost-method equity investments of $1.9 million and $3.1 million,respectively.  There were no suchcharges during the three and six months ended June 30, 2000.

             Equity investments are accountedfor under the equity method of accounting when we have a minority interest andhave the ability to exercise significant influence.  These investments are classified as available for sale and arecarried at cost with periodic adjustments to carrying value for our equity innet income (loss) of the equity investee. Such adjustments are recorded as a component of other income, net.  Any decline in value of our investments,which is other than a temporary decline, is charged to earnings during theperiod in which the impairment occurs. During the three and six months ended June 30, 2001 we recorded ourshare of our equity investee’s net loss of $1.3 million and $2.4 million,respectively.  There were no suchcharges during the three and six months ended June 30, 2000.

**PART II.  OTHER INFORMATION**

**Item 1.****Legal Proceedings**

             OnApril 20, 2001, we filed a Form 8-K with the Securities and Exchange Commissionreporting that several purported class action lawsuits had been filed in theUnited States District Court for the Northern California District of Californiaagainst us and certain of our officers and directors.  In each of the lawsuits, the plaintiffs seek to assert claims onbehalf of a class of all persons who purchased our securities between January26, 2001 and April 2, 2001.  Thecomplaints allege that the Company and the individual defendants violatedfederal securities laws in connection with our reporting of financial resultsduring such period.  We expect that allof the lawsuits will eventually be consolidated into a single action, as iscustomary in such cases.  We believethat the lawsuits are without merit and we will defend ourselves vigorously.

             On June 7, 2001, Verity, Inc. filedsuit in the United States District Court for the Northern California Districtof California against us alleging copyright infringement, breach of contract,unfair competition and other claims.  Wehave answered the complaint denying all allegations and will defend ourselvesvigorously.

**Item 2.**             **Changes inSecurities and Use of Proceeds**

             Notapplicable.

**Item 3.**             **Defaults Upon Senior Securities**

             Notapplicable.

**Item4.**             **Submissionof Matters to a Vote of Security Holders**

|   | (a) | The Annual Meeting of Stockholders of the  Company was held on May 24, 2001.                                         |
|--------|-----|----------------------------------------------------------------------------------------------------------------------|
|   | (b) | Pehong Chen, David Anderson, Koh Boon Hwee,  Todd Garrett, Klaus Luft and Carl Pascarella were elected as Directors. |
|   | (c) | The matters voted upon and the voting of  stockholders with respect thereto are as follows:                          |

i.           Theelection of Directors:

|            | For         |   | Withheld  |
|-----------------|-------------|--------|-----------|
|            |             |   |           |
| Pehong Chen     | 198,717,316 |   | 1,415,218 |
| David Anderson  | 198,836,461 |   | 1,296,073 |
| Koh Boon Hwee   | 198,770,021 |   | 1,362,513 |
| Todd Garrett    | 198,778,978 |   | 1,353,556 |
| Klaus Luft      | 198,831,381 |   | 1,301,153 |
| Carl Pascarella | 198,826,994 |   | 1,305,540 |

ii.          Toapprove the Company’s Equity Incentive Plan, as amended, to increase the numberof shares of common stock authorized for issuance thereunder by 12,000,000shares:

|   | For:     | 166,332,928 | Against:   | 32,877,282 |
|--------|----------|-------------|------------|------------|
|   | Abstain: | 922,324     | Not Voted: |       |

iii.         Toapprove the Company’s Employee Stock Purchase Plan, as amended, to increase thenumber of shares of common stock authorized for issuance thereunder by1,500,000 shares:

|   | For:     | 196,620,569 | Against:   | 2,621,904 |
|--------|----------|-------------|------------|-----------|
|   | Abstain: | 890,061     | Not Voted: |      |

iv.         Toratify the appointment of Arthur Andersen LLP to serve as independent auditorsof the Company for the fiscal year ending December 31, 2001:

|   | For:     | 198,717,154 | Against:   | 576,057 |
|--------|----------|-------------|------------|---------|
|   | Abstain: | 839,321     | Not Voted: | 2       |

**Item 5.**             **Other Information**

             Notapplicable.

**Item 6.**              **Exhibits andReports on Form 8-K**

| (a)    | Exhibits                 |
|--------|--------------------------|
|   |                     |
|   |                     | Exhibits | Description |
|   |                     |  |  |
|   |                     | 3.1 | Amended and Restated Certificate of  Incorporation.  (1) |
|   |                     | 3.2 | Certificate of Amendment of Certificate of  Incorporation, dated June 28, 2000.   (2) |
|   |                     | 3.3 | Amended and restated Bylaws.  (1) |
|   |                     | 3.4 | Independent Software Vendor Agreement between  IONA Technologies, PLC and the Company, dated June 26, 1998 (as amended). (3) |
|   |                     | 4.1 | References are hereby made to Exhibits 3.1 to  3.2.  (1) |
|   |                     |   |   |
|   | (1)                      | Incorporated by reference to the Company’s  Proxy Statement filed on September 13, 1999. |
|   | (2)                      | Incorporated by reference to the Company’s 10-Q  for the quarter ended June 30, 2000 filed on August 14, 2000. |
|   | (3)                      | Certain portions have been deleted pursuant to  a confidential treatment request. |
| (b)    | Reports on Form 8–K |

A current report on Form 8-K was filed with theSecurities and Exchange Commission by the Company on April 20, 2001,  reporting that several purported classaction lawsuits had been filed  againstthe Company and certain of its officers and directors.

**SIGNATURES**

             Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.

 

|   |            |   | **BROADVISION, INC.**                                                                                                 |
|--------|-----------------|--------|-----------------------------------------------------------------------------------------------------------------------|
| Date:  | August 14, 2001 | By:    | /s/   Pehong Chen                                                                                                |
|   |            |   |                                                                                                                       |
|   |            |   | Pehong Chen  Chairman of the Board, President and Chief  Executive Officer (Principal Executive Officer)              |
|   |            |   |                                                                                                                  |
|   |            |   |                                                                                                                  |
|   |            |   |                                                                                                                  |
| Date:  | August 14, 2001 | By:    | /s/   Terence A. Davis                                                                                           |
|   |            |   |                                                                                                                       |
|   |            |   | Terence A. Davis  Corporate Treasurer,  Interim Chief Financial Officer  (Principal Financial and Accounting Officer) |