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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



FORM 10-Q



---



(Mark One)

|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ---------------------------------------------------------------------------------------



For the quarterly period ended September 30, 2002



OR



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



For the transition period
from
to



Commission file number: 0-27741



---



Viador Inc.

(Exact name of registrant as specified in its charter)



|Delaware                                                       |  | 94-3234636                             
|-------------------------------------------------------------- |  | ---------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)



977
Benecia Avenue,

Sunnyvale, California 94085

(Address of principal executive offices) (Zip Code)



Telephone Number (408) 735-5956

(Registrants telephone number, including area code)



---



Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes   x    No ̈



As of September 30, 2002, there
were 33,647,727 shares of the Registrants Common Stock outstanding, par value $0.001 per share.



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##### Table of Contents



VIADOR INC.



FORM 10-Q

INDEX

FOR THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002



|           |  |                                                                                                                     |  | Page
|---------- |  | ------------------------------------------------------------------------------------------------------------------- |  | ----
|          
|           |  | PART IFINANCIAL INFORMATION                                                                                        |  |     
|          
|ITEM 1.    |  | Condensed Consolidated Financial Statements:                                                                        |  |     
|          
|           |  | Condensed Consolidated Balance SheetsSeptember 30, 2002 (unaudited) and December 31, 2001                          |  | 2   
|          
|           |  | Condensed Consolidated Statements Of OperationsThree and Nine Months Ended September 30, 2002 and 2001 (unaudited) |  | 3   
|          
|           |  | Condensed Consolidated Statements of Cash FlowsNine Months Ended September 30, 2002 and 2001 (unaudited)           |  | 4   
|          
|           |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                                    |  | 5   
|          
|ITEM 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                               |  | 16  
|          
|ITEM 3.    |  | Quantitative and Qualitative Disclosures about Market Risk                                                          |  | 41  
|          
|ITEM 4.    |  | Controls and Procedures                                                                                             |  | 41  
|          
|           |  | PART IIOTHER INFORMATION                                                                                           |  |     
|          
|ITEM 1.    |  | Legal Proceedings                                                                                                   |  | 43  
|          
|ITEM 2.    |  | Changes in Securities and Use of Proceeds                                                                           |  | 44  
|          
|ITEM 3.    |  | Defaults Upon Senior Securities                                                                                     |  | 44  
|          
|ITEM 4.    |  | Submission of Matters to a Vote of Security Holders                                                                 |  | 44  
|          
|ITEM 5.    |  | Other Information                                                                                                   |  | 44  
|          
|ITEM 6.    |  | Exhibits and Reports on Form 8-K                                                                                    |  | 45  
|          
|Signatures |  | 46                                                                                                                 





1



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##### Table of Contents



PART IFINANCIAL
INFORMATION





ITEM I. FINANCIAL STATEMENTS



VIADOR INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data; unaudited)



|                                                                                                                                                                                                                                           |  | September 30, 2002 |         |   | December 31, 2001 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------ | ------- | - | ----------------- | -
|ASSETS                                                                                                                                                                                                                                     |  |                    |         |   |                   |  
|Current assets:                                                                                                                                                                                                                            |  |                    |         |   |                   |  
|Cash and cash equivalents                                                                                                                                                                                                                  |  | $                  | 1,436   |   |                   | $
|Restricted cash                                                                                                                                                                                                                            |  |                    |        |   |                   |  
|Accounts receivable, net of allowance of $154 at September 30, 2002, and $380 at
December 31, 2001                                                                                                                                         |  |                    | 1,030   |   |                   |  
|Other current assets                                                                                                                                                                                                                       |  |                    | 160     |   |                   |  
|                                                                                                                                                                                                                                           |  |                    |         |   |                   |  
|Total current assets                                                                                                                                                                                                                       |  |                    | 2,626   |   |                   |  
|Property and equipment, net                                                                                                                                                                                                                |  |                    | 323     |   |                   |  
|Other assets                                                                                                                                                                                                                               |  |                    | 45      |   |                   |  
|                                                                                                                                                                                                                                           |  |                    |         |   |                   |  
|Total assets                                                                                                                                                                                                                               |  | $                  | 2,994   |   |                   | $
|                                                                                                                                                                                                                                           |  |                    |         |   |                   |  
|                                                                                                                                                                                                                                          
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                                                                                                                                      |  |                    |         |   |                   |  
|Current liabilities:                                                                                                                                                                                                                       |  |                    |         |   |                   |  
|Accounts payable                                                                                                                                                                                                                           |  | $                  | 213     |   |                   | $
|Accrued liabilities                                                                                                                                                                                                                        |  |                    | 460     |   |                   |  
|Accrued vacation and bonus                                                                                                                                                                                                                 |  |                    | 68      |   |                   |  
|Accrued restructuring expense                                                                                                                                                                                                              |  |                    |        |   |                   |  
|Deferred revenue                                                                                                                                                                                                                           |  |                    | 2,893   |   |                   |  
|                                                                                                                                                                                                                                           |  |                    |         |   |                   |  
|Total current liabilities                                                                                                                                                                                                                  |  |                    | 3,634   |   |                   |  
|                                                                                                                                                                                                                                          
|Convertible note payable, net of unamortized discount of $729 at September 30,
2002                                                                                                                                                        |  |                    | 271     |   |                   |  
|                                                                                                                                                                                                                                           |  |                    |         |   |                   |  
|Total liabilities                                                                                                                                                                                                                          |  |                    | 3,905   |   |                   |  
|                                                                                                                                                                                                                                           |  |                    |         |   |                   |  
|Stockholders deficit:                                                                                                                                                                                                                     |  |                    |         |   |                   |  
|Common stock, $0.001 par value: 100,000,000 shares authorized as of September 30, 2002
and December 31, 2001; issued and outstanding: 33,674,727 shares and 33,147,212 shares as of September 30, 2002 and December 31, 2001, respectively |  |                    | 34      |   |                   |  
|Additional paid-in capital                                                                                                                                                                                                                 |  |                    | 75,859  |   |                   |  
|Deferred stock-based compensation                                                                                                                                                                                                          |  |                    | (317    | ) |                   |  
|Treasury stock                                                                                                                                                                                                                             |  |                    | (34     | ) |                   |  
|Accumulated deficit                                                                                                                                                                                                                        |  |                    | (76,413 | ) |                   |  
|Accumulated other comprehensive loss                                                                                                                                                                                                       |  |                    | (40     | ) |                   |  
|                                                                                                                                                                                                                                           |  |                    |         |   |                   |  
|Total stockholders deficit                                                                                                                                                                                                                |  |                    | (911    | ) |                   |  
|                                                                                                                                                                                                                                           |  |                    |         |   |                   |  
|Total liabilities and stockholders deficit                                                                                                                                                                                                |  | $                  | 2,994   |   |                   | $
|                                                                                                                                                                                                                                           |  |                    |         |   |                   |  



See
accompanying notes to unaudited condensed consolidated financial statements.



2



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##### Table of Contents



VIADOR INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data;
unaudited)



|                                                                                      |  | Three Months Ended September 30, |        |   | Nine Months Ended September 30, |  
|------------------------------------------------------------------------------------- |  | -------------------------------- | ------ | - | ------------------------------- | -
|                                                                                      |  | 2002                             |        |   | 2001                            |  
|Revenue:                                                                              |  |                                  |        |   |                                 |  
|License                                                                               |  | $                                | 383    |   |                                 | $
|Service                                                                               |  |                                  | 618    |   |                                 |  
|                                                                                      |  |                                  |        |   |                                 |  
|Total revenue                                                                         |  |                                  | 1,001  |   |                                 |  
|                                                                                      |  |                                  |        |   |                                 |  
|Cost of revenue:                                                                      |  |                                  |        |   |                                 |  
|Cost of license revenue, including amortization of capitalized software               |  |                                  | 65     |   |                                 |  
|Cost of service revenue                                                               |  |                                  | 364    |   |                                 |  
|                                                                                      |  |                                  |        |   |                                 |  
|Total cost of revenue                                                                 |  |                                  | 429    |   |                                 |  
|                                                                                      |  |                                  |        |   |                                 |  
|Gross profit                                                                          |  |                                  | 572    |   |                                 |  
|                                                                                      |  |                                  |        |   |                                 |  
|Operating expenses:                                                                   |  |                                  |        |   |                                 |  
|Sales and marketing                                                                   |  |                                  | 254    |   |                                 |  
|Research and development                                                              |  |                                  | 355    |   |                                 |  
|General and administrative                                                            |  |                                  | 228    |   |                                 |  
|Amortization of stock-based compensation (1)                                          |  |                                  | (66    | ) |                                 |  
|Amortization of goodwill                                                              |  |                                  |       |   |                                 |  
|Impairment lossgoodwill                                                              |  |                                  |       |   |                                 |  
|Impairment lossintangible assets                                                     |  |                                  | 90     |   |                                 |  
|Restructuring expense                                                                 |  |                                  |       |   |                                 |  
|Loss on lease termination                                                             |  |                                  |       |   |                                 |  
|Impairment lossequipment held for sale                                               |  |                                  |       |   |                                 |  
|Loss on sale of assets                                                                |  |                                  |       |   |                                 |  
|                                                                                      |  |                                  |        |   |                                 |  
|Total operating expenses                                                              |  |                                  | 861    |   |                                 |  
|                                                                                      |  |                                  |        |   |                                 |  
|Operating loss                                                                        |  |                                  | (289   | ) |                                 |  
|Interest expense                                                                      |  |                                  | (125   | ) |                                 |  
|Other income and expense, net                                                         |  |                                  | 4      |   |                                 |  
|                                                                                      |  |                                  |        |   |                                 |  
|Net loss before income taxes and extraordinary item                                   |  |                                  | (410   | ) |                                 |  
|Extraordinary gain on extinguishment of debt                                          |  |                                  | 19     |   |                                 |  
|Benefit from (provision for) income taxes                                             |  |                                  | 1      |   |                                 |  
|                                                                                      |  |                                  |        |   |                                 |  
|Net income (loss)                                                                     |  | $                                | (390   | ) |                                 | $
|                                                                                      |  |                                  |        |   |                                 |  
|                                                                                     
|Basic net loss per share:                                                             |  |                                  |        |   |                                 |  
|Net loss before extraordinary gain on extinguishment of debt                          |  | $                                | (0.01  | ) |                                 | $
|Extraordinary itemgain on extinguishment of debt, net of taxes                       |  |                                  |       |   |                                 |  
|                                                                                      |  |                                  |        |   |                                 |  
|Net income (loss)                                                                     |  | $                                | (0.01  | ) |                                 | $
|                                                                                      |  |                                  |        |   |                                 |  
|                                                                                     
|Basic and diluted weighted average shares used to compute net income (loss) per
share |  |                                  | 33,114 |   |                                 |  

---

|(1) |  | The allocation of the amortization of stock-based compensation relates to the expense categories as set forth below (in thousands, unaudited):
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------



Three Months Ended September 30,

Nine Months Ended September 30,2002


2001

2002

2001Cost of revenue

$



$
2

$
1

$
3Sales and marketing






5


2


(152
)Research and development






34


3


78General and administrative


(66
)


12


11


(47
)$
(66
)

$
53

$
17

$
(118
)




See
accompanying notes to unaudited condensed consolidated financial statements.



3



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##### Table of Contents



VIADOR INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)



|                                                                                       |  | Nine Months Ended September 30, |       
|-------------------------------------------------------------------------------------- |  | ------------------------------- | ------
|                                                                                       |  | 2002                            |       
|Cash flows from operating activities:                                                  |  |                                 |       
|Net income (loss)                                                                      |  | $                               | 363   
|Adjustments to reconcile net loss to net cash used in operating
activities:            |  |                                 |       
|Depreciation and amortization                                                          |  |                                 | 395   
|Amortization of capitalized software                                                   |  |                                 |      
|Amortization of goodwill                                                               |  |                                 |      
|Amortization of deferred stock-based compensation                                      |  |                                 | 17    
|Amortization of deferred stock-based charges                                           |  |                                 | 128   
|Extraordinary gain on extinguishment of debt                                           |  |                                 | (1,380
|Non-cash interest expense                                                              |  |                                 | 271   
|Loss on lease termination                                                              |  |                                 |      
|Impairment lossgoodwill                                                               |  |                                 |      
|Impairment lossintangible assets                                                      |  |                                 | 90    
|Impairment lossequipment held for sale                                                |  |                                 |      
|Loss on sale of assets                                                                 |  |                                 |      
|Allowance for uncollectible notes receivable from stockholder                          |  |                                 |      
|Changes in operating assets and liabilities:                                           |  |                                 |       
|Accounts receivable                                                                    |  |                                 | 165   
|Other current assets and other assets                                                  |  |                                 | 72    
|Accounts payable, accrued liabilities and accrued vacation and bonus                   |  |                                 | (392  
|Accrued restructuring expenses                                                         |  |                                 | (23   
|Deferred revenue                                                                       |  |                                 | 288   
|                                                                                       |  |                                 |       
|Net cash used in operating activities                                                  |  |                                 | (6    
|                                                                                       |  |                                 |       
|                                                                                      
|Cash flows from investing activities:                                                  |  |                                 |       
|Capital expenditures                                                                   |  |                                 |      
|Proceeds from sale of equipment                                                        |  |                                 | 24    
|Capitalization of software development costs                                           |  |                                 |      
|                                                                                       |  |                                 |       
|Net cash provided by (used in) investing activities                                    |  |                                 | 24    
|                                                                                       |  |                                 |       
|                                                                                      
|Cash flows from financing activities:                                                  |  |                                 |       
|Repayment of bank line of credit                                                       |  |                                 |      
|Repayment of note payable from business acquisition                                    |  |                                 |      
|Proceeds from issuance of convertible note payable and warrants, net of issuance
costs |  |                                 | 940   
|Proceeds from issuance of common stock                                                 |  |                                 |      
|                                                                                       |  |                                 |       
|Net cash provided by (used in) financing activities                                    |  |                                 | 940   
|                                                                                       |  |                                 |       
|Effect of exchange rate on cash and cash equivalents                                   |  |                                 | (40   
|                                                                                       |  |                                 |       
|Net increase (decrease) in cash and cash equivalents                                   |  |                                 | 918   
|Cash and cash equivalents, beginning of period                                         |  |                                 | 518   
|                                                                                       |  |                                 |       
|Cash and cash equivalents, end of period                                               |  | $                               | 1,436 
|                                                                                       |  |                                 |       
|                                                                                      
|Supplemental disclosure of cash flow information:                                      |  |                                 |       
|Cash paid for interest                                                                 |  | $                               | 14    
|                                                                                       |  |                                 |       
|Cash paid for income taxes                                                             |  | $                               |      
|                                                                                       |  |                                 |       
|                                                                                      
|Supplemental disclosure of non-cash financing activities:                              |  |                                 |       
|Value of beneficial conversion feature on convertible note payable                     |  | $                               | 628   
|                                                                                       |  |                                 |       
|Issuance of stock in conjunction with settlement                                       |  | $                               | 100   
|                                                                                       |  |                                 |       



See
accompanying notes to unaudited condensed consolidated financial statements.





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##### Table of Contents

VIADOR INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)





Note 1. Basis of
Presentation



The accompanying unaudited
condensed consolidated financial statements include the accounts of Viador Inc. and its subsidiary (referred to hereafter as Viador, we, us or our), after elimination of all intercompany accounts and
transactions, and have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. The results of operations for the interim periods presented are not necessarily indicative of the results expected for any subsequent quarter or for the entire year ending December 31,
2002. These condensed consolidated financial statements and the notes included herein should be read in conjunction with Viadors audited financial statements and notes for the year ended December 31, 2001 included in our Annual Report on Form
10-K/A for the fiscal year ended December 31, 2001.



The condensed consolidated financial statements have been prepared on a going concern basis, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business. Our
recurring net losses, including $24.5 million for the year ended December 31, 2001, raise substantial doubt regarding our ability to continue as a going concern. In 2001, our revenue was not sufficient to support our operations, and revenue will not
be sufficient to support operations until such time, if any, that Viadors enterprise information portal software gains substantial market acceptance. Viador expects to continue to use cash in operations and incur operating losses in the
foreseeable future, and may need to obtain additional funding to sustain our operations in the future. We obtained debt/equity financing of $1.0 million in the first quarter of 2002, as well as a commitment for additional debt financing of up to
$2.0 million, subject to our meeting certain financial and business conditions (see Note 3). We believe that these actions will allow Viador to continue as a going concern for the next twelve months. However, the unaudited condensed consolidated
financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustments that might be necessary should Viador be unable
to continue as a going concern.



Note 2. Summary of
Significant Accounting Policies



(a) Use
of Estimates



The preparation of financial
statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.



(b) Revenue Recognition



Viador licenses its software products to end user customers, original equipment manufacturers, or OEMs, and
value added resellers, or VARs. Software license revenue from sales to end users is generally recognized upon receipt of a signed contract or purchase order and delivery of the software, provided the related fee is fixed and determinable,
collectibility of the fee is probable and vendor-specific objective evidence of fair value for all undelivered elements has been established. Vendor-specific objective evidence of fair value for consulting services is based on the price charged when
those services are sold separately. We establish sufficient vendor-specific objective evidence of the fair value of post-contract customer support based on the contractually specified annual renewal rates for such services. License revenue is
recorded under the residual method described in SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions, for arrangements in which licenses are sold with consulting services,
post-contract customer support or both. However, the entire fee related to arrangements that require Viador to deliver specified additional features or upgrades is deferred until delivery of the feature and/or upgrade has occurred, unless we have
sufficient vendor-specific objective evidence of fair value to allocate revenue to the various elements in these arrangements. Fees related to arrangements that require Viador to deliver unspecified additional products are deferred and recognized
ratably over



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##### Table of Contents

VIADOR INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)





the term of the
arrangement beginning with the delivery of the first product. Viador does not offer price protection to its customers. All of the contract software revenue related to arrangements involving consulting services that are essential to the functionality
of the software at the customer site is deferred and recognized as the services are performed. All customers separately purchase warranty and support as a separate item, accounted for as a service revenue and cost. Software revenue related to
arrangements to maintain the compatibility of our software products with the software products or platforms of the customer or other vendor is recognized ratably over the term of the arrangement. License revenue from OEM arrangements in which Viador
earns a royalty based on a specified percentage of OEM sales to end users incorporating our software is recognized upon delivery by the OEM to the end user provided collection is probable.



Service revenue consists of fees from professional services including integration of software, application
development, training and software installation. Viador bills professional services fees on a time and materials basis. We recognize professional services fees as the services are performed.



Customers typically purchase post-contract customer support
agreements annually, which are priced based on a fixed percentage of the product license fee. Viador recognizes revenue allocated to post-contract customer support agreements ratably over the term of the arrangement, which is typically one year.



Cost of license revenue consists primarily of
royalties paid to third parties for integrated technology and amortization of capitalized software development costs. Cost of service revenue includes salaries and related expenses for providing consulting services, customer support, implementation
and training services organizations, and costs of contracting with third parties that provide services to customers and an allocation of our facilities, communications and depreciation expenses.



(c) Financial Instruments and Concentration of Credit Risk



The carrying value of our financial
instruments, including cash equivalents, accounts receivable and payable and notes payable approximates fair market value. Financial instruments that potentially subject Viador to concentrations of credit risk consist primarily of cash equivalents,
trade accounts receivable and convertible notes payable (see Note 3).



Viador sells its products and services to customers in diversified industries. Credit risk is concentrated in North America, Europe and Asia. We perform ongoing credit evaluations of our customers financial condition
and, generally, require no collateral from our customers. We maintain reserves to provide for estimated credit losses. Actual credit losses could differ from such estimates.



(d) Software Development Costs



Viador accounts for its software development expenses in accordance with Statement of Financial Accounting
Standards (SFAS) No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed. This statement requires that, once technological feasibility of a new product enhancement has been
established, all subsequent costs incurred in developing that product or enhancement to a commercially acceptable level be capitalized and amortized. Viador uses a detailed program design approach in determining technological feasibility. All
software costs are amortized as a cost of revenue either on a straight-line basis, or on the basis of each products projected revenue, whichever results in greater amortization, over the remaining estimated economic life of product, which is
generally estimated to be two years. In the quarter ended June 30, 2001, the remaining balance of previously capitalized software development costs for the Viador ePortal product was fully amortized. In view of anticipated competition, the
projection of any future revenue from underlying product sales was deemed to be uncertain for purposes of evaluating recoverability, resulting in amortization of software development costs, classified as cost of sales, of approximately $3.6 million
for the nine months ended September 30, 2001. Consequently, there were no capitalized software development costs as of September 30, 2002 and as of December 31, 2001.



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##### Table of Contents

VIADOR INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)





(e)
Stock-Based Compensation



Viador applies the
intrinsic value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for its employee stock option plan. As such,
compensation expense would be recorded on the date of grant only if the market price of the underlying stock on the date of grant exceeded the exercise price. In April 2000, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 44 (FIN No. 44), Accounting for Certain Transactions Involving Stock Compensation: An Interpretation of APB No. 25. Viador has adopted the provisions of FIN No. 44, and such adoption did not
materially impact our consolidated financial position or results of operations. SFAS No. 123, Accounting for Stock-Based Compensation, established accounting and disclosure requirements using a fair value-based method of
accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, we have elected to continue to apply the intrinsic value-based method of accounting described above, and have adopted the disclosure requirements of SFAS No. 123.



(f) Comprehensive Income (Loss)



Items of comprehensive income (loss) that
Viador currently reports relate to foreign currency translation adjustments.



The components of comprehensive loss, net of tax, for the three and nine months ended September 30, 2002 and 2001 were as follows (in thousands):



|                                         |  | Three Months Ended September 30, |      |   | Nine Months Ended September 30, |  
|---------------------------------------- |  | -------------------------------- | ---- | - | ------------------------------- | -
|                                         |  | 2002                             |      |   | 2001                            |  
|Net income (loss)                        |  | $                                | (390 | ) |                                 | $
|Other comprehensive loss:                |  |                                  |      |   |                                 |  
|Foreign currency translation adjustments |  |                                  | (56  | ) |                                 |  
|                                         |  |                                  |      |   |                                 |  
|Total comprehensive income (loss)        |  | $                                | (446 | ) |                                 | $
|                                         |  |                                  |      |   |                                 |  



(g)
Goodwill and Other Intangible Assets



In July
2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets, which supersedes APB Opinion No. 17, Intangible Assets. SFAS No. 142 requires that goodwill and other intangibles with an indefinite
useful life not be amortized, but be tested for impairment at least annually by applying a fair-value-based test. Also, if the benefit of an intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be
sold, transferred, licensed, rented or exchanged, the intangible asset should be separately recognized and amortized over its estimated useful life. Viador adopted SFAS No. 142 in the quarter ended March 31, 2002. The adoption of SFAS No. 142 did
not have a material effect on our consolidated financial position or results of operations. We had no goodwill and no significant other intangible assets as of September 30, 2002 or December 31, 2001.



On January 20, 2000, Viador acquired a distributor in
Switzerland, the purchase price allocation of which resulted in $2.1 million in goodwill. In the quarter ended September 30, 2001, the remaining unamortized portion of this goodwill was deemed impaired as actual revenue for the acquired company was
below projected revenue, and key management personnel terminated employment with the subsidiary located in Switzerland, resulting in the recognition of approximately $1.4 million in impairment losses in the nine months ended September 30, 2001.



7



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##### Table of Contents

VIADOR INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)





The
following table presents the impact of SFAS No. 142 on net income (loss) per share if the standard been in effect since the first quarter of 2001 (in thousands, except per-share amounts):



|                                                       |  | Three Months Ended September 30, |       |   | Nine Months Ended September 30, |  
|------------------------------------------------------ |  | -------------------------------- | ----- | - | ------------------------------- | -
|                                                       |  | 2002                             |       |   | 2001                            |  
|Reported net income (loss)                             |  | $                                | (390  | ) |                                 | $
|Adjustments:                                           |  |                                  |       |   |                                 |  
|Amortization of goodwill                               |  |                                  |      |   |                                 |  
|Impairment lossgoodwill                               |  |                                  |      |   |                                 |  
|                                                       |  |                                  |       |   |                                 |  
|Adjusted net income (loss)                             |  | $                                | (390  | ) |                                 | $
|                                                       |  |                                  |       |   |                                 |  
|Reported net income (loss) per sharebasic and diluted |  | $                                | (0.01 | ) |                                 | $
|                                                       |  |                                  |       |   |                                 |  
|Adjusted net income (loss) per sharebasic and diluted |  | $                                | (0.01 | ) |                                 | $
|                                                       |  |                                  |       |   |                                 |  



(h)
Impairment of Long-Lived Assets



In October
2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 serves to clarify and further define the provisions of SFAS No. 121 Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of.SFAS No. 144 does not apply to goodwill and other intangible assets that are not amortized. Viador adopted SFAS No. 144 effective January 1, 2002. The adoption of Statement 144
did not have a material effect on our consolidated financial position or results of operations.



In the three months ended September 30, 2002, an additional impairment loss of $90,000 was recorded as the remaining unamortized portion of the remaining intangible assets, consisting primarily of
trademarks and trade names, was deemed impaired as actual revenue for the acquired company continued to fall below projected revenue.



(i) Recent Accounting Pronouncements



In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations.SFAS No. 143 requires that
the fair value of an asset retirement obligation be recorded as a liability in the period in which it is incurred. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. Viador expects to adopt SFAS No. 143 effective January 1,
2003. The adoption of Statement 143 is not expected to have a material effect on our consolidated financial position or results of operations.



In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections. SFAS No. 145 rescinds SFAS No. 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a
result, the criteria in APB Opinion No. 30 will now be used to classify those gains and losses. SFAS No. 64 amended SFAS No. 4, and is no longer necessary because SFAS No. 4 has been rescinded. SFAS No. 44 was issued to establish accounting
requirements for the effects of transition to the provisions of the Motor Carrier Act of 1980. Because the transition has been completed, SFAS No. 44 is no longer necessary. SFAS No. 145 amends SFAS No. 13 to require that certain lease modifications
that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions.



As a result of the rescission of SFAS No. 4, gain or loss on extinguishment of debt that was classified as an extraordinary item in prior
periods presented that does not meet the criteria in APB Opinion No. 30 for classification as an extraordinary item will be reclassified. Viador expects to adopt this provision of SFAS No. 145 effective with its fiscal year beginning January 1,
2003, at which time it expects to reclassify its gain associated with



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(Unaudited)





extinguishment of debt out
of extraordinary items into other income and expense. Viador does not anticipate the remaining provisions of this statement will have a material effect on its consolidated financial position or results of operations.



In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities, which nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred and states that an entitys
commitment to an exit plan, by itself, does not create a present obligation that meets the definition of a liability. SFAS No. 146 also establishes that fair value is the objective for initial measurement of the liability.



The provisions of SFAS No. 146 are effective for exit or
disposal activities initiated after December 31, 2002. Viador does not expect the adoption of SFAS No. 146 to have a material effect on its consolidated financial position or results of operations.



In November 2002, the FASB issued Interpretation (FIN) No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN No. 45 requires companies to recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee. Guarantees in existence at December 31, 2002 are grand-fathered for the purposes of recognition and would only need to be disclosed. Viador plans to adopt the initial recognition and
measurement provisions of FIN No. 45 for guarantees issued or modified after December 31, 2002. Viador does not expect the adoption of FIN No. 45 to have a material effect on its consolidated financial position or results of operations.



In December 2002, the FASB issued SFAS No. 148,
Accounting for Stock-Based CompensationTransition and Disclosure. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure requirements of SFAS No. 123 to require additional disclosure in both annual and interim financial statements on the
method of accounting for stock-based employee compensation. Viador plans to adopt the disclosure provisions of SFAS No. 148 in the first quarter of fiscal 2003. Viador does not expect the adoption of SFAS No. 148 to have a material effect on its
consolidated financial position or results of operations.



(j) Reclassifications



Certain prior period balances have been reclassified to conform to the current period presentations.



Note 3. Note Payable



On March 18, 2002, Viador received $1.0 million in financing through a private offering of debt securities and a conditional commitment to
provide additional debt financing of up to $2.0 million upon request from Mr. Heungyeung Yeung, who currently holds certain of Viadors equity securities. Mr. Yeungs conditional commitment to provide $2.0 million in additional debt
financing is conditioned upon none of the following events (default events) having occurred: 1) a material adverse event affecting Viadors business, operations, properties, financial condition, or prospects which would materially
impair Viadors ability to perform its obligations under the agreement and any of the notes and warrants issued in connection with this financing; 2) the closing of a debt or equity financing or other financial arrangement by Viador involving
proceeds to it of $1.0 million or more from investors not related to Mr. Yeung that would result in such investors holding twenty-five percent (25%) or more of Viadors outstanding securities; 3) any material change in Viadors management
team, and 4) any transaction that would result in a change in voting control of Viador. Mr. Yeung has discretion in determining whether Viador meets the foregoing conditions and ultimately whether to provide any additional financing. The $1.0
million obligation is secured by the accounts receivable of Viador. The note is callable if any of the following conditions occur: 1) Viador fails to makes any payment when due, 2) the breach of any condition of the note and subsequent failure to
cure within twenty (20) days following notice of such default, 3) any transaction that would result in a change in voting control of Viador, and 4) the filing of a petition by or against Viador under any provision of



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(Unaudited)





applicable bankruptcy or
similar law relating to insolvency, or appointment of a receiver, trustee, custodian, or liquidator of or for all or any substantial part of the assets or property of Viador, or the making of a general assignment for the benefit of creditors by
Viador.



As consideration for the funds and the
conditional commitment to provide additional funds, Viador issued a convertible promissory note and two warrants to Mr. Yeung. The note has a principal amount of $1.0 million and is convertible into 16,711,230 shares of Viadors common stock.
The note accrues interest at a stated rate of 1% per year and matures on March 18, 2004.



One of the warrants is exercisable in whole or in part, at any time or from time to time, for 3,333,333 shares of Viadors common stock at an exercise price of $0.06 per share. The second warrant
is exercisable for an aggregate of 3,333,333 shares of Viadors common stock at an exercise price of $0.06 per share, but is subject to vesting, such that 25% of the warrant becomes exercisable every six months and is entirely exercisable on
March 18, 2004, two years after the issuance date. The second warrant ceases to vest in the event Mr. Yeung fails to fulfill his commitment to provide additional funding. However, if Mr. Yeungs failure to provide additional funding is due to
Viadors failure to meet any of the conditions above, the second warrant becomes fully exercisable. Both warrants expire on March 18, 2005.



We calculated the fair value of the warrants using the Black-Scholes option pricing model with the following assumptions: no dividends;
contractual life of 3 years; risk-free interest rate of 3.1%; and expected volatility of 187%, which resulted in a value of the warrants of approximately $372,000. Of the $1.0 million gross proceeds, we allocated $372,000 to the warrants and
$628,000, the remaining proceeds, to the beneficial conversion feature. Accordingly, we recorded the beneficial conversion feature of the convertible note of $628,000 and the $372,000 of warrants to additional paid-in capital and initially recorded
the carrying value of the note at zero. The carrying value of the note is being accreted to its face value of $1.0 million over the term of the note (24 months) using the straight-line interest method, resulting in a non-cash interest charge of
$125,000 during the quarter ended September 30, 2002 and $271,000 for the nine months ended September 30, 2002. In connection with this financing, we incurred a commission payable to Mr. Yeung in the amount of $60,000, which was recorded as an
offset to the proceeds from this arrangement. As of September 30, 2002 the carrying amount of the note payable of $271,000 was net of the unamortized discount of $729,000.



Each time Viador receives additional funding from Mr. Yeung, we are obligated to issue to Mr. Yeung a
convertible promissory note with a principal amount equal to the amount of such additional funding. Interest on any such note will accrue at a rate equal to the sum of (a) the prime rate in effect on loans made by Citibank, N.A. as of the date of
such note, plus (b) three percent (3%). Any such note will be convertible into either shares of common stock or any equity securities Viador issues to a third party or third parties in one or more bona fide, arms-length transactions for the purpose
of raising capital during the term of such note. If the note is converted into Viadors common stock, the note will be convertible into a number of shares of common stock equal to the total principal and interest amount outstanding on the note
at the time of conversion divided by $0.05984. If the note is converted into another class of equity securities issued in an equity financing, the note will be convertible into a number of shares of such equity securities equal to the total
principal and interest amount outstanding on the note at the time of conversion divided by the price per share or unit at which such equity securities are sold to third party investors. None of the notes or warrants issued or issuable to Mr. Yeung
are convertible or exercisable if the conversion or exercise of any such note or warrant would result in Mr. Yeung or his affiliates holding more than 49.9% of Viadors issued and outstanding voting stock.



Note 4. Net Income (Loss) Per Share



Basic net income (loss) per share is computed using the
weighted-average number of outstanding shares of common stock excluding weighted-average shares of restricted stock subject to repurchase. Diluted net income (loss) per share is computed using the weighted-average number of shares of common stock
outstanding used in the basic earnings per share calculation including, when dilutive, potential common shares from outstanding stock options and warrants to purchase common stock computed using the treasury stock method, and convertible securities
using the as if converted method. The potential common shares associated with shares issuable under stock options, warrants and convertible notes (see Notes 3 and 5) have been excluded from the computation of



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)





diluted net income (loss)
per share for all periods presented because the effect would have been antidilutive. Potential common shares of approximately 41,296,000 for both the three and nine months ended September 30, 2002 have been excluded from the diluted loss per share
calculation due to their antidilutive effect. Potential common shares of approximately 10,517,000 for the three months ended September 30, 2001 and 10,522,000 for the nine months ended September 30, 2001 have been excluded from the diluted loss per
share calculation due to their antidilutive effect.



In accordance with SFAS No. 128, Earnings per Share, the control number in determining whether those potential common shares are dilutive or antidilutive is income (loss) from continuing operations
before extraordinary items. The following is a reconciliation of shares used to compute earnings per share (in thousands):



|                                                            |  | Three Months Ended September 30, |   |  | Nine Months Ended September 30, |  
|----------------------------------------------------------- |  | -------------------------------- | - |  | ------------------------------- | -
|                                                            |  | 2002                             |   |  | 2001                            |  
|Weighted average shares outstanding                         |  | 33,148                           |   |  | 26,067                          |  
|Weighted average restricted shares subject to repurchase    |  | (34                              | ) |  | (20                             | )
|                                                            |  |                                  |   |  |                                 |  
|Shares used to compute basic and diluted earnings per share |  | 33,114                           |   |  | 26,047                          |  
|                                                            |  |                                  |   |  |                                 |  



Note 5. Shares
Reserved for Future Issuance



Shares of
common stock reserved for future issuance is as follows (in thousands):



|                                                                            |  | September 30, 2002 |  | December 31, 2001
|--------------------------------------------------------------------------- |  | ------------------ |  | -----------------
|Shares issuable under stock options                                         |  | 13,705             |  | 5,051            
|Shares available for future grant under stock option plans                  |  | 10,928             |  | 4,174            
|Shares available for future issuance under the Employee Stock Purchase
Plan |  | 1,378              |  | 715              
|Shares issuable pursuant to warrants to purchase common stock               |  | 10,880             |  | 4,268            
|Shares issuable pursuant to convertible note payable                        |  | 16,711             |  |                 
|                                                                            |  |                    |  |                  
|                                                                            |  | 53,602             |  | 14,208           
|                                                                            |  |                    |  |                  



In June
2002, Viadors stockholders approved an increase to the total number of shares authorized for issuance under our 1999 Stock Incentive Plan by 10,000,000 shares to a total of 22,895,549 shares.



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(Unaudited)





Note 6. Restructuring
Expense and Impairment



In December 2000,
the Board of Directors approved a restructuring program designed to streamline Viadors business and to reduce costs, which resulted in the accrual of a restructuring expense of $693,000. During 2001, the Board of Directors approved
restructuring programs designed to further streamline Viadors business and to reduce costs, resulting in additional restructuring expense of $251,000. The following table depicts the activity for the restructuring accrual through September 30,
2002 (in thousands):



|                                                    |  | Severance |      |   | Rent |   |      | Total | 
|--------------------------------------------------- |  | --------- | ---- | - | ---- | - | ---- | ----- | 
|Restructuring accrual, December 31, 2000            |  | $         | 234  |   |      | $ | 459  |       | 
|Additions to restructuring accrual, April 2001      |  |           | 144  |   |      |   |     |       | 
|Additions to restructuring accrual, June 2001       |  |           | 73   |   |      |   |     |       | 
|Additions to restructuring accrual, September 2001  |  |           | 10   |   |      |   |     |       | 
|Additions to restructuring accrual, December 2001   |  |           | 24   |   |      |   |     |       | 
|Cash payments (January 2001 through December 2001)  |  |           | (462 | ) |      |   | (459 | )     | 
|Cash payments (January 2002 through September 2002) |  |           | (14  | ) |      |   |     |       | 
|Reverse restructuring accrual, June 2002            |  |           | (9   | ) |      |   |     |       | 
|                                                    |  |           |      |   |      |   |      |       | 
|Balance September 30, 2002                          |  | $         |     |   |      | $ |     |       | 
|                                                    |  |           |      |   |      |   |      |       | 



In June
2001, Viador terminated its corporate lease that was scheduled to expire in 2005 in order to reduce future operating expenses. As consideration for early termination, Viador surrendered its restricted lease deposit of $1.0 million and a significant
amount of office furniture, leasehold improvements and other assets associated with the corporate lease (with a net book value of approximately $1.8 million) to the landlord. In the nine months ended September 30, 2001, management decided to sell
certain equipment. In connection with this decision, Viador recognized a loss on equipment held for sale of $850,000. In June 2002, Viador reversed the remaining accrual balance of $9,000 because the restructuring plan was complete.



Note 7. Extraordinary Gain on Extinguishment of Debt



In the first quarter of 2002, Viador consummated workout
agreements with the majority of its creditors, representing approximately $1.8 million of its outstanding accounts payable, pursuant to which these creditors released Viador from any obligation to repay any such amounts in exchange for payment of
25% of the total debt Viador owed them as of September 30, 2001. Viador paid the creditors that were party to the workout agreements their respective agreed upon amounts aggregating approximately $467,000, resulting in the recognition of an
extraordinary gain on extinguishment of approximately $1.3 million.



In the second quarter of 2002, Viador recorded an extraordinary gain on extinguishment of debt to reflect settlement of an outstanding debt of $63,000 with a payment of $16,000. In connection with this settlement, Viador
also reversed into general and administrative expense a previously recorded accrual of $108,000 that was no longer deemed to be necessary. Separately, in April 2002, Viador settled with a vendor for 25% of an outstanding balance of $4,000 with a
payment of $1,000, which also resulted in an extraordinary gain. None of the creditors who have agreed to settle prior amounts payable are affiliated parties of Viador.



As of December 31, 2001, Viador had set aside $525,000 in restricted cash for the purpose of settling these
liabilities. As of September 30, 2002, $484,000 had been used to settle liabilities and $41,000 had been refunded to Viador. In the quarter ended September 30, 2002, two of Viadors trade creditors issued credits totaling $19,000 in settlement
of trade payables. Additionally, as of September 30, 2002, four trade creditors with balances totaling $128,000 have not accepted Viadors settlement offer. However, they are making no attempts to collect balances owing.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)





Note 8. Geographic,
Segment and Significant Customer Information



Viador has adopted SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 establishes standards for the manner in which public companies report information about operating
segments in annual and interim financial statements. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The method for determining what information to report is based on the way
management organizes the operating segments within Viador for the purposes of making operating decisions and assessing financial performance.





Viador markets products mainly from operations in North
America. International sales are primarily to customers in Europe and Asia Pacific. Revenue derived from sales to international customers as a percentage of total revenue was 7% and 8% for the three and nine months ended September 30, 2002, and in
2001 international revenue was 22% and 18% for the three and nine months ended September 30, 2001, respectively. During the three months ended September 30, 2001, revenue from customers in Japan represented 12% of total revenue and revenue from a
single customer in China represented 11% of total revenue. No country other than the United States represented 10% or more of total revenue in any other period presented.



Viadors chief operating decision-maker is considered to be the chief executive officer, or CEO. The CEO
reviews financial information presented on an entity level basis accompanied by disaggregated information about revenue by product type for purposes of making operating decisions and assessing financial performance. The entity level financial
information is identical to the information presented in the accompanying statements of operations. Therefore, Viador has determined that it operates in a single operating segment: Enterprise information portal systems.



Significant customer information is as follows:



|           |  | Percentage of Total Revenue      |   |  |                                 |  
|---------- |  | -------------------------------- | - |  | ------------------------------- | -
|           |  | Three Months Ended September 30, |   |  | Nine Months Ended September 30, |  
|           |  | 2002                             |   |  | 2001                            |  
|Customer A |  | 27                               | % |  | 26                              | %
|Customer B |  |                                 |   |  | 11                              | %

---

|* |  | Less than 10%
|- |  | -------------



Revenue aggregating 4% of total revenue for the nine months ended September 30, 2002 was generated from a customer who is also a
stockholder of Viador, and whose ownership percentage was under 1% as of September 30, 2002.



As of September 30, 2002 and December 31, 2001, all of Viadors long-lived assets were attributed to the United States.



Note 9. Litigation



Claims Settled



On May 10, 2002, attorneys for one of Viadors customers, CMS, sent a letter to Viador reporting that CMS had filed suit against
Viador in the United States District Court for the Eastern District of Virginia, Alexandria Division. According to the letter, the complaint alleges breach of contract and seeks monetary damages of approximately $281,000. On July 1, 2002, Viador
settled this dispute with CMS for the sum of $35,000 in exchange for which CMS dismissed all claims against Viador.



On May 16, 2002, Viador settled a dispute with a former customer, Society for Human Resources Management, Inc. SHRM. SHRM
alleged breach of contract and was seeking approximately $791,000 in monetary damages.



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(Unaudited)





The terms of the
settlement included a cash payment to SHRM in the amount of $50,000 and 526,315 shares of Common Stock with a market value of $100,000 on the date of issuance. We had previously accrued $100,000 related to this dispute.



On January 11, 2002, William Grinder, an individual, filed a
personal injury complaint for unspecified monetary damages in San Francisco County Superior Court alleging causes of action for negligence and negligent hiring against Viador and certain other named defendants. This suit was dismissed on August 9,
2002.



In the nine months ended September 30,
2002, Viador reversed a legal accrual of $108,000 as a result of the favorable resolution of a disputed claim with a vendor. This credit has been classified as an offset to general and administrative expense in the nine months ended September 30,
2002.



Pending Class Action Law Suit



On November 13, 2001, Viador and certain of
its current and former officers and directors (the Individual Defendants), together with the underwriters of its October 25, 1999 Initial Public Offering (IPO), were named as defendants in a class action complaint alleging
violations of the federal securities laws in the United States District Court, Southern District of New York. The Court appointed a lead plaintiff on April 15, 2002, and plaintiffs filed an Amended Class Action Complaint on April 19, 2002. The
essence of the complaint is that defendants issued and sold Viadors common stock pursuant to the IPO without disclosing to investors that certain underwriters of the IPO had solicited and received excessive and undisclosed commissions from
certain investors. The complaint also alleges that the Registration Statement for the IPO failed to disclose that the underwriters allocated Viador shares to customers in exchange for the customers promises to purchase additional shares in the
after-market at pre-determined prices above the offering price, thereby maintaining, distorting and/or inflating the market price for the shares in the after-market. The action seeks damages in an unspecified amount.



The lawsuit is part of the IPO Allocation Securities
Litigation pending in the United States District Court for the Southern District of New York. Approximately 310 companies and over 40 underwriters have been sued in actions alleging claims nearly identical to those alleged against Viador. The
cases are being coordinated for pre-trial purposes before the Hon. Schira Scheindlin. The IPO Allocation Securities Litigation is in its early stages. A motion to dismiss addressing issues common to the companies and individuals who have been sued
in these actions was filed on July 15, 2002. Discovery is stayed pending the outcome of motions to dismiss. This proceeding is at a very early stage and Viador is unable to predict its ultimate outcome. As the financial exposure is neither estimable
nor probable, no accrual has been made at this time.



The lawsuit has not reached the class certification stage, and a motion to dismiss the action against Viador as well as the over 300 other issuers sued in the actions relating to underwriter allocations is pending. At this time,
plaintiffs have not specified the amount of damages sought. The lawsuit makes only the following general statement regarding the relief sought: that the Court (1) declare the action to be a class action, appoint a Lead Plaintiff as representative of
the Class, and appoint counsel as class counsel; (2) award damages to the Plaintiff and the Class; (3) award prejudgment interest, post-judgment interest, and reasonable fees and other costs; and (4) award such other and further relief as the Court
may deem just and proper.



Viador intends
vigorously to defend the actions. Settlement discussions have proceeded with plaintiffs concerning a proposal that would not involve payments from Viadors funds, but would involve the assignment of claims to plaintiffs. A Memorandum of
Understanding is being drafted for consideration.



Other Pending Litigation



Viador is involved in lawsuits, claims, investigations and proceedings from time to time, including those identified above, consisting of matters which arise in the ordinary course of business. Any possible adverse outcome arising
from these matters, either individually or in the aggregate, is not expected to have a material adverse impact on the results of operations or financial position of Viador. However, Viadors evaluation of the likely impact of these pending
disputes could change in the future.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)





Note 10. MASBC Merger



On September 19, 2002 Viador announced that
it has entered into a merger agreement with MASBC, Inc. and MASBC Acquisition Corporation. The merger agreement contemplates that, at the closing, all outstanding shares of Viador will convert into a right to receive $0.075 in cash. As a result of
the merger, Viador will become a privately-held company, wholly-owned by MASBC, Inc. Accordingly, upon the closing, Viadors registration under the Securities Act of 1933, as amended, will terminate. The closing of the merger is subject to
various conditions, including stockholder approval.



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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Except for the historical financial information contained herein, the matters discussed in this quarterly report on Form 10-Q may be
considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended. Such statements include declarations regarding the intent,
beliefs or current expectations of Viador and our management. Such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties. Actual results could differ materially from those indicated by
such forward-looking statements. We undertake no obligation to publicly release the results of any revision to these forward-looking statements that may be made to reflect events or circumstances after the dates hereof or to reflect the occurrence
of unanticipated events. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: Viadors short operating history, which makes it difficult to predict
its future results of operations; the dependence of Viadors revenue upon its suite of products; Viadors history of operating losses and expected future losses, which could impede its ability to address the risks and difficulties
encountered by companies in new and rapidly evolving markets; Viadors future operating results could fluctuate, which may cause volatility or a decline in the price of Viadors stock.



Overview



We develop and market Internet software that enables businesses to create enterprise information portals for
both business-to-business, or B2B, and business-to-employee, or B2E, use. An enterprise information portal gives users a single browser-based interface with which to quickly and easily access information from a variety of enterprise data sources. We
believe the Viador E-Portal offers a comprehensive and integrated enterprise information portal that is specifically designed for the World Wide Web and works with a customers existing hardware and software systems, without the need for
additional technology expenditures. It provides our customers with the ability to manage, share and analyze information on a secure and cost-effective basis that can accommodate significant increases in the number of users and amount of information.
As more users contribute increasing amounts of information to the portal, we believe our customers are able to increase business productivity and efficiency.



We had net losses of approximately $24.5 million, $29.3 million, and $13.3 million for the years ended December 31, 2001, 2000 and 1999,
respectively. In addition, we had accumulated deficits of approximately $76.8 million and $52.3 million as of December 31, 2001 and 2000, respectively.



We were incorporated as Infospace Inc. in California in December 1995. In January 1999, we changed our name to Viador Inc., and we
subsequently reincorporated in the State of Delaware. In October 1999, we raised gross proceeds of $41.4 million through an initial public offering. Since our inception, we have developed web-based products designed to permit our customers to
search, analyze and deliver relevant information to users within and outside the enterprise. We delivered our first product, Web-Charts, in September 1996. Over the last three years, we introduced more sophisticated web products and a proprietary
web security server product. In the third quarter of 1999, we first shipped a fully integrated web-based product suite called the Viador E-Portal, which integrated our prior product offerings. In the fourth quarter of 1999, we introduced the
Business-to-Business E-Portal, a product and services offering designed to allow personalized communication and information exchange between businesses. In the second quarter of 2000, we introduced Viador Portlets, a technology for easily extending
the Viador E-Portal by adding tightly integrated modules for accessing additional data sources and applications. In the fourth quarter of 2000, we introduced Viador E-Portal Express, a portal user interface that set new standards for performance and
scalability.



We delivered significantly enhanced
products in the fourth quarter of 2001 as follows: In October 2001, we announced general availability of our E-Portal 6.4, a major advance that allows enterprises to rapidly deploy custom user interfaces based on open standards and point-and-click
design tools. In November 2001, we announced E-Portal 6.5, which complies with the Americans with Disabilities Act, based on World Wide Web Consortium, or W3C, standards for accessible compliance with the Web Accessibility Initiative, or WAI. We
began shipping this version in 2002.





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Historically,
we have focused our selling efforts in North America and derived a majority of our revenue from North America. However, we believe it is important to have an international presence and we intend to continue to conduct business in markets outside the
United States through a combination of subsidiaries and distributors. We conduct business internationally through a variety of distribution and service partners. In Europe we use distributors in the United Kingdom, Italy, Finland, Norway, Sweden,
Denmark, Italy, Greece, Israel and Russia. We have a direct sales agent responsible for Germany, France and Switzerland. In Asia, we use distributors in Japan, Korea, China, Hong Kong, Indonesia and Thailand. We cover Canada with a mix of North
American sales and support resources.



Recent Events



Internal Control Weakness



On January 13, 2003, our independent
auditors informed us that during the course of their review for the quarterly period ended September 30, 2002 they noted a matter involving internal control and its operation that they considered to be a material weakness under standards established
by the American Institute of Certified Public Accountants. The material weakness in internal controls relates to Viadors procedures for reviewing licenses and other arrangements and recording the resultant revenue in the appropriate periods.
Our auditors believe that our internal controls do not reduce to a relatively low level the risk that errors or fraud in amounts that would be material in relation to the financial statements may occur and not be detected within a timely period by
employees in the normal course of performing their assigned functions.



Debt Financing



On March 18, 2002, we received $1.0 million in financing through a private offering of debt securities and a conditional commitment to provide additional debt financing of up to $2.0 million upon request from Heungyeung Yeung, an
existing stockholder. The conditional commitment to provide $2.0 million in additional debt financing is subject to our meeting certain financial and business conditions and obligations under the notes and warrants issued in connection with the $1.0
million debt financing. Mr. Yeung has discretion in determining whether Viador meets the foregoing conditions and ultimately whether to provide any additional financing. We cannot assure you that these funds will be available to us. For more
information regarding this debt financing, see Note 3 of the Notes to Condensed Consolidated Financial Statements.



Renegotiation with Creditors



On December 11, 2001, we entered into a workout agreement with certain of our creditors representing approximately $1.9 million of our
outstanding accounts payables which was completed in early February 2002. Under the workout agreement, these creditors agreed to release us from any obligation to repay any such amounts in exchange for payment of 25% of the total debt we owed them
as of September 30, 2001. On February 8, 2002, we paid the creditors that were party to the workout agreement their respective agreed upon amounts aggregating approximately $0.5 million. A few additional creditors accepted similar debt reduction
agreements in the two quarters since then.



In
the first quarter of 2002, Viador consummated workout agreements with certain of its creditors representing approximately $1.9 million of its outstanding accounts payable. Under the workout agreement, these creditors agreed to release us from any
obligation to repay such amounts in exchange for payment of 25% of the total debt the company owed them as of September 30, 2001, which aggregated approximately $467,000, resulting in the recognition of an extraordinary gain on extinguishment of
debt of $1.3 million. In the third quarter of 2002, Viador recorded an additional extraordinary gain on extinguishments of debt of $19,000 to reflect settlement of two additional vendor credits received in the quarter. For more information regarding
the workout agreement, see Note 7 of the Notes to Unaudited Condensed Consolidated Financial Statements for the period ended September 30, 2002.



Claims Settled



On May 10, 2002, attorneys for one of Viadors customers, CMS, sent a letter to Viador reporting that CMS had filed suit against
Viador in the United States District Court for the Eastern District of Virginia, Alexandria Division. According to the letter, the complaint alleges breach of contract and seeks monetary damages of approximately



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$281,000. On July 1, 2002
Viador settled this dispute with CMS for the sum of $35,000 in exchange for which CMS dismissed all claims against Viador.



On May 16, 2002, Viador settled a dispute with a former customer, Society for Human Resources Management, Inc. SHRM. SHRM
alleged breach of contract and was seeking approximately $791,000 in monetary damages. The terms of the settlement included a cash payment to SHRM in the amount of $50,000 and 526,315 shares of Common Stock with a market value of $100,000 on the
date of issuance. We had previously accrued $100,000 related to this dispute.



On January 11, 2002, William Grinder, an individual, filed a personal injury complaint for unspecified monetary damages in San Francisco County Superior Court alleging causes of action for negligence
and negligent hiring against Viador and certain other named defendants. This suit was dismissed on August 9, 2002.



Class Action Law Suit



On November 13, 2001, Viador and certain of its current and former officers and directors (the Individual Defendants),
together with the underwriters of its October 25, 1999 Initial Public Offering (IPO), were named as defendants in a class action complaint alleging violations of the federal securities laws in the United States District Court, Southern
District of New York. The Court appointed a lead plaintiff on April 15, 2002, and plaintiffs filed an Amended Class Action Complaint on April 19, 2002. The essence of the complaint is that defendants issued and sold Viadors common stock
pursuant to the IPO without disclosing to investors that certain underwriters of the IPO had solicited and received excessive and undisclosed commissions from certain investors. The complaint also alleges that the Registration Statement for the IPO
failed to disclose that the underwriters allocated Viador shares to customers in exchange for the customers promises to purchase additional shares in the after-market at pre-determined prices above the offering price, thereby maintaining,
distorting and/or inflating the market price for the shares in the after-market. The action seeks damages in an unspecified amount.



The lawsuit is part of the IPO Allocation Securities Litigation pending in the United States District Court for the Southern
District of New York. Approximately 310 companies and over 40 underwriters have been sued in actions alleging claims nearly identical to those alleged against Viador. The cases are being coordinated for pre-trial purposes before the Hon. Schira
Scheindlin. The IPO Allocation Securities Litigation is in its early stages. A motion to dismiss addressing issues common to the companies and individuals who have been sued in these actions was filed on July 15, 2002. Discovery is stayed pending
the outcome of motions to dismiss. This proceeding is at a very early stage and Viador is unable to predict its ultimate outcome As the financial exposure is neither estimable nor probable, no accrual has been made at this time. In November, Viador
received a letter from its D&O insurance carrier, confirming that insurance coverage would apply, that resolution of financial risk for the company remained uncertain and would, in the opinion of the insurance carrier, in all cases be secondary
to the financial risk and responsibilities attributable to the IPO underwriters.



The lawsuit has not reached the class certification stage, and a motion to dismiss the action against Viador as well as the over 300 other issuers sued in the actions relating to underwriter
allocations is pending. At this time, plaintiffs have not specified the amount of damages sought. The lawsuit makes only the following general statement regarding the relief sought: that the Court (1) declare the action to be a class action, appoint
a Lead Plaintiff as representative of the Class, and appoint counsel as class counsel; (2) award damages to the Plaintiff and the Class; (3) award prejudgment interest, post-judgment interest, and reasonable fees and other costs; and (4) award such
other and further relief as the Court may deem just and proper.



Viador intends vigorously to defend the actions. Settlement discussions have proceeded with plaintiffs concerning a proposal that would not involve payments from Viadors funds, but would involve the assignment of claims to
plaintiffs. A Memorandum of Understanding is being drafted for consideration.



Other Pending Litigation



Viador is involved in lawsuits, claims, investigations and proceedings from time to time, including those identified above, consisting of matters which arise in the ordinary course of business.



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NASDAQ
Notice of Noncompliance and Delisting



Effective on October 31, 2001 our securities were delisted from the National Market tier of the Nasdaq Stock Market because of our failure to comply with the minimum bid price, net tangible assets and stockholders equity,
market capitalization, total assets, total revenue, and stockholder approval and audit committee composition requirements. Upon de-listing of our common stock from the National Market tier of the Nasdaq Stock Market, our shares of common stock began
trading on the Over-the-Counter Bulletin Board. As of December 31, 2002, our stock was no longer trading on the Over-the-Counter Bulletin Board and is presently being quoted on the Pink Sheets Electronic Quotation Service maintained by the National
Quotation Bureau, Inc.



MASBC Merger



On September 19, 2002, Viador announced
that it has entered into a merger agreement with MASBC, Inc. and MASBC Acquisition Corporation. The merger agreement contemplates that, at the closing, all outstanding shares of Viador will convert into a right to receive $0.075 in cash. As a result
of the merger, Viador will become a privately-held company, wholly-owned by MASBC, Inc. Accordingly, upon the closing, Viadors registration under the Securities Act of 1933, as amended, will terminate. The closing of the merger is subject to
various conditions, including stockholder approval.



Private Financing



On
July 6, 2001, we raised $500,000 in financing through a private offering of convertible debt securities and warrants. On August 13, 2001, we raised $3.8 million in financing through a private offering of our common stock and warrants. On March 18,
2002, we received $1.0 million in financing through a private offering of convertible debt securities and warrants. For further information regarding these offerings, see Managements Discussion and Analysis of Financial Condition and
Results of OperationsLiquidity and Capital Resources.



Management Changes



On August 13, 2001, Stan Wang was appointed president of Viador. On September 21, 2001, Dick Warmington resigned as Viadors interim chief executive officer and Stan Wang was appointed chief executive officer. Dick Warmington
continues to serve as a member of Viadors board of directors and its audit committee.



On July 6, 2002, Stan Wang was appointed as principal financial and accounting officer and secretary. Nate Cammack resigned as chief financial officer and secretary on July 6, 2002.



On August 7, 2002, Teddy Kiang resigned as director of Viador,
and the board of directors appointed Yifeng Yang to serve as a member of the board of directors and fill the vacancy resulting from Mr. Kiangs resignation.



On October 8, 2001, Tek-min Gan joined us as senior director of United States sales. Mr. Tek-min Gan resigned
his position with us effective January 28, 2002.



Restructuring



During the
second half of 2000 and continuing through 2001, adverse economic conditions reduced demand for our software products in general and impaired our revenue growth. In addition, we believe concerns regarding our financial viability adversely impacted
our revenue growth. In response to these conditions, we decided to streamline our operations and reduce our expenditure levels. In furtherance of these objectives, on January 5, 2001, we reduced our workforce in the United States by 87 positions, or
36% of our workforce, and aggressively cut other costs. After April 6, 2001, we also restructured our business to focus on three distribution models: e-government with systems integrators, partnerships with Original Equipment Manufacturers, or OEMs,
and independent resellers. As a result of the new focus and an ongoing effort to reduce costs and preserve cash, we reduced our workforce further by 55 positions out of the remaining 151 positions, or 37% of our workforce in the United States. The
reductions were made in functional areas that did not align with the streamlined distribution model, primarily in direct sales and marketing with further reductions in our consulting organization. On June 29, 2001, we announced that a future layoff
of approximately 10 people or 14% of our then current workforce would occur to further reduce costs. By September 17, 2001, we had further reduced our workforce in the United States by 21 positions, or 36% of our remaining workforce in the United
States. At September 30, 2002, our workforce totaled 26 employees. It is possible that we will have further workforce and cost reductions in the future. During one of our 2001 restructurings, we terminated our corporate lease with Alza Corporation
on June 30, 2001, and entered into a new corporate lease agreement for our current office. As consideration for early termination, we surrendered our restricted lease deposit of $1.0 million and a significant amount of our office furniture,
leasehold improvements and other assets related to the corporate lease (with a net book value of approximately $1.8 million) to the landlord.



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Effect of
Economic Conditions



In the first half of
2000, a significant portion of our customers were newly funded start-up companies and internet-related companies that moved rapidly in their buying and installation decisions, resulting in. rapidly increasing revenue during the first nine months of
2000. Beginning in the fourth quarter of 2000 and continuing into 2001, our customer mix returned to more conservative large enterprise customers that characterized pre-2000 revenue. Buyers for these larger companies had longer decision and
installation cycles, and as well, were scaling back their information technology budgets for capital expenditures. The economic environment of 2001 exacerbated this situation. Viador implemented a series of restructurings starting in the second half
of 2000 and throughout 2001. By the summer of 2002, our direct sales force was reduced to three employees and our consulting staff was reduced to eight engineers. These reductions further impacted our ability to generate new revenue. Additionally,
potential new customers have questioned our viability as a going concern because our stock price and cash balances have decreased throughout the 2000 and 2001. The tragic events of September 11, 2001 had pervasive negative effects across our markets
and generally further slowed purchasing activity. All of these factors lengthened the sales cycle starting in mid-2000 and reduced the overall demand for our product.



Critical Accounting Policies



Our critical accounting policies are as follows:



| |  |  | revenue recognition;
| | - |  | --------------------



| |  |  | estimating allowance for doubtful accounts;
| | - |  | -------------------------------------------



| |  |  | assessing outcome of litigation; and
| | - |  | ------------------------------------



| |  |  | impairment of long-lived and intangible assets and goodwill.
| | - |  | ------------------------------------------------------------



Revenue Recognition



We license our software products to end user customers, OEMs and VARs. Software license revenue from sales to end users is generally
recognized upon receipt of a signed contract or purchase order and delivery of the software, provided the related fee is fixed and determinable and collectibility of the fee is probable and vendor-specific objective evidence for all undelivered
elements has been established. We have vendor-specific objective evidence for consulting services is established by the price we charge when we sell those services separately. We also have vendor-specific objective evidence of fair value of
post-contract customer support based on contractually stipulated annual renewal rates for such services. Accordingly, license revenue is recorded under the residual method described in SOP 98-9 for arrangements in which licenses are sold with
consulting services, post-contract customer support or both. However, the entire fee related to arrangements that require us to deliver specified additional features or upgrades is deferred until delivery of the feature and/or upgrade has occurred,
unless we have sufficient vendor-specific objective evidence of fair value to allocate revenue to the various elements in these arrangements. Fees related to arrangements that require us to deliver unspecified additional products are deferred and
recognized ratably over the term of the contract. All of the contract software revenue related to arrangements involving consulting services that are essential to the functionality of the software at the customer site is deferred and recognized as
the services are performed. Our sales transactions are often concentrated in a relatively few customers.



Estimating Allowance for Doubtful Accounts



We perform ongoing credit evaluations of our customers financial condition and generally do not require
collateral. We maintain allowances for potential credit losses, and these allowances are based on estimates by management. If the estimates of credit risk are understated, we could be exposed to significant amounts of bad debts in excess of our
provisions.



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Assessing
Outcome of Litigation



Managements
current estimated liability related to certain pending litigation is based on claims for which our management believes it is probable a liability has been incurred and can estimate the amount or range of loss. We have recorded the minimum estimated
liability related to those claims, where there is a range of loss. Because of the uncertainties related to both the amount and range of loss on the remaining pending litigation, management is unable to make a reasonable estimate of the liability
that could result from an unfavorable outcome and therefore, no liability has been accrued. As additional information becomes available, we will assess the potential liability related to our pending litigation and revise our estimates. Such
revisions in our estimates of the potential liability could materially impact our results of operation and financial position.



Impairment of Long-lived and Intangible Assets



We evaluate its long-lived assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying
amount of the assets or estimated fair value less costs to sell. A number of factors can trigger an impairment review, such as significant underperformance relative to historical or projected future operating results, significant changes in the
manner of use of the acquired assets or the strategy for our overall business, or significant negative industry or economic trends. The effect of such valuation adjustments can significantly affect our financial performance and market valuation. If
we fail to identify assets that have been impaired, we may fail to record an impairment or we may fail to record and impairment in the proper period. If we fail to accurately estimate fair value, any impairment loss that we record may not be
accurate.



Recent Accounting Pronouncements



In August 2001, the FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations.SFAS No. 143 requires that the fair value of an asset retirement obligation be recorded as a liability in the period in which it is incurred. SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002. Viador expects to adopt SFAS No. 143 effective January 1, 2003. The adoption of Statement 143 is not expected to have a material effect on our consolidated financial position or results of operations.



In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145 rescinds SFAS No. 4, which required all gains and losses from extinguishment of debt to be aggregated
and, if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria in APB Opinion No. 30 will now be used to classify those gains and losses. SFAS No. 64 amended SFAS No. 4, and is no longer necessary
because SFAS No. 4 has been rescinded. SFAS No. 44 was issued to establish accounting requirements for the effects of transition to the provisions of the Motor Carrier Act of 1980. Because the transition has been completed, SFAS No. 44 is no longer
necessary. SFAS No. 145 amends SFAS No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions.



As a result of the rescission of SAS No. 4, gain or loss on
extinguishment of debt that was classified as an extraordinary item in prior periods presented that does not meet the criteria in APB Opinion No. 30 for classification as an extraordinary item will be reclassified. Viador expects to adopt this
provision of SFAS No. 145 effective with its fiscal year beginning January 1, 2003, at which time it expects to reclassify its gain associated with extinguishment of debt out of extraordinary items into other income and expense. Viador does not
anticipate the remaining provisions of this statement will have a material effect on its consolidated financial position or results of operations.



In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which
nullifies Emerging Issues Task Force (EITF) Issue No. 94-3 Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred and states that an entitys commitment to an exit plan, by itself, does not



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create a present obligation that meets the definition of a liability. SFAS No. 146 also establishes that
fair value is the objective for initial measurement of the liability.



The provisions of SFAS No. 146 are effective for exit or disposal activities initiated after December 31, 2002. Viador does not expect the adoption of SFAS No. 146 to have a material effect on its consolidated financial
position or results of operations.



In November
2002, the FASB issued Interpretation (FIN) No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN No. 45 requires companies to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. Guarantees in existence at December 31, 2002 are grand-fathered for the purposes of recognition and would only need to be disclosed.
Viador plans to adopt the initial recognition and measurement provisions of FIN No. 45 for guarantees issued or modified after December 31, 2002. Viador has no such guarantees in place and thus anticipates no impact of this change.



In December 2002, the FASB issued SFAS No. 148,
Accounting for Stock-Based CompensationTransition and Disclosure. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure requirements of SFAS No. 123 to require additional disclosure in both annual and interim financial statements on the
method of accounting for stock-based employee compensation. Viador plans to adopt the disclosure provisions of SFAS No. 148 in the first quarter of fiscal 2003. The company anticipates no impact on current or future operations plans from this
change.



Fluctuations in Operating Results



We expect to experience significant fluctuations in our
future results of operations due to a variety of factors, many of which are outside of our control, including:



| |  |  | demand for and market acceptance of our products and services;
| | - |  | --------------------------------------------------------------



| |  |  | our presence in international markets;
| | - |  | --------------------------------------



| |  |  | introductions of new products and services or enhancements by us and our competitors;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | competitive factors that affect our pricing;
| | - |  | --------------------------------------------



| |  |  | the size and timing of customer orders;
| | - |  | ---------------------------------------



| |  |  | hiring and retention of key personnel;
| | - |  | --------------------------------------



| |  |  | the mix of products and services we sell;
| | - |  | -----------------------------------------



| |  |  | the timing and magnitude of our capital expenditures; and
| | - |  | ---------------------------------------------------------



| |  |  | conditions specific to the enterprise information portal market and other general economic factors.
| | - |  | ---------------------------------------------------------------------------------------------------



Consequently, we believe that period-to-period comparisons of
our operating results are not necessarily meaningful and that such comparisons cannot be relied upon as indicators of future performance.



For the three months ended September 30, we had net loss of $390,000 in 2002 and a net loss of $4.1 million in 2001. For the nine months
ended September 30, we had net income of $363,000 in 2002 and a net loss of $24.7 million in 2001. For the years ended December 31, we had net losses of approximately $24.5 million in 2001, $29.3 million in 2000, and $13.3 million in 1999. As of
September 30, 2002, our accumulated deficit was $76.4 million.



Segment Presentation



We
manage and evaluate the performance of our business through a single operating segment: Enterprise information portals.



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RESULTS OF
OPERATIONSTHREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001



The following table sets forth certain statement of operations data as a percentage of total revenue for the periods indicated:



|                                                                        |  | Three Months Ended September 30, |    |  | Nine Months Ended September 30, |   
|----------------------------------------------------------------------- |  | -------------------------------- | -- |  | ------------------------------- | --
|                                                                        |  | 2002                             |    |  | 2001                            |   
|Revenue:                                                                |  |                                  |    |  |                                 |   
|License                                                                 |  | 38                               | %  |  | 39                              | % 
|Service                                                                 |  | 62                               |    |  | 61                              |   
|                                                                        |  |                                  |    |  |                                 |   
|Total revenue                                                           |  | 100                              |    |  | 100                             |   
|                                                                        |  |                                  |    |  |                                 |   
|Cost of revenue:                                                        |  |                                  |    |  |                                 |   
|Cost of license revenue, including amortization of capitalized software |  | 7                                |    |  | 7                               |   
|Cost of service revenue                                                 |  | 36                               |    |  | 30                              |   
|                                                                        |  |                                  |    |  |                                 |   
|Total cost of revenue                                                   |  | 43                               |    |  | 37                              |   
|                                                                        |  |                                  |    |  |                                 |   
|Gross profit                                                            |  | 57                               |    |  | 63                              |   
|                                                                        |  |                                  |    |  |                                 |   
|Operating expenses:                                                     |  |                                  |    |  |                                 |   
|Sales and marketing                                                     |  | 25                               |    |  | 140                             |   
|Research and development                                                |  | 36                               |    |  | 48                              |   
|General and administrative                                              |  | 23                               |    |  | 98                              |   
|Amortization of stock-based compensation                                |  | (7)                              |    |  | 4                               |   
|Amortization of goodwill                                                |  |                                 |    |  |                                |   
|Impairment lossgoodwill                                                |  |                                 |    |  |                                |   
|Impairment lossintangible assets                                       |  | 9                                |    |  |                                |   
|Restructuring expense                                                   |  |                                 |    |  |                                |   
|Loss on lease termination                                               |  |                                 |    |  |                                |   
|Impairment lossequipment held for sale                                 |  |                                 |    |  | 21                              |   
|Loss on sale of assets                                                  |  |                                 |    |  | 13                              |   
|                                                                        |  |                                  |    |  |                                 |   
|Total operating expenses                                                |  | 86                               |    |  | 324                             |   
|                                                                        |  |                                  |    |  |                                 |   
|Operating loss                                                          |  | (29)                             |    |  | (261)                           |   
|Non-cash interest expense                                               |  | (12)                             |    |  | (36)                            |   
|Other income and expense, net                                           |  |                                 |    |  | 6                               |   
|                                                                        |  |                                  |    |  |                                 |   
|Net loss before income taxes and extraordinary item                     |  | (41)                             |    |  | (291)                           |   
|Extraordinary gain on extinguishment of debt                            |  | 2                                |    |  |                                |   
|Provision for income taxes                                              |  |                                 |    |  |                                |   
|                                                                        |  |                                  |    |  |                                 |   
|Net income (loss)                                                       |  | (39                              | )% |  | (291                            | )%
|                                                                        |  |                                  |    |  |                                 |   



Revenue



Viador follows the revenue recognition
principles described in Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended by SOP 98-9. For more information on our revenue recognition policy, refer to Critical Accounting PoliciesRevenue
Recognition.



Total Revenue.
Total revenue decreased by 29% to approximately $1.0 million for the three months ended September 30, 2002 from approximately $1.4 million for the three months ended September 30, 2001. Total revenue decreased by 55% to approximately $3.5 million
for the nine months ended September 30, 2002 from approximately $7.7 million for the nine months ended September 30, 2001. For the three and nine months ended September 30, 2002, license revenue accounted for 38% and 38%, respectively, of total
revenue and service revenue accounted for 62% and 62%, respectively, of total revenue. The decrease in total revenue in the three and nine months ended September 30, 2002 compared to the same periods of 2001 was primarily due to reductions in
license revenue resulting from decreased demand for our products and also, a reduction in service revenue associated with reduced demand for our consulting services. The percentage shift toward service revenue is due to lower mix of new



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customer license revenue caused both by the generally poor economic climate and our financial condition
versus the continuing demand from existing customers for customization of their licensed portal products.



License Revenue.License revenue decreased by 30% to approximately $383,000 for the three months ended September 30, 2002 from
approximately $551,000 for the three months ended September 30, 2001. License revenue decreased by 66% to approximately $1.4 million for the nine months ended September 30, 2002 from approximately $4.1 million for the nine months ended September 30,
2001. The decrease in license revenue is due primarily to a reduction in software purchases attributable to general adverse economic conditions and customer concerns regarding our viability.



Service Revenue. Service revenue decreased by 28% to
approximately $618,000 for the three months ended September 30, 2002 from approximately $855,000 for the three months ended September 30, 2001. Service revenue decreased by 39% to approximately $2.2 million for the nine months ended September 30,
2002 from approximately $3.6 million for the nine months ended September 30, 2001. Approximately two-thirds of the decrease for both the three- and nine-month periods is due to lower maintenance and support revenue as the number of maintenance
contracts decreased from the same periods in the prior year. For the three-month period, substantially all of the remainder of the decrease is due to lower training revenue. For the nine-month period, lower training revenue and lower consulting
revenue each accounted for approximately half of the remaining decrease.



Channel Mix. We distribute our products directly through a direct sales force and indirectly through OEMs, VARs and systems integrators. Indirect channel revenue increased as a percent of total revenue to 44% in the
third quarter of 2002 and 39% in the first nine months of 2002, from 12% in the third quarter of 2001 and 21% in the first nine months of 2001. Indirect channel revenue increased as a percentage of total revenue in the first nine months of 2002
compared to the same period of the prior year because of our shift to an increased use of resellers as our direct sales force has been further reduced during the adverse economic conditions, which continued to worsen during 2002 In general, the
distribution of revenue among channels will fluctuate in future periods depending on the timing of new product releases, our ability to expand our use of OEMs and VARs, the timing of direct sales to large customer accounts and customer
buying patterns.



Customer Concentration.
Customer orders during a particular quarter typically vary considerably in size, from as low as several thousand dollars to over $500,000. One customer accounted for approximately 27% of recognized revenue for the quarter ended September 30, 2002,
and 23% for the nine months ended September 30, 2002. Because of the large size of some individual customer orders relative to total orders during a quarter, our revenue may fluctuate significantly from one quarter to the next. If a customer who
places a large order cancels or reduces the order, or if we are unable to fulfill the order in a timely fashion or are otherwise unable to recognize revenue for the order in the quarter in which it is anticipated, it could result in increased
volatility in our revenue.



Geographic Mix.International revenue (sales outside of the United States) decreased as a percent of total revenue to 7% in the third quarter and 8% in the first nine months of 2002, from 22% in the third quarter and 18% in the first nine months of 2001.
International revenue for the three and nine months ended September 30, 2002 decreased in absolute dollars from the similar period in the prior year, because of the reductions in Europe direct employee staffing. In addition, a sale representing 11%
of total revenue was made to a customer in China in the third quarter of 2001. There was no similar sale in 2002. We plan to continue to pursue international markets by partnering with OEMs, VARs and distributors throughout the world. International
revenue may fluctuate in future periods as a result of competition, the general demand for Internet- and intranet-related products in international markets, and general economic conditions of the regions. See Risk Factors that May Affect
Future Results.



Deferred
Revenue. Deferred revenue primarily consists of the unrecognized portion of license and service revenue received pursuant to support contracts, consulting and prepaid license royalties. Deferred revenue was approximately $2.9 million as of
September 30, 2002 and $2.6 million as of December 31, 2001.



Cost of revenue



Cost of
license revenue consists primarily of royalties paid to third parties for integrated technology and amortization of capitalized software development costs. Cost of service revenue includes salaries and related expenses for providing consulting
services, customer support, implementation and training services organizations,



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and costs of contracting with third parties that provide services to customers and an allocation of our
facilities, communications and depreciation expenses.



Cost of revenue decreased by 17% to $429,000 for the three months ended September 30, 2002 from approximately $515,000 for the three months ended September 30, 2001. Cost of revenue increased to 43% of total revenue for the three
months ended September 30, 2002 from 37% for the three months ended September 30, 2001. Cost of revenue decreased by 83% to $1.1 million for the nine months ended September 30, 2002 from approximately $6.5 million for the nine months ended September
30, 2001. Cost of revenue decreased to 31% of total revenue for the nine months ended September 30, 2002, from 84% for the nine months ended September 30, 2001. For the nine months ended September 30, 2002. the decrease in cost of revenue resulted
primarily from the elimination of $3.6 million of capitalized software amortization as the costs were fully amortized in 2001. The remainder of the decrease in dollars is due to the decline in service revenue. Amortization of capitalized software
costs was accelerated in the second quarter of 2001 as our projection of any future revenue from underlying product sales was deemed to be uncertain for purposes of evaluating recoverability.



Gross profit for the three and nine months ended September 30,
2002 was 57% and 69% of total revenue compared to 63% and 16% of total revenue for the three and nine months ended September 30, 2001. The decrease for the three-month period is primarily due to lower revenue partially offset by the elimination of
$103,000 of amortization of capitalized software costs as the costs were fully amortized in 2001. The increase for the nine-month period is due to lower costs, primarily the elimination of $3.6 million of amortization of capitalized software costs
as well as lower payroll and overhead costs as a result of our restructuring efforts in 2001, partially offset by a 54% reduction in revenue. We cannot predict if our restructuring and cost control efforts will continue to be effective in the future
because of our inability to predict economic conditions and the competitive environment. See Risk Factors that May Affect Future Results.



Operating Expenses



The majority of our operating expenses are classified into four general categories: sales and marketing, research and development, general
and administrative, and amortization of stock-based compensation. We classify all charges to these operating expense categories based on the nature of the expenditures. Although each category includes expenses that are category specific, each
category also includes expenses that may be common to the other categories, such as salaries, employee benefits, bonuses, travel and entertainment costs, telephone expenses, rent, facilities costs and third-party professional service fees. The sales
and marketing category of operating expenses includes sales commissions, public relations and advertising, trade shows, marketing collateral materials and web seminars. We allocate the total costs for overhead and facilities to each of the
functional areas that use the overhead and facilities services based on their estimated usage as measured primarily by employee headcount. These allocated charges include facility rent and utilities for the corporate office and depreciation expense
for office furniture and equipment.



Viadors total operating expenses for the three months ended September 30, 2002 were approximately $861,000 or 86% of total revenue, compared to approximately $4.6 million or 325% of total revenue for the three months ended
September 30, 2001. Our total operating expenses for the nine months ended September 30, 2002 were approximately $3.2 million or 90% of total revenue, compared to approximately $25.6 million or 333% of total revenue for the nine months ended
September 30, 2001. The decrease in operating expenses in absolute dollars for the three and nine months ended September 30, 2002 compared to the corresponding earlier year resulted from our efforts to streamline our operations and reduce our
expenditure levels through restructuring. In connection with our restructurings during 2001, we reduced our headcount significantly and aggressively cut other costs, including costs associated with our office lease. While it is possible that we will
have further cost reductions in the future, no such reductions are currently planned. See Risk Factors that May Affect Future Results.



Sales and Marketing



Sales and marketing expenses consist of operating expenses associated with Viadors sales, marketing, international and other business development
efforts, as well as bad debt expense. Sales and marketing expenses for the three months ended September 30, 2002 were $254,000 or 25% of total revenue, compared to $2.0 million, or 140% of total revenue, in the same period of the prior year. Sales
and marketing expenses for the nine months ended September 30, 2002 were approximately $797,000 or 23% of total revenue, compared to $11.2 million, or 145% of



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total revenue, in the same period of the prior year. Sales and marketing expenses decreased in absolute
dollars for the three and nine months ended September 30, 2002 as compared to the same periods in 2001 due to a reduction in bad debt expense of approximately $760,000 for the three month period and approximately $3.3 million for the nine month
period. The remainder of the decrease was primarily due to reduced salaries and related expenses resulting from decreased staffing associated with restructurings in December 2000 and April, June, September and December 2001. Our bad debt expense was
significantly higher in the 2001 periods as business conditions for many of our customers, which began to deteriorate in the second half of 2000, continued to decline in 2001.



During the first half of 2000, the internet industry experienced rapid growth, resulting in a significant
increase in our customer base, with much of this growth coming from recently funded emerging internet companies. We regularly evaluated the collectibility of each receivable, and as these companies started to decline in the second half of 2000, and
continuing into 2001, we experienced a significant increase in our bad debt expense and write-offs of accounts receivable. As a result, bad debt expense was approximately $760,000 in the three month period ended September 30, 2001 and $3.3 million
in the nine month period ended September 30, 2001. During the later half of 2001 and continuing into 2002, we focused on larger, more established customers. Bad debt expense was not significant in either the three or nine month periods ended
September 30, 2002, and we anticipate that reserves and write-offs for uncollectible accounts will continue to be significantly lower than the 2001 levels in future periods.



We believe that sales and marketing expenses are likely to remain relatively constant or increase in absolute
dollars in the near term as we do not currently anticipate further cost containment measures. However, these projections can change should economic and market conditions require alternative actions. See Risk Factors that May Affect Future
Results.



Research and Development



Research and development expenses consist of
operating expenses associated with software development. Research and development expense decreased by 47% to $355,000 or 35% of total revenue in the third quarter of 2002 as compared to $671,000 or 48% of total revenue for the same period in 2001.
Research and development expense decreased by 68% to approximately $1.4 million or 39% of total revenue in the first nine months of 2002 as compared to $4.4 million or 57% of total revenue for the same period in 2001. The decrease in research and
development expenses was principally due to lower headcount-related expenses for both employees and outside consultants resulting from our restructuring efforts in late 2000 and throughout 2001. We believe that research and development expenses are
likely to remain relatively constant or increase slightly in absolute dollars in the near term as we do not currently anticipate further cost containment measures. However, these projections can change should economic and market conditions require
alternative actions. See Risk Factors that May Affect Future Results.



General and Administrative



General and administrative expenses for all years presented consist primarily of compensation and fees for professional services. General and administrative expenses for the three months ended
September 30, 2002 and 2001 were $228,000 or 23% of total revenue in 2002, and $1.4 million or 98% of total revenue in 2001. General and administrative expenses for the nine months ended September 30, 2002 and 2001 were approximately $905,000 or 26%
of total revenue in 2002, and $4.4 million or 57% of total revenue in 2001. General and administrative expense decreased primarily due to decreased staffing associated with the announced restructurings in December 2000 and April, June, September and
December 2001. In addition, general and administrative expense decreased in the third quarter of 2002 as compared to the second quarter of 2002 in part due to a reversal of $108,000 in accrued litigation expense as a result of a settlement. See
Notes 7 and 9 of Notes to Condensed Consolidated Financial Statements. We believe that general and administrative expenses are likely to remain relatively constant or increase slightly in absolute dollars in the near term as we do not currently
anticipate further cost containment measures. However, these projections can change should economic and market conditions require alternative actions. See Risk Factors that May Affect Future Results.



Amortization of Stock-based Compensation



Amortization of stock-based compensation primarily consists of
charges incurred for employee stock options issued with exercise prices less than the fair market value of our stock at the date of grant. Amortization of stock-based compensation for the three months ended September 30, 2002 and 2001 was ($66,000)
and $53,000,



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respectively. Amortization of stock-based compensation for the nine months ended September 30, 2002 and
2001 was $17,000 and ($118,000), respectively. In the third quarter of 2002 and the nine months ended September 30, 2001, a credit to the income statement was recorded as the result of a reversal of accelerated compensation expense previously
recognized related to terminated employees. We amortize deferred compensation on an accelerated method as allowed under FASB Interpretation No. 28. During the third quarter of 2002, we incurred obligations to grant options to purchase 326,000 shares
of our common stock to certain key advisors, resulting in a $11,000 charge in our financial statements for the three months ended September 30, 2002. If our stock price increases the accounting for these stock-based awards will impact our operating
results in the periods over which these options vest. See Risk Factors that May Affect Future Results.



Amortization of Goodwill and Impairment LossGoodwill



Amortization of goodwill was attributable to the acquisition of a distributor in Switzerland in January 2000
and is based on the straight-line method over the expected period to be benefited, which was five years. At December 31, 2000, we performed an impairment evaluation of goodwill. The evaluation was based on current year activities and projected cash
flows as compared to the carrying value of goodwill. Our evaluation indicated that the December 31, 2000 balance of $1.7 million was recoverable. At June 30, 2001, we performed a further evaluation of goodwill to determine whether it was
recoverable. The evaluation was based on the current years activities and projected cash flows as compared to the carrying value of goodwill. This evaluation indicated that the $1.4 million of goodwill remaining unamortized was impaired as
actual revenue for the acquired company was significantly below projected revenue and key management personnel terminated employment with the subsidiary located in Switzerland. Consequently, we recorded an impairment charge for the entire remaining
unamortized balance in the second quarter of 2001 As the goodwill charges have been fully amortized as of December 31, 2001, there were no charges for goodwill in 2002.



Impairment LossIntangible Assets



Due to a significant decline in operating results of our European Operations during the period ended
September 30, 2002, we performed an evaluation of our European trademark with a net book value of approximately $90,000 to determine whether it was impaired. The evaluation was based on the current years activities in Europe and projected cash
flows. This evaluation indicated that the $90,000 of intangible asset remaining unamortized was impaired as Europe operations would be unprofitable over the remaining periods of amortization. Consequently, we recorded an impairment charge for the
entire remaining unamortized balance in the third quarter of 2002.



Restructuring Expense, Impairment Loss and Loss on Lease Termination



In April and June 2001, we implemented Board-approved restructuring programs to streamline our business and to reduce costs, which
resulted in a restructuring expense of approximately $217,000 for severance charges associated with reductions in our United States workforce (55 positions in April and approximately 10 positions later in the year). As of June 30, 2002, we reversed
the remaining accrual balance of $9,000 because the restructuring was complete and no further expenditures are anticipated.



In June 2001, we terminated our corporate lease with Alza Corporation, which was scheduled to expire in 2005 in order to reduce future
operating expenses. As consideration for early termination, we surrendered our restricted lease deposit of $1.0 million and a significant amount of our office furniture, leasehold improvements and other assets associated with the corporate lease
(with a net book value of approximately $1.8 million) to the landlord.



In the nine months ended September 30, 2001, management decided to sell certain equipment. In connection with this decision, we recognized a loss on equipment held for sale of approximately $300,000 for the three months
ended September 30, 2001 and $850,000 for the nine months ended September 30, 2001.



Interest Expense



On March 18, 2002, Viador received $1.0 million in financing through a private offering of debt and equity securities and a conditional commitment to provide additional financing of up to $2.0 million upon request Mr. Yeung, a
current investor. Mr. Yeungs commitment to provide $2.0 million in additional debt financing is subject to certain conditions relating to Viadors ability to meet its obligations under the notes and warrants issued to



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Mr. Yeung and certain business and financial conditions, including changes in equity ownership,
composition of Viadors management team and any change in control. Mr. Yeung has discretion in determining whether Viador meets the foregoing conditions and ultimately whether to provide any additional financing. For more information regarding
this debt financing, see Note 3 of the Notes to Condensed, Consolidated Financial Statements.



As consideration for the funds and the commitment to provide additional funds, Viador issued a convertible promissory note and two warrants to Mr. Yeung. The note has a principal amount of $1.0 million
and is convertible into 16,711,230 shares of Viadors common stock. The note accrues interest at a stated rate of 1% per year and matures on March 18, 2004.



We calculated the fair value of the warrants using the Black-Scholes option pricing model and the following
assumptions: no dividends; contractual life of 3 years; risk-free interest rate of 3.1%; and expected volatility of 187%, resulting in a value of the warrants of approximately $372,000. Of the $1.0 million gross proceeds, we allocated $372,000 to
the warrants and $628,000, the remaining proceeds, to the beneficial conversion feature. Accordingly, we recorded the beneficial conversion feature of the convertible note of $628,000 and the $372,000 of warrants to additional paid-in capital and
initially recorded the carrying value of the note at zero. The carrying value of the note is being accreted to its face value of $1.0 million over the term of the note (24 months) using the straight-line interest method, resulting in a non-cash
interest charge of $125,000 during the third quarter of 2002 and $271,000 in the first nine months of 2002. In connection with this financing, we incurred a commission payable to Mr. Yeung in the amount of $60,000, which was recorded as an offset to
the proceeds from this arrangement. As of September 30, 2002 the carrying amount of the note payable of $271,000 was net of the unamortized discount of $729,000.



Other Income and Expense, Net



Other income and expense, net, decreased to $4,000 for the three months ended September 30, 2002 from $83,000
for the three months ended September 30, 2001. Other income and expense, net, decreased to $4,000 for the nine months ended September 30, 2002 from $182,000 for the nine months ended September 30, 2001. This decrease was due to a reduction in
interest income from interest-bearing cash and investment balances.



Extraordinary gain on extinguishment of debt



In the first quarter of 2002, we consummated workout agreements with certain of our creditors, representing approximately $1.8 million of our outstanding accounts payable. These creditors released us from any obligation to
repay any such amounts in exchange for payment of 25% of the total debt we owed them as of September 30, 2001. We paid the creditors that were party to the workout agreements their respective agreed upon amounts aggregating approximately $467,000,
resulting in the recognition of an extraordinary gain on extinguishment of debt of $1.3 million.



In the second quarter of 2002, Viador recorded an extraordinary gain on extinguishments of debt to reflect settlement of an outstanding debt of $63,000 with a payment of $16,000. Separately, in April
2002, Viador settled with a vendor for 25% of an outstanding balance of $4,000 with a payment of $1,000, which also resulted in an extraordinary gain.



Provision for Income Taxes



Provision for income taxes included $1,000 for taxes on foreign operations for the three and nine months ended September 30, 2002. No
additional tax provisions were made in the 3 months ending September 30, 2002, as none were required. We incurred a loss for the three and nine month periods ended September 30, 2001, and therefore, only a provision of $28,000 was recorded during
the three months ended September 30, 2001 for taxes on foreign operations. The net deferred tax assets as of September 30, 2002 were zero, net of a valuation allowance. Realization of Viadors net deferred tax assets depends on Viador
generating sufficient taxable income in future years in appropriate tax jurisdictions to obtain benefit from the reversal of temporary differences and from net operating loss and credit carry-forwards.



During the quarter ended March 31, 2002, Viador recorded
income from cancellation of indebtedness of $1.3 million that was not allowable in pre-tax income for tax purposes. This was because the income from the discharge



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of indebtedness is not included in pre-tax income for tax purposes when a companys liabilities
exceed the fair value of its assets. Viador is instead required to reduce its current year net operating income for tax purposes by this $1.3 million income from the discharge of indebtedness, resulting in a net operating loss for income tax
purposes.



Net Income or Loss



For the three months ended September 30, 2002 net loss was
$390,000 or 39% of total revenue compared to a net loss of $4.1 million or 291% of total revenue for the three months ended September 30, 2001. For the nine months ended September 30, 2002 net income was $363,000 or 10% of total revenue compared to
a net loss was $24.7 million or 321% of total revenue for the nine months ended September 30, 2001.



Liquidity and Capital Resources



From our inception, we have financed our operations primarily through an initial public offering and private equity placements totaling approximately $75.9 million. As of September 30, 2002, we had an
accumulated deficit of approximately $76.4 million and cash and cash equivalents of approximately $1.4 million. We had a net loss of approximately $390,000 for the three months ended September 30, 2002 and net income of approximately $363,000 for
the nine months ended September 30, 2002, and we had net losses of approximately $24.5 million for the year ended 2001, $29.3 million for the year ended 2000 and $13.3 million for the year ended 1999. The size of our accumulated deficit, our losses
since inception and our ongoing need for capital to continue our operations raises substantial doubt as to our ability to continue as a going concern. We expect to continue to use cash in operations and to incur operating losses in the foreseeable
future. We obtained $1.0 million in debt financing in the first quarter of 2002, as well as a commitment for up to $2.0 million in additional debt financing subject to our meeting certain financial and business conditions. There can be no assurance
that we will be successful in our efforts to control expenses, generate sufficient revenue or obtain additional financing. Failure to reduce and control expenses, generate sufficient revenue and/or to obtain additional financing will result in a
material adverse effect on our ability to meet our business objectives and continue as a going concern. Absent debt or equity financing beyond the $2.0 million currently committed to us, and excluding significant expenditures required for our major
projects, we currently anticipate that the cash on hand and anticipated cash flow from operations will only be adequate to fund our operations in the ordinary course of business for the next twelve months. For additional information, see Notes 1 and
3 of the Notes to Condensed Consolidated Financial Statements.



As of September 30, 2002, our principal source of liquidity was $1.4 million in cash and cash equivalents, representing a $918,000 increase from the December 31, 2001 balance of $518,000. Net cash used by operating activities for the
nine months ended September 30, 2002 was approximately $6,000, while net cash used for the nine months ended September 30, 2001 was approximately $12.1 million. For the nine months ended September 30, 2002, this use of cash resulted primarily from
decreases in accounts payable and accrued liabilities, offset in part by a decrease in accounts receivable and an increase in deferred revenue. Net cash provided by investing activities for the nine months ended September 30, 2002 was approximately
$24,000. Net cash used in investing activities for the nine months ended September 30, 2001 was $224,000. Net cash provided by financing activities for the nine months ended September 30, 2002 was approximately $940,000 and resulted from the net
proceeds from the issuance of a convertible note payable and warrants. Net cash used in financing activities for the nine months ended September 30, 2001 was approximately $2.2 million, resulting from the repayment of a bank line of credit and a
note payable assumed in an acquisition, partially offset by proceeds from the issuance of common stock.



Viadors principal commitments as of September 30, 2002 consisted of obligations under non-cancelable operating leases for monthly
rent on an office lease expiring in the fall of 2003. We have no present commitments or arrangements assuring us of any future equity or debt financing other than the $2.0 million conditional commitment from Mr. Yeung, a current investor, discussed
further in Note 3 to the Notes to Condensed Consolidated Financial Statements. This conditional commitment to provide $2.0 million in additional debt financing is subject to Viadors ability to meet its obligations under the notes and warrants
issued, and certain business and financial conditions, including changes in our equity ownership, composition of our management team and any change in control. Mr. Yeung has discretion in determining whether Viador meets the foregoing conditions and
ultimately whether to provide any additional financing. We cannot assure you that these funds will be available to us or that any further equity or debt financing will be available to us on favorable terms, or at all.



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We are
currently attempting to raise additional financing to fund our operations. There can be no assurance that we will be successful in our efforts to reduce expenses or to obtain additional financing. Failure to reduce and control expenses, generate
sufficient revenue and/or to obtain additional financing will result in a material adverse effect on our ability to meet our business objectives and continue as a going concern. Based on our assumptions, which we believe are reasonable, we believe
we may have sufficient cash to reach profitability provided that we meet the revenue and expense goals contained in our business plan.



Our liquidity and capital requirements depend on numerous factors discussed under the section entitled Risk Factors That May
Affect Future Results. Factors such as the ability to expand our customer base, the level of investment in our business, the level of expenditures for marketing and sales, the level of investment in distribution, customer service and other
capabilities would also increase our liquidity requirements. The timing and amount of these capital requirements cannot be accurately predicted.



Our financial statements were prepared on the assumption that we will continue as a going concern. The report of our independent
accountants for the year ended December 31, 2001 acknowledged that we have incurred losses in each of the last three fiscal years. These conditions raise substantial doubt as to our ability to continue as a going concern. Our financial statements
included herein do not include any adjustments that might result should we be unable to continue as a going concern.



RISK FACTORS THAT MAY AFFECT FUTURE RESULTS



Risks Related to Viador



We may seek protection, or be the subject of involuntary proceedings, under the Federal Bankruptcy Code.



We may seek protection under Chapter 11 of the Federal
Bankruptcy Code. Additionally, we are subject to the risk that creditors may seek to commence involuntary bankruptcy proceedings against us. If we file for Chapter 11 protection, or if involuntary proceedings are commenced against us by our
creditors, our creditors or other parties in interest may be permitted to propose their own plan, and we could be unsuccessful in having a plan of reorganization confirmed that is acceptable to the requisite number of creditors and holders entitled
to vote on such a plan. This could lead to our inability to emerge from Chapter 11. Moreover, once bankruptcy proceedings are commenced, either by the filing of a voluntary petition or if an involuntary petition is filed against us, our creditors
could seek our liquidation. If a plan were consummated or if we were liquidated, it would almost certainly result in our creditors receiving less than 100% of the face value of their claims, and in the claims of our equity holders being cancelled in
whole. In addition, during any bankruptcy or similar proceeding, we would need court approval to take any actions out of the ordinary course of business, which would result in our inability to manage the normal operations of the company and which
would cause us to incur additional costs associated with the bankruptcy process. Any bankruptcy or similar proceeding will cause us to be in default on our convertible note payable. See Note 3 of Notes to Condensed Consolidated Financial Statements
for more information on this note.



There is substantial doubt
about our ability to continue as a going concern.



The Independent Auditors Report issued in connection with Viadors audited financial statements included in our Form 10-K/A for the year ended December 31, 2001, expresses substantial doubt about our ability to
continue as a going concern, due to the lack of sufficient sources of revenue and our dependence on our ability to raise capital from stockholders or other sources to sustain operations.



Although we reported net income of $363,000 for the first nine months of 2002, our recurring net losses,
including $24.7 million for the nine months ended September 30, 2001 and $24.5 million for the year ended December 31, 2001, raise substantial doubt regarding Viadors ability to continue as a going concern. In 2001, our revenue was not
sufficient to support our operations, and revenue will not be sufficient to support operations until such time, if any, that Viadors enterprise information portal software gains substantial market acceptance. We expect to continue to use cash
in operations and to incur operating losses in the foreseeable future.



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As a result of questions
concerning our status as a going concern, our customers and vendors may decide not to do business with us.



Due to concerns regarding our ability to continue operations, customers and vendors may decide not to conduct business with us, or may
conduct business with us on terms that are less favorable than those customarily extended by them. Additionally, we are currently experiencing some resistance in the marketplace and we believe that one of the several factors for this resistance is
related to concerns regarding our ability to continue our business as a going concern. In any event, if customers and vendors decide not to conduct business with us, our revenue would decrease further, and our business will suffer significantly.



We cannot predict whether we will be successful because we
have a short operating and sales history.



We were founded in 1995, and began offering software products in the third quarter of 1996. Our primary product, the Viador E-Portal, was announced in the first quarter of 1999 and first shipped in the third quarter of 1999. We
introduced Viador Portlets in the second quarter of 2000 and Viador E-Portal Express in the fourth quarter of 2000.



We have made significant investments in our sales and marketing programs, personnel recruitment, product development and infrastructure
and have experienced significant losses on a quarterly and annual basis in the past. You must consider us and our prospects in light of the risks and difficulties encountered by companies in the early stage of development, particularly companies in
new and rapidly evolving markets. The revenue and income potential of our business and market is unproven, and our limited operating history makes it difficult to evaluate us and our prospects.



Our ability to address these risks depends on a number of
factors, which include our ability to:



| |  |  | provide software that is reliable, cost-effective and able to accommodate significant increases in the number of users and amount of information;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | market the Viador E-Portal, our other products and the Viador brand name effectively;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | continue to grow our infrastructure to accommodate new developments in the enterprise information portal software market and increased sales;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | retain and motivate qualified personnel; and
| | - |  | --------------------------------------------



| |  |  | respond to competition.
| | - |  | -----------------------



We may not be successful in meeting these challenges and addressing these risks and uncertainties. If we are unable to do so, our business
will not be successful and your investment in our capital stock will decline in value.



Failure to raise additional capital will have a material adverse effect on our ability to operate as a going concern.



We may have insufficient capital to fund our operations and business objectives through the next 12 months. We are actively seeking
financing for our current capital needs through the sale of additional equity and/or the issuance of debt. However, the significant contraction in the capital markets, particularly in the technology sector, combined with our early stage of
commercial operations has made it difficult to raise additional capital. If we do not obtain additional cash funding, the carrying amounts of certain assets, including property, equipment and capitalized software development costs may not be
recovered.



Additional future equity or debt
financing may not be available to us on favorable terms or at all. Future borrowing instruments such as credit facilities and lease agreements are also likely to contain restrictive covenants and will likely require us to pledge assets as security
for borrowings under those future arrangements. In addition, our failure to file timely with the SEC the Form 10-Q due for the quarterly period ended June 30, 2002 and September 30, 2002 will make it more difficult for us to raise capital through
public offerings of our stock. Failure to raise sufficient additional capital would have a material adverse effect on our ability to operate as a going concern



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or to achieve our business
objectives. See Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources.



Our cost-cutting efforts may harm our business.



Our management has implemented plans designed to reduce our cash requirements through a combination of
reductions in equipment purchases and operating expenditures, including significant reductions in our workforce during 2001. However, there can be no assurance that these plans will be successful or that the implementation of these plans will not
have a material adverse effect on our business, financial condition or results of operations.



Our business currently depends on revenue related to the Viador E-Portal, and it is uncertain whether the market will increasingly accept this product.



We generate most of our revenue from licenses and services
related to the products comprising the Viador E-Portal. We expect that these products, and future upgraded versions of these products, will continue to account for a large portion of our revenue for the foreseeable future. Our future financial
performance will depend on increasing acceptance of our current products and on the successful development, introduction and customer acceptance of new and enhanced versions of our products. Our business could be harmed if we fail to deliver the
enhancements to our products that customers want.



The market for enterprise information portal software is still in its infancy as an emerging technology and there can be no assurance that customers will adopt our products. Accordingly, we cannot accurately estimate the potential
demand for our products and services. We believe that market acceptance of our products and services depends principally on our ability to:



| |  |  | effectively market the Viador E-Portal, our other products and our services;
| | - |  | ----------------------------------------------------------------------------



| |  |  | retain a sufficient number of qualified sales and marketing personnel;
| | - |  | ----------------------------------------------------------------------



| |  |  | provide high-quality and reliable customer support for our products;
| | - |  | --------------------------------------------------------------------



| |  |  | distribute and price our products and services in a manner that is more appealing to customers than that of our competitors;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | develop a favorable reputation among our customers, potential customers and participants in the software industry; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | withstand downturns in general economic conditions or conditions that would slow corporate spending on software products.
| | - |  | -------------------------------------------------------------------------------------------------------------------------



Some of the foregoing factors are beyond our control. If our
customer base does not expand, we may never become profitable and our stock price will likely decline.



Our services consist of maintenance, support, consulting and training. Service revenue represented 61% of total revenue for the nine
months ended September 30, 2002 and 45% for the nine months ended September 30, 2001. For the year ended December 31, 2001, service revenue represented 49% of total revenue. We anticipate that service revenue will fluctuate as a percentage of total
revenue in the future. If service revenue is less than anticipated, our fixed costs of providing services will exceed our service revenue and our operating results could be materially adversely affected.



Continuing uncertainty of the U.S. economy, which has spread to Europe and
Asia, may have serious implications for the growth and stability of our business.



The revenue growth and profitability of our business depends significantly on the overall demand for software products, particularly in the product segments in which we compete. Softening demand for
these products caused by ongoing economic uncertainty may result in decreased revenue or earnings levels or growth rates. The U.S. economy has weakened and market conditions continue to be challenging. This weakening has resulted in



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individuals and companies delaying or reducing expenditures. Further delays or reductions in spending
could have a material adverse effect on demand for our services, and consequently on our business, operating results, financial condition, prospects and stock price. In addition, the terrorist acts of September 11, 2001 and subsequent terrorist
activities have created an uncertain economic environment and we cannot predict the impact of these events, or of any related military action, on our customers or business. We believe that these events may cause some businesses to further curtail or
eliminate spending on technology related to our products.



We
were unable to maintain our listing on The Nasdaq National Market tier of the Nasdaq Stock Market and there may be no active trading market for our common stock.



On July 3, 2001, we received a letter from Nasdaq indicating we failed to comply with the minimum bid price
required for continued listing as set forth in marketplace rule 4450 (a) (5) and that our securities were, therefore, subject to delisting from Nasdaq. We requested a hearing before a Nasdaq Listing Qualifications Panel to review this determination.
On August 15, 2001, Nasdaq notified us of additional deficiencies including net tangible assets and stockholders equity, market capitalization, total assets, total revenue, and audit committee composition requirements. Despite our attempts to
remedy these deficiencies, on October 30, 2001 Nasdaq notified us that our securities would be delisted from the Nasdaq National Stock Market tier of the Nasdaq Stock Market effective with the opening of business on October 31, 2001. The delisting
occurred on October 31, 2001 and our shares of common stock were then traded on the Over-the-Counter Bulletin Board. Since we have been delisted from Nasdaq, we cannot assure you that an active trading market for our common stock will continue. If
an active trading market for our common stock is not sustained, you may not be able to sell your common stock when you need to do so, or at a price acceptable to you, or even at all. On December 31, 2002, our stock was further delisted from the OTC
market to the Pink Sheets, for failure to comply with the requirement to file 10Q statements with the SEC.



The delisting of our stock has had a material negative impact on the trading market and price of our stock and has subjected us to certain
state regulatory requirements. Low-priced stocks are subject to additional risks, including the potential loss of effective trading markets.



The trading price for our common stock has fallen substantially and this could affect our ability to raise capital and your ability to resell your
shares at or above the price you paid to purchase such shares.



The stock market, in general, and the trading prices of shares in public technology companies, have been extremely volatile and have experienced a substantial drop in market price. Indeed, the trading price of our common
stock dropped significantly, thereby precipitating our delisting from Nasdaq. We believe that this drop has resulted from many factors, some of which are beyond our control, such as:



| |  |  | investor perception of us and Internet-related businesses in general;
| | - |  | ---------------------------------------------------------------------



| |  |  | general economic conditions both in the United States and in foreign countries;
| | - |  | -------------------------------------------------------------------------------



| |  |  | our results of operations;
| | - |  | --------------------------



| |  |  | adverse business developments;
| | - |  | ------------------------------



| |  |  | changes in financial estimates by securities analysts; and
| | - |  | ----------------------------------------------------------



| |  |  | announcements by our competitors of new products and services.
| | - |  | --------------------------------------------------------------



As a result of these factors, and due to the risks related to the absence of an active trading market for our
common stock, we cannot assure you that the trading price of our common stock will not continue to drop or stay at its currently low price. The significant decreases in the trading price of our common stock and the currently low trading price that
we are experiencing is likely to affect our visibility and credibility in our market and will likely limit our ability to raise capital in the future. Additionally, as a result of our low stock trading price and our delisting from Nasdaq, you may
not be able to resell your shares of common stock when you need to or at prices higher than what you paid to purchase such shares.



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Future sales of our common
stock may negatively affect our stock price.



The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market, or the perception that such sales could occur. These sales also might make it more difficult for
us to sell equity securities in the future at a time and at a price that we deem appropriate.



We have a history of losses and may not be able to achieve profitability in the future.



Since our inception, we have experienced recurring operating losses, negative cash flows from operations and net losses in each quarterly
and annual period with the exception of the most recent quarter, in which we achieved an insignificant operating profit. As of September 30, 2002, we had an accumulated deficit of approximately $76.4 million. Revenue from our software and related
services may not be sufficient to make, or keep us profitable in the future. If we do achieve profitability, we cannot be certain that we can sustain or increase profitability on a quarterly or annual basis, particularly to the extent that we face a
weak economic environment and significant competition.



Class
action litigation due to stock price volatility could lead to substantial costs and divert our managements attention and resources.



In the past, securities class action litigation often has been brought against a company following periods of volatility in the market
price of its securities. Companies in the software industry, particularly those whose product offerings are related to the Internet, are especially vulnerable to this kind of litigation due to the high volatility of their stock prices. Accordingly,
we have been the target of securities litigation, such as the class action lawsuit filed against us by The Plaintiffs Executive Committee. Securities litigation could result in substantial costs and could divert our managements attention
and resources from business operations. For further information regarding the lawsuit, see Item 1, Legal Proceedings in Part II of this Form 10-Q.



Our operating results in one or more future periods may fluctuate significantly and may fail to meet or exceed the expectations of securities analysts
or investors.



We may experience significant
fluctuations in our future results of operations due to a variety of factors, many of which are outside of our control, including:



| |  |  | demand for and market acceptance of our products and services, both domestically and internationally;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | introduction of products and services or enhancements by us and our competitors;
| | - |  | --------------------------------------------------------------------------------



| |  |  | competitive factors that affect our pricing;
| | - |  | --------------------------------------------



| |  |  | the mix of products and services we sell;
| | - |  | -----------------------------------------



| |  |  | the size and timing of customer orders, particularly large orders, some of which represent more than 10% of total revenue during a particular quarter;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | retention of key personnel;
| | - |  | ---------------------------



| |  |  | conditions specific to the enterprise information portal market and other general economic factors;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | changes in generally accepted accounting policies, especially those related to the recognition of software revenue; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | new government legislation or regulation.
| | - |  | -----------------------------------------



We typically receive 50% to 70% of our orders in the last month of each fiscal quarter because our customers often delay purchases of
products until the end of the quarter and our sales organization and our individual sales representatives strive to meet quarterly sales targets. Because a substantial portion of our costs are relatively fixed and based on anticipated revenue, a
failure to book an expected order in a given quarter will likely not be offset by a corresponding reduction in costs and, therefore, could adversely affect our operating results for that quarter. Due to



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these factors, we believe that period-to-period comparisons of our operating results are not necessarily
meaningful and cannot be relied upon as indicators of future performance. In future periods, our operating results may be below the expectations of public market analysts and investors. In this event, the price of our common stock may fall
significantly.



Because our customers orders vary
substantially in size, our quarterly operating results are difficult to forecast and may fluctuate.



Customer orders during a particular quarter typically vary considerably in size, from as low as several thousand dollars to over one
million dollars. Because of the large size of some individual customer orders relative to total orders during a quarter, our revenue may fluctuate significantly from one quarter to the next. If a customer who places a large order cancels or reduces
the order, or if we are unable to fulfill the order in a timely fashion or are otherwise unable to recognize revenue for the order in the quarter in which it is anticipated, it could result in increased volatility in our revenue and stock price.



Since our sales cycle is long, unpredictable and subject to
seasonal fluctuations, it is difficult to accurately forecast our revenue; if we fail to achieve our forecasted revenue, our operating results will suffer.



The typical sales cycle of our products is long and unpredictable and requires both a significant capital
investment decision by our customers and the education of potential customers regarding the use and benefits of our products. Our sales cycle is generally between three and nine months long. A successful sales cycle typically includes presentations
to both business and technical decision makers. The implementation of our products involves a significant commitment of resources by prospective customers. Accordingly, a purchase decision for a potential customer typically requires the approval of
several senior decision makers. Our sales cycle is also affected by the business conditions of each prospective customer. Due to the relative importance of many of our individual product sales, a lost or delayed sale could adversely affect our
quarterly operating results. Our sales cycle is also affected by seasonal fluctuations as a result of our customers fiscal year budgeting cycles and slow summer purchasing patterns overseas. Also, we expect revenue to be higher in the fourth
quarter than in other quarters of the year since many customers strive to spend unused budgeted dollars before the end of the year.



If our software contains errors, we may lose customers or experience reduced market acceptance of our products.



Our software products are inherently complex and may contain
defects and errors that are detected only when the products are in use. In addition, some of our customers may require enhanced customization of our software for their specific needs, and these modifications may increase the likelihood of undetected
defects or errors. Further, we often render implementation, consulting and other technical services, the performance of which typically involves working with sophisticated software, computing and networking systems, and we could fail to meet
customer expectations as a result of any defects or errors. As a result, we may lose customers, customers may fail to implement our products more broadly within their organization and we may experience reduced market acceptance of our products. Our
products are designed to facilitate the secure transmission of sensitive business information to specified parties outside the business over the Internet. As a result, the reputation of our software products for providing good security is vital to
their acceptance by customers. Our products may be vulnerable to break-ins, theft or other improper activity that could jeopardize the security of information for which we are responsible. Problems caused by product defects, failure to meet project
milestones for services or security breaches could result in loss of or delay in revenue, loss of market share, failure to achieve market acceptance, diversion of research and development resources, harm to our reputation, increased insurance costs
or increased service and warranty costs. To address these problems, we may need to expend significant capital resources that may not have been budgeted.



Product liability claims could harm our business.



Our license agreements with customers typically contain provisions designed to limit our exposure to potential product liability claims.
All domestic and international jurisdictions may not enforce these limitations. Although we have not experienced any product liability claims to date, we may encounter this type of claim in the future. Product liability claims brought against us,
whether or not successful, could divert the attention of our management and key personnel and could be expensive to defend.



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We may be unable to
maintain or grow our international operations, which could slow or undermine our overall growth.



Sales from outside the United States accounted for 8% of our total revenue for the nine months ended September 30, 2002 and 18% for the
nine months ended September 30, 2001. For the year ended December 31, 2001, we derived 19% of our total revenue from sales outside the United States. We derive our international revenue primarily from sales in Canada, Europe and Asia Pacific. We
intend to continue to pursue international markets by partnering with OEMs, VARs and distributors, and anticipate that in the foreseeable future a significant portion of our revenue may be derived from sources outside the United States. If we are
unable to maintain or grow our international operations, it could slow or undermine our overall growth.



We have not identified any material risk associated with doing business in Canada, other than risk associated with foreign currency
exchange rate fluctuations. In Japan, we have an exclusive distribution relationship with Mitsui Corporation. We also face country-specific risks in Europe and the Asia-Pacific region, such as fluctuation in currency exchange rates, general economic
conditions in Europe and the Asia-Pacific region and regulatory uncertainties associated with being a foreign company doing business in those geographic areas.



Our international operations are subject to a number of risks, including:



| |  |  | costs of customizing our products for foreign countries;
| | - |  | --------------------------------------------------------



| |  |  | protectionist laws and business practices favoring local competition;
| | - |  | ---------------------------------------------------------------------



| |  |  | dependence on the performance of local resellers and other strategic partners;
| | - |  | ------------------------------------------------------------------------------



| |  |  | adoption of general Internet technologies in each international market;
| | - |  | -----------------------------------------------------------------------



| |  |  | compliance with multiple, conflicting and changing governmental laws and regulations;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | longer sales and payment cycles;
| | - |  | --------------------------------



| |  |  | import and export restrictions and tariffs;
| | - |  | -------------------------------------------



| |  |  | difficulties in staffing and managing international operations;
| | - |  | ---------------------------------------------------------------



| |  |  | greater difficulty or delay in accounts receivable collection;
| | - |  | --------------------------------------------------------------



| |  |  | foreign currency exchange rate fluctuations;
| | - |  | --------------------------------------------



| |  |  | multiple and conflicting tax laws and regulations; and
| | - |  | ------------------------------------------------------



| |  |  | political and economic instability.
| | - |  | -----------------------------------



If our plan to sell the Viador E-Portal directly to customers is not successful, we may not be able to grow our revenue.



We sell our products through our domestic direct sales
organization and we support our customers with our technical and customer support staff chiefly in the California head-office. Our ability to achieve revenue growth in the future will depend on our ability to recruit and train sufficient technical,
customer and direct sales personnel. We have in the past and may in the future experience difficulty in recruiting qualified sales, technical and support personnel. Our inability to rapidly and effectively expand our direct sales force and our
technical and support staff could reduce or eliminate our growth and cause our stock price to fall.



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If our plan to sell the
Viador E-Portal to customers via indirect sales channels is not successful, we may not be able to grow our revenue.



We have in the past sold our products through our domestic direct sales organization, which has been substantially reduced over the past
two years. In the future, we plan to make greater use of independent resellers in all markets. Our ability to achieve revenue growth in the future will depend on our ability effectively partner with resellers. Indirect channel revenues as a
percentage of total revenues were approximately 39% in the first nine months of 2002, 40% in 2001, 35% in 2000 and 5% in 1999. Our inability to rapidly and effectively expand our channel partner relationships could reduce could have a significant
negative impact on revenues and cause our stock price to fall.



We depend on technology licensed from third parties and, if we do not maintain those license arrangements, this could result in delays in shipping our products and services, which could harm our business.



We license our search engine technology, which is integrated
into the Viador E-Portal, from Inktomi. This technology provides users of our products with the ability to search and classify information. We also license JRUN, a Java servlet engine from Macromedia, which is necessary for users to access the
Viador E-Portal. This software may not continue to be available on commercially reasonable terms, or at all. Our loss of or inability to maintain either of these technology licenses could result in delays in the sale of our products and services
until equivalent technology, if available, is identified, licensed and integrated, which could harm our business.



If we do not manage the recent reduction in our workforce, it could have a material adverse effect on our business.



During the year ended December 31, 2001, we reduced our
workforce by a total of 173 people to reduce costs. At September 30, 2002, our workforce totaled 26 employees. It is possible that we will have further workforce and cost reductions in the future.



Any failure to manage the impact of the workforce reduction on
our product development schedules, our ability to retain remaining personnel, or our ability to recruit new employees in the future could have a material adverse effect on our business, operating results and financial condition.



If we are unable to motivate and retain our personnel, it could have a
material, adverse effect on our business.



Our success depends in large part on our ability to motivate and retain highly skilled employees on a timely basis. Our workforce reductions and any future workforce reduction could result in some disruption in our ongoing operations
and harm our efforts to motivate existing employees. Our failure to retain highly skilled personnel may limit the rate at which we generate revenue and develop new products or product enhancements. This could have a material adverse effect on our
business, operating results and financial condition.



Loss of
our executive officer could harm our business.



Our future success depends to a significant degree on the skills, experience and efforts of our senior management. In particular, we depend upon the continued services of Stan X. Wang, our president and chief executive officer. The
loss of the services of Mr. Wang would harm our business and operations. In addition, we have not obtained life insurance benefiting us on any of our employees or entered into employment agreements with our key employees. If any of our key employees
left or was seriously injured and unable to work and we were unable to find a qualified replacement, our business could be harmed.



If we do not successfully recruit and retain skilled personnel for permanent management positions, we may not be able to effectively implement our
business objectives.



We have experienced
significant personnel changes at the senior management level. During 2001, Dick Warmington resigned as interim president and chief executive officer and Alice Pilch resigned as chief financial officer. We appointed Stan X. Wang president and chief
executive officer in August 2001. Nathan A. Cammack was appointed chief financial officer in October 2001 and resigned in July 2002. On October 1, 2001, Don Cochrane



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resigned as vice president of worldwide sales and marketing. We have not yet appointed a new vice
president of worldwide sales and marketing or chief financial officer. We cannot predict how these changes in management will affect our business. However, if we fail to recruit and retain qualified individuals to permanently serve in these senior
management positions, our business, financial condition and results of operations will be seriously harmed.



We may not be able to recruit and retain personnel, which would impair our ability to sustain operations.



We are highly dependent on certain members of our management and engineering staff, including, without
limitation, our chief executive officer. The loss of one or more of these key employees could impede the achievement of our business objectives. Furthermore, recruiting and retaining qualified financial and technical personnel is critical to our
success. If our business grows, we will also need to recruit a significant number of management, technical and other personnel for our business. Competition for employees in our industry is intense. Our ability to attract and retain skilled and
experienced personnel may be adversely impacted by limitations on our ability to issue stock options due to the delisting of our common stock from the Nasdaq National Market System. For the next six months, we anticipate granting a significant
number of options to purchase our common stock to certain key employees and advisors. We may not be able to continue to attract and retain skilled and experienced personnel on acceptable terms, and the granting of stock options to key advisors who
are not employees will result in a charge to operating expense, which will negatively impact our results of operations.



If we are unable to effectively protect our proprietary rights, our competitors may be able to copy important aspects of our products or product
presentation, which would undermine the relative appeal of our products to customers and reduce our sales.



We believe that proprietary rights are important to our business. We principally rely upon a combination of patent, copyright, trademark
and trade secret laws as well as contractual restrictions to protect our proprietary technology. We have filed applications seeking U.S. patents on two inventions. However, patents for these inventions may not be issued and it is possible that these
and any other patents issued to us may be circumvented by our competitors or otherwise may not provide significant proprietary protection or commercial advantage to us. Similarly, our trademark, service mark and copyright rights may not provide
significant proprietary protection or commercial advantage to us, and the measures we take to maintain the confidentiality of our trade secrets may be ineffective. If we are unable to effectively protect our proprietary rights, our competitors may
be able to copy important aspects of our products or product message, which would undermine the relative appeal of our products to customers and thus reduce our sales.



If our products infringe upon the proprietary rights of others, we may be forced to pay high prices to license new
technology or stop selling our products.



Our commercial success will also depend in part on our not infringing the proprietary rights of others and not breaching technology licenses that cover technology used in our products. It is uncertain whether any third-party
proprietary rights will require us to develop alternative technology or to alter our products or processes, obtain licenses or cease certain activities. If any licenses of that type are required, we may not be able to obtain those licenses on
commercially favorable terms, if at all. Our failure to obtain a license to any technology that we may require to commercialize our products and services could cause our business and prospects to suffer. Litigation, which could result in substantial
cost to us, may also be necessary to enforce any patents issued or licensed to us or to determine the scope and validity of third-party proprietary rights.



Our failure to improve our internal controls could harm our business



Our information systems currently do not provide all of the information that we believe is necessary to
successfully operate our business, and our auditors have identified weaknesses in our internal controls and accounting procedures. We are in the process of implementing a number of changes designed to improve our information systems and controls,
including organizational changes, communication of revenue recognition and other accounting policies to all of our employees, new approval procedures and various other initiatives. We are evaluating additional changes which may require us to make
investments in our systems and controls, which could result in higher future operating expenses. If we fail to strengthen our management information systems and internal controls, our ability to manage our business and implement our strategies may
be impaired and our financial condition could be harmed. In addition, even if we are successful in strengthening these systems and controls, they



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may not sufficiently improve our ability to manage our business and implement our strategies, or be
adequate to prevent or identify irregularities.



Risks Related To Our Industry



The
markets in which we compete are highly competitive, and we may not be able to compete effectively.



The market for our products is intensely competitive, subject to rapid change and significantly affected by new product introductions and
other market activities of industry participants. Our primary source of direct competition comes from independent software vendors of corporate portal software. We also compete with business intelligence software vendors, large application software
vendors, and application server vendors providing a portal add-on. Business intelligence software is installed on a personal computer and permits the analysis of information in databases. We also face indirect competition from potential
customers internal development efforts. We cannot assure that we will be able to successfully compete against current and future competitors, or that competitive pressures we face will not materially adversely affect our business, prospects,
operating results and financial condition.



If we fail to
manage technological change or effectively respond to changes in customer needs, demand for our products and services will drop and our business will suffer.



The market for enterprise information portals is still in an early stage of development and is characterized
by rapidly changing technology, evolving industry standards, frequent new service and product introductions and changes in customer demands. Our future success will depend to a substantial degree on our ability to offer products and services that
incorporate leading technology and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis. You should be aware that:



| |  |  | our technology or systems may become obsolete upon the introduction of alternative technologies;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | the technological life cycles of our products are difficult to estimate;
| | - |  | ------------------------------------------------------------------------



| |  |  | we may not have sufficient resources to develop or acquire new technologies or to introduce new services capable of competing with future technologies or service
offerings; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the price of the products and services we provide may decline as rapidly as, or more rapidly than, the cost of any competitive alternatives.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



We may not be able to effectively
respond to the technological requirements of the changing market for enterprise information portals. To the extent we determine that new technologies and equipment are required to remain competitive, the development, acquisition and implementation
of those technologies and equipment are likely to continue to require significant capital investment by us. We may not have sufficient capital for this purpose in the future, and even if it is available, investments in new technologies may not
result in commercially viable technological processes and there may not be commercial applications for those technologies. If we do not develop and introduce new products and services and achieve market acceptance in a timely manner, demand for our
products and services will drop and our business will suffer.



Our business and prospects will suffer if we are unable to adequately respond to customer demands.



We expect that our customers increasingly will demand additional information and reports with respect to the services we provide. In
addition, if we are successful in implementing our marketing strategy, we also expect the demands on our technical support resources to grow rapidly, and we may experience difficulties in responding to customer demand for our services and providing
technical support in accordance with our customers expectations. We expect that these demands will require not only the addition of new management personnel, but also the development of additional expertise by existing management personnel and
the establishment of long-term relationships with third-party service vendors. We may not be able to keep pace with any growth, successfully implement and maintain our operational and financial systems or successfully obtain, integrate and utilize
the employees, facilities, third-party vendors and equipment, or management, operational and financial resources



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necessary to manage a business in our evolving and increasingly competitive industry. If we are unable to
address these customer demands, our business and prospects will suffer.



Our future success will depend upon the ability of our products to work with a large variety of hardware, software, database and networking systems.



We currently serve, and intend to continue to serve, a customer base with a wide variety of hardware,
software, database and networking systems. To gain broad market acceptance, we believe that we may have to support an increased number of systems in the future. We currently develop our products on Microsoft Windows NT and Solaris. Therefore, we
experience a delay when we adapt our products to be installed on other major servers. A delay in any rollout of our product onto a new system could adversely affect our revenue and operating results. There can be no assurance that we will adequately
expand our data source and system coverage to service potential customers, or that the expansion will be sufficiently rapid to meet or exceed the system and data source coverage of our competitors. The success of our products will depend on various
factors, including the ability of our products to integrate and be compatible with customer systems, particularly hardware systems, operating systems and data sources, as well as or better than competitive offerings. The success of our products will
also depend on the ability of our existing products to work well with one another, with new products we are developing and with new software being developed by third parties. We cannot assure you that we will successfully develop and market product
enhancements or new products that respond to these technological changes, shifting customer tastes or evolving industry standards, or that we will not experience difficulties that could delay or prevent the successful development, introduction and
marketing of these products. If we are unable to develop and introduce new products or enhancements of existing products in a timely manner or if we experience delays in the commencement of commercial shipments of new products and enhancements, our
business will suffer.



We rely on a continuous power supply.



In the summer of 2001, California
experienced an energy crisis that could disrupt our operations and increase our expenses of our California facilities. In the event of an acute power shortage, that is, when power reserves for the State of California fall below certain critical
levels, California has on some occasions implemented, and may in the future continue to implement, rolling blackouts throughout California. We currently do not have adequate backup generators or alternate sources of power in the event of a blackout,
and our current insurance does not provide coverage for any damages we or our customers may suffer as a result of any interruption in our power supply. If blackouts interrupt our power supply, we would be temporarily unable to continue operations at
our California facilities. Any such interruption in our ability to continue operations at our facilities could damage our reputation, harm our ability to retain existing customers and to obtain new customers, and could result in lost revenue, any of
which could substantially harm our business and results of operations.





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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Investment Portfolio



Viador places its investments in instruments that meet high credit quality standards, as specified in Viadors investment policy guidelines; the policy also limits the amount of credit exposure to
any one issue, issuer, or type of instrument. Our interest income is sensitive to changes in the general level of U.S. interest rates, particularly since the majority of our cash and cash equivalent investments are in short-term instruments. Due to
the short-term nature of our investments, we believe that there is no material risk exposure. At September 30, 2002 and December 31, 2001, we held no interest-bearing investments.



Impact of Foreign Currency Exchange Rate Change



We develop products in the United States and market our products in North America, Europe and the
Asia-Pacific region. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. No foreign currency derivatives were purchased or written during
the nine months ended September 30, 2002.



ITEM 4. CONTROLS AND PROCEDURES



Under the supervision and with the participation of our management, including our principal executive officer, who is also our principal financial officer, we conducted an evaluation of the effectiveness of the design and operation
of our disclosure controls and procedures, as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, within 90 days of the filing date of this report (the Evaluation Date). Based on this evaluation, our
principal executive and financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the material information required to be included in our Securities and Exchange Commission
(SEC) reports is recorded, processed, summarized and reported during the period when this report was being prepared.



In addition, there were no significant changes in our internal controls or in other factors that could significantly affect these controls
subsequent to the Evaluation Date. We have identified lack of timeliness in our reporting process as a weakness in our disclosure controls, and are working to address this issue.



On January 13, 2003, our independent auditors informed us that during the course of their review for the
quarterly period ended September 30, 2002 they noted a matter involving internal control and its operation that they considered to be a material weakness under standards established by the American Institute of Certified Public Accountants. The
material weakness in internal controls relates to Viadors procedures for reviewing licenses and other arrangements and recording the resultant revenue in the appropriate periods. Our auditors believe that our internal controls do not reduce to
a relatively low level the risk that errors or fraud in amounts that would be material in relation to the financial statements may occur and not be detected within a timely period by employees in the normal course of performing their assigned
functions.



We are assigning the highest priority
to the short-term and long-term correction of these internal control deficiencies, and are in the process of implementing changes to our accounting policies and procedures, systems and personnel to address these issues.



We are also performing additional procedures designed to
ensure that these internal control deficiencies do not lead to material misstatements in our condensed consolidated financial statements, notwithstanding the presence of the internal control weaknesses noted above.



Specifically, we are in the process of implementing the
following corrective actions as well as additional procedures:



| | 1. |  | Review and dissemination of revenue recognition policies, including more formalized training of finance, sales and other staffs;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------



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| | 2. |  | Development of additional financial, accounting and other policies and procedures;
| | -- |  | ----------------------------------------------------------------------------------



| | 3. |  | Additional management oversight and detailed reviews of personnel, disclosures and reporting; and
| | -- |  | -------------------------------------------------------------------------------------------------



| | 4. |  | Use of significant outside resources to supplement our employees in the preparation of the consolidated financial statements, as well as in evaluating and
implementing the various internal control recommendations of our auditors.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We will continue to evaluate the effectiveness of our internal controls and procedures on an ongoing basis and will take further action as appropriate.



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PART IIOTHER
INFORMATION



ITEM 1. LEGAL PROCEEDINGS.



Claims
Settled



On May 10, 2002, attorneys for one
of Viadors customers, CMS, sent a letter to Viador reporting that CMS had filed suit against Viador in the United States District Court for the Eastern District of Virginia, Alexandria Division. According to the letter, the complaint alleges
breach of contract and seeks monetary damages of approximately $281,000. On July 1, 2002 Viador settled this dispute with CMS for the sum of $35,000 in exchange for which CMS dismissed all claims against Viador.



On May 16, 2002, Viador settled a dispute with a former
customer, Society for Human Resources Management, Inc. SHRM. SHRM alleged breach of contract and was seeking approximately $791,000 in monetary damages. The terms of the settlement included a cash payment to SHRM in the amount of $50,000
and 526,315 shares of Common Stock with a market value of $100,000 on the date of issuance. We had previously accrued $100,000 related to this dispute.



On January 11, 2002, William Grinder, an individual, filed a personal injury complaint for unspecified monetary damages in San Francisco
County Superior Court alleging causes of action for negligence and negligent hiring against Viador and certain other named defendants. This suit was dismissed on August 9, 2002.



Class Action Law Suit



On November 13, 2001, Viador and certain of its current and former officers and directors, or the individual defendants, together with the
underwriters of its October 25, 1999 Initial Public Offering, or the IPO, were named as defendants in a class action complaint alleging violations of the federal securities laws in the United States District Court, Southern District of New York. The
Court appointed a lead plaintiff on April 15, 2002, and plaintiffs filed an Amended Class Action Complaint on April 19, 2002. The essence of the complaint is that defendants issued and sold Viadors common stock pursuant to the IPO without
disclosing to investors that certain underwriters of the IPO had solicited and received excessive and undisclosed commissions from certain investors. The complaint also alleges that the Registration Statement for the IPO failed to disclose that the
underwriters allocated Viador shares to customers in exchange for the customers promises to purchase additional shares in the after-market at pre-determined prices above the offering price, thereby maintaining, distorting and/or inflating the
market price for the shares in the after-market. The action seeks damages in an unspecified amount.



The lawsuit is part of the IPO Allocation Securities Litigation pending in the United States District Court for the Southern
District of New York. Approximately 310 companies and over 40 underwriters have been sued in actions alleging claims nearly identical to those alleged against Viador. The cases are being coordinated for pre-trial purposes before the Hon. Schira
Scheindlin. The IPO Allocation Securities Litigation is in its early stages. A motion to dismiss addressing issues common to the companies and individuals who have been sued in these actions was filed on July 15, 2002. Discovery is stayed pending
the outcome of motions to dismiss. This proceeding is at an early stage and Viador is unable to speculate as to its ultimate outcome. As the financial exposure is neither estimable nor probable, no accrual has been made at this time. In November,
Viador received a letter from its D&O insurance carrier, confirming that insurance coverage would apply, that resolution of financial risk for the company remained uncertain and would, in the opinion of the insurance carrier, in all cases be
secondary to the financial risk and responsibilities attributable to the IPO underwriters.



The lawsuit has not reached the class certification stage, and a motion to dismiss the action against Viador as well as the over 300 other
issuers sued in the actions relating to underwriter allocations is pending. At this time, plaintiffs have not specified the amount of damages sought. The lawsuit makes only the following general statement regarding the relief sought: that the Court
1) declare the action to be a class action, appoint a Lead Plaintiff as representative of the Class, and appoint counsel as class counsel; (2) award damages to the Plaintiff and the Class; (3) award prejudgment interest, post-judgment interest, and
reasonable fees and other costs; and (4) award such other and further relief as the Court may deem just and proper.



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Other Pending Litigation



Viador is involved in lawsuits, claims,
investigations and proceedings from time to time, including those identified above, consisting of matters which arise in the ordinary course of business.



ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS



| | (a) |  | Modification to Instruments Defining the Rights of Common Stockholders.
| | --- |  | -----------------------------------------------------------------------



None.



| | (b) |  | Material Limitations or Qualifications on Rights of Common Stockholders Resulting from the Issuance or Modification of Other Securities.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------



None.



| | (c) |  | Information Required by Item 701 of Regulation S-K.
| | --- |  | ---------------------------------------------------



None.



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



None.



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



None.



ITEM 5. OTHER INFORMATION



See Managements Discussion and Analysis of Financial Condition and Results of OperationsRecent Events.



On September 19, 2002, Viador filed SEC Form 425 and announced that it has entered into a definitive merger agreement with MASBC, Inc. and
MASBC Acquisition Corporation. The merger agreement contemplates that, at the closing, all outstanding shares of Viador will convert into a right to receive $0.075 in cash. As a result of the merger, Viador will become a privately-held company,
wholly-owned by MASBC, Inc. Accordingly, upon the closing, Viadors registration under the Securities Act of 1933, as amended, will terminate. The closing of the merger is subject to various conditions, including stockholder approval. The
primary reasons for this decision to become private are: (1) to gain operating focus; (2) cost savings as a private company; (3) limit the visibility of our financial results to our competition; (4) enhance the ability of Viador to attract new
investment funds.



On October 30, 2002, Viador
filed Form 13E3 and a Preliminary Form 14A with the SEC, preliminary proxy statements and a description of a going private transaction, including the then current financial results. The SEC responded in early December with questions that Viador is
answering in a revised proxy statement to be filed in February 2003, which will include current financial results. Viador failed to file timely with the SEC Form 10-Q for the quarter ended September 30, 2002 and, as a result, effective December 31,
2002, the stock is now listed in the Pink Sheets tier of the OTC market.



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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



(a) Exhibits.



None.



(b) Reports on Form 8-K.



| |  | Viador filed a Current Report on Form 8-K with the Securities and Exchange Commission on August 20, 2002 under Item 5 regarding the late filing of this Form 10-Q,
the resignation of Viadors Chief Financial Officer, and resignation and replacement of a member of Viadors Board of Directors.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Viador filed a Current Report on Form 8-K with the Securities and Exchange Commission on September 12, 2002 under Item 9 regarding the certification under Section
906 of the Sarbanes-Oxley Act of the Viador Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Viador filed a Current Report on Form 8-K with the Securities and Exchange Commission on September 19, 2002 under Item 5 regarding the Agreement and Plan of Merger
entered into by Viador and MASBC, Inc.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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SIGNATURES



Pursuant to the
requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



VIADOR INC.(Registrant)Date: February 5, 2003

By:

/s/ Stan X. WangStan X. Wang Chief Executive Officer






Date: February 5, 2003

By:

/s/ Paul C. VilandrePaul C. VilandreActing Principal Financial and Accounting Officer




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