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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

|X|
FOR ANNUAL REPORTAND TRANSITION REPORTS PURSUANT TO SECTIONSECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

                      For the Year Ended December 31, 2000

                                       OR

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

                         
(Mark one)

ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Year Ended December 31, 2002

OR

o
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 0-28252
BROADVISION, INC.
             (Exact name
(Exact Name of registrantRegistrant as specifiedSpecified in its charter)

            Delaware                                 94-3184303
            --------                                 ----------
 (State or other jurisdiction of          (I.R.S. Employer Identification No.)
 incorporation or organization)

585 Broadway, Redwood City, California                 94063
- --------------------------------------                 -----
(Address of principal executive offices)             (Zip Code)

                                 (650) 261-5100
                                 --------------
               Registrant's telephone number, including area code

           Charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)		94-3184303
(I.R.S. Employer Identification No.)

585 Broadway, Redwood City, California
(Address of principal executive offices)

94063
(Zip Code)

(650) 542-5100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: Title of each class         Name of each exchange which registered
        -------------------         --------------------------------------
               None                                None

           
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.0001 par value
                         ------------------------------
                                (Title
(Title of Class)
        Indicate by check mark whether the registrantregistrant: (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|ý    No |_|o
        Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_|

Basedo
        Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o    No ý
        As of June 30, 2002, based on the closing sales price as quoted by the Nasdaq, 26,367,453 shares of 5.2188 on March 28, 2001, theCommon Stock, having an aggregate market value of the voting stockapproximately $73,565,194 were held by nonaffiliatesnon-affiliates. For purposes of the registrant was
$1,142,674,573.above statement only, all directors and executive officers of the registrants are assumed to be affiliates.
        As of March 28, 2001,20, 2003, registrant had outstanding 272,101,53132,477,569 shares of Common
Stock.

                       common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
        Parts of the Proxy Statement for Registrant's 20012003 Annual Meeting of Stockholders to be held May 24, 200128, 2003 are incorporated by reference in Part III of this Form 10-K Report.

BROADVISION, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 2000

                                2002

TABLE OF CONTENTS

                                                                        Page No.
                                                                        --------

Part I

Item 1. Business...............................................................3

Item 2. Properties............................................................14

Item 3. Legal Proceedings.....................................................14

Item 4. 
Part I
Item 1.Business3
Item 2.Properties15
Item 3.Legal Proceedings15
Item 4.Submission of Matters to a Vote of Security Holders16
Part II
Item 5.Market for Registrant's Common Equity and Related Stockholder Matters17
Item 6.Selected Consolidated Financial Data18
Item 7.Management's Discussion and Analysis of Financial Condition and Results of
Operations		19
Item 7A.Quantitative and Qualitative Disclosure About Market Risk52
Item 8.Financial Statements and Supplementary Data54
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure		97
Part III
Item 10.Directors and Executive Officers of the Registrant97
Item 11.Executive Compensation97
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters98
Item 13.Certain Relationships and Related Transactions98
Item 14.Controls and Procedures98
Part IV
Item 15.Exhibits, Financial Statement Schedules, and Reports on Form 8-K98
SIGNATURES100
BroadVision®, BroadVision One-to-One® and iGuide® are trademarks and registered trademarks in the United States of Matters to a VoteAmerica and other countries of Security Holders...................14


Part II

Item 5. Market for Registrant's Common EquityBroadVision and Related Stockholder Matters.15

Item 6. Selected Consolidated Financial Data..................................16

Item 7. Management's DiscussionCommerce™, Enterprise™, Command Center™, Portal™, One-to-One Content™, Publishing Center™, Deployment Center™, Integration Services™, Multi-Touchpoint Services™, QuickSilver™ and AnalysisLiveCycle™, are trademarks of Financial Condition and
        Results of Operations.................................................17

Item 7A. Quantitative and Qualitative Disclosure About Market Risk............35

Item 8. Financial Statements and Supplementary Data...........................38

Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure..................................................56


Part III

Item 10. Directors and Executive Officers of the Registrant...................57

Item 11. Executive Compensation...............................................58

Item 12. Security Ownership of Certain Beneficial Owners and Management.......58

Item 13. Certain Relationships and Related Transactions.......................58


Part IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8.K.....59

SIGNATURES....................................................................60


                                       BroadVision.
2


PART I.
ITEM 1. BUSINESS
CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
        Certain statements set forth or incorporated by reference in this Form 10-K, as well as in our Annual Report to Stockholders for the year ended December 31, 2000,2002, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as `believes""believes", "anticipates", "expects", "intends", "estimates" and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, those risk factors set forth under "Risk Factors" and elsewhere in this Form 10-K.
        We expressly disclaim any obligation to update or publicly release any revision to these forward-looking statements after the date of this Form 10-K.

       Overview and Industry Background................................4

       The BroadVision Solution........................................4

       BroadVision Business Strategies.................................4
         Extend and Expand our Product Portfolio.......................4
         Develop Targeted Application Solutions........................4
         Enhance our Service and Support Infrastructure................5
         Expand and Leverage Alliances with Key Business Partners......5
         Support Diverse Customer Business Models......................5
         Grow Our International Presence...............................5

       BroadVision Solutions...........................................5
         BroadVision Demand Suite......................................6
         BroadVision Workplace.........................................6
         BroadVision Supply............................................6
         Enterprise Relationship Management Tools......................7
         Key Capabilities of BroadVision's Applications................7
         Other Products................................................8
         Product Development...........................................8


       BroadVision Global Services.....................................8
         Strategic Services............................................8
         Technical Services............................................8
         Content and Creative Services.................................8
         Technical Support Services....................................9
         Education Services............................................9
         Client Services, Project and Program Management...............9
         Partner Services..............................................9

       Strategic Alliances.............................................9

       Platform Alliances..............................................9

       Customers and Markets..........................................10

       Sales and Marketing............................................11

       Competition....................................................12

       Intellectual Property and Other Proprietary Rights.............12

       Employees......................................................13
         Executive officers...........................................13


                                       
Overview and Industry Background4
The BroadVision Solution4
BroadVision Business Strategies5
Extend and Expand our Product Portfolio5
Develop Targeted Application Solutions5
Enhance our Service and Support Infrastructure to Help Customers Maximize Their Return on Investment5
Leverage Alliances with Key Business Partners5
Support Diverse Customer Business Models5
BroadVision Solutions6
BroadVision Portal Applications6
BroadVision Portal Framework6
BroadVision Portal Platform7
Key Capabilities of BroadVision's Solutions8
Other Products8
Product Development9
BroadVision Global Services9
Consulting Services9
Support Services9
Training10
Delivery Methodology10
IGuide10
Strategic Alliances10
Platform Partners10
System Integrators and Consulting Partners11
Application Service Providers11
Technology Partners11
Customers and Markets11
Sales and Marketing12
Competition13
Intellectual Property and Other Proprietary Rights14
Reverse Stock Split14
Employees14
Executive officers15
3
Overview and Industry Background

      BroadVision develops
        We develop, market, and sells an integrated suitesupport enterprise business portal applications that enable companies to unify their e-business infrastructure and conduct both interactions and transactions with employees, partners, and customers through a personalized self-service model that increases revenues, reduces costs, and improves productivity.
        As of packaged
applications for conducting e-business interactions, transactions and services.
Global enterprisesDecember 31, 2002, more than 1,200 companies and government entities use thesearound the globe used our applications to sell, buy,
and exchange goods, servicesfacilitate their portal-based commerce and information over the Web and on wireless
devices. Theaccess initiatives.
        BroadVision e-business application suite enables a corporation to
establish and sustain high-yield relationships with customers, suppliers,
partners, distributors, employees and other constituents of the extended
enterprise. Our consulting, education and support services in more than 34
countries, supported by over 190 partner organizations worldwide, transform
these applications into business value for our customers.

      BroadVision, which was founded in 1993 and has been a publicly traded companycorporation since 1996, has more than 1,100 customers1996. BroadVision pioneered web-based e-commerce and is a component stockwas among the first to offer pre-integrated, packaged applications to power enterprise business portals.
        General information about us can be found at www.broadvision.com under the "Company" link. Our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments or exhibits to those reports, are available free of charge through our website as soon as reasonably practicable after we file them with, or furnish them to, the SEC.
The BroadVision Solution
        BroadVision's enterprise business portal applications allow organizations to unify and extend their key business applications, information, and business processes by taking advantage of the Standard & Poor's 500 index. IDC rankspower of the web and new wireless and mobile devices to allow customers, partners, and employees to do business on their own terms, in a personalized and collaborative way. BroadVision assolutions allow multiple constituents to serve themselves from anywhere, at anytime, through any web device. BroadVision enterprise portal applications enable organizations to create business value by transforming the world's leading
provider of e-commerce software applications (International Data Corp.,
E-Commerce Software Applications Market Forecast and Analysis, 2000-2004).

The BroadVision Solution

The BroadVision e-business application suite allows businesses to tailor Web and
wireless content to the needs and interests of individual users by personalizing
contentway they do business—moving business interactions and transactions onfrom a real-time basis. Thesemanual, human-assisted paradigm to an automated, personalized self-service applications have demonstratedmodel that they can enhance customer satisfactionenhances growth, reduces costs and loyalty, increase business volume and brand awareness, reduce costs to service
customers and execute transactions, and enhance employee productivity and
retention.improves productivity.
        Our products enable companies to organize dynamic profiles of Webweb and wireless users from volunteered data and observed behavior, deliver highly
specializedpersonalized content in response to these profiles and execute transactions securely. Business managers are able to modify business rules and content in real time, offering a personalized experience to each visitor. Because of theour commitment to open standards and open architecture, of ourBroadVision applications they are easily integratedintegrate with our customers' existing systems and easily expandedexpand as our customers' needs and businesses grow.
        Supporting this application infrastructure, as of December 31, 2002, are more than 190100 partner firms around the world who are working to ensure our joint customers' success through complementary technology, applications, tools and services offerings that extend and enhance BroadVision customers' BroadVision implementations.
        We believe our products enhanceimprove our customers' revenue opportunities by enabling them to establish more effective and efficient "one-to-one"one-to-one relationships with their customers and business partners. Web and wireless users are engaged by highly personalized real-time interactions, are able to transact business securely and are encouraged to remain online and make return visits. Our applications also improve the cost-effectiveness of one-to-one relationship management by enabling non-technical managers to modify business rules and content in real time and by helping to reduce coststhe cost of customer acquisition and retention, business development, and technical support as well asand employee workplace initiatives. In addition, theBecause we provide pre-integrated, packaged solution nature of our products
decreases our customers'solutions, time to deployment is shorter and allows themcustomers are able to easily manage and expandmaintain their Webweb and wireless application usageapplications in a cost-effective manner.
4

BroadVision Business Strategies
        Our objective is to be the leading provider of self-service e-businessenterprise portal applications. In order toTo achieve this objective, we have adopted the following key strategic elements:strategies:
        Extend and Expand our Product Portfolio. In order to    To enable our customers to effectively manage all of their key e-business processes,commerce and information access initiatives, we have focused our product development and marketing efforts in the following areas:

      o     Continuing to enhance
        Develop Targeted Application Solutions.    We were among the first companies to introduce packaged Webweb-based applications for electronic commerce, financial services and knowledge management. We are now extending our "bestbest of breed"breed enterprise portal applications with new applications designed for specific vertical industries. These applications are being developed in conjunction with industry leaders, system integration firms and key technology vendors.


                                       4

        Enhance our Service and Support Infrastructure. We have changed the name of our
services organizationInfrastructure to Help Customers Maximize Their Return on Investment.    BroadVision Global Services or BVGS, to more
accurately reflect the expanding nature of the services provided to our clients
and partners. BVGS(BVGS) provides a broad range of consulting, training and technical support services for all of our products. This organization provides business application and technical expertise, along with extensive product knowledge, to complement our products and provide solutions that meet customer business requirements. By using BVGS, customers and business partners are able to build customizedcustomize their application solutions to maximize the benefits of one-to-one relationship management and
self-service.our enterprise self-service model.
        We are committed to extending the service offerings and the resources available to our customers and have implemented programs such as an online BroadVision University, "train-the-trainer"a train-the-trainer program and third-party educational centers to extend the breadth and depth of our service offerings. We have also tiered our technical support offerings to offerprovide standard, enterprise and personalized support programs for our customers.

Expand and
        Leverage Alliances with Key Business Partners.    We partner with leading systems integrators, technology partners, value-added resellers (VARs), application service providers or ASPs, value-added resellers, or VARs,(ASPs), software partners and hardware platform partners. These alliances provide additional sales and marketing channels for our products, enable us to more rapidly incorporate additional functions and platformstechnologies into our products and facilitate the successful deployment of customer applications.
        To accelerate the acceptanceadoption of our products, we have developed the BroadVision Partner Program. This Partner Programprogram is a comprehensive, structured partnership relationship designed to drive effective partner alliances and ensure the
success of these relationships by jointly identifying and pursuing specific business objectives. The BroadVision Partner Program operates within a framework of proactive business planning, revenue targeting, initiatives, structured sales enablement and enhanced BroadVision training as well as marketing and sales engineering support. The Partner Programpartner program is intended to help our partners successfully develop, promote, and sell their services and solutions in close coordination with our newly expanded network of sales engineering, channel and partner marketing and professional consulting services. The Partner Program
assists our partners in growing their businesses by incorporating our core
competency, personalizing interactions and transactions with a wide range of
constituencies, into a focused execution matrix.services teams.
        Support Diverse Customer Business Models.    We intendare committed to continue our commitment
to flexibility by offering our customers choices formaximum flexibility in the deployment of our applications. Customers can choose to deploy our applications using their own in-house technical resources, or can engageengaging with BVGS, to assist with
implementation. Customers can also choose to workworking with a BroadVision-trained and certified systems integrator or distribution partner, or withapplying a combination of our resources and those of a partner. Another option is for a customerpartner to utilize an
ASP who hosts the customer's BroadVision application deployment at a remote
facility and is responsible for its ongoing service and support.

Grow Our International Presence. To capitalize on the emergence of the Web as a
global network, we have established, and will continue to add to, our worldwide
distribution capabilities. Our partners include multinational systems
integrators, as well as partnersassist with a single-country scope of operations. Our
product architecture is designed to support multiple languages, multiple
currencies and remote, distributed publishing.

Ourimplementation.
5

        The strategies described above involve substantial risks. We may be unable to implement our strategies and ourthese strategies, even if implemented, may not lead to successful achievement of our objectives.objective. If we are unable to implement our strategies effectively, our business may be harmed. We will continueadversely affected.
BroadVision Solutions
        BroadVision provides a complete enterprise portal application suite for enabling large-scale e-business. All BroadVision products reflect the principles of excellence that drive our company's culture: adherence to placeopen standards, scalability and performance, data and transaction security, high-powered functionality based on expert business logic and rigorous testing for quality assurance.
BroadVision Portal Applications
        BroadVision portal applications are a set of cross-industry and industry-specific applications, designed to web-enable specific business processes, leveraging the unique capabilities of a pre-integrated portal framework.
BroadVision One-To-One® Commerce™
        BroadVision One-To-One Commerce is a cross-industry portal application for cost-effectively automating and managing the entire sales process over the web. BroadVision One-To-One Commerce combines personalized, multi-channel, direct sales capabilities with the flexibility and collaboration capabilities of BroadVision's integrated portal framework. BroadVision® eMarketing™ is an emphasis
on establishing additional alliances as new technologiesoptional application module that gives business managers the ability to manage closed loop marketing campaigns directly within the BroadVision One-To-One Commerce application. The eMarketing module enables business users to create, execute and standards emerge,
although we may be unable to establish or maintain certain alliances.

track personalized marketing campaigns through a graphical user interface.
BroadVision Solutions

We offer enterprise-class solutions to connectOne-To-One® Portal™
        BroadVision One-To-One Portal is a cross-industry portal application for deploying personalized business-to-employee, business-to-business and business-to-consumer portals. It allows companies to their customers,
suppliers,extend enterprise information, resources and business processes to employees, partners and employees. These solutions enable companies to maintaincustomers in a unified and expand existing relationships in an online environment via a single,
integrated e-business platform.collaborative way.
BroadVision® One-To-One® Content™
        BroadVision One-to-One(R) Enterprise is the application system on top of which
all BroadVision solutions are built. One-To-One Enterprise provides a secure and
flexible, standards-based architecture that supports large volume transactions,
large scale catalogs, distributed content management, enterprise system
integration and dynamic personalization. It is based on open standards such as
CORBA, Java and XML.


                                       5


Ours solution offerings fall into three major categories:

o     The BroadVision Demand Suite enables one-to-one marketing, automates
      complex transactions and personalizes self-service for customers.

      o     BroadVision Business Commerce facilitates online trade between
            business partners, whether they are merchants, resellers,
            distributors or manufacturers. Large-scale business-to-business
            sellers such as W.W. Grainger, General Electric and Toshiba use
            BroadVision Business Commerce to create e-businesses that integrate
            with structured back-end business system .

      o     BroadVision Retail Commerce: A highly scalable, consumer-focused
            application used by Fortune 500 retailers such as Circuit City,
            Sears Roebuck and The Home DepotContent allows organizations to maximize the profitability and
            efficiency of the online retailing channel.

      o     BroadVision MarketMaker attracts and retains buyers and suppliers by
            focusing on their specific business needs. It facilitates the
            formation of trading communities with automated order processing,
            attribute-based request for quotes, or RFQs, sophisticated catalog
            management, dynamic auctioning and robust analytic and reporting
            capabilities.

      o     BroadVision Finance combines business rules and intelligent matching
            to dynamically customize content, news, quotes and service
            recommendations according to a customer's profile or a visitor's
            behavior. These advanced personalization capabilities can result in
            more transactions, increased opportunities for cross-selling and
            up-selling and greater customer loyalty.

      o     BroadVision Billing brings electronic bill payment and delivery
            capabilities to e-commerce and marketing Web sites. It enables
            companies that want to personalize interactions with customers
            during their ongoing billing cycles to streamline routine billing
            practices while gaining knowledgevalue of their customers' needs,
            preferencescontent assets by delivering personalized content to customers, employees, and buying activities usingpartners exactly the Web.

oway they want it via web, wireless or print. BroadVision One-To-One Content effectively manages all types of business content throughout its entire lifecycle from design, creation, and management through deployment and distribution.
BroadVision Portal Framework
        The BroadVision Workplace offering enablesportal framework unifies and integrates the appropriate technologies necessary for companies to share information
      via an enterprisewide portal and decrease the cost of procuring indirect
      goods via a centralized e-procurement site.

      o     deploy content-rich, process-aware, user-centric portals.
BroadVision Information Exchange PortalOne-To-One® Enterprise™
        BroadVision One-To-One Enterprise is a ready-to-usescalable, reliable and mature application for building powerfulplatform that enables organizations to deploy and manage enterprise information portals,
            enabling businesses to reach customers, partners, suppliersportal applications. It includes a system of
6

integrated tools that support personalized interactions and employeestransactions over the web and through a single, personalized gateway. It allows users to
            perform sophisticated publishing, access relevant information,
            perform analysis, manage business processes and collaborate across
            organizational boundaries through user-defined Web pages.

      o     BroadVision Procurement is a complete, Web-based self-service
            purchasing system for maintenance, repair and operations, or MRO,
            goods. It simplifies purchasing administration and facilitates
            business planning through advanced administrative, analytical and
            reporting tools.

o     The BroadVision Supply offering provides businesses with a robust online
      marketplace for buying and selling goods.

      o     BroadVision MarketMaker, as described above.

      o     BroadVision Information Exchange Portal, as described above.


                                       6


These offerings are underpinned by a set of common enterprise relationship
management tools and capabilities, including the following:

            oother wireless devices.
BroadVision® Command Center™
        BroadVision Command Center is a toolrules-based personalization system that allows managersenables non-technical users to add, altertailor content to the needs and interests of different users. For example, communities of web site visitors can be defined by similar demographics, transaction levels or delete informationother attributes, making the web experience more relevant and manage relationshipscompelling for each user.
BroadVision® Deployment Center™
        BroadVision Deployment Center simplifies and standardizes the process of moving enterprise portal assets from development environments to staging and production servers.
BroadVision® Integration Services™
        BroadVision Integration Services is an integration solution that enables BroadVision applications to connect directly to backend systems, unlocking valuable data and business processes for use by everyone in the extended enterprise.
BroadVision® Multi-Touchpoint Services™
        BroadVision Multi-Touchpoint Services extend the reach of BroadVision-powered web sites to touchpoints across the extended enterprise. It enables a personalized,
                  dynamicenterprise including PDAs, web-enabled phones, ATMs, kiosks, call centers, voice channels, and interactive experience for site visitors.
            o     BroadVision Design Center offers Web authors and Internet
                  application developers faster time-to-market by shortening the
                  site development cycle.
            o     BroadVision One-To-Oneother similar devices.
BroadVision® Publishing is a powerful tool for
                  creating, publishing, updating and versioning a company's
                  electronic assets.
            oCenter™
        BroadVision Publishing Center is an easy-to-usea web-based tool with a
                  Web-based interface for managing distributed, collaborative
                  online content development.that allows non-technical business users to publish and edit content. It allows a distributed team of
                  non-technical content experts to manage every aspect of site content, including creation, editing, staging, production and archiving.
            o
BroadVision® QuickSilver™
        BroadVision InstantQuickSilver is a full-featured software package for creating and publishing long, complex documents in multiple output formats (including HTML, PDF, Postscript and ASCII) across different platforms and networks. The XML Publisher allows casual content
                  contributorsextends the power and versatility of QuickSilver to leverage the functionality of include XML file interchange support.
BroadVision Publishing Center without extensive training. It uses
                  customized, business-specific forms that permit easy data
                  entry and are usually specific to a content type.

Key Capabilities of BroadVision's Applications

We designed all of thePortal Platform
Open Standards-Based Architecture
        BroadVision solutions for use in mission-critical,
high-performance environments by companies with demanding architecture,
deployment and maintenance requirements. Some of the key capabilities of the
applications include:

      o     Ease of use--tools designed with graphical user interfaces allowing
            non-technical business managers to modify business rules and content
            in real time.
      o     Scalability--robust embedded application server functionality allows
            BroadVision One-To-One applications to support large numbers of
            concurrent customers and transactions.
      o     Flexible integration--a comprehensive set of APIs allows integration
            with a variety of legacy business systems such as Oracle,
            PeopleSoft, SAP, and custom mainframe systems.
      o     Open standards-based architecture--object-orientedare built on object-oriented application code written in C++ and J2EE programming environments, including Java and JavaScript, and where appropriate C++, which allows developers and system integrators to use, integrate, modify, adapt or extend the applications with minimal impact on other areas to create a rapidly customized product that meets specific business requirements.
        Support for the CORBA standard for object-oriented computing enables high-volume performance, flexible application deployment and easy integration with other third-party or legacy applications. Our applications fully support XML, which is the emerging standard for managing and exchanging data between e-business systems as well as for re-purposing and sending information to wireless devices.
7

        In addition, we use other widely accepted standards in developing our products, including Web Services, Structured Query Language (SQL) for accessing relational database management systems; Common Gateway Interface (CGI) and Hypertext Transfer Protocol (HTTP) for Webweb access; Netscape Application Programming Interface (NAPI) for access to Netscape's Webweb servers; Secure Socket Layer (SSL) for secure transmissions over networks; and the RC2 and MD5 encryption algorithms supplied by RSA.
        Our applications can be operated in conjunction with relational database management systems provided by IBM Corporation, Informix, Microsoft, Oracle and Sybase. o     Supported application servers include WebLogic, WebSphere and SunOne.
Key Capabilities of BroadVision's Solutions
        We have designed all BroadVision portal applications for use in mission-critical, high-performance environments by companies with complex architecture, and demanding deployment and maintenance requirements. Some of the key capabilities of BroadVision applications include:
Other Products
        In addition to our products, we have entered into agreements that enable us to resell selected third-party software products from Broadbase, Interwoven,WebMethods, IONA Technologies, MacromediaFAST, Savvion and Verity.IBM Corporation. These are sublicensed to end users and either incorporated in or sold as options to our products. License revenue from
these third-party products constituted approximately 5%, 7% and less than 1% of
total software product license revenues for each of the years ended December 31,
2000, 1999 and 1998, respectively.


8

Product Development
        We believe that our future success will depend in large part on our ability to enhance and extend the BroadVision One-To-Oneenterprise portal application suite: portal applications, suite, develop new
products,portal framework and associated platform technologies; maintain technological leadershipleadership; and satisfy an evolving range of customer requirements for large-scale interactive online relationship management applications.
        Our product development organization is responsible for developing product architecture and core technology, product testing, and quality assurance, writing product user documentation and expanding the ability of BroadVision One-To-One products to operate with the leading hardware platforms, operating systems, database management systems and key electronic commerce transaction processing standards.
        Since inception, we have made substantial investments in product development and related activities. Certain technologies have been acquired and integrated into BroadVision One-To-One products through licensing arrangements.
        As of December 31, 2000, there were 3482002, we had 115 employees in our product development organization. Our research and development expenses were $41.4 million in the year ended December 31, 2002, $78.7 million in the year ended December 31, 2001 and $51.6 million in the year ended December 31, 2000, $14.6 million in the year ended
December 31, 1999 and $9.2 million in the year ended December 31, 1998.2000.
        To date, we have not capitalized any software development costs as products are made available for general release relatively concurrently with the establishment of technological feasibility. We expect to continue to devote substantial resources to our product development activities.
BroadVision Global Services
        BroadVision provides a full spectrum of global services to help ensure success for businesses, including strategic services, implementation services, migration services and ongoing training and support.
Consulting Services
        The BroadVision Global Services (BVGS)organization provides strategic services that help customers achieve maximum business value from their BroadVision Global Services, or BVGS, provides a broad range of
consulting, training and technical support services to all of our customersapplications and implementation partners. This organization provides business application
and technical expertise, along with extensive product knowledge, to
complement our products and provide solutionsservices that meet customers' unique
business requirements. By using our services, customers are able to build
customized application solutions to maximize the benefits of one-to-one
relationship management and self-service.

A summary of the services provided by BVGS is as follows:

o     Strategic Services. We provide business strategy and process consulting to
      assist customers in defining and planning profitable online businesses,
      while optimally utilizing the functionality of our products. Services
      include in-depth needs analysis, customer segmentation, one-to-one
      marketing expertise, storyboarding and business organizational planning to
      achieve timely and successful implementation of our e-business solutions.
      Strategic Services consulting is generally offered on a time and materials
      basis.
o     Technical Services. We provide technical services for development of
      customized BroadVision One-To-One applications, custom interfaces, data
      conversions and system integration. These consultants participate in a
      wide range of activities, including requirements definition, solution
      design, development and implementation and performance planning,
      architecture and tuning. These consultants also provide advanced
      technology services focused on application development for custom objects
      and templates and database administration and tuning. Technical Services
      consulting is generally offered on a time and materials basis.
o     Content and Creative Services. This group specializes in information
      architecture, content management, sourcing, workflow processes and user
      experience design. The group is made up of BroadVision One-To-One product
      design expertsensure rapid deployment and a varietyrobust, highly scalable application ensure. BVGS leverages a global supply chain of leading third party design companies. This
      team combines extensive interactive designcertified professionals to provide customers with the highest value at the lowest possible landed cost. Our comprehensive migration services—including migration planning and marketing experienceoptimization—provide a cost effective approach to build effective user experiences. Contentmigration and Creativeprotect our customers' investment in critical business applications.
Support Services consulting
      is generally offered on a time and materials basis.


                                       8


o     Technical Support Services.
        We have tiered our support programs to better serve the needs of our worldwide customer base. Standard Support provides technical assistance during regular business hours; Enterprise Support is designed for customers with mission-critical environments, providing customers with access to support experts 24 hours a day, 7 days a week; and Personalized Support assigns a specific individual to a customer along with other customer specified support services, including on-site support engineers. We have technical support centers in North America, Europe and Asia. Under our standard maintenance agreement, we provide telephone support and upgrade rights to new releases, including patch releases as necessary, andas well as product enhancements.
o     Education Services.
9

Training
        Under the banner of BroadVision University, we deliver training solutions that ensure our customers and partners have access to timely and effective training for successful implementation of BroadVision One-to-One Applicationsapplications globally. Our advanced delivery infrastructure allows us to deliver courses throughout the world at our facilities or at customer locations. In addition to instructor ledinstructor-led courses, BroadVision University has launched a global e-learning platform to facilitate the delivery of web-based on-demand courses. BroadVision University also delivers an extensive training program to BroadVision employees to ensure high-quality and consistent training of our own personnel. This program provides a series of foundation courses that are general in content for all audiences as well as specific courses based onproduct- and role-specific courses.
Delivery Methodology
        BroadVision LiveCycle is a multi-disciplinary implementation process that integrates business, content management, creative and technical expertise to take sites live efficiently. Each phase of the employee's role in
      BroadVision.
o     Client Services, Projectprocess—Define, Design, Develop, Deploy—has a suggested set of best practice tasks and Program Management. This management team
      drives project discipline from discovery through deployment and into
      production support based on our client and partner needs. Our Client
      Services Managers manage multiple projects with a variety of customers and
      provide deep knowledge and best practices advocacy within BroadVision for
      appropriate implementation, training and support services. Our Project
      Managers are responsible fordeliverables formulated to identify all the day-to-day project management activities,
      which can include project scope, deliverables, change management and
      resource coordination. Our Project Managers also leverage our BVGS iGuide
      methodology and work closely with our clients, partners and consultants to
      collaboratively deliver each project plan. Our Program Managers are also
      responsible for managing our national and global accounts where our
      clients are implementing enterprise-wide solutions. These Program Managers
      establish processes and coordinate knowledge and relationships between
      corporate functions and individual line or field business units to re-use
      information, resulting in speed to market and low cost of ownership.
o     Partner Services. The goal of partner services is to provide the partner
      community with the appropriate integration of BVGS services, tools,
      resources and best practiceskey issues required to deliver the highest level of
      customer satisfaction. This team works directly with our extensive partner
      community including system integrators, technology partners, platform
      partnerslaunch a high-performance and profitable site.
iGuide™
        iGuide™ is a web-based application service providers to ensure partner readinessthat includes step-by-step instructions, tips and enable knowledge transfer between BVGS and the partner community. Specific
      activities include the creation and execution of partner specific training
      and development plans utilizing BroadVision University, development of a
      Partner Framework that clearly outlines the working relationship between
      BVGS and a given partner, and the ongoing measurement of partner
      capabilities and readiness.

Strategic Alliances

A significant element of our sales strategy is to engage in strategic business
alliances to assist us in marketing, selling and developing customer
applications.

As of December 31, 2000, we had developed key strategic business alliances with
over 190 systems integration, design, consulting and other services
organizations throughout the world, including Accenture, Deloitte Consulting,
Hewlett-Packard Consulting, IBM Global Services, KPMG Consulting, Leapnet,
PricewaterhouseCoopers and Roundarch. Moreover, as of December 31, 2000, we had
trained over 15,000 external consultants.

In April 1999, we announced a strategic alliance with Hewlett-Packard in which
Hewlett-Packard agreed to resell and support the current BroadVision One-To-One
product suite and to co-develop, sell and support integrated business-portal
solutions that will act as the interface to next generation e-servicestemplates for enterprise customers. In June 2000, the companies deepened their strategic
relationship by signing a consulting Systems Integration Partner Agreement. As a
result of this agreement, more than 400 consultants trained by HP Consulting are
engagedevery stage in the implementation process.
Strategic Alliances
        We recognize that today's organizations require an open, partner-based approach to e-business. Accordingly, we have assembled a team of more than 40 BroadVision customer sites
worldwide. Hewlett-Packard is leveraging its approximately 5,000 personbest-of-breed partners with the skills, services and value-added products necessary to design, deploy and manage a global sales force to reselle-business. Working together, we and support the current BroadVision One-To-One product
suite.

Throughout 2000, PricewaterhouseCoopersour partners can help organizations go live quickly with dynamic, interactive applications.
Platform Partners
        Our platform partners are industry-leading firms that possess significant market share and BroadVision have been working
together on more than 20 engagements, across many major industries, for Fortune
500 and new economy clients. The expanded alliance will combine the global
reach, e-business acumen, consulting andtechnology leadership. Their products include hardware, operating systems, integration experience of
PricewaterhouseCoopers with BroadVision's comprehensive suite of integrated
e-business softwarenetwork products and services.

Platform Alliances

Our platform alliances are partnerships formed toservices and database systems. With BroadVision, they integrate technologies to
drive business growth.

NCR Corporation. In November 2000, data warehousing and automatic teller
machine, or ATM, leader NCR Corporation and BroadVision announced a worldwide
agreement to enable companies to drive business growth with personalized
communications to consumers and businesses. This $17 million commitment
represents the two companies' joint investment in research and development,
marketing and the development and operation of Centers of Expertise.

Through this agreement, NCR and BroadVision plan to work together to develop
software adapters between our industry-leading e-business applications and NCR's
world-class Teradata database, Customer Relationship Management solutions and
ATMs.


                                       9


Intel Corporation. In November 2000, BroadVision and Intel Corporation announced
an e-business alliance to develop and market solutions built on BroadVision's
suite of e-business applications and Intel-based servers. The agreement advances
both companies' commitment to deliver cost-effective, enterprise-class
e-business solutions.

BEA Systems. Also in November 2000, BroadVision and BEA Systems announced a
strategic alliance under which BEA Systems' WebLogic Server would be marketed
with BroadVision One-To-One Enterprise. This arrangement is intended to allow
users to combine BEA's leading Java-based application server technology with
our leading e-business software applications.

I2 Technologies. In October 2000, i2 Technologies and BroadVision announced a
joint development agreement to deliver a comprehensive e-commerce solution. The
combined offering will integrate the i2 TradeMatrix Sell and i2 TradeMatrix
Content Solutionstheir products with our suite of e-business applications to create a
best-of-breed solution for managing the entire e-commerce value chain. Aimed at
companies that want to accelerate their time-to-market and reduce cost of
ownership as they establish new e-businesses, this is one of the first
e-business solutions to integrate front-end multi-enterprise order capture and
creation to back-end order management and fulfillment capabilities.

Compaq Computer Corporation. In September 2000, acting on our commitment to
deliver enterprise-ready solutions to the Windows marketplace, we announced a
strategic relationship with Compaq Computer Corporation for the development and
marketing of solutions built on our suite of e-businessenterprise business portal applications and Compaq's ProLiant servers.commit globally to develop joint technology, marketing and selling programs with BroadVision.
        IBM:    BroadVision and IBM Corporation. Alsoformed a partnership in September 2000 IBM and BroadVision announced an
agreement that will enable IBM to integrate our full suite of e-businessBroadVision applications on IBM's RS/6000 servers that employ high-performance copper
technology.in conjunction with IBM's DB2 data management software. The agreementresulting application platform provides customers with more choices for building and deploying their e-business web sites. BroadVision and IBM will work to integrate the solutions as well as increasing network performance
and availability.with IBM WebSphere for Enterprise Java Beans integration with back-end systems. In addition, IBM Global Services will createhas created a practice of service professionals around the world to help customers implement BroadVision applications. In December 2001, IBM and BroadVision entered into an agreement whereby we could resell IBM's WebSphere Application Server product as a component of BroadVision solutions.
        NCR Corporation:    BroadVision and NCR, a leader in data warehousing and automatic teller machine (ATM) products, announced a worldwide agreement in November 2000 that enables companies to drive business growth through personalized communications to consumers and businesses. Specifically, NCR and BroadVision are developing software adapters between BroadVision enterprise
10

business portal applications and NCR's world-class Teradata database, customer relationship management solutions and ATMs.
        Sun Microsystems:    BroadVision and Sun Microsystems formed an alliance in March 2000 that provides for joint engineering, marketing and sales initiatives to develop, promote and sell next-generation e-commerce applications based on Sun's premier Java 2 Enterprise Edition (J2EE) technology.
System Integrators and Consulting Partners
        Our system integrators and consulting partners help customers plan and implement their enterprise business portal strategies—including integration with front- and back-office systems. They have developed their own industry-leading technologies and best practices that complement our applications.
Application Service Providers
        Our application service provider partners develop, host and support value-added application products based on our technology. These application products typically extend our technology into new areas or leverage our applications by adding industry-specific functionality, providing targeted solutions that address specific market needs.
Technology Partners
        Additionally, we have developed key technology partnerships with leading Web-web- and wireless-focused companies in areas complementary to our solutions, such as data analysis and reporting, enterprise application integration, enterprise Webweb management, call center management, content management, voice recognition, payment processing, auctioning and XML. These technology partnerships enhance our ability to base our products on industry standards and to take advantage of current and emerging technologies. These alliances include companies such as Broadbase, Documentum, E.Piphany, Genesys, i2, Interwoven, Nuance, Tibco,
WebMethodsSeeBeyond and Yantra.

WebMethods.
Customers and Markets
        As of December 31, 2000,2002, we had licensed our products to over 9701,200 end-user customers including customers acquired as part of the Interleaf acquisition,
and over 190 partners and the total number of our installed customer base as
of December 31, 2000 was over 1,100 accounts across top vertical markets
worldwide. As of December 31, 2000, our products were commercially deployed
in over 572 live Web sites.partners. During the years ended December 31, 2000,2002, 2001 and December 31, 1999,2000, no customer accounted for more than 10% of our total revenues.
        Our primary target customers are Global 2000 organizations that are at the forefront of building innovative Web applicationsenterprise business portals to increase revenues, improve productivity and reduce operational costs. We also target pure-play Web companies that have built
or are building their core businesses on the Web.
        A sample listing of our customers by industry is as follows:

      o     
11
Sales and Marketing
        We market our products primarily through a direct sales organization with operations in North America, Europe, Australia and Asia/Pacific. On December 31, 2000,2002, our direct sales organization included 544121 sales representatives, managers and sales support.
        We have sales offices located throughout the world to support the sales and marketing of our products. In support of the Americas sales and marketing organizations, offices are located in the United States in Arizona, California, Colorado, Florida, Georgia, Illinois, Kansas, Maryland, Massachusetts, Michigan,
Minnesota, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania,
Texas, Virginia Washington and Wisconsin;Washington; in Canada, in Toronto, Ontario and Vancouver, British Columbia; in Latin America, in Argentina, Brazil and Mexico.Columbia.
        Sales and marketing offices for our EMEA, or Europe/Middle East/Africa,Europe region are located in Austria, Denmark, Finland, France, Germany, Italy, the Netherlands, Spain, Sweden, Switzerland and the United Kingdom.
        Our sales and marketing offices in the Asia Pacific/Japan/IndiaIndia/Middle East region are located in Australia, India, Japan, the People's Republic of China, including Hong Kong, the Republic of China (Taiwan), Singapore and South Korea.

      A component of our strategy is continued expansion of our international
activities. We intend to broaden our presence in international markets by
expanding our international sales force and by entering into additional
distribution agreements. We also contract with third-party resellers,
distributors and systems integrators in North America, South America, Europe,
Australia and Asia. We intend to increase our use of this distribution channel.Singapore.
        Initial sales activities typically includeinvolve discussion and review of the potential business value associated with the implementation of a BroadVision solution, a demonstration of our e-business product suiteenterprise business portal capabilities at the prospect's site, followed by one or more detailed technical reviews, often presented at our headquarters. The sales process usually involves collaboration with the prospective customer in order to specify the scope of the application. Our global services organization typically
plays a key role in helpinghelps customers to design, and then develop and deploy, their applications.
        As of December 31, 2000, 1962002, 14 employees were engaged in a variety of marketing activities, including preparing marketing research, product planning and collateral marketing materials, managing press coverage and other public relations, identifying potential customers, attending trade shows, seminars and conferences, establishing and maintaining close relationships with recognized industry analysts and maintaining our Web site.website.
        Our marketing efforts are targeted at:

      o     Product strategy development
12
Competition
        If we fail to compete successfully with current or future competitors, we may lose market share. The market for personalized e-business and one-to-one relationship managemententerprise portal applications is rapidly evolving and intensely competitive. Our customers' requirements and the technology available to satisfy those requirements will continually change. We expect competition in this market to persist and intensifyincrease in the future. Our primary competition currently includes:

            o     
        The principal competitive factors affecting the market for our products are:


      o     Depth
        Many of these competitors and other current and future competitors have longer operating histories and significantly greater financial, technical, marketing and other resources than those of us.BroadVision. As a result, they may be able to respond more quickly to new or changing opportunities, technologies and customer requirements. Many of these companies also can use their greater name recognition and more extensive customer base to gain market share at our expense. Competitors may be able to undertake more extensive promotional activities, adopt more aggressive pricing policies and offer more attractive terms to purchasers. Current and potential competitors may bundle their products to discourage users from purchasing our products. In addition, competitors have established or may establish cooperative relationships among themselves or with third parties to enhance their products. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. Competitive pressures may make it difficult for us to acquire and retain customers and may require us to reduce the price of our products. We may be unable to compete successfully with current or new competitors.
13

Intellectual Property and Other Proprietary Rights
        Our success and ability to compete are dependent to a significant degree on our proprietary technology. Although we hold a U.S patent, issued in January 1998, on elements of the BroadVision One-To-One Enterprise product thisand a U.S. patent acquired as part of the Interleaf acquisition on the elements of the extensible electronic document processing system for creating new classes of active documents, these patents may not provide an adequate level of intellectual property protection. In addition, litigation like the lawsuit we filed against Art Technology Group, which was settled in February 2000, may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity. We cannot guarantee that infringement or other claims will not be asserted or prosecuted against us in the future, whether resulting from our intellectual property or licenses from third parties. Claims or litigation, whether successful or unsuccessful, could result in substantial costs and diversions of resources, either of which could harm our business.
        We also rely on copyright, trademark, service mark, trade secret laws and contractual restrictions to protect our proprietary rights in products and services. We have registered "BroadVision" and "BroadVision One-To-One" as trademarks in the United States and in other countries. It is possible that our competitors or other companies will adopt product names similar to these trademarks, impeding our ability to build brand identity and possibly confusing customers.
        As a matter of company policy, we enter into confidentiality and assignment agreements with our employees, consultants and vendors. We also control access to and distribution of our software, documents and other proprietary information. Notwithstanding these precautions, it may be possible for an unauthorized third party to copy or otherwise obtain and use our software or other proprietary information or to develop similar software independently. Policing unauthorized use of our products will be difficult, particularly because the global nature of the Internet makes it difficult to control the ultimate destination or security of software and other transmitted data. The laws of other countries may afford us little or no effective protection of our intellectual property. We rely upon certain
software
Reverse Stock Split
        On July 24, 2002, we announced that we license from third parties, including relational database
management systems from Oracle and Sybase, object request broker software
from IONA Technologies, database access technology from RogueWave Software
and other software that is integrated with internally developed software and
used in our software to perform key functions. In this regard, allBoard of Directors had approved a one-for-nine reverse split of our services incorporate data encryptioncommon stock. The reverse split was effective as of 8:00 p.m. Eastern Daylight Time on July 29, 2002. Each nine shares of outstanding common stock of the Company automatically converted into one share of common stock. Our common stock began trading on a post-split basis at the opening of trading on the Nasdaq National Market on July 30, 2002. The accompanying consolidated financial statements and authentication technology licensed
from RSA. Our third-party technology licenses may not continuerelated financial information contained herein have been retroactively restated to be
availablegive effect to us on commercially reasonable terms, if at all. The loss of or
inability to maintain any of these technology licenses could result in delays
in introduction of our products and services until equivalent technology, if
available, is identified, licensed and integrated, which could harm our
business.

                                       12


Recent Acquisitions

      On April 14, 2000, we acquired Interleaf, Inc. and its subsidiaries
("Interleaf") pursuant to a statutory merger involving a stock-for-stock
exchange. We acquired Interleaf primarily to enable us to add significant
wireless technology capabilities and substantially increase our ability to
provide enhanced personalized e-business applications across multi-touch points.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview" and Note 2 of "Notes to Consolidated Financial Statements"
for more detailed information.

the July 2002 stock split.
Employees
        As of December 31, 2000,2002, we employed a total of 2,412449 full-time employees, of whom 1,828285 are based in North America and South America, 372131 in Europe and 21233 in Asia. Of these full-time employees, 740135 are in sales and marketing, 348115 are in product development, 1,135170 are in global services and client support, and 18929 are in finance, administration and operations. As of December 31, 1999 and
1998, we employed 652 and 271 full-time employees, respectively.
        We believe that our future success depends on attracting and retaining highly skilled personnel. Competition for personnel is intense, and weWe may be unable to attract and retain high-caliber employees. Our employees are not represented by any collective bargaining unit. We have never experienced a work stoppage and consider our employee relations to be good.
14

Executive Officers
        The following table sets forth certain information regarding our current executive officers.

      Name                   Age    Position
      ----                   ---    --------
Name
Age
Position
Pehong Chen45Chairman of the Board, Chief Executive Officer and President
Andrew Nash40Executive Vice President and Chief Operating Officer
        Pehong Chen............43     Chairman of the Board, Chief Executive
                                    Officer and President
      Randall C. Bolten......48     Chief Financial Officer and Executive Vice
                                    President, Operations
      James W. Thanos........52     Executive Vice President and General
                                    Manager, Worldwide Field Operations
      Nancy Mills-Turner.....48     Executive Vice President and General
                                    Manager, Worldwide Products Organization
      Chris M. Grejtak.......52     Executive Vice President, Worldwide
                                    Marketing and Business Development, and
                                    Chief Marketing Officer

      Pehong Chen has served as our Chairman of the Board, Chief Executive Officer and President since our incorporation in May 1993. From 1992 to 1993, Dr. Chen served as the Vice President of Multimedia Technology at Sybase, a supplier of client-server software products. Dr. Chen founded and, from 1989 to 1992, served as President of Gain Technology, a provider of multimedia applications development systems, which was acquired by Sybase. He received a B.S. in Computer Science from National Taiwan University, an M.S. in Computer Science from Indiana University and a Ph.D. in Computer Science from the University of California at Berkeley.

      Randall C. Bolten
        Andrew Nash has served as our Chief Financial Officer since
September 1995 and as Chief Financial Officer and Executive Vice President,
Operations from January 2000. From 1994 to 1995, Mr. Bolten served as a
financial consultant to various entrepreneurial enterprises. From 1992 to 1994,
Mr. Bolten served as Chief Financial Officer of BioCad Corporation, a supplier
of drug discovery software products. From 1990 to 1992, Mr. Bolten served as
Chief Financial Officer, Business Development Unit and then Vice President,
Finance of Teknekron, a company engaged in the management of various high
technology companies. He received an A.B. in Economics from Princeton University
and an M.B.A. from Stanford University.


                                       13


      James W. Thanos has served as our Vice President and General Manager,
Americas since January 1998 and as our Executive Vice President and General
Manager, Worldwide Field Operations,Chief Operating Officer since January 2000. From January 1995 to
January 1998, Mr. Thanos served as Vice President of North American Operations
of Aurum Software, a sales force automation company. From May 1994 to January
1995, Mr. Thanos served as Vice President of Sales of Digital Equipment
Corporation. From January 1993 to December 1994, Mr. Thanos served as Vice
President of Sales of Harvest Software, an optical character recognition
software company. From December 1988 to January 1993, Mr. Thanos served as Vice
President of Sales Operations of Metaphor, a decision support software company.
Mr. Thanos holds a B.A. in International Relations from Johns Hopkins
University.

      Nancy Mills-Turner joined BroadVision in September 1999 as Vice President
of Worldwide Professional Services, in January 2000, was promoted to Executive
Vice President and General Manager, Worldwide Professional Services and in
January 2001 was named Executive Vice President and General Manager, Worldwide
Products Organization.2002. Prior to joining BroadVision, she worked for Oracle managing the
professional services groups including ConsultingMr. Nash was Chief Executive Officer of Novaroo, Inc., a privately held strategy and Education. Before joining
Oracle in 1995, she served as director of Federal, State and Local practice
consultants at PricewaterhouseCoopers LLP. Prior to PricewaterhouseCoopers LLP,
she was Vice President, Software at BIS Computer Solutions directing the
activities of product development divisions specializing in commercial and
criminal justice applications and implementations services. Ms. Mills-Turner
received a B.A./B.S. in Business Administration and Biochemistry from Arizona
State University and a Master's degree in Business Administration and
Information Management Sciences from University of Southern California.

      Chris M. Grejtak joined us in January 2001 as Executive Vice President,
Worldwide Marketing and Business Development, and Chief Marketing Officer.corporate advisory firm. From January 2000 to January 2001, heMr. Nash served as Chief Executive Officer of Viquity,Collaborex, Inc., a provider of hosted universal connectivity services for
internet-based integration of mission critical business systems.collaborative commerce application service provider. From December 19961998 to January 2000, Mr. Grejtak was theNash served in multiple roles at Baan Company N.V., an enterprise application provider for industrial enterprises, ultimately serving as Executive Vice President, Worldwide Marketing for Brio Technology,Services and member of the board of directors. Mr. Nash also held the positions of CEO, Coda plc, and President, Baan Corporate Office Solutions during his tenure at Baan. In 1995, Mr. Nash commenced the Asia Pacific operations International Consulting Solutions, a providercompany acquired by Deloitte Consulting. After the acquisition, Mr. Nash became a Partner of analytics software for
enterprise infrastructure management. From December 1995 to December 1996,Deloitte Consulting and served on the Global Board of Management of Deloitte Consulting/ICS. Mr. Grejtak was the Vice President of Marketing for Red Brick Systems, Inc.,
which developed databaseNash previously held management system technology to support data
warehousepositions with Oracle and business intelligence applications. Mr. GrejtakArthur Andersen. He received a B.A.Bachelor of Commerce from the University of Melbourne (Australia) and a Graduate Diploma in SociologyComputing from Middlebury College.

Monash University (Australia).

ITEM 2. PROPERTIES
        Our principal administration, research and development, sales, consulting, training and support facilities are located in Redwood City, California, where we occupy approximately 162,00049,000 square feet pursuant to leases expiring through 2008. We recently entered into a lease for a new facility currently under
construction that will provide us with an additional approximately 519,000
square feet in Redwood City, California. The facility is expected to be
available for occupancy during June 2001.2007.
        Our European headquarters are located in Green Park, Reading, in the United Kingdom where we leasecurrently occupy approximately 19,0006,500 square feet. Our Asia Pacific
headquarters are located in Taipei, Taiwan where we lease approximately 19,000
square feet.
        In addition, we have offices throughout the world to support the development, sales, marketing and support of our products and services. See "Sales and Marketing" above.

ITEM 3. LEGAL PROCEEDINGS
        In April 2001, we filed a Form 8-K with the Securities and Exchange Commission reporting that several purported class action lawsuits had been filed against us and certain of our officers and directors. In each of the lawsuits, the plaintiffs sought to assert claims on behalf of a class of all persons who purchased securities of BroadVision between January 26, 2001 and April 2, 2001. The complaints alleged that BroadVision and the individual defendants violated federal securities laws in connection with our reporting of financial results for the quarter ended December 31, 2000. The lawsuits were consolidated into a single action. On November 5, 2001, BroadVision and the individual defendants filed motions to dismiss the consolidated complaint. On February 22, 2000, we reached2002, the Court granted these motions, dismissed the consolidated complaint without prejudice and ordered the lead
15

plaintiff to file an amended complaint within 30 days. On March 25, 2002, the plaintiff filed its Second Amended Consolidated Complaint, which added claims for breach of fiduciary duty and named members of our board of directors as additional defendants. All defendants filed motions to dismiss the Second Amended Consolidated Complaint on May 10, 2002. The hearing on the defendant's motion to dismiss was heard on August 30, 2002. On September 11, 2002, the Court (1) dismissed with prejudice the claims that the defendants violated federal securities laws, on the basis that the complaint failed to state a claim upon which relief could be granted, and (2) dismissed without prejudice the claims for breach of fiduciary duty, on the basis that the claims were made under state law and, in the absence of any remaining federal law claims, the Court would decline to exercise supplemental jurisdiction. We are not aware of plaintiffs filing an appeal of the Court's September 11, 2002 decision or filing another complaint in any other court. We believe that the action was without merit and will continue to defend ourselves vigorously should plaintiffs continue to pursue any of these claims.
        On June 7, 2001, Verity, Inc. filed suit against us alleging copyright infringement, breach of contract, unfair competition and other claims. We have answered the complaint denying all allegations and are defending ourselves vigorously. The trial date is set for July 14, 2003 in San Jose, California, in the United States District Court, Northern District, San Jose Division. We are unable to estimate the amount or range of any potential loss from this matter.
        On July 18, 2002, Avalon Partners, Inc., doing business as Cresa Partners, filed a suit against us in the Superior Court of the State of California, San Mateo County, claiming broker commissions related to our termination and restructuring of certain facilities leases associated with our restructuring plans taken during the second quarter of 2002. The matter was settled by way of a settlement agreement executed by both parties in March 2003 and entered into a
license agreement with Art Technology Group, or ATG, in connection withthe parties expect the lawsuit we filed on December 11, 1998 against ATG alleging infringement of our
U.S. Patent No. 5,710,887. In accordance with the terms of the settlement
agreement, we granted ATG a nonexclusive, nontransferable, worldwide, perpetual
license and we were paid by ATG $8 million at the effective date of the
settlement. In addition, we will receive an additional $7 million payable in
quarterly installments, which payments commenced February 24, 2000,to be dismissed in the formsecond quarter of four consecutive quarterly paymentsfiscal 2003.
        We are also subject to various other claims and legal actions arising in the ordinary course of $750,000 during 2000 and eight
consecutive quarterly paymentsbusiness. In the opinion of $500,000 during 2001 and 2002. There are nomanagement, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material pendingeffect on our business, financial condition or results of operations. Although management currently believes that the outcome of other outstanding legal proceedings, to which weclaims and litigation involving us will not have a material adverse effect on its business, results of operations or anyfinancial condition, litigation is inherently uncertain, and there can be no assurance that existing or future litigation will not have a material adverse effect on our business, results of our subsidiaries is a
party.

operations or financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
        Not applicable.


                                       14

16

PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
        Our common stock is quoted on the Nasdaq National Market under the symbol "BVSN." The following table shows high and low sale prices per share of the common stock as reported on the Nasdaq National Market:

                                              High               Low
                                              ----               ---
Fiscal Year 2000
First Quarter.........................     $  90.67          $  42.44
Second Quarter........................        61.56             26.88
Third Quarter.........................        54.56             25.69
Fourth Quarter........................        36.19             11.81

Fiscal Year 1999
First Quarter.........................     $   8.04          $   3.01
Second Quarter........................         8.19              4.35
Third Quarter.........................        15.54              6.82
Fourth Quarter........................        59.67             14.10
 
 High
 Low
Fiscal Year 2002      
First Quarter $30.06 $15.30
Second Quarter  15.75  2.70
Third Quarter  4.59  1.23
Fourth Quarter  6.15  1.10
Fiscal Year 2001      
First Quarter $164.88 $40.32
Second Quarter  76.32  20.88
Third Quarter  47.61  6.12
Fourth Quarter  35.64  7.11
        As of March 28, 2001,20, 2003, there were 1,8311,971 holders of record of our common stock. On March 28, 2001,20, 2003, the last sale price reported on the Nasdaq National Market System for our common stock was $5.2188$4.07 per share. In May 2000, we
exchanged equity securities worth $3.0 million with netalone.com. We issued
to netalone.com 76,665 shares of our Common Stock in exchange for the receipt
from netalone.com of 23,366,700 shares of its Common Stock. In September
2000, in connection with Compaq Computer Corporation entering into a master
marketing and license agreement with us, we issued a warrant to Compaq for
43,478 shares of our Common Stock with an exercise price of $34.50 per share.
The exercise period for the warrant began on September 1, 2000 and expires on
September 1, 2005.
        We have never declared or paid cash dividends on our common stock, and it is our present intention to retain earnings to finance the expansion of our business. In addition, our credit facility with our commercial lender contains certain covenants that may limit our ability to pay cash dividends.


                                       15

17


ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
        The selected consolidated financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Consolidated Financial Statements of the CompanyBroadVision and Notes thereto, and other financial information included elsewhere hereinin of this Form 10-K. Historical results are not necessarily indicative of results that may be expected for future periods.

                                                                      Years Ended December 31,
                                              -----------------------------------------------------------------------
                                                  2000          1999           1998           1997           1996
                                              -----------    -----------    -----------    -----------    -----------
                                                              (in thousands, except per share data)

Consolidated Statement of Operations Data:

Revenues:
  Software licenses .......................   $   250,838    $    75,383    $    36,067    $    18,973    $     7,464
  Services ................................       163,078         40,131         14,844          8,132          3,418
                                              -----------    -----------    -----------    -----------    -----------
        Total revenues ....................       413,916        115,514         50,911         27,105         10,882
Cost of revenues:
  Cost of software licenses ...............         7,827          3,703          1,001          1,664            330
  Cost of services ........................       117,808         25,108          8,704          4,284          2,164
                                              -----------    -----------    -----------    -----------    -----------
        Total cost of revenues ............       125,635         28,811          9,705          5,948          2,494
                                              -----------    -----------    -----------    -----------    -----------
Gross profit ..............................       288,281         86,703         41,206         21,157          8,388
Operating expenses:
  Research and development ................        51,621         14,568          9,227          7,392          4,985
  Sales and marketing .....................       167,415         48,903         26,269         18,413         12,066
  General and administrative ..............        28,195          7,970          3,786          2,990          2,034
  Goodwill and intangible
    amortization ..........................       187,748             --             --             --             --
  Charge for acquired in-process technology        10,100             --             --             --             --
                                              -----------    -----------    -----------    -----------    -----------
        Total operating expenses ..........       445,079         71,441         39,282         28,795         19,085
                                              -----------    -----------    -----------    -----------    -----------
  Operating (loss) income .................      (156,798)        15,262          1,924         (7,638)       (10,697)
  Other, net ..............................        (4,831)         3,547          2,115            265            552
                                              -----------    -----------    -----------    -----------    -----------
  Net (loss) income .......................   $  (161,629)   $    18,809    $     4,039    $    (7,373)   $   (10,145)
                                              ===========    ===========    ===========    ===========    ===========

Net (loss) income per share:

Basic (loss) earnings per share ...........   $     (0.62)   $      0.08    $      0.02    $     (0.04)   $     (0.06)
                                              ===========    ===========    ===========    ===========    ===========
Shares used in computation -- basic (loss)
earnings per share ........................       259,780        229,128        210,114        181,872        169,335
                                              ===========    ===========    ===========    ===========    ===========

Diluted (loss) earnings per share .........   $     (0.62)   $      0.07    $      0.02    $     (0.04)   $     (0.06)
                                              ===========    ===========    ===========    ===========    ===========
Shares used in computation -- diluted (loss)
earnings per share ........................       259,780        260,712        230,877        181,872        169,335
                                              ===========    ===========    ===========    ===========    ===========


                                                                        As of December 31,
                                              -----------------------------------------------------------------------
                                                  2000          1999           1998           1997           1996
                                              -----------    -----------    -----------    -----------    -----------
                                                                          (in thousands)

Consolidated Balance Sheet Data:

Cash and cash equivalents .................   $   153,137    $   279,823    $    61,878    $     8,277    $    17,608
Working capital ...........................       215,831        324,156         63,620         11,485         18,258
Total assets ..............................     1,143,024        406,128        101,562         26,539         26,714
Debt and capital leases, less current
portion ...................................         3,897          4,890          3,194          3,005            495
Accumulated deficit .......................      (162,423)          (794)       (19,603)       (23,642)       (16,269)
Total stockholders' equity ................     1,009,298        345,188         81,809         15,121         21,016




                                       16

 
 Years Ended December 31,
 
 
 2002
 2001
 2000
 1999
 1998
 
 
 (in thousands, except per share data)

 
Consolidated Statement of Operations Data:                
Revenues:                
 Software licenses $40,483 $101,480 $250,838 $75,383 $36,067 
 Services  75,415  146,943  164,661  40,131  14,844 
  
 
 
 
 
 
  Total revenues  115,898  248,423  415,499  115,514  50,911 
Cost of revenues:                
 Cost of software licenses  8,144  9,895  7,827  3,703  1,001 
 Cost of services  38,898  97,639  119,391  25,108  8,704 
  
 
 
 
 
 
  Total cost of revenues  47,042  107,534  127,218  28,811  9,705 
  
 
 
 
 
 
Gross profit  68,856  140,889  288,281  86,703  41,206 
Operating expenses:                
 Research and development  41,432  78,677  51,621  14,568  9,227 
 Sales and marketing  48,918  139,799  167,415  48,903  26,269 
 General and administrative  16,288  42,311  28,088  7,970  3,786 
 Goodwill and intangible amortization  3,548  211,216  187,855  —  — 
 Charge for acquired in-process
technology		  —  6,418  10,100  —  — 
 Restructuring charge  110,449  153,284  —  —  — 
 Impairment of assets  3,129  —  —  —  — 
 Impairment of goodwill and other intangibles  —  336,379  —  —  — 
  
 
 
 
 
 
  Total operating expenses  223,764  968,084  445,079  71,441  39,282 
 Operating (loss) income  (154,908) (827,195) (156,798) 15,262  1,924 
  
 
 
 
 
 
 Other, net  (8,011)  (6,928) 18,217  4,543  2,036 
  
 
 
 
 
 
 (Loss) income before income taxes  (162,919) (834,123) (138,581) 19,805  3,960 
  
 
 
 
 
 
 Income tax provision (benefit)  7,603  2,136  23,048  996  (79)
  
 
 
 
 
 
 Net (loss) income $(170,522)$(836,259)$(161,629)$18,809 $4,039 
  
 
 
 
 
 

Net (loss) earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic (loss) earnings per share $(5.32)$(27.20)$(5.60)$0.74 $0.17 
  
 
 
 
 
 

Shares used in computation—basic (loss) earnings per share
 
 
32,036
 
 
30,748
 
 
28,864
 
 
25,458
 
 
23,346
 
  
 
 
 
 
 

Diluted (loss) earnings per share
 
$
(5.32
)
$
(27.20
)
$
(5.60
)
$
0.65
 
$
0.16
 
  
 
 
 
 
 

Shares used in computation—diluted (loss) earnings per share
 
 
32,036
 
 
30,748
 
 
28,864
 
 
28,968
 
 
25,653
 
  
 
 
 
 
 

 

 
As of December 31,

 
 
 2002
 2001
 2000
 1999
 1998
 
 
 (in thousands)

 
Consolidated Balance Sheet Data:                
Cash and cash equivalents $77,386 $75,758 $153,137 $279,823 $61,878 
Working capital  5,616  67,165  218,553  324,156  63,620 
Total assets  240,136  392,417  1,143,024  406,128  101,562 
Debt and capital leases, less current portion  1,945  2,922  3,897  4,890  3,194 

Accumulated deficit
 
 
(1,169,204
)
 
(998,682
)
 
(162,423
)
 
(794
)
 
(19,603
)
Total stockholders' equity  41,633  203,147  1,009,298  345,188  81,809 
18

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
        We develop, market and sell an integrated suitesupport enterprise portal applications that enable companies to unify their e-business infrastructure and conduct both interactions and transactions with employees, partners, and customers through a personalized self-service model that increases revenues, reduces costs, and improves productivity. As of packaged applications for
conducting e-business interactions, transactions and services. Global
enterprisesDecember 31, 2002, more than 1,200 companies and government entities around the globe use theseour applications to sell, buy, and
exchange goods, servicesfacilitate their portal-based commerce and information overaccess initiatives.
        BroadVision was founded in 1993 and has been a publicly traded corporation since 1996. BroadVision pioneered web-based e-commerce and was among the Webfirst to offer pre-integrated, packaged applications to power enterprise business portals.
        BroadVision's enterprise portal applications allow organizations to unify and on wireless devices.
Our e-business application suite enables a corporation to establishextend their key business applications, information, and sustain
high-yield relationships with customers, suppliers, partners, distributors,
employees and other constituentsbusiness processes by taking advantage of the extended enterprise.

      Thepower of the web and new wireless and mobile devices to allow customers, partners, and employees to do business on their own terms, in a personalized and collaborative way. BroadVision e-business application suite allows businessessolutions allow multiple constituents to tailor
Web and wireless contentserve themselves from anywhere, at anytime, through any web. BroadVision enterprise portal applications enable organizations to create business value by transforming the needs and interests of individual users by
personalizing contentway they do business; moving business interactions and transactions onfrom a real-time basis. Thesemanual, human-assisted paradigm to an automated, personalized self-service applications have demonstratedmodel that they can enhance customer
satisfactionenhances growth, reduces costs and loyalty, increase business volume and brand awareness, reduce
costs to service customers and execute transactions, and enhance employee
productivity and retention.

      Our products enable companies to organize dynamic profiles of Web and
wireless users from volunteered data and observed behavior, deliver highly
specialized content in response to these profiles and securely execute
transactions. Business managers are able to modify business rules and content in
real time, offering a personalized experience to each visitor. Because of the
open architecture of our applications, they are easily integrated with our
customers' existing systems and easily expanded as our customers' needs and
businesses grow.

      Supporting this application infrastructure are more than 190 partner firms
around the world who are working to ensure our joint customers' success through
complementary technology, applications, tools, and services offerings that
extend and enhance customers' BroadVision implementations.improves productivity.
        We believe our products enhanceimprove our customers' revenue opportunities by enabling them to establish more effective and efficient "one-to-one"one-to-one relationships with their customers and business partners. Web and wireless users are engaged by highly personalized real-time interactions, are able to transact business securely and are encouraged to remain online and make return visits. Our applications also improve the cost-effectiveness of one-to-one relationship management by enabling non-technical managers to modify business rules and content in real time and by helping to reduce coststhe cost of customer acquisition and retention, business development, and technical support as well asand employee workplace initiatives. In addition, theBecause we provide pre-integrated, packaged solution nature of our products
decreases our customers'solutions, time to deployment is shorter and allows themcustomers are able to easily manage and expandmaintain their Webweb and wireless application usageapplications in a cost-effective manner. Because of our commitment to open standards and open architecture, BroadVision applications integrate with our customers' existing systems and expand as our customers' needs and businesses grow.
        Supporting this application infrastructure, as of December 31, 2002, are more than 100 partner firms around the world who are working to ensure our joint customers' success through complementary technology, applications, tools and services offerings that extend and enhance BroadVision customers' implementations.
We sellmarket our products and services worldwide through a direct sales force and a
channel of independent distributors, value-added resellers or VARs,(VARs) and application service providers or ASPs.(ASPs). In addition, our sales are promoted through independent professional consulting organizations, known as systems integrators, or consulting partnersintegrators. We have operations in North America, Europe, and through membersAsia/Pacific.
        BroadVision Global Services (BVGS) organization provides a full spectrum of global services to help ensure success for businesses, including strategic services, implementation services, migration services and ongoing training and maintenance.
19

Recent Events
        We have experienced a global networkgeneral downturn in the economy, our industry and our business since the beginning of strategic business relationships with key industry platform2001. This downturn is likely to continue in the future and Web developer
partners. We also engage in strategic business allianceshas had and could continue to assist with the
marketing, selling and development of our customers' applications. We place a
strategic emphasis on technology alliances to ensure that our products are based
on industry standards and to position us to take advantage of current and
emerging technologies. All of these independent entities are often referred to
in this document as "partners." The benefits of this approach include enabling
us to focushave an impact on our core competencies while reducing time to market and
simplifying the task of designing and developing applications for us and our
customers.

      On April 14, 2000, we acquired Interleaf pursuant to a statutory merger
involving a stock-for-stock exchange. The acquisition occurred primarily to
enable us to add significant wireless technology capabilities and substantially
increase our ability to provide enhanced personalized e-business applications
across multi-touch points. We accounted for this acquisition as a purchase
business combination. Accordingly, the results of operations of Interleaf are
includedfuture financial results. As discussed in our combined results from the date of the acquisition. Please see
Note 29 of Notes to Consolidated Financial Statements, we have recorded significant restructuring charges in connection with our reduction in workforce and abandonment of certain operating facilities as part of our program to restructure our operations and related facilities initiated in the second quarter of fiscal 2001. A pre-tax charge of $153.3 million was recorded during fiscal 2001 and $110.4 million was recorded during fiscal 2002 to provide for more detailed
information.


                                       17


STATEMENT OF OPERATIONS AS A PERCENT OF TOTAL REVENUESthese actions and other related items. Costs for the abandoned facilities were estimated to include the impairment of assets, remaining lease liabilities and brokerage fees partially offset by estimated sublease income. Estimates related to sublease costs and income are based on assumptions regarding the period required to locate and contract with suitable sublessees and sublease rates which were based upon market trend information analyses. Adjustments to the restructuring reserve will be made in future periods, if necessary, based upon the then current actual events and circumstances.
        On July 18, 2002, Avalon Partners, Inc., doing business as Cresa Partners, filed a suit against us in the Superior Court of the State of California, San Mateo County, claiming broker commissions related to our termination and restructuring of certain facilities leases associated with our restructuring plans taken during the second quarter of 2002. The following table sets forth certain items reflectedmatter was settled by way of a settlement agreement executed by both parties in March 2003 and the parties expect the lawsuit to be dismissed in the second quarter of fiscal 2003.
        On May 9, 2002, the Company and Pacific Shores Development LLC ("PacShores") entered into (i) the First Amendment to Lease (Lease Termination and Mutual General Release Agreement), made effective as of April 29, 2002 (the "Buildings 4 and 5 Termination Agreement") and (ii) the First Amendment to Lease made effective as of April 29, 2002 (the "Building 6 Amendment"). Under the Buildings 4 and 5 Termination Agreement, the Triple Net Building Lease dated April 12, 2000 between PacShores, as Lessor, and the Company, as Lessee, for Premises at Pacific Shores Center, Building 4, Redwood City, California and the Triple Net Building Lease dated February 16, 2000 between PacShores, as Lessor, and the Company, as Lessee, for Premises at Pacific Shores Center, Building 5, Redwood City, California, were terminated. In conjunction with the termination, PacShores released all security deposits held by it relating to those premises and we paid to PacShores a total of $45.0 million as a termination fee (the "Termination Fee"). Under the Building 6 Amendment, the parties released each other from all claims and we agreed to provide an additional $3.5 million as security deposit in the form of letters of credit. This letter of credit is included as restricted cash and investments in our consolidated
statementsConsolidated Balance Sheet as of December 31, 2002. We paid the Termination Fee in full during the second quarter of 2002 by payment of approximately $20.0 million from existing cash and investments and by drawing down approximately $25.0 million from our line of credit. The $25.0 million line of credit is due in February 2004.
        On April 8, 2002, we filed a Form 8-K with the Securities and Exchange Commission to report that we had received notice from our independent public accountant, Arthur Andersen LLP, of its resignation as our auditor as a result of our plans to change independent public accountants for the fiscal year ending December 31, 2002 due to an anticipated future non-audit business relationship between the two companies.
        On May 13, 2002, we filed a Form 8-K with the Securities and Exchange Commission to report our selection of our independent public accountants, BDO Seidman, LLP, as auditors for the fiscal year ending December 31, 2002.
        During the first quarter of 2002 we engaged a third party firm to conduct a physical inventory of our computer hardware assets located in North America. We conducted an internal physical inventory
20

on computer hardware assets located outside of North America. The objective of the physical inventory was to verify the amount and location of our computer hardware. As a result of the findings of the physical inventory and related reconciliation with our asset records, we recorded an asset impairment charge of approximately $2.3 million net book value related to computer hardware. During the third quarter of 2002, we conducted an additional review of remaining computer and communication-related assets not reviewed during the first quarter inventory and recorded an asset impairment charge of $853,000 as a result of the findings of our inventory and related reconciliation with our asset records.
Critical Accounting Policies
        BroadVision management's discussion and analysis of our financial condition and results of operations expressedare based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. In preparing these financial statements, we are required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to doubtful accounts, product returns, investments, goodwill and intangible assets, income taxes and restructuring, as a percentwell as contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of total revenueswhich form the basis for making judgments about the periods indicated.



                                                       Years Ended December 31,
                                                     ---------------------------
                                                      2000       1999      1998
                                                     ------     ------    ------

Revenues:
  Software licenses .............................       61%        65%       71%
  Services ......................................       39         35        29
                                                      ----       ----      ----
          Total revenues ........................      100        100       100
                                                      ----       ----      ----
Cost of revenues:
  Cost of software licenses .....................        2          3         2
  Cost of services ..............................       28         22        17
                                                      ----       ----      ----
     Total cost of revenues .....................       30         25        19
                                                      ----       ----      ----
          Gross profit ..........................       70         75        81
                                                      ----       ----      ----
Operating expenses:
  Research and development ......................       13         13        18
  Sales and marketing ...........................       41         42        52
  General and administrative ....................        7          7         7
  Goodwill and intangible amortization ..........       45         --        --
  Charge for acquired in-process technology .....        2         --        --
                                                      ----       ----      ----
     Total operating expenses ...................      108         62        77
                                                      ----       ----      ----
          Operating (loss) income ...............      (38)        13         4
     Other, net .................................        4          4         4
                                                      ----       ----      ----
          (Loss) Income before income taxes .....      (34)        17         8
     Income tax provision .......................        5          1        --
                                                      ----       ----      ----
          Net (loss) income .....................      (39)%       16%        8%
                                                      ====       ====      ====



RESULTS OF OPERATIONS

                                    Revenues

      carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates using different assumptions or conditions. We believe the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition
Overview—Our revenues are derived from fees for licenses of our software licensing arrangementsproducts, maintenance, consulting services and customer training. We generally charge fees for licenses of our software products either based on the number of persons registered to use the product or based on the number of CPUs on which the product is installed. Licenses for software whereby fees charged for services. Software is generally licensedare based upon the number of persons registered to use the product are differentiated between licenses for development use and licenses for its use in deployment of the customer's website. Deployment licensesLicenses for software whereby fees charged are
generally based on the number of persons who register on a customer's website
using our software.per-CPU basis do not differentiate between development and deployment usage. Our revenue recognition policies are in accordance with Statement of Position ("SOP")(SOP) No. 97-2,Software Revenue Recognition, as amended
andamended; SOP No. 98-9,Software Revenue Recognition, With Respect to Certain Transactions.Transactions and the Securities and Exchange Commission's Staff Accounting Bulletin No. 101,Revenue Recognition in Financial Statements.
Software License Revenue—We license our products through our direct sales force and indirectly through resellers. In general, software license revenues are recognized when a non-cancelable license agreement has been signed and the customer acknowledges an unconditional obligation to pay, the software product has been delivered, there are no uncertainties surrounding product acceptance, the fees are fixed and determinable and collection is considered probable;
professional servicesprobable. Delivery is considered to have occurred when title and risk of loss have been transferred to the customer, which generally occurs when media containing the licensed programs is provided to a common carrier. In case of electronic delivery, delivery occurs when the customer is given access to the licensed programs. If collectibility is not considered probable, revenue is recognized when the fee is collected. Subscription-based license revenues are recognized as such services are performed;
and maintenance revenues, or post-contract customer support, or PCS,
including revenues bundled with software agreements which entitle the
customers to technical support and future unspecified enhancements to our
products, are deferred and recognized ratably over the related contract
period, generally twelve months.subscription period. We enter into reseller arrangements that typically provide for sublicense fees payable to us based upon a percentage of list price. We do not grant our resellers the right of return.
        We recognize revenue using the residual method pursuant to the requirements of SOP No. 97-2, as amended by SOP No. 98-9. Revenues recognized from multiple-element software arrangements are
21

allocated to each element of the arrangement based on the fair values of the elements, such as licenses for software products, post contractmaintenance, consulting services or customer support, installation or training. The determination of fair value is based on objective evidence, which is specific to us. IfWe limit our assessment of objective evidence of fair
value doesfor each element to either the price charged when the same element is sold separately or the price established by management having the relevant authority to do so, for an element not exist for all elements of a license agreement and PCS is the
only undelivered element, then all revenue for the license arrangement is
recognized ratably over the term of the agreement as license revenue.yet sold separately. If evidence of fair value of all undelivered elements exists but evidence does not exist for one or more delivered elements, then revenue is recognized usingunder the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue. Services that the Company provides are not
essential to the functionality of the software.
        We record unearned revenue for software arrangements when cash has been received from the customer and the arrangement does not qualify for revenue recognition under our revenue recognition policy. We record accounts receivable for software arrangements when the arrangement qualifies for revenue recognition but cash or other consideration has not been received from the customer.
Services Revenue—Consulting services revenues and customer training revenues are recognized as such services are performed. Maintenance revenues, which include revenues bundled with software license agreements that entitle the customers to technical support and future unspecified enhancements to our products, are deferred and recognized ratably over the related agreement period, generally twelve months. Our professional services which consist of consulting, maintenance and training are delivered through BVGS. Services that we provide are not essential to the functionality of our BroadVision Global
Services Organization, or BVGS, presently comprised of the Strategic Services
Group, the Technical Services Group, the Content and Creative Services Group,
the Client Services, Project and Program Management Group, the Partner
Services Group, the Education Services Group and the Technical Support
Services Group. The first three groups providesoftware. This group provides consulting services, the
fourth group manages projects and client relationships, the fifth group manages the needs of our partner community, the sixth group provides training-related services to employees, customers and partners, and the last
groupalso provides software maintenance services, including technical 18
support, to our customers and partners. RevenueWe record reimbursement by our customers for out-of-pocket expenses as a component of services revenue.
Allowances and Reserves
        Occasionally, our customers experience financial difficulty after we record the sale but before we are paid. We maintain allowances for doubtful accounts for estimated losses resulting from consulting services is
typically recognized as services are performed. Maintenance fees relating to
technical support and upgrades are recognized ratably over the maintenance
period. A summaryinability of our softwarecustomers to make required payments. Our normal payment terms are 30 to 90 days from invoice date. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. We record estimated reductions to revenue for potential returns of products by our customers. If market conditions were to decline, we may experience larger volumes of returns resulting in an incremental reduction of revenue at the time the return occurs.
Impairment Assessments
        As discussed in Note 4 to our Consolidated Financial Statements, we adopted Statement of Financial Accounting Standard (SFAS) No. 142, "Goodwill and servicesOther Intangible Assets," on January 1, 2002. This standard requires that goodwill no longer be amortized, and instead, be tested for impairment on a periodic basis.
        Pursuant to SFAS No. 142, we are required to test goodwill for impairment upon adoption and annually or more often if events or changes in circumstances indicate that the asset might be impaired. While there was no accounting charge to record upon adoption, at September 30, 2002, we concluded that, based on the existence of impairment indicators, including a decline in our market value, we would be required to test goodwill for impairment. SFAS No. 142 provides for a two-stage approach to determining whether and by how much goodwill has been impaired. Since we have only one reporting unit for purposes of applying SFAS No. 142, the first stage requires a comparison of the fair value of the Company to its net book value. If the fair value is greater, then no impairment is deemed to have
22

occurred. If the fair value is less, then the second stage must be completed to determine the amount, if any, of actual impairment. We completed the first stage and determined that our fair value at September 30, 2002 exceeded our net book value on that date, and as a result, no impairment of goodwill was recorded in the consolidated financial statements. We obtained an independent appraisal of fair value to support our conclusion. We also determined that our fair value exceeded our net book value as of December 31, 2002 and therefore, no additional impairment was warranted.
        The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment. In estimating our fair value, we made estimates and judgments about future revenues and cash flows. Our forecasts were based on assumptions that are consistent with the plans and estimates we are using to manage our business. Changes in these estimates could change our conclusion regarding impairment of goodwill and potentially result in a non-cash goodwill impairment charge, for all or a portion of the goodwill balance at December 31, 2002. For long-lived assets, accounting standards dictate that assets become impaired when the undiscounted future cash flows expected to be generated by geographic regionthem are less than their carrying amounts. When that occurs, the affected assets are written down to their estimated fair value.
Deferred Tax Assets
        We analyze our deferred tax assets with regard to potential realization. We have established a valuation allowance on our deferred tax assets to the extent that we determined that it is more likely than not that some portion or all of the deferred tax asset will not be realized based upon the uncertainty of their realization. We have considered estimated future taxable income and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance. Based upon this analysis, we recorded a valuation allowance for our deferred tax assets during the three months ended June 30, 2002, which resulted in a charge of $6.3 million.
Accounting for Stock-Based Compensation
        We apply Accounting Principles Board (APB) Opinion Number 25,Accounting for Stock Issued to Employees, and related interpretations when accounting for our stock option and stock purchase plans. In accordance with APB No. 25, we apply the intrinsic value method in accounting for employee stock options. Accordingly, we generally recognize no compensation expense with respect to stock-based awards to employees.
        During the year ended December 31, 2002, the Company recorded compensation expense of $846,000. This charge was recorded as a result of granting terminated employees continued vesting of their stock options for a period beyond their actual termination date. The compensation charge was calculated using the Black-Scholes model. $739,000 of the charge is recorded in general and administrative expense and the remaining $107,000 is included in restructuring charge as it related to employees terminated under the Company's restructuring plan.
        We have determined pro forma information regarding net income and earnings per share as if we had accounted for employee stock options under the fair value method as required by SFAS Number 123,Accounting for Stock Compensation. The fair value of these stock-based awards to employees was estimated using the Black-Scholes option pricing model. Please see Note 10 of Notes to Consolidated Financial Statements for assumptions used in the Black-Scholes option pricing model. Had compensation cost for the Company's stock option plan and employee stock purchase plan been determined consistent with SFAS No. 123, the Company's reported net income (loss) and net earnings
23

(loss) per share would have been changed to the amounts indicated below (in thousands except per share data):
 
 Years Ended December 31,
 
 
 2002
 2001
 2000
 
Net loss as reported $(170,522)$(836,259)$(161,629)
Add: Stock-based employee compensation expense included in reported net loss, net of related tax effects  846  1,014  226 
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects  (47,979) 39,661  (323,184)
Pro forma net loss $(217,655)$(795,584)$(484,587)
Earnings per share:          
Basic—as reported $(5.32)$(27.20)$(5.60)
Basic—pro forma $(6.80)$(25.87)$(16.79)
Diluted—as reported $(5.32)$(27.20)$(5.60)
Diluted—pro forma $(6.80)$(25.87)$(16.79)
Restructuring
        Our Restructuring charges are comprised primarily of: (i) severance and benefits termination costs related to the reduction of our workforce; (ii) lease termination costs and/or costs associated with permanently vacating our facilities; and (iii) impairment costs related to certain long-lived assets abandoned. We account for each of these costs in accordance with SEC Staff Accounting Bulletin No. 100,Restructuring and Impairment Charges
        We account for severance and benefits termination costs in accordance with 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) (EITF 94-3). Accordingly, we record the liability related to these termination costs when the following conditions have been met: (i) management with the appropriate level of authority approves a termination plan that commits us to such plan and establishes the benefits the employees will receive upon termination; (ii) the benefit arrangement is communicated to the employees in sufficient detail to enable the employees to determine the termination benefits; (iii) the plan specifically identifies the number of employees to be terminated, their locations and their job classifications; and (iv) the period of time to implement the plan does not indicate changes to the plan are likely. The termination costs recorded by us are not associated with nor do they benefit continuing activities.
        We account for the costs associated with lease termination and/or abandonment in accordance with EITF 88-10. Accordingly, we record the costs associated with lease termination and/or abandonment when the leased property has no substantive future use or benefit to us. Under EITF 88-10, we record the liability associated with lease termination and/or abandonment as the sum of the total remaining lease costs and related exit costs, less probable sublease income. We account for costs related to long-lived assets abandoned in accordance with SFAS 144 and, accordingly, charges to expense the net carrying value of the long-lived assets when we cease to use the assets.
        Inherent in the estimation of the costs related to our Restructuring efforts are assessments related to the most likely expected outcome of the significant actions to accomplish the Restructuring. In determining the charge related to the Restructuring, the majority of estimates made by management related to the charge for excess facilities. In determining the charge for excess facilities, we were required to estimate future sublease income, future net operating expenses of the facilities, and brokerage commissions, among other expenses. The most significant of these estimates related to the timing and extent of future sublease income in which to reduce our lease obligations. Specifically, in
24

determining the Restructuring obligations related to facilities as of December 31, 2002, we reduced our lease obligations by estimated sublease income of $28.8 million. We based our estimates of sublease income, in part, on the opinions of independent real estate experts, current market conditions and rental rates, an assessment of the time period over which reasonable estimates could be made, the status of negotiations with potential subtenants, and the location of the respective facility, among other factors.
        These estimates, along with other estimates made by management in connection with the Restructuring, may vary significantly depending, in part, on factors that may be beyond our control. Specifically, these estimates will depend on our success in negotiating with lessors, the time periods required to locate and contract suitable subleases and the market rates at the time of such subleases. Adjustments to the facilities reserve will be required if actual lease exit costs or sublease income differ from amounts currently expected. We will review the status of Restructuring activities on a quarterly basis and, if appropriate, record changes to our Restructuring obligations in current operations based on management's most current estimates.
Legal Matters
        Management's current estimated range of liability related to pending litigation is based on claims for which it is probable that a liability has been incurred and our management can estimate the amount and 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 determination of the probability of an unfavorable outcome and the amount and range of loss in the event of an unfavorable outcome, management is unable to make a reasonable estimate of the liability that could result from the remaining pending litigation. As additional information becomes available, we will assess the probability and the potential liability related to our pending litigation and revise our estimates, if necessary. Such revisions in our estimates of the potential liability could materially impact our results of operations and financial position.
25

Statement of Operations as a Percent of Total Revenues
        The following table sets forth certain items reflected in our consolidated statements of operations expressed as a percent of total revenues for the periods indicated is as follows:



                                Software       %       Services       %        Total         %
                                --------   --------    --------   --------    --------   --------
                                                      (dollars in thousands)


Year Ended December 31, 2000:
  Americas ..................   $155,337         62%   $125,994         77%   $281,331         68%
  Europe ....................     75,046         30      28,565         18     103,611         25
  Asia/Pacific ..............     20,455          8       8,519          5      28,974          7
                                --------   --------    --------   --------    --------   --------
Total .......................   $250,838        100%   $163,078        100%   $413,916        100%
                                ========   ========    ========   ========    ========   ========

Year Ended December 31, 1999:
  Americas ..................   $ 48,822         65%   $ 30,501         76%   $ 79,323         69%
  Europe ....................     18,918         25       7,293         18      26,211         22
  Asia/Pacific ..............      7,643         10       2,337          6       9,980          9
                                --------   --------    --------   --------    --------   --------
Total .......................   $ 75,383        100%   $ 40,131        100%   $115,514        100%
                                ========   ========    ========   ========    ========   ========

Year Ended December 31, 1998:
  Americas ..................   $ 19,301         54%   $ 10,029         67%   $ 29,330         58%
  Europe ....................     13,879         38       3,065         21      16,944         33
  Asia/Pacific ..............      2,887          8       1,750         12       4,637          9
                                --------   --------    --------   --------    --------   --------
Total .......................   $ 36,067        100%   $ 14,844        100%   $ 50,911        100%
                                ========   ========    ========   ========    ========   ========



2000indicated.
 
 Years Ended December 31,
 
 
 2002
 2001
 2000
 
Revenues:       
 Software licenses 35%41%60%
 Services 65 59 40 
  
 
 
 
   Total revenues 100 100 100 
Cost of revenues:       
 Cost of software licenses 7 4 2 
 Cost of services 34 39 28 
  
 
 
 
  Total cost of revenues 41 43 30 
  
 
 
 
   Gross profit 59 57 70 
Operating expenses:       
 Research and development 36 32 13 
 Sales and marketing 42 56 41 
 General and administrative 14 17 7 
 Goodwill and intangible amortization 3 85 45 
 Charge for acquired in-process technology — 3 2 
 Restructuring charge 95 62 — 
 Impairment of assets 3 — — 
 Impairment of goodwill and other intangibles — 135 — 
  
 
 
 
  Total operating expenses 193 390 108 
  
 
 
 
   Operating loss (134)(333)(38)
  
 
 
 
  Other (expense) income, net (7)(3)4 
  
 
 
 
   Loss before provision for income taxes (141)(336)(34)
  
 
 
 
  Provision for income taxes 6 1 5 
  
 
 
 
   Net loss (147)%(337)%(39)%
  
 
 
 
26
Results of Operations
 
 Software
 %
 Services
 %
 Total
 %
 
 
 (dollars in thousands)

 
Year Ended December 31, 2002:                
 Americas $23,988 59%$46,137 61%$70,125 61%
 Europe  14,658 36  24,853 33  39,511 34 
 Asia/Pacific  1,837 5  4,425 6  6,262 5 
  
 
 
 
 
 
 
Total $40,483 100%$75,415 100%$115,898 100%
  
 
 
 
 
 
 
Year Ended December 31, 2001:                
 Americas $51,863 51%$98,385 67%$150,248 60%
 Europe  37,606 37  37,524 26  75,130 30 
 Asia/Pacific  12,011 12  11,034 7  23,045 10 
  
 
 
 
 
 
 
Total $101,480 100%$146,943 100%$248,423 100%
  
 
 
 
 
 
 
Year Ended December 31, 2000:                
 Americas $145,277 58%$128,339 78%$273,616 66%
 Europe  80,531 32  27,011 16  107,542 26 
 Asia/Pacific  25,030 10  9,311 6  34,341 8 
  
 
 
 
 
 
 
Total $250,838 100%$164,661 100%$415,499 100%
  
 
 
 
 
 
 
Revenues
2002 versus 19992001
        Total revenues for the year ended December 31, 2000 increased $298.42002 decreased $132.5 million or 258%53% on a year-over-year basis, and consisted of an increasea decrease in software license revenue of $175.5$61.0 million or 233%60% and an increasea decrease in professional services revenue of $122.9$71.5 million or 306%49%.
        The 233% increase60% decrease in software license revenues is a result of continued
strong demand by existing and new customers for our expanding product line
and core competencies and the growing market for business-to-business and
business-to-consumer e-commerce software application solutions. Our
aggressive growth and enhanced presence in global markets were contributing
factors in ourprimarily attributable to an overall increase in revenues. Also contributing to increased
revenues are sales of software licenses of products acquireddecline in the Interleaf
transaction. Revenues attributedeconomy throughout the 2002 fiscal year in comparison to the sales of software licenses for
products acquired as a result of2001 fiscal year. Continued economic uncertainty affected the Interleaf acquisition were approximately
$11 million from the date of acquisition through December 31, 2000. During
the year, we continued to expand the functionality and personalization
attributes ofspending on information technology which significantly affected our application products that contributed to a broadened
customer base and an increased level of repeat business. In addition, our
deployment license revenues, which are based upon related user profiles,
continued to accelerate as a result of an increasingly large number of live
sites.

      Software product license revenues for our Enterprise applications
increased to $18.6 million in 2000 as compared to $14.6 million in 1999.
Software license revenues for our web applications and tools, or packaged
solutions, increased to $232.2 million in 2000 as compared to $60.8 million
in 1999. Deployment license revenues increased to $81.8 million in 2000 as
compared to $31.2 million in 1999. During the year ended December 31, 2000,
we licensed 557 new end-user customers, including customers acquired as part
of the Interleaf acquisition, and 74 new partners which compares with
approximately 217 new end-user customers and 47 new partners for the year
ended December 31, 1999. As of December 31, 2000, we had a total installed
license base of 1,169 consisting of 972 end-user customers, including
customers acquired as part of the Interleaf acquisition, and 197 partners,
which compares with 415 end-user customers and 123 partners as of December
31, 1999.revenue during 2002.
        The 306% increase49% decrease in professional services revenue is a result of higher levels of consulting related servicesdecreased business volume associated with increased
business volumesdecreased software license revenues over the past year and higher customer support revenues derived from a larger
installed customer base.an overall decline in the economy. Maintenance related fees for technical support and product upgrades were $46.2$38.7 million in 20002002 which compares to $13.4$59.9 million in 1999. We also experienced increases in services and maintenance revenues
as a result of the Interleaf acquisition. Total services revenues related to
customers acquired as a result of the Interleaf acquisition were
approximately $17 million. During fiscal2002.
2001 versus 2000 we expanded our corporate
training facilities by building new training centers in Chicago, Illinois,
the United Kingdom and Taipei, Taiwan.

      To date we have achieved good market acceptance for our products and have
experienced continued revenue growth. We anticipate that international revenues
will continue to account for a significant amount of total revenues, and expect
to continue to commit significant time and financial resources to the
maintenance and ongoing development of direct and indirect international sales
and support channels. However, we may be unable to maintain or continue to
increase international or domestic market acceptance for our family of products.


                                       19


1999 versus 1998
        Total revenues for the year ended December 31, 1999 increased $64.62001 decreased $167.1 million or 127%40% on a year-over-year basis, and consisted of an increasea decrease in software license revenue of $39.3$149.4 million or 109%60% and an increasea decrease in professional services revenue of $25.3$17.7 million or 170%11%.
        The 109% increase60% decrease in software license revenues was a result of continued
strong demand foris attributable to an overall decline in the economy throughout the 2001 fiscal year in comparison to the 2000 fiscal year. Continued economic uncertainty affected the spending on information technology which significantly affected our expanding product line and core competencies; our
strategic positioning within a high momentum market for business-to-business and
business-to-consumer personalization focused software application solutions; and
the ability to achieve greater penetration into our existing customer base while
continuing to add significant numbers of new quality customers. During the year,
we continued to expand the functionality and personalization attributes of our
application products that contributed to a broadened customer base and an
increased level of repeat business. In addition, our deployment related user
profile based licensing revenues continued to accelerate as a result of an
increasingly larger number of live sites. Software product license revenues for
our Enterprise applications decreased to $14.6 million in 1999 as compared to
$19.3 million in 1998. Deployment related user profile license revenues
increased to $31.2 million in 1999 as compared to $14.8 million in 1998. During
the year ended December 31, 1999, we licensed approximately 217 new end-user
customers and 47 new partners which compares with approximately 94 new end-user
customers and 27 new partners for the year ended December 31, 1998. As of
December 31, 1999, we had a total installed license base of over 410 end-user
customers and 120 partners, which compares with over 195 end-user customers and
75 partners as of December 31, 1998.revenue during 2001.
        The 170% increase11% decrease in professional services revenue wasis a result of higher
levels of consulting related servicesdecreased business volume associated with increased business volumesdecreased software license revenues over the past year and higher customer support revenuesan overall decline in the economy. The decrease in overall professional services revenue was partially offset by an increase in maintenance related revenue derived from a larger installed customer
base.maintenance renewal agreements. Maintenance related fees
27

for technical support and product upgrades were $13.4$59.9 million in 19992001 which compares to $5.1$46.2 million in 1998. During the year
ended December 31, 1999, we continued to expand and enhance our professional
services group and, during August 1999, we completed our greatly expanded
corporate training facility located in Redwood City, California. We also added
additional training and professional consulting related facilities in Europe and
Asia as of December 31, 1999.

2000.
Cost of Revenues
        Cost of license revenuessoftware licenses includes the costs of product media, duplication, packaging and other manufacturing costs as well as royalties payable to third parties for software that is either embedded in, or bundled and sold with, our products.
        Cost of services consists primarily of employee-related costs, third-party consultant fees incurred on consulting projects, post-contract customer support and instructional training services.

                                                     Years Ended December 31,
                                -----------------------------------------------------------------
                                  2000         %         1999         %         1998         %
                                --------   --------    --------   --------    --------   --------
                                                    (dollars in thousands)


Cost of software licenses [1]   $  7,827        3%     $  3,703        5%     $  1,001       3%
Cost of services [2]             117,808       72        25,108       63         8,704      59
                                --------               --------               --------
Total cost of revenues [3] ..   $125,635       30%     $ 28,811       25%     $  9,705      19%
                                ========               ========               ========



      [1] -- 
 
 Years Ended December 31,
 
 
 2002
 %
 2001
 %
 2000
 %
 
 
 (dollars in thousands)

 
Cost of software licenses(1) $8,144 20%$9,895 10%$7,827 3%
Cost of services(2)  38,898 52  97,639 66  119,391 73 
  
 
 
 
 
 
 
Total cost of revenues(3) $47,042 41%$107,534 43%$127,218 30%
  
 
 
 
 
 
 
(1)
Percentage is calculated based on total software license revenues for the period indicated

      [2] -- indicated.

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

      [3] -- indicated.

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

2000indicated.
2002 versus 19992001
        For the year ended December 31, 2000,2002, cost of license revenues increased
$4.1software licenses decreased $1.8 million or 111%18% on a year-over-year basis. Cost of software licenses as a percent of license revenues was 3%20% in 20002002 as compared to 5%10% in 1999.2001. The decrease in absolute dollars year over year is a result of decreased license revenues and resulting decrease in revenues with associated third party royalties. The increases in the 2002 fiscal year from the 2001 fiscal year as a percentage of license revenue is due primarily to a $3.2 million writeoff of pre-paid royalties for software we no longer intend to utilize. This charge was taken during the fourth quarter of fiscal year 2002. Cost of software licenses, excluding the prepaid royalty write-off, as a percentage of software license revenue were 12% in fiscal year 2002.
        Cost of services revenues during 2000 increased $92.72002 decreased $58.7 million or 369%60% on a year-over-year basis. Cost of services as a percent of services revenues was 72%52% in 20002002 as compared to 63%66% in 1999.

      In absolute dollar terms, the increase in cost of software licenses was
principally a result of increased sales of our products and of royalty-bearing
third party products. In relative percentage terms, cost of software licenses
decreased principally as a result of renegotiating the royalty provisions of
agreements with software suppliers from per copy royalties to fixed fee prepaid
license fees.


                                       20
2001. The increasedecrease in cost of services revenues in absolute dollar terms during 2000 as compared to 1999 is a result of higher business volumes as
evidenced by increased services revenues. The increase in cost of servicesand as a percentage of revenues can primarily be attributed to an increase in
personnel who do not generate revenue during their initial training period.2002 as compared to 2001 was the result of reductions in force that occurred during the 2002 fiscal year, which resulted in decreased salary and salary-related expenses as well as a decreased use of third party consultants. Total employees in global services and client supportBVGS were 1,135170 as of December 31, 20002002 as compared to 246394 as of December 31, 1999. This includes
employees added as a result of the Interleaf acquisition. In addition, we
increased our use of outside consultants from the prior year in order to meet
our short-term demands.

19992001.
2001 versus 19982000
        For the year ended December 31, 1999,2001, cost of license revenuessoftware licenses increased $2.7$2.1 million or 270%26% on a year-over-year basis. Cost of software licenses as a percent of license revenues was 5%10% in 19992001 as compared to 3% in 1998.2000. The increases in the 2001 fiscal year from the 2000 fiscal year are due to a higher level of sales with associated royalties due on third-party products. In addition, during the year ended December 31, 2001, we recorded expense for a prepaid royalty of $500,000 to third parties for products that we do not expect to sell in future years.
        Cost of services revenues during 1999 increased $16.42001 decreased $21.8 million or 188%18% on a year-over-year basis. Cost of services as a percent of services revenues was 63%66% in 19992001 as compared to 59%73% in 1998.2000. The increase in cost of license revenues, in both absolute dollar and
relative percentage terms, was principally a result of the higher mix of third
party software bundled and sold with our products and the related third party
royalty fees payable on those sales. Third party royalty costs relative to
license revenues have been offset to some extent as a result of our
renegotiating previously existing percentage-based royalty arrangements into
prepaid fixed fee royalties for periods extending through 2004.

      The increasedecrease in cost of services revenues in absolute dollar terms during
1999 as compared to 1998 was a result of higher business volumes as evidenced by
increased services revenues. Overall costs increased as a result of additions to
our professional services staff and the employment of outside consultants to
meet short-term consulting demands. The increase in cost of services as a percentage of services revenuesrevenue during 2001 as compared to
28

2000 was athe result of the assimilation of new
professional consultants added to the groupreductions in force that occurred during the 2001 fiscal year, which resulted in decreased salary and highersalary-related expenses as well as a decreased use of outside consultantsthird party consultants. Total employees in relationBVGS were 394 as of December 31, 2001 as compared to the extent previously used during the prior
year period.

                    1,135 as of December 31, 2000.
Operating Expenses and Other Income (Expense), net
        Research and development expenses consist primarily of salaries, employee-related benefit costs and consulting fees incurred in association with the development of our products. Costs incurred for the research and development of new software products are expensed as incurred until thesuch time that technological feasibility, in the form of a working model, is established at which point thesetime such costs are capitalized subject to recoverability.and recorded at the lower of unamortized cost or net realizable value. The costs we have incurred subsequent to the establishment of a working model but prior to general release of the product have not been significant. To date, we have not capitalized any costs related to the development of software development costs.for external use.
        Sales and marketing expenses consist primarily of salaries, employee-related benefit costs, commissions and other incentive compensation, travel and entertainment and marketing-relatedmarketing program-related expenditures such as collateral materials, trade shows, public relations, advertising, and creative services.
        General and administrative expenses consist primarily of salaries, employee-related benefit costs, accounts receivable reserves expense, and professional service fees.
        A summary of operating expenses is set forth in the following table. The percentage of expenses is calculated based on total revenues.

                                                                   Years Ended December 31,
                                             -------------------------------------------------------------------
                                               2000         %         1999         %          1998          %
                                             --------   --------    --------    --------    --------    --------
                                                               (dollars in thousands)

Research and development .................   $ 51,621         13%   $ 14,568          13%   $  9,227          18%
Sales and marketing ......................    167,415         41      48,903          42      26,269          52
General and administrative ...............     28,195          7       7,970           7       3,786           7
Goodwill and intangible amortization .....    187,748         45          --          --          --          --
Charge for acquired in-process technology      10,100          2          --          --          --          --
                                             --------               --------                --------
Total operating expenses .................   $445,079        108%   $ 71,441          62%   $ 39,282          77%
                                             ========   ========    ========    ========    ========    ========
Interest income ..........................   $ 16,706          4%   $  5,142           4%   $  2,484           5%
                                             ========   ========    ========    ========    ========    ========
Other income (expense), net ..............   $  1,511          0%   $   (599)          1%   $   (448)          1%
                                             ========   ========    ========    ========    ========    ========




                                       21


2000
 
 Years Ended December 31,
 
 
 2002
 %
 2001
 %
 2000
 %
 
 
 (dollars in thousands)

 
Research and development $41,432 36%$78,677 32%$51,621 13%
Sales and marketing  48,918 42  139,799 56  167,415 41 
General and administrative  16,288 14  42,311 17  28,088 7 
Goodwill and intangible amortization  3,548 3  211,216 85  187,855 45 
Charge for acquired in-process technology  — —  6,418 3  10,100 2 
Restructuring charge  110,449 95  153,284 62  — — 
Impairment of assets  3,129 3  — —  — — 
Impairment of goodwill and other intangibles  — —  336,379 135  — — 
  
 
 
 
 
 
 
Total operating expenses $223,764 193%$968,084 390%$445,079 108%
  
 
 
 
 
 
 
Interest income $4,130 4%$11,404 5 $16,706 4%
  
 
 
 
 
 
 
Other income (expense), net $(12,141)(10)%$(18,332)(7)%$1,511 0%
  
 
 
 
 
 
 
2002 versus 19992001
        Research and development expenses for the year were $51.6$41.4 million in 20002002 as compared to $14.6$78.7 million in 19992001, which represents an increasea decrease of 253% year-over-year. Sales and marketing expenses for the year were $167.4
million in 2000 as compared to $48.9 million in 1999 which represents an
increase of 242% year-over-year. General and administrative expenses for the
year were $28.2 million in 2000 as compared to $8.0 million in 1999 which
represents an increase of 253% year-over-year. Interest income for the year
was $16.7 million in 2000 as compared to $5.1 million in 1999 that represents
an increase of 227% year-over-year. Net other income (expense) for the year
was $1.5 million in 2000 as compared to $(599,000) in 1999 that represents an
increase of 350%47% year-over-year. The increasedecrease in research and development expenses is primarily attributable to personnela reduction in staffing levels resulting in decreased salary and salary related costs for added headcount within those operations
involved in the enhancement of existing applications and the developmentas well as other cost-cutting efforts taken by us as part of our next generationrestructuring plan, such as consolidation of products. We added personnelfacilities.
        Sales and marketing expenses for the year were $48.9 million in 2002 as compared to $139.8 million in 2001 which represents a development
facility in Waltham, Massachusetts in conjunction with the Interleaf
acquisition. The increases in salesdecrease of 65% year-over-year. Sales and marketing expenses reflectsdecreased as
29

a result of decreased salary expense related to 2002 fiscal year reductions in force, in addition to decreased commission expense as a result of decreases in license revenue from 2001 to 2002.
        General and administrative expenses for the costyear were $16.3 million in 2002 as compared to $42.3 million in 2001, which represents a decrease of hiring additional sales and marketing personnel including sales
commissions, the continued development of sales distribution channels and the
expansion of promotional activities and marketing-related programs.62% year-over-year. The increasedecrease in general and administrative expenses is attributable to additional
administrativedecreases in the general reserves of our accounts receivable balances due to better than expected collection efforts and management personnel, higher professional fees, increase
in bad debt reservedeclining accounts receivable balances and decreased salary expense as a result of an increasereductions in accounts receivable due to
our rapid growth, and additional infrastructure to support the expansion of
our operations. The increaseworkforce as well as decreases in interest income is attributable to a higher
level of investment income during the yearfacilities costs as a result of continued facilities consolidations and decreases in professional services expenses.
        Goodwill and intangible amortization—On June 29, 2001, we completed our acquisition of Keyeon LLC ("Keyeon"), a joint venture in which we previously held an increaseinterest of approximately 36%. As consideration for the acquisition, we issued 301,475 shares of our common stock valued at $13.6 million to the other participants in investments and cashthe joint venture, which resulted in interest bearing accounts.our owning 100% of the outstanding shares of Keyeon. The increase in other
income, net is primarilyacquisition was accounted for as a purchase. As a result of realized gains on the saleKeyeon acquisition, we recorded goodwill of investments partially offset by realized losses on investments due to
impairment as well as interest expense.$880,000. Amortization of Goodwillgoodwill related to the Keyeon acquisition was $0 in 2002 and Other Intangible Assets

      Our acquisition ofapproximately $246,000 in 2001. We acquired Interleaf wason April 14, 2000. We accounted for under the acquisition as a purchase methodbusiness combination. As a result of accounting. Accordingly,this transaction, we recorded goodwill and other intangible assets representingof $794.7 million. Amortization of goodwill related to the excessInterleaf transaction was $0 during 2002 and amortization of recognizable intangible assets related to the purchase price paid over the fair value
of net assets acquired of approximately $1.9 million. Gross goodwill recorded
as a result of the acquisitionInterleaf transaction was $765.8 million. The aggregate amortization$35 million in 2002. Amortization of goodwill and other intangibleintangibles assets related to the Interleaf acquisition was $187.6$210.8 million in fiscal 2000.2001. On November 24, 1999, we acquired all of the registered shares of Fidutec Information Technology SA. We have accounted for this acquisition as a purchase business combination. Amortization of goodwill related to Fidutec was $0 in 2002 and approximately $214,000 in 2001. As reported in Note 4 in Notes to Consolidated Financial Statements, we recorded a $336.4 million impairment charge during 2001 to reduce goodwill by $330.2 million and other intangible assets by $6.2 million associated with our acquisitions, primarily the Interleaf acquisition, to their estimated fair value. As described in Note 4 in the Notes to Consolidated Financial statements, as of January 1, 2002, we no longer amortize goodwill or the assembled workforce as we have identified the assembled workforce as an intangible asset which does not meet the criteria of recognizable intangible asset as defined by SFAS No. 142. The goodwill andremaining other intangible assets are being amortized on a straight-line basis over the expectedtheir remaining useful life of three yearsmonths as of December 31, 2002. We periodically assess goodwill and will amountother intangibles for impairment as discussed in Note 4 of Notes to $264.9 million in 2001, $264.9 million in 2002
and $77.3 millionConsolidated Financial Statements. The remaining intangible assets that are being amortized are a result of the acquisition of Interleaf. We have accounted for the acquisition as a purchase business combination. Amortization expense is estimated to be $887,000 in 2003. It is possible that we may continue to expand our business through acquisitions and internal development. Any additional acquisitions or impairment of goodwill and other purchased intangibles could result in additional merger and acquisition related costs.

      On November 24, 1999, the Company acquired all of the registered shares
of Fidutec Information Technology SA for a cash payment of 6,000,000 Swiss
Francs (equivalent U.S. dollar value of $3,765,000, net of cash acquired); of
which 1,200,000 Swiss Francs are held in escrow, subject to employee
retention conditions lasting 12 to 24 months depending on named employees.
The acquisition was accounted for as a purchase. The acquired assets and
assumed liabilities, and the related results of operations, are included in
the consolidated financial statements of the Company from the date of
acquisition. The name of the acquired business has been subsequently changed
to BroadVision Professional Services. Amortization of goodwill was
approximately $200,000 in fiscal 2000.expenses.
        Charge for Acquired In-Process Technology

      acquired in-process technology—In connection with the Interleaf acquisition we recorded a charge of $10.1 million in the quarter ended June 30, 2000 for acquired in-process
technology that had not reached technological feasibility. BasedKeyeon, LLC, and based upon our estimates prepared in conjunction with a third-party valuation consultant, $10.1$6.4 million was allocated to Acquired In-Process Technologyacquired in-process technology and $796.0
million$880,000 was allocated to goodwill and intangible assets. The amounts
allocatedacquired in-process technology included a project to intangible assets include completed technologies of $20.4develop an employee portal product. We estimated that $6.4 million and assembled workforces of $8.5 million. We used the cost approach
to estimate the value of the assembled workforce and the income approach to
estimate the value of the business and technology projects acquired. The
income approach takes into consideration the expected future cash flows
attributable to the technology projects and discounts these cash flows to
present value at a rate that appropriately reflects their risk. The value
assigned topurchase price for Keyeon represented acquired in-process technology was the amount attributable to the efforts
of Interleaf up to the time of acquisition. This amount was estimated through
application of the "stage of completion" calculation by multiplying the
estimated present value of future cash flows, excluding costs of completion,
by the percentage of completion of the purchased technology projects at the
time of acquisition. Based upon these estimates, material net cash flows from
the acquired business are expected to occur during the calendar year 2000.
The cash flows for the completed and in-process technologies were discounted
using discount rates of 15% to 35%.

      The fair market value of the technologies acquired have been grouped in
three classifications. Completed Technology represents technology that has
successfully completed final Beta test. In-Process Technology represents
technology that, as of the valuation date, hashad not yet entered Beta test or has
commenced but not yet successfully completed final Beta testreached technological feasibility and hashad no alternative future use. Core Technology is technology that is beingAccordingly, this amount was immediately charged to expense in the consolidated statements of operations. The income approach methodology was used in not
onlyto value the current products andacquired in-process technology projects, but also in
future, not yet defined projects. Completed technologies are defined as those
that have reached technological feasibility. The Company defines technological
feasibility astechnology. Under the point at whichincome approach, fair value reflects the technologies have successfully completed
Beta test.


                                       22


      The Completed Technologies include projects that enable companies to
create, manage and deliver e-content for web enabled applications, using XML as
its technology backbone and Microsoft Word for content creation. These projects
also enable companies to manage XML and non-XML documents throughout their
lifecycle in one integrated system.

      The In-Process Technologies include a project to develop a version of
current software which will run on a Unix-based operating system. Aspresent value of the valuation date,projected free cash flows that will be generated by the products, incorporating the acquired technologies under development, assuming they will be successfully completed. These cash flows are discounted at a rate appropriate for the risk of this projectthe asset. The rate of return depends upon the stage of completion, which was approximately 34%
complete and thereestimated at
30

fifty percent. An overall after tax discount rate of thirty percent was significant technological risk remaining. The value
attributedapplied to this project was $1.3 million. The application from this
project has been integrated into our products.the cash flows expected to be generated by the products incorporating technology currently under development. The efforts required to complete the acquired in-process technology included the completion of all planning, designing and testing activities that were necessary to establish that the product can be produced to meet its design requirements, including functions, features and technical performance requirements. The costs to complete this project were included in the year ending December 31, 20002001 and there are no expected remaining costs. Another In-Process Technology project
        Restructuring charge—During fiscal 2001 and fiscal 2002, we approved restructuring plans to, among other things, reduce our workforce and consolidate facilities. These restructuring and asset impairment charges were taken to align our cost structure with changing market conditions and to create a more efficient organization. A pre-tax charge of $110.4 million was recorded during fiscal 2002 and a pre-tax charge of $153.3 million was recorded during fiscal 2001 to provide for these actions and other related items. We recorded the low-end of a range of assumptions modeled for the restructuring charges, in accordance with SFAS No. 5,Accounting for Contingencies. The high-end of the range was estimated at $117.8 million for the charge related to fiscal 2002. Adjustments to the restructuring reserves will be made in future periods, if necessary, based upon the then current actual events and circumstances.
        Severance and benefits—We recorded a charge of approximately $7.6 million during fiscal year ended December 31, 2002 related to severance benefits to terminated employees in the United States and various international locations. Costs incurred include severance, payroll taxes and COBRA benefits. Included in the $7.6 million is $107,000 of non-cash charges. These non-cash charges represent a one-time compensation charge taken as a result of granting certain terminated employees extended vesting of stock options beyond the standard vesting schedule for terminated employees. The compensation charge was calculated using the Black-Scholes option pricing model. Approximately $817,000 of severance and benefits related costs remained accrued as of December 31, 2001 as a result of our 2001 restructuring plan. Approximately $6.9 million of severance and benefits costs had been paid out during fiscal 2002 and the remaining $1.4 million of severance, payroll taxes and COBRA benefits is expected to be paid in full by December 31, 2003. Our restructuring plan included plans to terminate the employment of approximately 430 employees in North and South America and approximately 95 employees throughout Europe and Asia/Pacific during the first three quarters of fiscal 2002, impacting all of our departments. The employment of approximately 525 employees was terminated during fiscal year 2002. As a result of these reductions, we expect annual salary savings of approximately $44.6 million.
        Facilities/Excess Assets—During fiscal year 2002, we revised our estimates and expectations with respect to our facilities disposition efforts due to further consolidation and abandonment of additional facilities and to account for changes in estimates used in our 2001 restructuring plan based upon actual events and circumstances. Total lease termination costs include the impairment of related assets, remaining lease liabilities and brokerage fees offset by estimated sublease income. The estimated costs of abandoning these leased facilities, including estimated sublease income, were based on market information analyses provided by a commercial real estate brokerage firm retained by us. Based on the factors above, a facilities/excess assets charge of $101.7 million was recorded during fiscal year 2002 and includes non-cash asset impairment charges of approximately $18.9 million.
        Approximately $89.9 million of facilities related costs remained accrued as of December 31, 2001 as a result of our 2001 restructuring plan. Net cash payments during fiscal year 2002 related to abandoned facilities amounted to $78.0 million. Actual future cash requirements may differ materially from the accrual at December 31, 2002, particularly if actual sublease income is significantly different from historical estimates. As of December 31, 2002, $94.7 million of lease termination costs, net of anticipated sublease income, is expected to be paid by the end of the second quarter of fiscal 2013. We expect to pay approximately $26.9 million over the next twelve months and the remaining $67.8 million from January 1, 2004 through June of fiscal 2013. The $94.7 million is net of approximately
31

$44.8 million of estimated sublease income of which approximately $28.8 million represents sublease agreements yet to be negotiated.
        Other—We recorded charges of approximately $1.1 million during fiscal year 2002 for various incremental costs incurred as a direct result of the restructuring plan. The remaining reserve balance of $79,000 is expected to be paid in full by the end of the fourth quarter of 2003
        Actual future cash requirements may differ materially from the restructuring accruals at December 31, 2002, particularly if actual sublease income is significantly different from current estimates. Adjustments to the restructuring accruals will be made in future periods, if necessary, based upon the then current actual events and circumstances.
        Interest Income—Interest income decreased to $4.1 million for the year ended December 31, 2002 from $11.4 million for the year ended December 31, 2001. The decrease is attributable to decreased cash balances from 2001 to 2002.
        Other income (expense), net for the 2002 fiscal year was an upgradeexpense of $12.1 million as compared to expense of $18.3 million in 2001. The main reason for the decrease in other expense is due to a decrease in losses on asset sales/disposals of $2.2 million, a decrease in losses on foreign currency of $1.6 million and a decrease in equity in net loss from unconsolidated subsidiaries of $2.4 million.
        Impairment of assets—During the first quarter of 2002, we engaged a third party firm to conduct a physical inventory of our computer hardware assets located in North America. We conducted an existing productinternal physical inventory on computer hardware assets located outside of North America. The objective of the physical inventory was to verify the amount and location of our computer hardware. As a result of the findings of the physical inventory and related reconciliation with our asset records, we recorded an asset impairment charge of approximately $2.3 million net book value related to computer hardware during the first quarter of fiscal 2002. During the third quarter of 2002, we conducted an additional review of remaining computer and communication related assets not reviewed during the first quarter inventory and recorded an asset impairment charge of $853,000 as a result of the findings of our inventory and related reconciliation with our asset records.
        Impairment of goodwill and other intangible assets—As discussed in Note 4 to our Consolidated Financial Statements, we adopted SFAS No. 142, "Goodwill and Other Intangible Assets," on January 1, 2002. This standard requires that will take into account new W3C
standards being developedgoodwill no longer be amortized, and instead, be tested for XMLimpairment on a periodic basis.
        Pursuant to SFAS No. 142, we are required to test goodwill for impairment upon adoption and will provideannually or more often if events or changes in circumstances indicate that the capabilityasset might be impaired. While there was no accounting charge to record upon adoption, at September 30, 2002, we concluded that, based on the decline in our stock price, we would be required to test goodwill for impairment. SFAS No. 142 provides for a usertwo-stage approach to authordetermining whether and create documents for a specific output device. As of the
valuation date, this project was approximately 6% complete. The value
attributed to this project was $300,000. This project was subsequently
canceled and the project has no future alternative use. Costs incurred to
complete this project were not material. A third In-Process Technology
project is being developed to provide a new, cost-effective means for a
website to deliver content both to full-function personal computers and to
reduced-function devices such as wireless telephones and wireless personal
digital assistants. As of the valuation date, this project was approximately
57% complete. The value attributed to this project was $8.5 million. The
application from this projectby how much goodwill has been integrated intoimpaired. Since we have only one reporting unit for purposes of applying SFAS No.142, the first stage requires a comparison of our products. The
efforts requiredfair value to completeour net book value. If the acquired in-process technology includedfair value is greater, then no impairment is deemed to have occurred. If the completionfair value is less, then the second stage must be completed to determine the amount, if any, of all planning, designingactual impairment. We completed the first stage and testing activitiesdetermined that were
necessary to establishour fair value at September 30, 2002, exceeded our net book value on that the product can be produced to meet its design
requirements, including functions, featuresdate, and technical performance
requirements. The costs to complete this project were includedas a result, no impairment of goodwill was recorded in the year
endingcondensed consolidated financial statements. We obtained an independent appraisal of fair value to support our conclusion. We also determined, as of December 31, 20002002, that our fair value exceeded our net book value and there are no expected remaining costs.

      Core Technology encompasses both leveraged codeimpairment of goodwill and general technological
know-how, experienceother intangible assets existed.
        The process of evaluating the potential impairment of goodwill is highly subjective and expertise regardingrequires significant judgment. In estimating the design, manufacture and
development of content management technology in existing products. It is
therefore not appropriate to consider thefair value of the Core TechnologyCompany, we made estimates and judgments about future revenues and cash flows. Our forecasts were based on assumptions that are consistent with
32

the plans and estimates we are using to be
partmanage the Company. Changes in these estimates could change our conclusion regarding impairment of the estimated value of In-Process Technology. Thus, the value of the
In-Process Technology has been isolated by allocatinggoodwill and potentially result in a non-cash goodwill impairment charge, for all or a portion of the goodwill balance at December 31, 2002. For long-lived assets, accounting standards dictate that assets become impaired when the undiscounted future cash flows expected to be generated by them are less than their carrying amounts. When that occurs, the affected assets are written down to their estimated fair value. As described in "Recent Accounting Pronouncements" in this document, our accounting for goodwill changed in 2002 upon adoption of SFAS No. 142.
        During the third quarter of 2001, we determined that the goodwill and other intangible assets related to our various acquisitions may have been impaired. In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and Accounting Principles Board Opinion No. 17, "Intangible Assets", we performed an impairment analysis. These standards require that goodwill and other intangible assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Because we had integrated the acquired companies' operations, we performed the test for impairment at an overall enterprise level. Our policy is to use a discounted cash flow to this Core Technology that gives full recognition to its contribution.

      As noted above, the income forecast method was used to value the
business and technology projects acquired. The value of the acquired
In-Process Technology and the Completed Technologies wasapproach. This approach includes analyzing estimated by
discounting to present value the freefuture cash flows generated by the products
with which the technologies are associated over the remaining economic liveslife of the technologies. Discount rates used ranged from 15%goodwill and other intangible assets as well as a disposition value at the end of the life of the goodwill and other intangible assets. The resulting value was then compared to 35% and were
based upon the relative risk associated with the completed technologiescarrying value of stockholders' equity and the incomplete development projectsdifference represents goodwill and upon considerations such as stageother intangible assets impairment measured on a discounted basis. Accordingly, we recorded an impairment charge of completion, remaining development milestones, technological uncertainties and
projected cost$336.4 million during the 2001 fiscal year.
        We are attempting to complete. We believe that these discount rates are
consistent with the overallreduce expenses in an effort to return to profitability during a period when revenues have been less than originally expected. Therefore, operating costs of capital and the relative risks of the
completed technologies and the research and development project. We have
valued the In-Process Technology using the "Percentage Completion Approach"
as suggested by the U.S. Securities and Exchange Commission. This approach
varies from the traditional discounted cash flow approach that is used to
value In-Process Technology. The Percentage Completion Approach does not
include completion costsmay decline in the discounted cash flow analysis and the present
value ofnear future, cash flows is multiplied by the estimated percentage complete
as of the valuation datebut there can be no assurance that such decline will be enough to determine the value of the acquired In-Process
Technology.

      The cost approach was utilizedreturn BroadVision to value the assembled workforce. This
approach considers the concept of avoided costs as an indicator of value and is
an appropriate method for estimating the fair market value of an asset where
reliable data for sales of comparable property are not available and where the
property does not directly produce an income stream. The basis of the valuation
is the estimated costprofitability. Should revenues increase significantly, we would expect our expenses to recruit and train the new work force.

      As part of the Purchase and Sale Agreement and the closing compilation
documents, Non-Compete Agreements (the "Agreements") were executedincrease commensurate with certain
Interleaf employees. No value of the aggregate purchase price was allocated to
the Agreements based upon numerous facts and circumstances such as the
likelihood of employees leaving BroadVision and the effect on our performance
these employees would have should they leave the Company and were not barred
from competing.

1999increases in revenues.
2001 versus 19982000
        Research and development expenses for the year were $14.6$78.7 million in 19992001 as compared to $9.2$51.6 million in 19982000, which represents an increase of 58%
year-over-year. Sales and marketing expenses for the year were $48.9 million in
1999 as compared to $26.3 million in 1998 which represents an increase of 86%
year-over-year. General and administrative expenses for the year were $8.0
million in 1999 as compared to $3.8 million in 1998 which represents an increase
of 111% year-over-year. Net other income for the year was $4.5 million in 1999
as compared to $2.0 million in 1998 which represents an increase of 123%52% year-over-year. The increase in research and development expenses wasis primarily attributable to personnel costs for added headcount within those operationsincreased efforts involved in the enhancement of existing applications and the development of our 23
next generation of products. The increasesproducts partially offset by compensation reductions and cost-cutting efforts put in salesplace during the 2001 fiscal year.
        Sales and marketing expenses
reflects for the costyear were $139.8 million in 2001 as compared to $167.4 million in 2000 which represents an decrease of hiring additional sales16% year-over-year. Sales and marketing personnel, the
continued development of sales distribution channels and the expansion of
promotional activities and marketing-related programs. In addition, commission
rates were higher during 1999expenses decreased as a result of sales people exceeding their sales
quotas.decreased salary expense related to 2001 fiscal year reductions in force, in addition to decreased commission expense as a result of decreases in license revenue from 2000 to 2001.
        General and administrative expenses for the year were $42.3 million in 2001 as compared to $28.1 million in 2000, which represents an increase of 51% year-over-year. The increase in general and administrative expenses is attributable to additional administrative and management personnel, higher professional fees primarily due to increased legal expenses and additional infrastructure to supportincreases in the expansiongeneral reserves of our operations. The
increase in net other income is attributable to a higher level of investment
income during the yearaccounts receivable balances as a result of earningsthe effects of the economic slowdown and its impact on proceeds receivedthe operations of certain emerging electronic commerce customers, partially offset by decreased salary expense as a result of reductions in workforce.
        Goodwill and intangible amortization—As a result of the Keyeon acquisition, we recorded goodwill of $880,000. Amortization of goodwill related to the Keyeon acquisition was approximately $246,000 in 2001. As a result of the Interleaf transaction, we recorded goodwill and other intangible assets of
33

$794.7 million. Amortization of goodwill and other intangibles assets related to the Interleaf acquisition was $210.8 million in 2001 as compared to $187.6 million in 2000. Amortization of goodwill related to Fidutec was approximately $214,000 in 2001 and 2000. As reported in Note 4 in Notes to Consolidated Financial Statements, we recorded a $336.4 million impairment charge during 2001 to reduce goodwill by $330.2 million and other intangible assets by $6.2 million associated with our acquisitions, primarily the Interleaf acquisition, to their estimated fair value.
        Charge for acquired in-process technology—In connection with the Keyeon acquisition in 2001, $6.4 million was allocated to acquired in-process technology and $880,000 was allocated to goodwill and intangible assets. The acquired in-process technology includes a project to develop an employee portal product. We estimated that $6.4 million of the purchase price for Keyeon represented acquired in-process technology that had not yet reached technological feasibility and had no alternative future use. Accordingly, this amount was immediately charged to expense in the Consolidated Statements of Operations.
        In connection with the Interleaf acquisition which occurred in 2000, we estimated that $10.1 million of the purchase price for Interleaf represented acquired in-process technology that had not yet reached technological feasibility and had no alternative future use. Accordingly, this amount was immediately charged to expense in the Consolidated Statements of Operations upon consummation of the acquisition. The value assigned to acquired in-process technology was the amount attributable to the efforts of Interleaf up to the time of acquisition. The amount was estimated through the application of the "stages of completion" by multiplying the estimated present value of future cash flows, excluding cost of completion, by the percentage of completion of the purchased technology at the time of the acquisition. The discount rate included a factor that took into account the uncertainty surrounding the successful development of the acquired in-process technology.
        Restructuring charge—During the 2001 fiscal year, we approved a restructuring plan to restructure our worldwide operations including a reduction in workforce of approximately 859 employees and the consolidation of our operating facilities. These restructuring actions were taken to align our cost structure with changing market conditions and to create a more efficient organization. A pre-tax charge of $153.3 million was recorded in 2001 which included severance and benefits charges, lease abandonment costs, asset impairment charges and other charges incurred as a direct result of the restructuring. We determined a range of expected losses on lease abandonment. We accrued for losses at the low-end of a range in accordance with SFAS No. 5,Accounting for Contingencies. The high-end of the range is estimated at $243.1 million, an increase in the restructuring charge of $89.8 million. Total severance and benefits costs were $9.1 million and included $662,000 of non-cash charges. Approximately $7.6 million of severance and benefits had been paid as of December 31, 2001. We terminated approximately 654 employees in North and South America and approximately 205 employees throughout Europe and Asia Pacific during 2001. The reduction in workforce occurred through all of our departments. Total facilities and excess assets charges during 2001 were $143.8 million and included $36.8 million of asset impairment charges. Approximately $17.1 million of facilities charges had been paid as of December 31, 2001. Other restructuring charges of $405,000 are for various incremental costs incurred as a direct result of the restructuring. Approximately $292,000 had been paid as of December 31, 2001.
        Interest Income—Interest income decreased to $11.4 million for the year ended December 31, 2001 from $16.7 million for the year ended December 31, 2000. The decrease is attributable to decreased cash balances.
        Other (expense) income, net—for the 2001 fiscal year was an expense of $18.3 million as compared to income of $1.5 million in 2000. The main reason for the decrease in other income is due to a follow-on public stock offeringdecrease in November 1999.

                                  short term investment gains on sale of $1.6 million, an increase in cost method investment
34

realized losses of $11.7 million, an increase in equity in net loss from unconsolidated subsidiaries of $1.9 million and an increase in losses on asset disposals of $3.1 million.
        Impairment of goodwill and other intangible assets—During the third quarter of 2001, we determined that the goodwill and other intangible assets related to our various acquisitions may have been impaired. In accordance with SFAS No. 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of and Accounting Principles Board Opinion No. 17,Intangible Assets, we performed an impairment analysis. We recorded an impairment charge of $330.2 million during the 2001 fiscal year for goodwill. Please see Note 4 of Notes to Consolidated Financial Statements for additional information.
Income Taxes
        For the year ended December 31, 2000,2002, we recorded ana current income tax provision of $23.0$7.6 million. $6.3 million consisting of current expense of $28.6the $7.6 million andrelates to a valuation provision for our deferred tax benefitasset recorded in the second quarter of $5.6 million relatingfiscal 2002. The tax expense, excluding the deferred tax asset valuation provision, mainly relates to federal,foreign withholding taxes and state and foreign income taxes. For the year ended December 31, 1999,2001, we recorded an income tax provision of $996,000 consisting solely of current expense$2.1 million relating to federalstate and foreign income taxes. For the year ended December 31, 1998, we
recorded a net income tax benefit of $79,000, comprised of a deferred tax
benefit of $700,000 and current tax expense of $621,000.

      The effective tax rate includes the write-off of acquired in-process
technology and amortization of Goodwill and other intangibles of
approximately $197.8 million for 2000. The effective tax rate after this
adjustment is 39%. The effective tax rates were 5% for 1999 and 0 for 1998.

                         
Liquidity and Capital Resources

                                                      December 31,
                                            -------------------------------
                                              2000        1999        1998
                                            --------    --------    -------
                                                 (dollars in thousands)

     Cash, cash equivalents and
     short-term
       Investments....................      $222,534    $348,581    $61,878
     Working capital..................      $215,831    $324,156    $63,620
     Working capital ratio............        2.7         6.8           4.9

 
 December 31,
 
 2002
 2001
 2000
 
 (dollars in thousands)

Cash, cash equivalents and liquid short-term investments $101,870 $141,463 $222,534
Long-term liquid investments $587 $22,135 $78,769
Restricted cash and investments $16,704 $29,949 $—
Working capital $5,616 $67,165 $218,553
Working capital ratio  1.0  1.5  2.7
        As of December 31, 2000,2002, cash, cash equivalents, and liquid short-term investments, liquid long-term investments and restricted cash and investments totaled $222.5$119.2 million, which represents a decrease of $126.1$74.4 million as compared to December 31, 1999.2001. This decrease is primarily attributed to net cash used for operations. We currently have $4.9 million of
outstanding term debt under our existinga credit facility with Silicon Valley Bank that includes term loans in the form of promissory notes and a revolving line of credit (the "SVB Facility") for up to $25.0 million. Under the revolving line of credit portion of the SVB Facility, amounts borrowed bear interest at the bank's prime rate (4.25% as of December 31, 2002) and interest is due monthly, with the principal due in March 2003. We have two outstanding term loans under the SVB Facility. The total outstanding amount of these term loans were $2.9 million as of December 31, 2002 and $3.9 million as of December 31, 2001. Interest on these term loans are at the bank's prime rate (4.25% as of December 31, 2002 and 4.84% as of December 31, 2001) and prime rate plus 1.25% (5.5% as of December 31, 2002 and 6.09% as of December 31, 2001), respectively. Principal and interest are due in consecutive monthly payments through maturity of these term loans in March 31, 2005 and September 30, 2006, respectively. Principal payments of $977,000 are due annually from 2000 through 2004, $611,000 due in 2005, and a final payment of $357,000 due in 2006.
        Borrowings under the SVB Facility are collateralized by substantially all of our owned assets and we are subject to certain covenants, including restrictions on payment of dividends and other distributions as well as an obligation to maintain $80.0 million in unrestricted cash and cash equivalents, short-term investments and long-term investments (excluding equity investments) and maintain $30.0 million on deposit with SVB. As of December 31, 2002, we were in compliance with all specified financial covenants. During the second quarter of 2002, we drew down $25.0 million on our revolving line of credit as partial funding of our PacShores Building 4 and 5 Termination Agreement.
35

See discussion below for more information. Interest is payable monthly at the bank's prime rate (4.25% annually as of December 31, 2002) and principal is due in full in February 2004. There were no outstanding amounts under the revolving line of credit as of December 31, 2001. As discussed in Note 13 of Notes to Consolidated Financial Statements, we renewed and amended our revolving credit facility in March 2003 which changed the principal due date from March 2003 to February 2004. The amount available under the revolving line of credit remains unchanged at $25.0 million. Borrowings under the renewed revolving line of credit are collateralized by all of the Company's assets and bear interest at the bank's prime rate (4.25% as of March 1, 2003). Interest is due monthly and principal is due at expiration. The amended and restated loan and security agreement requires us to maintain certain levels in cash and cash equivalents, short-term investment and long-term investments (excluding equity investments). Additionally, the amended and restated loan and security agreement requires us to maintain certain levels on deposit with our commercial bank.

      We have funded our operations by cash generatedlender and certain quarterly net income (loss) levels.
        As of December 31, 2002 and December 31, 2001, commitments totaling $16.7 million and $25.0 million, respectively, in the form of standby letters of credit were issued and outstanding from operations and public
offeringsfinancial institutions in favor of our common stock. Public stock offerings during June 1996, March
1998 and November 1999 netted for us proceedsvarious landlords to secure obligations under our facility leases. These letters of $20.7 million, $53.7credit are collateralized by a security agreement, under which we are required to maintain in a restricted specified interest bearing account approximately $16.7 million and $210.4$29.9 million of available cash equivalents and short-term investments as of December 31, 2002 and December 31, 2001, respectively. The $16.6 million and the $29.9 million have been presented as restricted cash and investments in the accompanying consolidated balance sheet at December 31, 2002 and December 31, 2001, respectively.
Cash (Used For) Provided by Operating Activities
        Cash used for operating activities was $99.2 million for fiscal 2002 and $77.9 million for fiscal 2001, respectively. The primary reason for the net cash used for operating activities for fiscal 2002 is due to the net loss of $170.5 million adjusted for certain non-cash items such as depreciation expense, amortization of prepaid royalties, amortization of intangibles, impairment of assets, non-cash restructuring charge, accounts receivable reserves and provision for deferred tax asset valuation for $74.6 million as well as a decrease in accounts payable and accrued expenses of $9.1 million, a decrease in unearned revenues and deferred maintenance of $14.4 million, a decrease in other noncurrent assets of $2.6 million, partially offset by decreases in accounts receivable of $12.9 million and in prepaids and other of $3.6 million, and an increase in the restructuring reserves of $6.3 million. Cash (used for) provided by operating activities was $55.3 million for the year


                                       24


ended December 31, 2000, $33.3($77.9) million for the year ended December 31, 19992001 and $1.2$55.3 million for the year ended December 31, 1998. Operating2000. Net cash used for operating activities
consisted primarily of the net operating income for the year after adding
back variousended December 31, 2001 was primarily attributed to the net loss for the year less non-cash itemscharges such as goodwill and intangible amortization, fixed asset depreciation and amortization, impairment of goodwill and other intangibles, and charge for acquired in-process technology and depreciation,
increasethe non-cash portion of the restructuring charge. Other key contributors included decreases in accounts payable and other accrued expenses, increase in unearned revenue and deferred maintenance and increases in other noncurrent assets, all partially offset by increasesdecreases in accounts receivable and prepaid expensesexpenses.
Cash Provided By (Used For) Investing Activities
        Cash provided by investing activities was $73.9 million for fiscal 2002 and other current assets.was primarily due to net sales/maturities of investments of $61.5 million and $13.2 million released from restricted cash and investments. Cash used for investing activities was $220.9$15.0 million for the year ended December 31, 2000,
$38.62001 and consists of purchases of property and equipment of $55.7 million, partially offset by net sales of investments of $32.8 million and cash acquired in the Keyeon acquisition of $7.2 million.
36

Cash Provided By Financing Activities
        Cash provided by financing activities was $26.9 million for fiscal 2002 and consists of $2.9 million of net proceeds from the issuance of common stock and $25.0 million in proceeds from borrowings less $977,000 of repayments on borrowings. Cash provided by financing activities was $15.5 million for the year ended December 31, 19992001 and $6.4 million for the
year ended December 31, 1998. Investing activities consisted primarily of
capital expenditures and the acquisition of strategic investments. We expect
that our capital expenditures will continue to increase in the future. We
currently estimate that planned capital expenditures for fiscal 2001 will be
approximately $32.0 million. We plan to fund these capital expenditures from
cash provided by operations. Cash provided by financing activities was $38.9
million for the year ended December 31, 2000, $223.2 million for the year
ended December 31, 1999 and $58.8 million for the year ended December 31,
1998. Financing activities consisted primarily of proceeds from the issuance of common stock.
        Capital expenditures were $1.1 million for fiscal 2002 and $55.7 million for fiscal 2001. Our capital expenditures consisted of purchases of operating resources to manage our operations and included computer hardware and software, office furniture and fixtures and leasehold improvements.
        In connection with our restructuring plan initiated during 2001, we consolidated various operating facilities during 2001 and 2002. Lease termination costs include the abandonment of certain excess lease facilities for the remaining lease terms. These costs totaled $101.7 million, including $18.9 million in leasehold improvements impairments, during 2002 and $143.8 million, including $36.8 million in leasehold improvements impairments in 2001. Total lease termination costs include the abandonment of leasehold improvements and the remaining lease liabilities and brokerage fees, offset by estimated sublease income. The estimated costs of abandoning these facilities, estimated costs to sublease as well as estimated sublease income, were based upon market information analyses provided by a commercial real estate brokerage firm retained by us.
        On May 9, 2002, the Company and PacShores entered into (i) the Buildings 4 and 5 Termination Agreement and (ii) the Building 6 Amendment. Under the Buildings 4 and 5 Termination Agreement, the Triple Net Building Lease dated April 12, 2000 between PacShores, as Lessor, and the Company, as Lessee, for Premises at Pacific Shores Center, Building 4, Redwood City, California and the Triple Net Building Lease dated February 16, 2000 between PacShores, as Lessor, and the Company, as Lessee, for Premises at Pacific Shores Center, Building 5, Redwood City, California, were terminated. In conjunction with the termination, PacShores released all security deposits held by it relating to those premises in exchange for our payment to PacShores a total of $45.0 million as the Termination Fee. Under the Building 6 Amendment, the parties released each other from all claims and we agreed to provide an additional $3.5 million as security deposit in the form of letters of credit. This letter of credit is included as restricted cash and investments in our Condensed Consolidated Balance Sheet as of December 31, 2002. We believe that ourpaid the Termination Fee in full during the second quarter of 2002 by payment of approximately $20.0 million from existing cash and investments and by drawing down approximately $25.0 million from our line of credit. The $25.0 million line of credit, as amended, is due in February 2004.
        We expect to incur significant operating expenses for the foreseeable future in order to execute our business plan. A summary of total future minimum lease payments as of December 31, 2002, under noncancelable operating lease agreements, together with amounts included in restructuring reserves is as follows (in thousands); properties that are part of the restructuring have been included:
Year Ended December 31,
 Total future minimum lease payments
2003 $26,281
2004  25,855
2005  25,652
2006  22,620
2007  20,495
2008 and thereafter  81,487
  
Total minimum lease payments  202,390
        As of December 31, 2002, $129.4 million of future minimum lease payments, net of anticipated sublease income, is accrued in our restructuring accruals. The restructuring accruals are net of
37

approximately $44.8 million of sublease income of which approximately $28.8 million represents estimated sublease income for sublease agreements yet to be negotiated and the remaining $16.0 million represents sublease income to be received under non-cancelable sublease agreements signed by December 31, 2002. See Note 9 of Notes to Consolidated Financial Statements for additional information.
        The following table summarizes our contractual obligations and the effect such obligations are expected to have on our liquidity and cash equivalentsflows in future years. The operating leases include facilities included in restructuring and excluded $44.8 million of sublease income of which approximately $28.8 million represents estimated sublease income for sublease agreements yet to be negotiated.
 
 Total
 Less than
1 year
 1-3 years
 4-5 years
 Over
5 years
 
 (in thousands)

Long-term debt $2,922 $977 $1,588 $357 $—
SVB Facility  25,000  —  25,000  —  —
Hewlett-Packard agreement  1,042  1,042  —  —  —
Non-cancelable operating leases  202,390  26,281  51,507  43,115  81,487
  
 
 
 
 
  $231,354 $28,300 $78,095 $43,472 $81,487
  
 
 
 
 
        The following table summarizes our letters of credit and the effect such letters of credit could have on our liquidity and cash flows in future periods if the letters of credit were drawn upon. Restricted cash and investments represent the collateral for these letters of credit.
        In thousands:
Total
 Less than
1 year
 1-3 years
 4-5 years
 Over
5 years
$16,704 $75 $308 $1,917 $14,404
        We anticipate that such operating expenses, as well as capital expenditures, will constitute a material use of our cash resources. As a result, our net cash flows will depend heavily on the level of future sales, our ability to restructure operations successfully and our anticipated
cash flows from operations will be sufficientability to meetmanage infrastructure costs.
        We currently expect to fund our short-term working capital and operating resource expenditure requirements, for at least the next year.
Thereafter,twelve months, from our existing cash and cash equivalents and short-term investment resources, our anticipated cash flows from operations and anticipated cash flows from subleases. However, we could experience unforeseen circumstances such as a worsening economic downturn, legal or lease settlements and less than anticipated cash inflows from operations, invested assets, and subleases that may increase our use of available cash or need to obtain additional financing. Also, we may find it necessary to obtain additional equity or debt financing. Infinancing in order to support more rapid expansion, develop new or enhanced services, respond to competitive pressures, acquire complementary businesses or technologies or respond to unanticipated requirements. We may seek to raise additional funds through private or public sales of securities, strategic relationships, bank debt, financing under leasing arrangements or otherwise. If additional funds are raised through the eventissuance of equity securities, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution or such equity securities may have rights, preferences or privileges senior to those of the holders of our common stock. There can be no assurance that additional financing is required, we may notwill be able to
raise itavailable on acceptable terms, orif at all. WeIf adequate funds are not available or are not available on acceptable terms, we may be unable to develop our products, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements, which could have various credit facilities with a commercial lender which include term debt in the form of notes payablematerial adverse effect on our business, financial condition and a
revolving line of credit that provides for up to $10.0 million of additional
borrowings, based on eligible accounts receivable. As of December 31, 2000 and
1999, outstanding term debt borrowings were $4.9 million and $5.9 million,
respectively. As of December 31, 2000 and 1999, we had no outstanding borrowings
under our revolving line of credit. However, commitments totaling $2.4 million
and $2.8 million, in the form of standby letters of credit were issued under its
revolving line of credit facility as of December 31, 2000 and 1999, respectively
(see Note 7). Commitments totaling $23.0 million in the form of standby letters
of credit were also issued from separate financial institutions as of December
31, 2000.


                                       25
future operating results.
38

Quarterly Results of Operations
        The following tables set forth certain unaudited condensed consolidated statement of operations data for the eight quarters ended December 31, 2000,2002, as well as that data expressed as a percentage of our total revenues for the periods indicated.
        This data has been derived from unaudited condensed consolidated financial statements that, in the opinion of management, include all adjustments consisting only of normal recurring adjustments, necessary for a fair presentation of such information when read in conjunction with the Consolidated Financial Statements and Notes thereto.
        The unaudited quarterly information should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere herein on this Form 10-K. We believe that period-to-period comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of future performance.

                                                                         Three Months Ended
                                ---------------------------------------------------------------------------------------------------
                                 Dec. 31,     Sep. 30,     June 30,      Mar. 31,     Dec. 31,    Sep. 30,     June 30,    Mar. 31,
                                   2000         2000         2000          2000         1999        1999         1999        1999
                                ---------    ---------    ---------     ---------    ---------   ---------    ---------   ---------
                                                                        (dollars in thousands)


Statement of Operations
Data:
Revenues:
  Software licenses .........   $  80,926    $  72,351    $  56,848     $  40,713    $  28,161   $  18,954    $  15,484   $  12,783
  Services ..................      55,951       47,843       38,496        20,788       15,582      10,877        7,992       5,681
                                ---------    ---------    ---------     ---------    ---------   ---------    ---------   ---------
        Total revenues ......     136,877      120,194       95,344        61,501       43,743      29,831       23,476      18,464
Cost of revenues:
  Cost of software licenses .       2,805        1,395        1,563         2,064        1,243         676        1,037         747
  Cost of services ..........      37,838       34,015       30,282        15,673        9,994       7,241        4,624       3,321
                                ---------    ---------    ---------     ---------    ---------   ---------    ---------   ---------
        Total cost of
         revenues ...........      40,643       35,410       31,845        17,737       11,237       7,917        5,661       4,068
Gross profit ................      96,234       84,784       63,499        43,764       32,506      21,914       17,815      14,396
Operating expenses:
  Research and development ..      21,168       14,988        9,706         5,759        4,582       3,816        3,268       2,901
  Sales and marketing .......      64,846       43,799       33,570        25,200       19,012      12,136       10,019       7,665
  General and
    administrative ..........       9,600        8,198        6,786         3,611        2,969       2,119        1,611       1,271
  Goodwill and intangible
    amortization ............      66,089       66,308       55,351            --           --          --           --          --
  Charge for acquired
    in-process technology ...          --           --       10,100            --           --          --           --          --
                                ---------    ---------    ---------     ---------    ---------   ---------    ---------   ---------
        Total operating
         expenses ...........     161,703      133,293      115,513        34,570       26,563      18,071       14,898      11,837
                                ---------    ---------    ---------     ---------    ---------   ---------    ---------   ---------
Operating (loss) income .....     (65,469)     (48,509)     (52,014)        9,194        5,943       3,843        2,917       2,559
Other, net ..................       1,431       (4,247)      (2,857)          842        2,120         651          398         378
                                ---------    ---------    ---------     ---------    ---------   ---------    ---------   ---------
Net (loss) income ...........   $ (64,038)   $ (52,756)   $ (54,871)    $  10,036    $   8,063   $   4,494    $   3,315   $   2,937
                                =========    =========    =========     =========    =========   =========    =========   =========

As a Percentage of Revenues:
Revenues:
  Software licenses .........          59%          60%          60%           66%          64%         63%          66%         69%
  Services ..................          41           40           40            34           36          37           34          31
                                ---------    ---------    ---------     ---------    ---------   ---------    ---------   ---------
        Total revenues ......         100          100          100           100          100         100          100         100
Cost of revenues:
  Cost of software licenses .           2            1            1             3            3           2            4           4
  Cost of services ..........          28           28           32            26           23          24           20          18
                                ---------    ---------    ---------     ---------    ---------   ---------    ---------   ---------
        Total cost of
         revenues ...........          30           29           33            29           26          26           24          22
Gross profit ................          70           71           67            71           74          74           76          78
Operating expenses:
  Research and development ..          16           13           10             9           10          13           14          16
  Sales and marketing .......          47           36           35            41           44          41           43          41
  General & administrative ..           7            7            7             6            7           7            7           7
  Goodwill and intangible
    amortization ............          48           55           58            --           --          --           --          --
  Charge for acquired
    in-process technology ...          --           --           11            --           --          --           --          --
                                ---------    ---------    ---------     ---------    ---------   ---------    ---------   ---------
        Total operating
         expenses ...........         118          111          121            56           61          61           64          64
                                ---------    ---------    ---------     ---------    ---------   ---------    ---------   ---------
Operating (loss) income .....         (48)         (40)         (54)           15           14          13           12          14
Other, net ..................           1           (4)          (3)            1            5           2            2           2
                                ---------    ---------    ---------     ---------    ---------   ---------    ---------   ---------
Net (loss) income ...........         (47)%        (44)%        (57)%          16%          19%         15%          14%         16%
                                =========    =========    =========     =========    =========   =========    =========   =========

 
 Three Months Ended
 
 
 Dec. 31,
2002
 Sep. 30,
2002
 June 30,
2002
 Mar. 31,
2002
 Dec. 31,
2001
 Sep. 30,
2001
 June 30,
2001
 Mar. 31,
2001
 
 
 (dollars in thousands)

 
Statement of Operations Data:                         
Revenues:                         
 Software licenses $11,239 $10,756 $10,309 $8,179 $21,019 $16,292 $21,029 $43,140 
 Services  17,546  16,483  19,110  22,276  27,912  32,437  37,006  49,588 
  
 
 
 
 
 
 
 
 
  Total revenues  28,785  27,239  29,419  30,455  48,931  48,729  58,035  92,728 
Cost of revenues:                         
 Cost of software licenses  4,727  1,414  903  1,100  3,287  1,713  2,655  2,240 
 Cost of services  7,391  8,751  10,422  12,334  12,406  15,661  30,595  38,977 
  
 
 
 
 
 
 
 
 
  Total cost of revenues  12,118  10,165  11,325  13,434  15,693  17,374  33,250  41,217 
  
 
 
 
 
 
 
 
 
Gross profit  16,667  17,074  18,094  17,021  33,238  31,355  24,785  51,511 
Operating expenses:                         
 Research and development  6,677  7,774  13,006  13,975  14,860  16,230  20,616  26,971 
 Sales and marketing  7,553  9,384  15,803  16,178  19,657  25,895  41,766  52,481 
 General and administrative  2,513  2,573  5,009  6,193  6,604  10,849  14,268  10,590 
 Goodwill and intangible amortization  887  887  887  887  12,146  66,493  66,297  66,280 
 Charge for acquired in-process technology  —  —  —  —  6,418  —  —  — 
Restructuring charge  7,299  63,205  34,565  5,380  19,964  9,847  123,473  — 
Impairment of assets  —  853  —  2,276  —  —  —  — 
Impairment of goodwill and other intangibles  —  —  —  —  —  336,379  —  — 
  
 
 
 
 
 
 
 
 
  Total operating expenses  24,929  84,676  69,270  44,889  79,649  465,693  266,420  156,322 
  
 
 
 
 
 
 
 
 
Operating loss  (8,262) (67,602) (51,176) (27,868) (46,411) (434,338) (241,635) (104,811)
  
 
 
 
 
 
 
 
 
Other, net  (1,715) (131) (5,514) (8,254) (8,914) 1,391  (1,207) (334)
  
 
 
 
 
 
 
 
 
Net loss $(9,977)$(67,733)$(56,690)$(36,122)$(55,325)$(432,947)$(242,842)$(105,145)
  
 
 
 
 
 
 
 
 
39
 
 Dec. 31,
2002
 Sep. 30,
2002
 June 30,
2002
 Mar. 31,
2002
 Dec. 31,
2001
 Sep. 30,
2001
 June 30,
2001
 Mar. 31,
2001
 
As a Percentage of Revenues:                 
Revenues:                 
 Software licenses 39%39%35%27%43%33%36%47%
 Services 61 61 65 73 57 67 64 53 
  
 
 
 
 
 
 
 
 
  Total revenues 100 100 100 100 100 100 100 100 
Cost of revenues:                 
 Cost of software licenses 16 5 3 4 7 4 5 2 
 Cost of services 26 32 35 40 25 32 52 42 
  
 
 
 
 
 
 
 
 
  Total cost of revenues 42 37 38 44 32 36 57 44 
  
 
 
 
 
 
 
 
 
Gross profit 58 63 62 56 68 64 43 56 
Operating expenses:                 
 Research and development 23 29 44 46 30 33 36 29 
 Sales and marketing 26 34 54 53 40 53 72 57 
 General and administrative 9 9 17 20 14 22 24 11 
 Goodwill and intangible amortization 3 3 3 3 25 137 114 72 
 Charge for acquired in-process technology — — — — 13 — — — 
Restructuring charge 26 233 118 18 41 20 213 — 
Impairment of assets — 3 — 8 — — — — 
Impairment of goodwill and other intangibles — — — — — 690 — — 
  
 
 
 
 
 
 
 
 
  Total operating expenses 87 311 236 148 163 955 459 169 
  
 
 
 
 
 
 
 
 
Operating loss (29)(248)(174)(92)(95)(891)(416)(113)
  
 
 
 
 
 
 
 
 
Other, net (6)(1)(19)(27)(18)3 (2)— 
  
 
 
 
 
 
 
 
 
Net loss (35)%(249)%(193)%(119)%(113)%(888)%(418)%(113)%
  
 
 
 
 
 
 
 
 
        Our quarterly operating results have fluctuated in the past and may fluctuate significantly in the future as a result of a variety of factors, many of which are outside of our control. It is likely that our operating results in one or more future quarters may be below the expectations of securities analysts and investors. In that event, the trading price of our common stock almost certainly would decline.


                                       26

RECENT ACCOUNTING PRONOUNCEMENTS
        In June 1998,January 2002, the Financial Accounting Standards Board,Board's Emerging Issues Task Force (EITF) reached consensus on EITF 01-14 on the topic ofIncome Statement Characterization of Reimbursements Received for Out of Pocket Expenses Incurred. This topic addresses whether reimbursements received for out-of-pocket expenses incurred should be characterized in the income statement as revenue or FASB, issued
Statementas a reduction of Financial Accounting Standard, or SFAS, No. 133, Accountingexpenses incurred. The EITF concluded that reimbursements received for Derivative Instruments and Hedging Activities,out of pocket expenses incurred should be characterized as amended by SFAS No. 137,
effective for all fiscal quarters of fiscal yearsrevenue in the income statement. This announcement will be applied in financial reporting periods beginning after JuneDecember 15, 2000.
Accordingly, we adopted SFAS No. 133,2001, and comparative financial statements for prior periods will be reclassified to comply with the guidance in this announcement. The Company is currently recording reimbursement by its customers for out-of-pocket expenses as amended, beginninga component of services revenue. Prior to adoption of EITF 01-14 on January 1, 2001.2002, the Company recorded reimbursement by its customers for out-of-pocket expenses as a reduction to cost of sales. Prior periods have been reclassified to comply with the guidance of EITF 01-14. The effect of this reclassification was to increase services revenues and increase cost of services for fiscal 2001 and fiscal 2000 by $3.9 million and $1.6 million, respectively.
        In June 2002, the FASB issued SFAS No. 133 establishes standards146,Accounting for theCosts Associated with Exit Activities, which addresses financial accounting and reporting of
derivative instrumentsfor costs associated with exit activities and hedging activities, including certain derivative
instruments embeddedsupersedes Emerging Issues Task Force ("EITF") 94-3,Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in other contracts. Undera
40

Restructuring). SFAS No. 133, entities are
required to carry all derivative instruments146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value on their balance
sheets. The accountingonly when the liability is incurred. This differs from EITF 94-3, which required that a liability for changes inan exit cost be recognized at the fair value (i.e., gains or losses)date of an entity's commitment to an exit plan. However, under SFAS No. 146, a derivative instrument depends on whether itliability for one-time termination benefits is recognized when an entity has committed to a plan of termination, provided certain other requirements have been met. In addition, under SFAS No. 146, a liability for costs to terminate a contract is not recognized until the contract has been designatedterminated, and qualifies
as parta liability for costs that will continue to be incurred under a contract's remaining term without economic benefit to the entity is recognized when the entity ceases to use the right conveyed by the contract. SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002. The Company will adopt the provisions of a hedging activity and the underlying purposeSFAS No. 146 for it. We dorestructuring activities initiated after December 31, 2002. The Company does not believe thatexpect the adoption of SFAS No. 133146 will have a significantmaterial impact on ourits consolidated results of operations or financial statementsposition.
        In November 2002, the EITF reached a consensus on Issue 00-21, addressing how to account for arrangements that involve the delivery or related disclosures.performance of multiple products, services, and/or rights to use assets. Revenue arrangements with multiple deliverables are divided into separate units of accounting if the deliverables in the arrangement meet the following criteria: (1) the delivered item has value to the customer on a standalone basis; (2) there is objective and reliable evidence of the fair value of undelivered items; and (3) delivery of any undelivered item is probable. Arrangement consideration should be allocated among the separate units of accounting based on their relative fair values, with the amount allocated to the delivered item being limited to the amount that is not contingent on the delivery of additional items or meeting other specified performance conditions. The final consensus will be applicable to agreements entered into in fiscal periods beginning after June 15, 2003 with early adoption permitted. The provisions of this Consensus are not expected to have a significant effect on the Company's financial position or operating results.
        In June 2000,November 2002, the FASB issued StatementInterpretation No. 138,45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for Certain Derivative InstrumentsGuarantees, Including Indirect Guarantees of Indebtedness of Others", which clarifies disclosure and Certain Hedging Activities. FASB Statement No. 138 addresses certain issuesrecognition/measurement requirements related to certain guarantees. The disclosure requirements are effective for financial statements issued after December 15, 2002 and the implementationrecognition/measurement requirements are effective on a prospective basis for guarantees issued or modified after December 31, 2002. The application of SFAS No. 133, but doesthe requirements of FIN 45 did not change the basic
model of SFAS No. 133 or further delay the implementation of SFAS No. 133.

      In December 1999, the Securities and Exchange Commission, or SEC, issued
Staff Accounting Bulletin No. 101, or SAB 101, Revenue Recognition in Financial
Statements, which provides guidancehave a material impact on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosure related to revenue recognition policies. We adopted SAB
101 during the fourth quarter of 2000, as required. There was no material effect
on ourCompany's financial position or results of operations asoperations.
        In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure." This Statement amends SFAS No. 123, "Stock-Based Compensation," to provide alternative methods of transition for a resultvoluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the adoptionmethod used on reported results. The disclosure provisions of SAB 101.this Standard are effective for fiscal years ending after December 15, 2002 and have been incorporated into these financial statements and accompanying footnotes.
        In March 2000,January 2003, the FASB issued Interpretation No. 44,46 (FIN 46), "Consolidation of Variable Interest Entities," which addresses consolidation by business enterprises of variable interest entities that either: (1) do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or FIN 44,
Accounting for Certain Transactions Involving Stock Compensation-an
Interpretation of APB 25. This Interpretation clarifies (a)(2) the definition of
employee for purposes of applying Opinion 25, (b) the criteria for determining
whether a plan qualifies as a non-compensatory plan, (c) the accounting
consequence of various modifications to the termsequity investors lack an essential characteristic of a previously fixed stock
optioncontrolling financial interest. FIN 46 requires disclosure of Variable Interest Entities (VIEs) in financial statements issued after January 31, 2003, if it is reasonably possible that as of the transition date: (1) the Company will be the primary beneficiary of an existing VIE that will require consolidation or, award and (d)(2) the accounting forCompany will hold a significant variable interest in, or have significant
41

involvement with, an exchange of stock compensation
awards in a business combination. This Interpretation became effective July 1,
2000, but certain conclusions in this Interpretation cover specific eventsexisting VIE. We do not have any entities that occur after either December 15, 1998will require disclosure or January 12, 2000. However, before the
effective date of July 1, 2000, the effects of applying this Interpretation are
recognized on a prospective basis from July 1, 2000. We adopted FIN 44


                                       27


in July,2000. There was no material effect on our financial position or results
of operationsnew consolidation as a result of adopting the adoptionprovisions of FIN 44.

46.
RISK FACTORS
The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occur, our business could be harmed. In that event, the trading price of our common stock could decline.
Risks related to our business

      Fluctuations
We have experienced prolonged negative cash flows and difficulty returning to profitability.
        We have experienced a decline in revenues sequentially for the first three quarters of fiscal 2001 and the first three quarters of fiscal 2002 and the outlook on future periods is unclear given the general economic conditions. Furthermore, we incurred net losses for the past eleven quarters and have not achieved positive cash flow from operations in the last nine quarters. We may not be profitable from operations for the near term and may continue to incur negative cash flow. If the negative cash flow continues, our quarterlyliquidity and ability to operate our business would be severely and adversely impacted. Additionally, our ability to raise financial capital may be hindered due to our operational losses and negative cash flows, reducing our operating flexibility.
        We are continuing efforts to reduce and control our expense structure. We believe strict cost containment and expense reductions are essential to achieving positive cash flow and profitability. A number of factors could preclude us from successfully bringing costs and expenses in line with our revenues, including unplanned uses of cash, the inability to accurately forecast business activities and further deterioration of our revenues. If we are not able to effectively reduce our costs and achieve an expense structure commensurate with our business activities and revenues, we may have inadequate levels of cash for operations or for capital requirements, which could significantly harm our ability to operate our business.
General economic conditions are and may continue to affect our ability to return to profitability.
        There has been a general downturn in the United States of America and global economy. If the economic environment continues to decline or if the current global slowdown worsens or becomes prolonged, our future results may be significantly impacted. We believe that the current economic decline has increased the average length of our sales cycle and our operating results may causecould suffer and our stock price tocould decline and make it difficult for us to forecast quarterly revenueif we do not achieve the level of revenues we expect.
        Like other U.S. companies, our business and operating results.

      Our quarterly operating results have fluctuatedare subject to uncertainties arising out of the terrorist attacks on the United States, including the economic consequences of military actions or additional terrorist activities and associated political instability, and the impact of heightened security concerns on domestic and international travel and commerce. Such uncertainties could also lead to delays or cancellations of customer orders, a general decrease in corporate spending or our inability to effectively market and sell our products. Any of these results could substantially harm our business and results of operations, causing a decrease in our revenues.
Failure to maintain our Nasdaq listing would harm our stock price and the liquidity of our common stock.
        We effected a one-for-nine reverse stock split in July 2002. Prior to the effective time of the reverse stock split, our common stock was trading below $1.00 per share. The Nasdaq has a $1.00 per share minimum bid requirement, pursuant to which our common stock could be de-listed from the Nasdaq National Market if it trades below $1.00 for thirty consecutive trading days and does not
42

subsequently trade above $1.00 for 10 consecutive days. There can be no assurance that our trading price will remain above the $1.00 per share requirement for the necessary time period mandated by Nasdaq. If we do not meet the Nasdaq requirements to maintain our listing on the Nasdaq National Market, our common stock could trade on the OTC Bulletin Board or in the past"pink sheets" maintained by the National Quotation Bureau, Inc. Such alternatives are generally considered to be less efficient markets, and may
fluctuate significantly inour stock price, as well as the future as a result of a variety of factors, many
of which are outside of our control. It is likely that our operating results in
one or more future quarters may be below the expectations of securities analysts
and investors. In that event, the trading priceliquidity of our common stock, almost
certainly would decline.

      Factors that maybe adversely impacted by a Nasdaq delisting.
Failure to meet our SVB Facility financial covenants would allow SVB to terminate the SVB Facility and accelerate our repayment obligations, which would negatively affect our quarterly operating results includecash liquidity.
        We recently renewed and amended the following:

                  oSVB Facility during the timingsecond quarter of introductions or enhancementsfiscal 2002 and further renewed and amended the SVB Facility during the first quarter of fiscal 2003. The SVB Facility is secured by substantially all of our productsowned assets. The primary financial covenant under the SVB Facility obligates us to maintain certain levels of available cash, cash equivalents, short-term investments and services or our competitors;
                  o     timinglong-term investments (excluding equity investments). Falling below such levels would be an event of receiptdefault for which Silicon Valley Bank may, among other things, accelerate the payment of the facility. While we plan to adhere to the financial covenants of the SVB Facility and fulfillmentavoid an event of significant orders;
                  o     market acceptance of new products;
                  o     the mix of products sold by us;
                  o     changes in our pricing policies or our competitors;
                  o     changes in our sales incentive plans;
                  o     the budgeting cycles of our customers;
                  o     customer order deferrals in anticipation of new products
                        or enhancements by us or our competitors or because of
                        macro-economic conditions
                  o     nonrenewal of our service agreements, which generally
                        automatically renew for one-year terms unless earlier
                        terminated by either party upon 90-days notice;
                  o     product life cycles;
                  o     changes in strategy;
                  o     seasonal trends;
                  o     the mix of distribution channels through which our
                        products are sold;
                  o     the mix of international and domestic sales;
                  o     the rate at which new sales people become productive;
                        and
                  o     changesdefault, in the levelevent that it appears we are unable to avoid an event of operating expensesdefault, it may be necessary or advisable to support
                        projected growth.

      Due to theseretire and other factors, it is difficult to accurately forecastterminate the SVB Facility and pay off all remaining balances borrowed. Such a payoff would further limit our quarterly revenuesavailable cash and operating results. We believe that period-to-period
comparisons of our operating results may not be meaningful and you should not
rely upon them as any indication of our future performance.

      cash equivalents.
Our future financial performance is largely dependent on the successful upgrading of our current products and introduction of new products.
        Our future financial performance will depend, in significant part, on the successful development and sale of new and enhanced versions of our BroadVision
One-To-One application products and other new products. We may be unable to upgrade and continue to market the BroadVision One-To-One application products. We may be unable to successfully develop new products and new products may not achieve market acceptance.


                                       28

If we are unable to meet the rapid technological changes in online commerce and communication, our products and services may fail to be competitive.
        Our salesproducts and services may fail to be subject to macro-economic conditionscompetitive if we do not maintain or exceed the pace of technological developments in Internet commerce and communication. The information services, software and communications industries are characterized by rapid technological change, changes in customer requirements, frequent new product and service introductions and enhancements and evolving industry standards and practices. The introduction of products and services embodying new technologies and the emergence of new industry standards and practices can render existing products and services obsolete. Our future success will depend, in part, on our ability to:
        Internet commerce technology is complex and new products is over $400,000 and has increased over the last few years. The current
macro-economic forecast for the United Statesenhancements can require long development periods. If we are unable to develop and some other countries indicate
an economic slowdown. Many customersintroduce new products and prospective customers have issued
public announcements regarding workforce reductions and spending controlsservices or enhancements in a timely manner in response to this slowdown. Because of these corporate pronouncementschanging market conditions or customer requirements,
43

or if new products and economic conditions,services do not achieve market acceptance, our customers and prospectsbusiness may defer large capital
spending decisions that, in turn, could result in shortfalls in our revenue and
operating result expectations.

      fail to be competitive.
Our lengthy sales and product implementation cycles could cause delays in revenue recognition and make it difficult to predict oursour quarterly results.
        Our sales and product implementation cycles are subject to delays over which we have little or no control. These delays can affect the timing of revenue recognition and make it difficult to predict our quarterly results. Licensing the BroadVision One-to-One applicationour products is often an enterprise-wide decision by prospective customers. The importance of this decision requires that we engage in a lengthy sales cycle with prospective customers. During the sales process, we provide a significant level of education regarding the uses and benefits of our products. Once the decision has been made to implement our products, our customers or our BroadVision Global Services consultants then must commit significant resources over an extended period of time. Slowdowns in general economic conditions may result in decisions by customers to defer decisions to purchase our products. Delays in license transactions due to unusually lengthy sales cycles could cause our operating results to vary significantly from quarter to quarter.
The market for our products and services is in its early stages of
developmenta rapidly evolving environment and may fail to mature intoremain a sustainable market.viable market
        Our products and services facilitate online commerce and communication over public and private networks. The market for these products and services is in its early stages of development and is rapidly evolving. A viable market may fail to emerge or be sustainable. We cannot predict the level of demand for and market acceptance of our products and services, especially because acquisition of our products and services requires a large capital or other significant resource commitment. If the market for our products and services does not continue to mature, we will be unable to execute successfully our business plan. Adoption of electronic commerce and knowledge management, particularly by those individuals and companies that have historically relied upon traditional means of commerce and communication, will require a broad acceptance of new and different methods of conducting business and exchanging information. Our future
revenues and profits will substantially depend on the Internet being accepted
and widely used for commerce and communication. If Internet commerce does not continue to grow or grows more slowly than expected, our future revenues and profits may not meet our expectations or those of analysts. In the emerging marketplace of Internet commerce, our products and services involve a new approach to the conduct of online business. As a result, intensive marketing and sales efforts may be necessary to educate prospective customers regarding the uses and benefits of our products and services, thereby generating demand. Companies that have already invested substantial resources in other methods of conducting business may be reluctant to adopt a new approach that may replace, limit or compete with their existing systems. Similarly, purchasers with established patterns of commerce may be reluctant to alter those patterns or may otherwise resist providing the personal data necessary to support our consumer profiling capability. In addition, the security and privacy concerns of existing and potential online purchasers may inhibit the growth of online business generally and the market's acceptance of our products and services in particular. Accordingly, a viable market for our products and services may not emerge or be sustainable.
Fluctuations in our quarterly operating results may cause our stock price to decline and make it difficult for us to forecast quarterly revenue and operating results.
        Our success is substantially dependent on revenues from our BroadVision
One-to-One Enterprise product suitequarterly operating results have fluctuated in the past and related services.

      To date, substantially allmay fluctuate significantly in the future as a result of a variety of factors, many of which are outside of our revenues have been attributable to
license salescontrol. It is likely that our operating results in one or more future quarters may be below the expectations of securities analysts and investors. In that event, the BroadVision One-To-One Enterprise product and related
packaged application products and associated services. We currently expect thesetrading price of our common stock almost certainly would decline.
        Factors that may affect our quarterly operating results include the following:
44
        Due to these and other factors, it is difficult to accurately forecast our quarterly revenues and operating results. We believe that period-to-period comparisons of our operating results may not be meaningful and you should not rely upon them as any indication of our future revenues. The inability
of our customers to successfully develop and deploy an online marketplace using
BroadVision One-To-One application products could damage our reputation and
cause a loss of customers. In addition, factors negatively affecting the pricing
of or demand for the BroadVision One-To-One application products, such as
increased competition or rapid technological change, could cause our revenues to
decline.


                                       29
performance.
We have substantially expandedmodified our business and operations and will need to manage and support this expansionthese changes effectively in order for our business plan to succeed.
        We have substantially expanded then contracted our business and operations since our inception in 1993; in particular, we1993. We grew from 652 employees at the end of 1999 to 2,412 employees at the end of 2000.2000 and have reduced our numbers to 1,102 at the end of 2001 and 449 at the end of 2002. If we are unable to support this
growththese changes effectively, we may have to divert additional resources away from executing our business plan and toward internal administration. Our past
expansion has placed significant demands on our administrative, operational,
financial and other resources. If our revenuesexpenses do not increase in proportiontrack our revenues, we may have to our operating expenses,make additional changes to our management systems do not expand to meet
increasing demands or our management otherwise fails to support our expansion
effectively,and our business plan may not succeed.
We are dependent on direct sales personnel and third-party distribution channels to achieve revenue growth.
        To date, we have sold our products primarily through our direct sales force. Our ability to achieve significant revenue growth in the future largely will depend on our success in recruiting, training and trainingretaining sufficient direct sales personnel and establishing and maintaining relationships with distributors, resellers and systems integrators. Our products and services require a sophisticated sales effort targeted at the senior management of our prospective customers. New hires as well as employees of our distributors, resellers and systems integrators require training and take time to achieve full productivity. Our recent hires may not become as productive as necessary, and we may be unable to hire and retain sufficient numbers of qualified individuals in the future. We have entered into strategic alliance agreements with partners, including
Hewlett-Packard Company, under which partners have agreed to resell and support our current BroadVision One-to-One product suite. These contracts are generally terminable by either party upon 30 days' notice of an uncured material breach. Termination of the Hewlett-Packard or other similarany of these alliances could harm our
45

expected revenues. We may be unable to expand our other distribution channels, and any expansion may not result in revenue increases. If we fail to maintain and expand our direct sales force or other distribution channels, our revenues may not grow or they may decline.
Our customers may rely on third-party systems integrators for the success of online marketplaces.
        Our current and prospective customers may rely on third-party systems integrators to develop, deploy and manage online marketplaces. If we are unable to adequately train these systems integrators who, as a result, ineffectively assist customers with their online marketplaces, our reputation may be harmed and we may lose customers. In addition, if for any reason a large number of these integrators adopt a different product or technology instead of the BroadVision One-To-One application products, sales of these products may not grow or they may decline.
We are susceptible to numerous risks associated with international operations.
        Our international activities expose us to numerous additional risks. In the year ended December 31, 2000,2002, approximately 32%39% of our revenues were derived from sales outside of North America. We have twenty six offices in Europe and
Asia and two offices in Australia. A key component of our business strategy is
to expand our international activities.
        As we continue to expand internationally, we will be increasingly subject to risks of doing business internationally, including:

                  o     
        Our international sales growth will be limited if we are unable to establish additional foreign operations, expand international sales channel management and support, hire additional personnel, customize products for local markets and develop relationships with international service providers, distributors and system integrators. Even if we are able to successfully expand our international operations, we may not succeed in maintaining or expanding international market demand for our products.
Our products are especially susceptible to product defects because they are complex.
        Sophisticated software products, like those sold by us, may contain undetected errors that will not become apparent until after the products are introduced or when the volume of provided services increases. It is possible that, despite testing by us and our prospective customers, errors will be found in our products. Product defects could result in all or any of the following consequences to our business:

                  o     
46
Because a significant portion of our sales activity occurs at the end of each fiscal quarter, delays in a relatively small number of license transactions could adversely affect our operating results for the quarter.
        Like most software companies, a significant proportion of our sales are concentrated near the end of each fiscal quarter. Gross margins are high for our license transactions. Customers and prospective customers are aware of these facts and use these conditions in an attempt to obtain concessions. While we have consistently avoidedtried to avoid making concessions that could result in lower margins, the tactic often results in delays in the closing of license transactions. Small delays in a relatively small number of license deals could have a significant impact on our reported operating results for that quarter.
Current and potential competitors could make it difficult for us to acquire and retain customers now and in the future.
        If we fail to compete successfully with current or future competitors, we may lose market share. The market for e-business solutions is rapidly evolving and intensely competitive. Our customers' requirements and the technology available to satisfy those requirements will continually change. We expect competition in this market to persist and increase in the future. Our primary competition currently includes:

                  o     

        The principal competitive factors affecting the market for our products are:

                  o     Depth
47
        Compared to us, many of these and other current and future competitors have longer operating histories and significantly greater financial, technical, marketing and other resources. As a result, they may be able to respond more quickly to new or changing opportunities, technologies and customer requirements. Many of these companies also can use their greater name recognition and more extensive customer base to gain market share at our expense. Competitors may be able to undertake more extensive promotional activities, adopt more aggressive pricing policies and offer more attractive terms to purchasers. Current and potential competitors may bundle their products to discourage users from purchasing our products. In addition, competitors have established or may establish cooperative relationships among themselves or with third parties to enhance their products. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. Competitive pressures may make it difficult for us to acquire and retain customers and may require us to reduce the price of our products. We may be unable to compete successfully with current or new competitors.
Our success and competitive position will depend on our ability to protect our proprietary technology.
        Our success and ability to compete are dependent to a significant degree on our proprietary technology. Although we hold a U.SU.S. patent, issued in January 1998, on elements of the BroadVision One-To-One Enterprise product thisand a U.S. patent acquired as part of the Interleaf acquisition on the elements of the extensible electronic document processing system for creating new classes of active documents, these patents may not provide an adequate level of intellectual property protection. In addition, litigation like the lawsuit we filed against Art Technology Group, which was settled in February 2000, may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity. We cannot guarantee that infringement or other claims will not be asserted or prosecuted against us in the future, whether resulting from our intellectual property or licenses from third parties. Claims or litigation, whether successful or unsuccessful, could result in substantial costs and diversions of resources, either of which could harm our business.
        We also rely on copyright, trademark, service mark, trade secret laws and contractual restrictions to protect our proprietary rights in products and services. We have registered "BroadVision" and "BroadVision One-To-One" as trademarks in the United States and in other countries. It is possible that our competitors or other companies will adopt product names similar to these trademarks, impeding our ability to build brand identity and possibly confusing customers.
        As a matter of company policy, we enter into confidentiality and assignment agreements with our employees, consultants and vendors. We also control access to and distribution of our software, documents and other proprietary information. Notwithstanding these precautions, it may be possible for an unauthorized third party to copy or otherwise obtain and use our software or other proprietary information or to develop similar software independently. Policing unauthorized use of our products will be difficult, particularly because the global nature of the Internet makes it difficult to control the ultimate destination or security of software and other transmitted data. The laws of other countries may afford us little or no effective protection of our intellectual property.
A breach of the encryption technology that we use could expose the company to liability and harm our reputation, causing a loss of customers.
        If any breach of the security technology embedded in our products were to occur, we would be exposed to liability and our reputation could be harmed, which could cause us to lose customers. A significant barrier to online commerce and communication is the secure exchange of valuable and confidential information over public networks. We rely on encryption and authentication technology, including public key cryptography technology licensed from RSA Security Inc., to provide the security and authentication necessary to effectaffect the secure exchange of confidential information. Advances in
48

computer capabilities, new discoveries in the field of cryptography or other events or developments could cause a breach of the RSA or other algorithms that we use to protect customer transaction data.
We could be subject to claims of intellectual property infringement, which could divert management resources, cause product delays or require that we enter into licensing or royalty agreements.
        Third parties may claim that we have infringed their patent, trademark, copyright or other proprietary rights. It is also possible that claims will be made for indemnification resulting from allegations of infringement. In addition, intellectual property infringement claims may be asserted against us as a result of the use by us, our customers or other third parties of our products for the transmission, dissemination or display of information on the Internet. Any claims, with or without 32
merit, could be time consuming, costly, cause product shipment delays or require that we enter into royalty or licensing agreements. These licenses might not be available on reasonable terms, or at all.
The loss or malfunction of technology licensed from third parties could delay the introduction of our products and services.
        We rely in part on technology that we license from third parties, including relational database management systems from Oracle, Sybase, and Informix object request broker software from IONA Technologies PLC, database access technology from Rogue Wave Software Inc. and other software. We integrate or sublicense this technology with internally developed software to perform key functions. For example, our products and services incorporate data encryption and authentication technology licensed from RSA. Third-party technology licenses might not continue to be available to us on commercially reasonable terms, or at all. Moreover, the licensed technology may contain defects that we cannot control. The loss of any of these technology licenses could cause delays in introducing our products or services until equivalent technology, if available, is identified, licensed and integrated. Delays in introducing our products and services could harm our business.
Our executive officers, key employees and highly skilled technical and managerial personnel are critical to our business, and they may not remain with us in the future.
        Our performance substantially depends on the performance of our executive officers and key employees. We also rely on our ability to retain and motivate qualified personnel, especially our management and highly skilled development teams. The loss of the services of any of our executive officers or key employees, particularly our founder and Chief Executive Officer, Dr. Pehong Chen, could cause us to incur increased operating expenses and divert senior management resources in searching for replacements. The loss of their services also could harm our reputation if our customers were to become concerned about our future operations. We do not carry "key person" life insurance policies on any of our employees. Our future success also depends on our continuing ability to identify, hire, train and retain other highly qualified technical and managerial personnel. Competition for these personnel is intense, especially in the Internet industry. We have in the past experienced, and may continue to experience, difficulty in hiring and retaining sufficient numbers of highly skilled employees. If we are unable to meet the rapid technological changesThe significant downturn in online
commerce and communication, our products and services may fail to be
competitive.

      Our products and services may fail to be competitive if we do not maintain
or exceed the pace of technological developments in Internet commerce and
communication. The information services, software and communications industries
are characterized by rapid technological change, changes in customer
requirements, frequent new product and service introductions and enhancements
and evolving industry standards and practices. The introduction of products and
services embodying new technologies and the emergence of new industry standards
and practices can render existing products and services obsolete. Our future
success will depend, in part,business environment has had a negative impact on our ability to:

            o     develop leading technologies;
            o     enhanceoperations. We are currently restructuring our existing productsoperations and services;
            o     develop new productshave taken actions to reduce our workforce and services that address the
                  increasingly sophisticated and varied needs of our prospective
                  customers; and
            o     respondimplement other cost containment activities. These actions could lead to technological advances and emerging industry
                  standards and practices on a timely and cost-effective basis.

      Internet commerce technology is complex and new products and enhancements
can require long development periods. If we are unable to develop and introduce
new products and services or enhancementsdisruptions in a timely manner in response to
changing market conditions or customer requirements, or if new products and
services do not achieve market acceptance, our business, may fail to be
competitive.

      reduced employee morale and productivity, increased attrition and problems with retaining existing employees and recruiting future employees and increased financial costs.
Limitations on the online collection of profile information could impair the effectiveness of our products.
        Online users' resistance to providing personal data and laws and regulations prohibiting use of personal data gathered online without express consent or requiring businesses to notify their Webweb site
49

visitors of the possible dissemination of their personal data could limit the effectiveness of our products.


                                       33

        One of the principal features of the BroadVision One-To-One application products is the ability to develop and maintain profiles of online users to assist business managers in determining the nature of the content to be provided to these online users. Typically, profile information is captured when consumers, business customers and employees visit a Webweb site and volunteer information in response to survey questions concerning their backgrounds, interests and preferences. Profiles can be augmented over time through the subsequent collection of usage data.
        Although BroadVision One-To-One products are designed to enable the development of applications that permit Webweb site visitors to prevent the distribution of any of their personal data beyond that specific Webweb site, privacy concerns may nevertheless cause visitors to resist providing the personal data necessary to support this profiling capability. The mere perception by prospective customers that substantial security and privacy concerns exist among online users, whether or not valid, may indirectly inhibit market acceptance of our products. In addition, new laws and regulations could heighten privacy concerns by requiring businesses to notify Webweb site users that the data captured from them while online may be used by marketing entities to direct product messages to them.
        We are subject to increasing regulation at the federal and state levels relating to online privacy and the use of personal user information. Several states have proposed legislation that would limit the uses of personal user information gathered online or require online services to establish privacy policies.
        In addition, bills pending inthe U.S. Federal Trade Commission, or FTC, has urged Congress would extendto adopt legislation regarding the collection and use of personal identifying information obtained from individuals when accessing Web sites. In the past, the emphasis has been on information obtained from minors. Focus has now shifted to include online privacy protections tofor adults. Laws andThese regulations of this kind may include requirements that wecompanies establish procedures to, disclose and notifyamong other things: give adequate notice to users of
privacy and security policies, obtain consent from users forregarding information collection and use of information, ordisclosure practices; provide users with the ability to access, correct and
deletehave personal information stored by us. Even indeleted from a company's database; provide users with access to their collected personal information and the absenceability to correct inaccuracies; clearly identify affiliations with third parties that may collect information or sponsor activities on another company's Web site; and obtain express parental consent prior to collecting and using personal information from children under 13 years of those
regulations, the Federal Trade Commissionage.
        The FTC has settled several proceedings resulting in consent decrees in which Internet companies have been required to establish programs regarding the manner in which personal information is collected from users and provided to third parties. We could become a party to a similar enforcement proceeding. These regulatory and enforcement efforts could also harm our customers' ability to collect demographic and personal information from users, which could impair the effectiveness of our BroadVision One-to-One application products.
New and existing laws could either directly restrict our business or indirectly affect our business by limiting the growth of Internet commerce.
        The adoption of any laws or regulations that restrict our methods of doing business or limit the growth of the Internet could decrease demand for our products and services and increase our cost of doing business. Today, there are relatively few laws specifically directed towards online services.
        However, due to the increasing popularity of the Internet generally and Internet commerce specifically, we expect that federal, state or foreign agencies will enact laws and regulations with respect to the Internet. These new laws and regulations would be likely to address issues like online user privacy, pricing, content and quality of products and services. If enacted, these laws and regulations could limit the market for our products and services.
50

        For example, because our products involve the solicitation of personal data regarding individual consumers, our business could be limited by laws regulating the solicitation, collection or processing of this data. The Telecommunications Act of 1996 prohibits the transmission of some types of information and content over the Internet. The prohibition's scope and the liability associated with a Telecommunications Act violation are currently unsettled. Legislation imposing potential liability upon us for information carried on or disseminated through our products would likely cause us to implement costly measures to reduce our exposure to this liability or to discontinue some of our services.
        Our business could be harmed by the expense involved in reacting to actual or potential liability associated with the Telecommunications Act or other Internet-related laws and regulations. In addition, the increased attention focused upon liability issues as a result of the Telecommunications Act could limit the growth of Internet commerce, which could decrease demand for our products.
        The United States government regulates the export of technology, including encryption technology, which our products incorporate. Export regulations, either in their current form or as may be subsequently enacted, may limit our ability to distribute our software outside the United States. Any revocation or modification of our export authority or adoption of new laws or regulations relating to the export of software and encryption technology could limit our international operations. The unlawful export of our software could also harm our reputation. Although we take precautions against unlawful export of their software, the global nature of the Internet makes it difficult to effectively control the distribution of software.


                                       34

The imposition of sales and other taxes on products sold by our customers over the Internet could have a negative effect on online commerce and, as a result, on demand for our products.
        The imposition of new sales or other taxes could limit the growth of Internet commerce generally and, as a result, the demand for our products. Recent federal legislation limits the imposition of state and local taxes on Internet-related sales. In 1998, Congress has passed the Internet Tax Freedom Act, which places a three-year moratorium through November 2003 on state and local taxes on:

      oon Internet access, unless the tax was already imposed prior to October 1, 1998;1998, and
      o discriminatory taxes on electronic commerce.

      There is a possibility that Congress may not renew this legislation in
2001. If Congress chooses not to renew this legislation, state and local
governments would be free to impose taxes on electronically purchased goods.
        We believe that, in accordance with current industry practice, most companies that sell products over the Internet do not currently collect sales or other taxes on shipments of their products into states or foreign countries where they are not physically present. However,It is possible that one or more states or foreign countries may seek to impose sales or other tax collection obligation on out-of-jurisdiction companies that engage in electronic commerce.
        A successful assertion by one or more states or foreign countries that companies engaged in electronic commerce should collect sales or other taxes on the sale of their products over the Internet, even though not physically present in the state or foreign country, could indirectly reduce demand for our products.
Our stock price has been and is likely to continue to be highly volatile.
        The trading price of our common stock has been and is likely to continue to be highly volatile. Our stock price is subject to wide fluctuations in response to a variety of factors, including:

      o     
51
        In addition, the stock market has experienced significant price and volume fluctuations that have particularly affected the trading prices of equity securities of many high technology companies. These fluctuations have often been unrelated or disproportionate to the operating performance of these companies.
        Any negative change in the public's perception of the prospects of Internet or electronic commerce companies could further depress our stock price regardless of our results. Other broad market fluctuations may decrease the trading price of our common stock. In the past, following declines in the market price of a company's securities, securities class action litigation, such as the class action lawsuits filed against us and certain of our officers and directors in early 2001, has often been instituted against that company. Litigation could result in substantial costs and a diversion of management's attention and resources.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
        Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We had no derivative financial instruments as of December 31, 20002002 and 1999.2001. We place our investments in instruments that meet high credit quality standards and the amount of credit exposure to any one issue, issuer and type of instrument is limited. We do not
expect any material loss with respect to our investment portfolio.

      Our financial instrument holdings as of December 31, 2000 were analyzed to
determine their sensitivity to interest rate changes. In our sensitivity
analysis, we assumed an adverse change in interest rates of 500 basis points and
the expected effect on net income was insignificant.


                                       35

Cash and Cash Equivalents, Short-Term Investments, Long-Term Investments
We consider all debt and equity securities with remaining maturities of three months or less at the date of purchase to be cash equivalents. Our cash and
cash equivalents consisted of the following (in thousands):

                                                    December 31,
                                               ---------------------
                                                 2000         1999
                                               --------     --------
        Cash                                   $ 43,253     $ 16,945
        Money market funds..............         94,011      125,807
        Corporate notes/bonds...........          2,937            -
        Government notes/bonds..........         10,412            -
        Commercial paper................          2,524      137,071
                                               --------     --------
                                               $153,137     $279,823
                                               ========     ========

Short-term Investments

      Our short-term investments consist of marketabledebt and equity andsecurities that are classified as available-for-sale. Our debt securities are carried at fair value with related unrealized gains or losses reported as other comprehensive income (loss), net of tax. Our long-term investments include debt securities that are classified as available-for-sale. Our investment in
marketable equityThese securities ishave remaining maturities greater than one year from December 31, 2002. These investments are carried at fair value with related unrealized gains or losses reported as other comprehensive income, net of tax. As
        All short term investments have a remaining maturity of December 31, 2000, ourtwelve months or less. Total short-term and long-term investment in marketable equity securities had a fair
value of $3.1unrealized gains (losses) were $(1.7) million and a cost basis of $5.0 million. Our debt securities
are carried at fair value. As of December 31, 2000, commercial paper
investments consisted of $11.0$2.1 million corporate notes/bonds of $16.9
million and government bonds/notes of $38.4 million. Short-term investments,
excluding marketable equity securities, had a weighted average remaining
maturity as of December 31, 2000 of approximately three months. Total
short-term investment unrealized losses, net, were $26.0 million, net of tax, for the yearyears ended December 31, 2000.2002 and 2001, respectively. Total realized gains during fiscal 20002002 and 2001 were $3.6$719,000 and $2.0 million, respectively, and are included in other income in the accompanying statementConsolidated Statements of operations.

Operations.
        Our cash and cash equivalents, short-term investments and long-term investments consisted of the following as of December 31, 2002 (in thousands):
 
 Amortized
costs
 Unrealized
gains
 Unrealized
losses
 Fair
value
Cash $36,070 $— $— $36,070
Money market  36,232  —  —  36,232
Corporate notes/bonds  23,369  50  (1) 23,418
Government notes/bonds  23,430  11  —  23,441
  
 
 
 
  $119,101 $61 $(1)$119,161

Included in cash and cash equivalents
 
$
94,090
 
$
—
 
$
—
 
$
94,090
Included in short-term investments  24,428  57  (1) 24,484
Included in long-term investments  583  4  —  587
  
 
 
 
  $119,101 $61 $(1)$119,161
52
        Included in the table above in cash and cash equivalents are $16.7 million of non-current restricted cash and investments.
        Our cash and cash equivalents, short-term investments and long-term investments consisted of the following as of December 31, 2001 (in thousands):
 
 Amortized
cost
 Unrealized
gains
 Unrealized
losses
 Fair
value
Cash $25,874 $— $— $25,874
Money market  36,299  364  (1) 36,662
Corporate note/bonds  75,842  1,056  (8) 76,890
Government notes/bonds  53,792  346  (17) 54,121
  
 
 
 
  $191,807 $1,766 $(26)$193,547

Included in cash and cash equivalents
 
$
75,393
 
$
366
 
$
(1
)
$
75,758
Included in short-term investments  94,773  895  (14) 95,654
Included in long-term investments  21,641  505  (11) 22,135
  
 
 
 
  $191,807 $1,766 $(26)$193,547
        Included in the table above in short-term investments are non-current restricted cash and investments of $29.9 million.
        Remaining maturities of our long-term investments as of December 31, 2002 are as follows:
 
 2004
Corporate notes/bonds $587
Concentrations of Credit Risk
        Financial assets that potentially subject us to significant concentrations of credit risk consist principally of cash, cash equivalents, short-term investments, and trade accounts receivable. We maintain ourThe Company maintains its cash and cash equivalents and short-term investments with over tenseven separate financial institutions. We marketThe Company markets and sell oursells its products throughout the world and performperforms ongoing credit evaluations of ourits customers. We generally do not require
collateral on accounts receivable as the majority of our customers are large,
well-established companies. We maintainThe Company maintains reserves for potential credit losses but
historically have not experienced any significant losses related to individual
customers or groups of customers in any particular industry or geographic area.losses. For the yearyears ended December 31, 2002, 2001 and 2000, no one customer accounted for more than 10% of fiscal year 2000 total revenue. As of December 31, 2000, two customers2002 one customer accounted for more than 10% of the Company's accounts receivable. As of December 31, 2001, no one customer individually accounted for more than 10% of ourthe Company's accounts receivable. These
customers accounted for 10% and 11% of accounts receivable, respectively.


Fair Value of Financial Instruments
        Our financial instruments consist of cash equivalents, short-term investments, accounts receivable, accounts payable and debt. We do not have any derivative financial instruments. We believe the reported carrying amounts of ourits financial instruments approximates fair value, based upon the short maturity of cash equivalents, short-term investments, accounts receivable and payable, and based on the current rates available to usit on similar debt issues.

Long-term
Equity Investments

      Included in the our long-term
        Our equity investments are investments in debt
securities that are classified as available-for-sale. These securities have
remaining maturities greater than one year from December 31, 2000. These
investments are carried at fair value with related unrealized gains or losses
reported as other comprehensive income, netconsist of tax. As of December 31, 2000, our
long-term investments in debt securities had a fair value of $34.3 million in
corporate bonds/notes and $44.6 million in government bonds/notes. The remaining
weighted average days to maturity as of December 31, 2000 was approximately
twenty three months.

      Also included in our long-term investments are equity investments in public and non-public companies that are accounted for under either the cost method of accounting or the equity method of accounting. Equity investments are accounted for under the cost method of accounting when we have a minority interest and do not have the ability to exercise significant influence. These investments are classified as available for sale and are carried at fair 36
value when readily determinable market values exist or at cost
53

when such market values do not exist. Adjustments to fair value are recorded as a component of other comprehensive income unless the investments are considered permanently impaired in which case the adjustment is recorded as a component of other income (expense), net in the consolidated statement of operations. Equity investments are accounted for under the equity method of accounting when we have a minority interest and have the ability to exercise significant influence. These investments are classified as available for sale and are carried at cost with periodic adjustments to carrying value for our equity in net income (loss) of the equity investee. Such adjustments are recorded as a component of other income, net. Any decline in value of our investments, which is other than a temporary decline, is charged to earnings during the period in which the impairment occurs.
        The total fair value of our cost method long-term equity investments in public and non-public companies as of December 31, 2002 was $19.4 million with a cost basis of $27.3$2.1 million. This includes a $750,000 write down$12.6 million of an investmentwrite-downs during 2002 of investments due to an other
than temporaryother-than-temporary decline in fair value. There was also an additional $250,000
write down of an investment duewere no unrealized gains or losses recorded to an other than temporary decline in fair
value. The total unrealized loss, net, duringdate and for the year ended December 31, 2000 in our cost method2002 related to long-term investments was $4.3 million, net of tax.
The total fair value of our equity method long-term investment was $4.4
million as of December 31, 2000. This includes $600,000 of equity in net
losses realized during the twelve months ended December 31, 2000. The equity
in net losses realized is recorded as a component of other income, net in the
accompanying statement of operations.

                                       37
investments.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
        The following consolidated financial statements and the related notes thereto of BroadVision, Inc. and the Report of Independent Certified Public Accountants are filed as a part of this Form 10K.
54

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To The Board of Directors and Stockholders of BroadVision, Inc.: and Subsidiaries:
        We have audited the accompanying consolidated balance sheetssheet of BroadVision, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2000 and 1999,2002, and the related consolidated statements of operations, stockholders' equity and cash flows for the yearsyear then ended. These
consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

      We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of BroadVision, Inc.
and subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.

                                                             Arthur Andersen LLP
San Jose, California
March 30, 2001


                                       38


                        REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Stockholders of BroadVision, Inc.:

      We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of BroadVision, Inc. and subsidiaries for
the year ended December 31, 1998. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of BroadVision, Inc. as of December 31, 2001, and for each of the two years in the period ended December 31, 2001, prior to the revisions discussed in Notes 1 and 4, were audited by other independent accountants who have ceased operations. Those independent accountants expressed an unqualified opinion on those financial statements in their report dated March 29, 2002.
        We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
        In our opinion, the 2002 consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash
flowsfinancial position of BroadVision, Inc. and subsidiaries as of December 31, 2002, and the results of their operations and their cash flows for the year then ended December 31,
1998, in conformity with accounting principles generally accepted in the United States of America.

                                                       /s/ KPMG
        As disclosed in Note 1 to the consolidated financial statements, upon adoption of new accounting pronouncements effective during 2002, the Company changed its method of accounting for goodwill and other intangible assets, and its method of accounting for reimbursable out-of-pocket expenses.
        As discussed above, the consolidated financial statements of BroadVision, Inc. as of December 31, 2001, and for each of the two years in the period ended December 31, 2001, were audited by other independent accountants who have ceased operations. As described in Note 1, these financial statements have been restated to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," which was adopted by the Company on January 1, 2002, and to reclassify reimbursable out-of-pocket expenses in accordance with Emerging Issues Task Force Issue 01-14 "Income Statement Characterization of Reimbursements Received for Out of Pocket Expenses Incurred," also adopted by the Company on January 1, 2002. We audited the transitional disclosures for 2001 and 2000 described in Notes 1. We also audited the adjustments described in Note 4 that were applied to restate the 2001 and 2000 consolidated financial statements. In our opinion, all such adjustments and transitional disclosures are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2001 or 2000 consolidated financial statements of the company other than with respect to such adjustments and transitional disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 and 2000 consolidated financial statements taken as a whole.
/s/ BDO Seidman, LLP

Mountain View,
San Jose, California
January 26, 1999,24, 2003, except for Note 13
and the penultimate paragraph of Note 6,
as to which the sectiondate is March 28, 2003
55
        THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP AND HAS NOT BEEN REISSSUED. BROADVISION, INC. HAS RESTATED ITS FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000, TO INCLUDE THE TRANSITIONAL DISCLOSURES REQUIRED BY STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 142, "GOODWILL AND OTHER INTANGIBLE ASSETS," AND TO RECLASSIFY REIMBURSABLE OUT-OF-POCKET EXPENSES IN ACCORDANCE WITH EMERGING ISSUES TASK FORCE ISSUE 01-14 "INCOME STATEMENT CHARACTERIZATION OF REIMBURSEMENTS RECEIVED FOR OUT OF POCKET EXPENSES INCURRED," ALSO ADOPTED BY THE COMPANY ON JANUARY 1, 2002. THE REVISION TO THE 2001 AND 2000 FINANCIAL STATEMENTS RELATED TO THIS TRANSITIONAL DISCLOSURE WERE REPORTED ON BY BDO SEIDMAN, LLP, AS STATED IN THEIR REPORT APPEARING HEREIN.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Note 1
  entitled "Stock Splits," which isDirectors and Stockholders of BroadVision, Inc. and Subsidiaries:
        We have audited the accompanying consolidated balance sheets of BroadVision, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
        We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
        In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of BroadVision, Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.
/s/ARTHUR ANDERSEN LLP
San Jose, California
March 13, 2000


                                       39
29, 2002
56

BROADVISION, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
                    (in

(in thousands, except per share amounts)

                                                                                            December 31,
                                                                                  -------------------------------
                                                                                        2000             1999
                                                                                  --------------   --------------

ASSETS
Current assets:
  Cash and cash equivalents                                                       $      153,137   $      279,823
  Short-term investments                                                                  69,397           68,758
  Accounts receivable, less allowance for doubtful accounts of $4,015 and
   $1,446 as of December 31, 2000 and 1999, respectively                                 104,811           26,540
  Prepaids and other                                                                      17,417            5,085
                                                                                  --------------   --------------
          Total current assets                                                           344,762          380,206
Property and equipment, net                                                               76,685           16,751
Deferred tax asset                                                                         5,579               --
Long-term investments                                                                    102,555            4,414
Goodwill and other intangibles, net                                                      607,501               --
Other assets                                                                               5,942            4,757
                                                                                  --------------   --------------
          Total assets                                                            $    1,143,024   $      406,128
                                                                                  ==============   ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt and capital lease obligations                 $          977   $        1,247
  Accounts payable                                                                        15,711            5,754
  Accrued expenses                                                                        53,676           13,156
  Unearned revenue                                                                        16,330            3,896
  Deferred maintenance                                                                    42,237           15,228
  Deferred income taxes                                                                       --           16,769
                                                                                  --------------   --------------
          Total current liabilities                                                      128,931           56,050
Long-term debt, net of current portion                                                     3,897            4,890
Other noncurrent liabilities                                                                 898               --
                                                                                  --------------   --------------
          Total liabilities                                                              133,726           60,940
                                                                                  --------------   --------------

Commitments (Note 7)

Stockholders' equity:
  Convertible preferred stock, $0.0001 par value;
     10,000 shares authorized; none issued and outstanding                                    --               --
  Common stock, $0.0001 par value; 2,000,000 shares
   authorized; 270,066 and 244,812 shares issued and
   outstanding as of December 31, 2000 and 1999, respectively                                 27               24
  Additional paid-in capital                                                           1,176,042          320,259
  Deferred compensation                                                                       --             (226)
  Accumulated other comprehensive (loss) income                                           (4,348)          25,925
  Accumulated deficit                                                                   (162,423)            (794)
                                                                                  --------------   --------------
          Total stockholders' equity                                                   1,009,298          345,188
                                                                                  --------------   --------------
          Total liabilities and stockholders' equity                              $    1,143,024   $      406,128
                                                                                  ==============   ==============


 
 December 31,
 
 
 2002
 2001
 
ASSETS       
Current assets:       
 Cash and cash equivalents $77,386 $75,758 
 Short-term investments  24,484  65,705 
 Accounts receivable, less allowance for doubtful accounts and reserves of $5,502 and $8,194 as of December 31, 2002 and 2001, respectively  22,917  39,768 
 Prepaids and other  9,181  12,816 
  
 
 
  Total current assets  133,968  194,047 
Property and equipment, net  26,600  67,219 
Deferred tax asset  —  2,857 
Long-term investments  587  22,135 
Restricted cash and investments  16,704  29,949 
Equity investments  2,083  5,583 
Goodwill  53,421  53,421 
Other intangibles, net  3,899  7,446 
Other assets  2,874  9,760 
  
 
 
  Total assets $240,136 $392,417 
  
 
 

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
Current liabilities:       
 Bank borrowings and current portion of long-term debt $25,977 $977 
 Accounts payable  8,105  11,276 
 Accrued expenses  55,787  61,712 
 Unearned revenue  14,158  22,580 
 Deferred maintenance  24,325  30,337 
  
 
 
  Total current liabilities  128,352  126,882 
Long-term debt, net of current portion  1,945  2,922 
Other noncurrent liabilities  68,206  59,466 
  
 
 
  Total liabilities  198,503  189,270 
  
 
 
Commitments and Contingencies (Note 8)       
Stockholders' equity:       
 Convertible preferred stock, $0.0001 par value; 10,000 shares authorized; none issued and outstanding  —  — 
 Common stock, $0.0001 par value; 2,000,000 shares authorized; 32,440 and 31,643 shares issued and outstanding as of December 31, 2002 and 2001, respectively  3  3 
 Additional paid-in capital  1,210,797  1,207,071 
 Accumulated other comprehensive loss  37  (5,245)
 Accumulated deficit  (1,169,204) (998,682)
  
 
 
  Total stockholders' equity  41,633  203,147 
  
 
 
  Total liabilities and stockholders' equity $240,136 $392,417 
  
 
 
The accompanying notes are an integral part of these consolidated financial statements


                                       40

57

BROADVISION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in

(in thousands, except per share amounts)

                                                    Years Ended December 31,
                                              -----------------------------------
                                                 2000         1999         1998
                                              ---------    ---------    ---------


Revenues:
  Software licenses                           $ 250,838    $  75,383    $  36,067
  Services                                      163,078       40,131       14,844
                                              ---------    ---------    ---------
          Total revenues                        413,916      115,514       50,911
Cost of revenues:
  Cost of software licenses                       7,827        3,703        1,001
  Cost of services                              117,808       25,108        8,704
                                              ---------    ---------    ---------
      Total cost of revenues                    125,635       28,811        9,705
                                              ---------    ---------    ---------
          Gross profit                          288,281       86,703       41,206
Operating expenses:
  Research and development                       51,621       14,568        9,227
  Sales and marketing                           167,415       48,903       26,269
  General and administrative                     28,195        7,970        3,786
  Goodwill and intangible amortization          187,748           --           --
  Charge for acquired in-process
    technology                                   10,100           --           --
                                              ---------    ---------    ---------
      Total operating expenses                  445,079       71,441       39,282
                                              ---------    ---------    ---------
         Operating (loss) income               (156,798)      15,262        1,924
Interest income                                  16,706        5,142        2,484
Other income (expense), net                       1,511         (599)        (448)
                                              ---------    ---------    ---------
          (Loss) income before income taxes    (138,581)      19,805        3,960
Income tax provision (benefit)                   23,048          996          (79)
                                              ---------    ---------    ---------
          Net (loss) income                   $(161,629)   $  18,809    $   4,039
                                              =========    =========    =========

Basic (loss) earnings per share               $   (0.62)   $    0.08    $    0.02
                                              =========    =========    =========
Diluted (loss) earnings per share             $   (0.62)   $    0.07    $    0.02
                                              =========    =========    =========

Shares used in computing basic
  earnings (loss) per share                     259,780      229,128      210,114
                                              =========    =========    =========
Shares used in computing diluted
  earnings (loss) per share                     259,780      260,712      230,877
                                              =========    =========    =========


 
 Years Ended December 31,
 
 
 2002
 2001
 2000
 
Revenues:          
 Software licenses $40,483 $101,480 $250,838 
 Services  75,415  146,943  164,661 
  
 
 
 
  Total revenues  115,898  248,423  415,499 
Cost of revenues:          
 Cost of software licenses  8,144  9,895  7,827 
 Cost of services  38,898  97,639  119,391 
  
 
 
 
  Total cost of revenues  47,042  107,534  127,218 
  
 
 
 
   Gross profit  68,856  140,889  288,281 
Operating expenses:          
 Research and development  41,432  78,677  51,621 
 Sales and marketing  48,918  139,799  167,415 
 General and administrative  16,288  42,311  28,088 
 Goodwill and intangible amortization  3,548  211,216  187,855 
 Charge for acquired in-process technology  —  6,418  10,100 
 Restructuring charge  110,449  153,284  — 
 Impairment of assets  3,129  —  — 
 Impairment of goodwill and other intangibles  —  336,379  — 
  
 
 
 
  Total operating expenses  223,764  968,084  445,079 
  
 
 
 
   Operating loss  (154,908) (827,195) (156,798)
Interest income  4,130  11,404  16,706 
Other (expense) income, net  (12,141) (18,332) 1,511 
  
 
 
 
   Loss before provision for income taxes  (162,919) (834,123) (138,581)
Provision for income taxes  7,603  2,136  23,048 
  
 
 
 
   Net loss $(170,522)$(836,259)$(161,629)
  
 
 
 
Basic loss per share $(5.32)$(27.20)$(5.60)
  
 
 
 
Diluted loss per share $(5.32)$(27.20)$(5.60)
  
 
 
 
Shares used in computing basic loss per share  32,036  30,748  28,864 
  
 
 
 
Shares used in computing diluted loss per share  32,036  30,748  28,864 
  
 
 
 
The accompanying notes are an integral part of these consolidated financial statements


                                       41

58

BROADVISION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)
 
 Convertible Preferred
Stock
  
  
  
  
  
  
  
  
 
 
 Common Stock
  
  
 Accumulated
Other
Comprehensive
Income (loss)
  
  
  
 
 
 Additional
Paid-in Capital
 Deferred
Compensation
 Accumulated
Deficit
 Comprehensive
Income (loss)
 Total
Stockholders'
Equity
 
 
 Shares
 Amount
 Shares
 Amount
 
Balances as of December 31, 1999 — $— 27,201 $3 $320,280 $(226)$25,925 $(794)   $345,188 
Comprehensive income:                             
��Net income                     (161,629)$(161,629) (161,629)
Unrealized investment loss less reclassification adjustment for gains (losses) included in net loss, net of $20,069 tax                  (30,273)    (30,273) (30,273)
                        
    
  Total comprehensive income                       $(191,902)   
                        
    
Issuance of common stock under employee stock purchase plan —  — 121  —  12,155  —  —  —     12,155 
Issuance of common stock from exercise of options, including tax benefits of $22,841 —  — 1,077  —  49,562  —  —  —     49,562 
Issuance of common stock and options to purchase common stock in connection with Interleaf acquisition —  — 1,599  —  789,605  —  —  —     789,605 
Issuance of warrants for common stock —  — —  —  1,459  —  —  —     1,459 
Long-term investment in exchange for common stock —  — 8  —  3,000  —  —  —     3,000 
Issuance of common stock from exercise of warrants —  — 1  —  5  —  —  —     5 
Amortization of deferred compensation —  — —  —  —  226  —  —     226 
  
 
 
 
 
 
 
 
    
 
Balances as of December 31, 2000 —  — 30,007 $3 $1,176,066 $— $(4,348)$(162,423)   $1,009,298 
  
 
 
 
 
 
 
 
    
 
Comprehensive loss:                             
Net loss                     (836,259)$(836,259) (836,259)
Unrealized investment loss less reclassification adjustment for gains (losses) included in net loss, net of $701 of tax                  (897)    (897) (897)
                        
    
  Total comprehensive loss                       $(837,156)   
                        
    
59

BROADVISION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in(Continued)

(in thousands)


                                                           Common Stock           Additional
                                                     --------------------------     Paid-in
                                                       Shares         Amount        Capital
                                                     -----------    -----------   -----------


Balances as of December 31, 1997                         183,087    $        18   $    40,350
Comprehensive income:
 Net income
 Unrealized gain on equity securities

       Total comprehensive income

Issuance of common stock from public offering,
net of costs                                              31,104              3        53,742
Issuance of common stock for long-term investments         1,107             --         1,322
Issuance of common stock from exercise of warrants           261             --            --
Issuance of common stock under employee stock              2,052             --         1,599
  purchase plan
Issuance of common stock from exercise of options          5,697             --         2,190
Common stock repurchased                                    (144)            --            (2)
Deferred compensation forfeited due to voluntary
  terminations                                                --             --          (693)
Deferred compensation on stock options                        --             --           240
Amortization of deferred compensation                         --             --            --
                                                     -----------    -----------   -----------
Balances as of December 31, 1998                         223,164             21        98,748
Comprehensive income:
 Net income

 Unrealized gain on equity securities, net of
   $17,318 tax

       Total comprehensive income



Issuance of common stock under employee stock              1,833             --         3,928
purchase plan
Issuance of common stock from exercise of options         10,038             --         7,201
Issuance of common stock from public offering,
net of offering costs of $2,285                            9,315              3       210,376
Issuance of common stock from exercise of warrants           462             --             6
Amortization of deferred compensation                         --             --            --
                                                     -----------    -----------   -----------

Balances as of December 31, 1999                         244,812    $        24   $   320,259
                                                     ===========    ===========   ===========

Comprehensive loss:
 Net loss
 Unrealized loss on equity securities, net of
   $20,069 tax
       Total comprehensive loss

Issuance of common stock under employee stock              1,088             --        12,155
  purchase plan
Issuance of common stock from exercise of                  9,692              1        49,561
options, including tax benefits of $22,841
Issuance of common stock in connection with
  Interleaf acquisition                                   14,392              2       789,603
Issuance of warrants for common stock                         --             --         1,459
Long-term investment in exchange for common stock             77             --         3,000
Issuance of common stock from exercise of warrants             5             --             5
Amortization of deferred compensation                         --             --            --
                                                     -----------    -----------   -----------
Balances as of December 31, 2000                         270,066    $        27   $ 1,176,042
                                                     ===========    ===========   ===========


                                                                      Accumulated
                                                                         Other                                          Total
                                                        Deferred     Comprehensive    Accumulated   Comprehensive    Stockholders
                                                      Compensation    Income (loss)     Deficit     Income (loss)       Equity
                                                      ------------    -------------   -----------   -------------    ------------


Balances as of December 31, 1997                      $    (1,605)   $         --    $   (23,642)                    $    15,121
Comprehensive income:
 Net income                                                                                4,039    $     4,039            4,039
 Unrealized gain on equity securities                                       3,198                         3,198            3,198
                                                                                                    -----------
       Total comprehensive income                                                                   $     7,237
                                                                                                    ===========
Issuance of common stock from public offering,
net of costs                                                   --              --             --                          53,745
Issuance of common stock for long-term investments             --              --             --                           1,322
Issuance of common stock from exercise of warrants             --              --             --                              --
Issuance of common stock under employee stock                  --              --             --                           1,599
  purchase plan
Issuance of common stock from exercise of options              --              --             --                           2,190
Common stock repurchased                                       --              --             --                              (2)
Deferred compensation forfeited due to voluntary
  terminations                                                693              --             --                              --
Deferred compensation on stock options                       (240)             --             --                              --
Amortization of deferred compensation                         597              --             --                             597
                                                      -----------    ------------    -----------                     -----------
Balances as of December 31, 1998                             (555)          3,198        (19,603)                         81,809
Comprehensive income:
 Net income                                                                               18,809    $    18,809           18,809

 Unrealized gain on equity securities, net of                              22,727                        22,727           22,727
   $17,318 tax                                                                                      -----------

       Total comprehensive income                                                                   $    41,536
                                                                                                    ===========

Issuance of common stock under employee stock                  --              --             --                           3,928
purchase plan
Issuance of common stock from exercise of options              --              --             --                           7,201
Issuance of common stock from public offering,
net of offering costs of $2,285                                --              --             --                         210,379
Issuance of common stock from exercise of warrants             --              --             --                               6
Amortization of deferred compensation                         329              --             --                             329
                                                      -----------    ------------    -----------                     -----------
Balances as of December 31, 1999                      $      (226)   $     25,925    $      (794)                    $   345,188
                                                      ===========    ============    ===========                     ===========

Comprehensive loss:
 Net loss                                                                               (161,629)   $  (161,629)        (161,629)
 Unrealized loss on equity securities, net of                             (30,273)                      (30,273)         (30,273)
   $20,069 tax                                                                                      -----------
       Total comprehensive loss                                                                     $  (191,902)
                                                                                                    ===========
Issuance of common stock under employee stock                  --              --             --                          12,155
  purchase plan
Issuance of common stock from exercise of                      --              --             --                          49,562
options, including tax benefits of $22,841
Issuance of common stock in connection with
  Interface acquisition                                        --              --             --                         789,605
Issuance of warrants for common stock                                                                                      1,459
Long-term investment in exchange for common stock                                                                          3,000
Issuance of common stock from exercise of warrants             --              --             --                               5
Amortization of deferred compensation                         226              --             --                             226
                                                      -----------    ------------    -----------                     -----------
Balances as of December 31, 2000                      $        --    $     (4,348)   $  (162,423)                    $ 1,009,298
                                                      ===========    ============    ===========                     ===========


 
 Convertible Preferred
Stock
  
  
  
  
  
  
  
  
 
 
 Common Stock
  
  
 Accumulated
Other
Comprehensive
Income (loss)
  
  
  
 
 
 Additional
Paid-in Capital
 Deferred
Compensation
 Accumulated
Deficit
 Comprehensive
Income (loss)
 Total
Stockholders'
Equity
 
 
 Shares
 Amount
 Shares
 Amount
 
Issuance of common stock under employee stock purchase plan — — 266  —  6,975  —  —  —     6,975 
Issuance of common stock from exercise of options — — 1,069  —  9,450  —  —  —     9,450 
Issuance of common stock in connection with Keyeon acquisition — — 301  —  13,566  —  —  —     13,566 
Stock-based compensation charge — — —  —  1,014  —  —  —     1,014 
  
 
 
 
 
 
 
 
    
 
Balances as of December 31, 2001 — — 31,643 $3 $1,207,071 $— $(5,245)$(998,682)   $203,147 
  
 
 
 
 
 
 
 
    
 
Comprehensive loss:                            
Net loss                    (170,522)$(170,522) (170,522)
Unrealized investment gain less reclassification adjustment for gains (losses) included in net loss, net of $2,606 tax                 5,282     5,282  5,282 
                       
    
 Total comprehensive loss                      $(165,240)   
                       
    
Issuance of common stock under employee stock purchase plan — — 558  —  1,793  —  —  —     1,793 
Issuance of common stock from exercise of options — — 238     1,087  —  —  —     1,087 
Stock-based compensation charge — — —  —  846  —  —  —     846 
  
 
 
 
 
 
 
 
    
 
Balances as of December 31, 2002 — — 32,439 $3 $1,210,797 $— $37 $(1,169,204)   $41,633 
  
 
 
 
 
 
 
 
    
 
The accompanying notes are an integral part of these consolidated financial statements.
60

BROADVISION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)
 
 Years Ended December 31,
 
 
 2002
 2001
 2000
 
Cash flows from operating activities:          
 Net loss $(170,522)$(836,259)$(161,629)
 Adjustments to reconcile net loss to net cash (used for) provided by operating activities:          
  Depreciation and amortization  18,200  25,440  10,477 
  Deferred tax asset  —  —  (5,579)
  Income tax benefit from stock option exercises  —  —  22,841 
  Amortization of deferred compensation  —  —  226 
  Stock-based compensation charge  846  350  — 
  Allowance for doubtful accounts and reserves  3,979  8,298  2,687 
  Amortization of prepaid royalties  6,764  3,853  1,914 
  Amortization of prepaid compensation  —  609  1,961 
  Realized loss on cost method long-term investments  12,649  12,625  1,000 
  Equity in net loss from unconsolidated subsidiary  —  2,438  572 
  Loss on sale of equipment  344  3,113  — 
  Impairment of assets  3,129  —  — 
  Amortization of goodwill and other intangibles  3,548  211,216  187,855 
  Impairment of intangibles  —  336,379  — 
  Charge for acquired in-process technology  —  6,418  10,100 
  Non-cash restructuring charge  18,891  37,460  — 
  Provision for deferred tax asset valuation  6,279  —  — 
 Changes in operating assets and liabilities, net of effects from acquired business:          
  Accounts receivable  12,872  55,863  (68,876)
  Prepaids and other  3,635  9,332  (12,693)
  Restructuring reserve  6,323  90,789  — 
  Accounts payable and accrued expenses  (9,097) (34,548) 39,262 
  Unearned revenue and deferred maintenance  (14,434) (5,625) 28,165 
  Increase in other noncurrent assets  (2,600) (5,618) (2,949)
  
 
 
 
   Net cash (used for) provided by operating activities  (99,194) (77,867) 55,334 
  
 
 
 
Cash flows from investing activities:          
 Purchase of property and equipment  (1,091) (55,697) (67,515)
 Proceeds from sale of assets  247  761  — 
 Transfer from restricted cash/investments  13,245  —  — 
 Purchase of long-term investments  (2,349) (45,728) (106,864)
 Sales/maturity of long-term investments  24,315  103,251  2,952 
 Direct costs of acquisition, net of cash acquired  —  —  (6,039)
 Cash acquired in purchase transaction  —  7,171  — 
 Purchase of short-term investments  (43,041) (118,971) (261,046)
 Sales/maturity of short-term investments  82,582  94,251  217,642 
  
 
 
 
   Net cash provided by (used for) investing activities  73,908  (14,962) (220,870)
  
 
 
 
61

BROADVISION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(in thousands)
 
 Years Ended December 31,
 
 
 2002
 2001
 2000
 
Cash flows from financing activities:          
 Proceeds from borrowings  25,000  —  — 
 Repayments of borrowings  (977) (975) (1,220)
 Payments on capital lease obligations  —  —  (270)
 Proceeds from issuance of warrants for common stock  —  —  1,459 
 Proceeds from issuance of common stock, net  2,891  16,425  38,881 
  
 
 
 
  Net cash provided by financing activities  26,914  15,450  38,850 
  
 
 
 
Net increase (decrease) in cash and cash equivalents  1,628  (77,379) (126,686)
Cash and cash equivalents, beginning of period  75,758  153,137  279,823 
  
 
 
 
Cash and cash equivalents, end of period  77,386 $75,758 $153,137 
  
 
 
 
Supplemental cash flow disclosures:          
 Cash paid for interest $883 $500 $554 
  
 
 
 
 Cash paid for income taxes $1,324 $2,136 $1,890 
  
 
 
 
Non-cash investing and financing activities:          
 Long-term investment acquired in exchange for common stock  —  —  3,000 
 In connection with the acquisition of Keyeon, the following non-cash transaction occurred:          
  Fair value of assets acquired, including cash  —  (17,573) — 
  Liabilities assumed  —  4,007  — 
  Issuance of common stock  —  13,566  — 
 In connection with the acquisition of Interleaf, the following non-cash transaction occurred:          
  Fair value of assets acquired, including cash  —  —  (822,562)
  Liabilities assumed  —  —  26,918 
  Issuance of common stock  —  —  789,605 
  
 
 
 
  Cash paid for acquisition and acquisition costs  —  —  6,039 
The accompanying notes are an integral part of these consolidated financial statements


                                       42

62

BROADVISION, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)



                                                                                Years Ended December 31,
                                                                          -----------------------------------
                                                                             2000         1999         1998
                                                                          ---------    ---------    ---------


Cash flows from operating activities:
  Net income (loss)                                                       $(161,629)   $  18,809    $   4,039
  Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:
    Depreciation and amortization                                            10,477        4,739        2,947
    Amortization of deferred compensation                                       226          329          597
    Provision for doubtful accounts                                           2,687          758          458
    Revenue resulting from non-monetary transactions                             --           --       (2,917)
    Amortization of prepaid royalties                                         1,914          333          250
    Amortization of prepaid compensation                                      1,961          182           --
    Realized loss on cost method long-term investments                        1,000           --           --
    Equity in net loss from unconsolidated subsidiary                           572           --           --
    Amortization of goodwill and other intangibles                          187,748           --           --
    Charge for acquired in-process technology                                10,100           --           --
  Changes in operating assets and liabilities, net of effects from
   acquired business:
    Income tax benefit from stock option exercises                           22,841           --           --
    Accounts receivable                                                     (68,876)     (11,368)      (7,036)
    Prepaid expenses and other                                              (12,693)        (403)      (2,716)
    Deferred tax asset                                                       (5,579)          --           --
    Accounts payable and accrued expenses                                    39,262       11,602        3,145
    Unearned revenue and deferred maintenance                                28,165       10,930        2,633
    Increase in other noncurrent assets                                      (2,842)      (2,565)        (237)
                                                                          ---------    ---------    ---------
        Net cash provided by operating
          Activities                                                         55,334       33,346        1,163
                                                                          ---------    ---------    ---------
Cash flows from investing activities:
  Purchase of property and equipment                                        (67,515)     (13,291)      (4,198)
  Purchase of long-term investments                                        (106,864)      (1,414)      (3,000)
  Maturity of long-term investments                                           2,952           --           --
  Direct costs of acquisition, net of cash acquired                          (6,039)      (3,765)          --
  Purchase of short-term investments                                       (261,046)     (72,783)          --
  Maturity of short-term investments                                        217,642       52,667          796
                                                                          ---------    ---------    ---------
        Net cash used for investing activities                             (220,870)     (38,586)      (6,402)
                                                                          ---------    ---------    ---------
Cash flows from financing activities:
  Net change in restricted cash                                                  --           --        1,400
  Proceeds from borrowings                                                       --        3,000        1,424
  Repayments of borrowings                                                   (1,220)        (620)        (603)
  Payments on capital lease obligations                                        (270)        (709)        (913)
  Proceeds from issuance of warrants for common stock                         1,459           --           --
  Proceeds from issuance of common stock, net                                38,881      221,514       57,532
                                                                          ---------    ---------    ---------
        Net cash provided by financing activities                            38,850      223,185       58,840
                                                                          ---------    ---------    ---------
Net increase (decrease) in cash and cash equivalents                       (126,686)     217,945       53,601
Cash and cash equivalents, beginning of period                              279,823       61,878        8,277
                                                                          ---------    ---------    ---------
Cash and cash equivalents, end of period                                  $ 153,137    $ 279,823    $  61,878
                                                                          =========    =========    =========


Supplemental cash flow disclosures:
  Cash paid for interest                                                  $     554    $     404    $     394
                                                                          =========    =========    =========
  Cash paid for income taxes                                              $   1,890    $     538    $     428
                                                                          =========    =========    =========

Non-cash investing and financing activities:
  Prepaids and other assets acquired through non-monetary
    Transactions                                                                 --           --        1,250
  Investments acquired through non-monetary
    Transactions                                                                 --           --        4,025
  Unearned revenue and deferred maintenance from
    non-monetary transactions                                                    --           --        2,358
  Equipment acquired under capital leases                                        --           --          316
  Long-term investment acquired in exchange for common
    Stock                                                                     3,000           --        1,322
  Deferred compensation on stock options                                         --           --          240
  Deferred compensation forfeited due to voluntary
    Terminations                                                                 --           --          693
  In connection with the acquisition of Interleaf, the
    following non-cash transaction occurred:
    Fair value of assets acquired, including cash                          (822,562)          --           --
    Liabilities assumed                                                      26,918           --           --
    Issuance of common stock                                                789,605           --           --
                                                                          ---------
    Cash paid for acquisition and acquisition costs                       $   6,039           --           --

  In connection with the acquisition of Fidutec, the
    following non-cash transaction occurred:
    Fair value of assets acquired, including cash                                --       (4,164)          --
    Liabilities assumed                                                          --          399           --
                                                                          ---------    ---------    ---------
    Cash paid for acquisition and acquisition costs                       $      --      $ 3,765    $      --



  The accompanying notes are an integral part of these consolidated financial
                                   statements


                                       43


                       BROADVISION, INC. AND SUBSIDIARIES
                   

Notes to Consolidated Financial Statements

December 31, 2000

2002
Note 1 -- 1—Organization and Summary of Significant Accounting Policies
Nature of Business
        BroadVision, Inc. (collectively with its subsidiaries, the "Company") was incorporated in the state of Delaware on May 13, 1993. The Company1993 and has been a publicly traded corporation since 1996. BroadVision develops, markets, and sells an integrated suitesupports enterprise portal applications that enable companies to unify their e-business infrastructure and conduct both interactions and transactions with employees, partners, and customers through a personalized self-service model that increases revenues, reduces costs, and improves productivity. As of packaged applications for conducting e-business
interactions, transactions and services. Global enterprisesDecember 31, 2002, more than 1,200 leading companies and government entities around the globe use theseBroadVision applications to sell, buy, and exchange goods, services,enable their portal-based commerce and information overaccess initiatives. As of December 31, 2002, more than 100 partner firms around the Webworld are working to ensure the Company's joint customers' success through complementary technology, applications, tools, and on wireless devices. Theservices offerings that extend and enhance customers' BroadVision e-business
application suite enablesimplementations.
Acquisitions
        On June 29, 2001, the Company completed its acquisition of Keyeon LLC, or "Keyeon", formerly a joint venture in which the Company held an entityinterest of approximately 36%. As consideration for the acquisition, the Company issued 301,475 shares of its common stock valued at $13.6 million to establish and sustain high-yield
relationships with customers, suppliers, partners, distributors, employees, andthe other constituentsformer participants in the extended enterprise. BroadVision services, supported
by over 190 partner organizations worldwide, transform these applications into
business valuejoint venture, which resulted in the Company owning 100% of the outstanding shares of Keyeon. The acquisition was accounted for BroadVision's customers through consulting, education,as a purchase. The acquired assets and support servicesassumed liabilities, and the related results of operations, are included in more than 34 countries.

Acquisitionthe consolidated financial statements of the Company from the date of acquisition (See Note 2).
        On April 14, 2000, the Company completed its acquisition of Interleaf, Inc. and its subsidiaries ("Interleaf") pursuant to a statutory merger involving a stock-for-stock exchange. The acquisition was accounted for as a purchase. The acquired assets and assumed liabilities, and the related results of operations, are included in the consolidated financial statements of the Company from the date of acquisition. Net assets were recorded at fair value at the acquisition date. The excess of the purchase price over the fair value of net assets acquired is included in goodwill and other intangible assets in the accompanying consolidated balance sheet. Amounts allocated to in-process technology were expensed in the period in which the acquisition was consummated; seeconsummated (see Note 2.

2).
Basis of Presentation and Use of Estimates
        The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. In the Company's opinion, the consolidated financial statements presented herein include all necessary adjustments, consisting of normal recurring adjustments, to fairly state the Company's financial position, results of operations, and cash flows for the periods indicated. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain assumptions and estimates that affect reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from estimates.
63

Revenue Recognition
Overview
        The Company's revenue consists of fees for licenses of the Company's software products, maintenance, consulting services and customer training. The Company generally charges fees for licenses of its software products either based on the number of persons registered to use the product or based on the number of Central Processing Units ("CPUs") on which the product is installed. Licenses for software whereby fees charged are based upon the number of persons registered to use the product are differentiated between licenses for development use and licenses for use in deployment of the customer's website. Licenses for software whereby fees charged are on a per-CPU basis do not differentiate between development and deployment usage. The Company's revenue recognition policies are in accordance with Statement of Position ("SOP") No. 97-2,Software Revenue Recognition, as amended andamended; SOP No. 98-9,Software Revenue Recognition, With Respect to Certain Transactions.Transactions and the Securities and Exchange Commission's Staff Accounting Bulletin No. 101,Revenue Recognition in Financial Statements.
Software License Revenue
        The Company licenses its products through its direct sales force and indirectly through resellers. In general, software license revenues are recognized when a non-cancelable license agreement has been signed and the customer acknowledges an unconditional obligation to pay, the software product has been delivered, there are no uncertainties surrounding product acceptance, the fees are fixed and determinable and collection is considered probable; professional servicesprobable. Delivery is considered to have occurred when title and risk of loss have been transferred to the customer, which generally occurs when media containing the licensed programs is provided to a common carrier. In case of electronic delivery, delivery occurs when the customer is given access to the licensed programs. If collectibility is not considered probable, revenue is recognized when the fee is collected. Subscription-based license revenues are recognized
as such services are performed; and maintenance revenues or post-contract
support ("PCS"), including revenues bundled with software agreements which
entitle the customers to technical support and future unspecified enhancements
to the Company's products, are deferred and recognized ratably over the related
contract period, generally twelve months.subscription period. The Company enters into reseller arrangements that typically provide for sublicense fees payable to the Company based upon a percentage of list price. The Company does not grant its resellers the right of return.
        The Company recognizes revenue using the residual method pursuant to the requirements of SOP No. 97-2, as amended by SOP No. 98-9. Revenues recognized from multiple-element software arrangements are allocated to each element of the arrangement based on the fair values of the elements, such as licenses for software products, post contractmaintenance, consulting services or customer support, installation, or training. The determination of fair value is based on objective evidence, which is specific to the Company. IfThe Company limits its assessment of objective evidence of fair value doesfor each element to either the price charged when the same element is sold separately or the price established by management having the relevant authority to do so, for an element not exist for all elements of a license agreement
and PCS is the only undelivered element, then all revenue for the license
arrangement is recognized ratably over the term of the agreement as license
revenue.yet sold separately. If evidence of fair value of all undelivered elements exists but evidence does not exist for one or more delivered elements, then revenue is recognized using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue.
        The Company records unearned revenue for software arrangementslicense agreements when cash has been received from the customer and the arrangementagreement does not qualify for revenue recognition under the
64

Company's revenue recognition policy. The Company records accounts receivable for software arrangementslicense agreements when the arrangementagreement qualifies for revenue recognition andbut cash or other consideration has not been received from the customer.
Services Revenue
        Consulting services revenues and customer training revenues are recognized as such services are performed. Maintenance revenues, which include revenues bundled with software license agreements that entitle the customers to technical support and future unspecified enhancements to the Company's products, are deferred and recognized ratably over the related agreement period, generally twelve months.
        The Company's consulting services, which consist of consulting, maintenance and training, are delivered through BVGS. Services that the Company provides are not essential to the functionality of the software. In December 1999,accordance with EITF 01-14, which the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), REVENUE RECOGNITION IN
FINANCIAL STATEMENTS, which provides guidance on the recognition presentation
and disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and
provides guidance for disclosure related to revenue recognition policies. The Company adopted SAB 101 duringas of January 1, 2002, the fourth quarterCompany records reimbursement by its customers for out-of-pocket expenses as an increase to services revenues. Prior to January 1, 2002, the Company recorded reimbursement by its customers for out-of-pocket expenses as a decrease to cost of 2000, as required. There
was no material effect on theservices. The Company's financial position, results of operations or cash flows.

      Costfor the years ended 2001 and 2000 have been reclassified for comparable purposes in accordance with EITF 01-14. The effect of software licenses includes the costs of product media,
duplication, packagingthis reclassification was to increase services revenues and other manufacturing costs as well as royalties
payable to third parties for software that is either embedded in, or bundled
and sold with, the Company's products. Costincrease cost of services consists primarily of
employee-related costs, third-party consultant fees incurred on consulting
projects, PCSfor the year ended 2001 and instructional training services.

                                       44
2000 by $3.9 million and $1.6 million, respectively.
Research and Development and Software Development Costs
        Under the criteria set forth in Statement of Financial Accounting Standards ("SFAS") No. 86,Accounting for the Cost of Computer Software to be Sold, Leased or Otherwise Marketed, development costs incurred in the research and development of new software products are expensed as incurred until technological feasibility in the form of a working model has been established at which time such costs are capitalized subject to recoverability. Products are
made available for limited release, concurrent withand recorded at the achievementlower of technological feasibility. Accordingly, software developmentunamortized cost or net realizable value. The costs incurred subsequent to the establishment of technological feasibilitya working model but prior to general release of the product have not been significant, andsignificant. To date, the Company has not capitalized any costs related to the development of software development costs
to date.

for external use.
Advertising Costs
        Advertising costs are expensed as incurred. Advertising expense is included in sales and marketing expense and amounted to $2.9 million,$571,000, $1.8 million and $47,000$2.9 million in 2002, 2001 and 2000, 1999 and 1998, respectively.
Prepaid Royalties
        Prepaid royalties relating to purchased software to be incorporated and sold with the Company's software products are amortized as a cost of software licenses either on a straight-line basis over the remaining term of the royalty agreement or on the basis of projected product revenues, whichever results in greater amortization.
65

Allowances and Reserves
        Occasionally, the Company's customers experience financial difficulty after the Company records the sale but before payment has been received. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company's normal payment terms are 30 to 90 days from invoice date. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required
Restructuring
        The Company's Restructuring charges are comprised primarily of: (i) severance and benefits termination costs related to the reduction of the Company's workforce; (ii) lease termination costs and/or costs associated with permanently vacating its facilities; and (iii) impairment costs related to certain long-lived assets abandoned. The Company accounts for each of these costs in accordance with SEC Staff Accounting Bulletin No. 100,Restructuring and Impairment Charges
        The Company accounts for severance and benefits termination costs in accordance with 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) (EITF 94-3). Accordingly, the Company records the liability related to these termination costs when the following conditions have been met: (i) management with the appropriate level of authority approves a termination plan that commits the Company to such plan and establishes the benefits the employees will receive upon termination; (ii) the benefit arrangement is communicated to the employees in sufficient detail to enable the employees to determine the termination benefits; (iii) the plan specifically identifies the number of employees to be terminated, their locations and their job classifications; and (iv) the period of time to implement the plan does not indicate changes to the plan are likely. The termination costs recorded by the Company are not associated with nor do they benefit continuing activities.
        The Company accounts for the costs associated with lease termination and/or abandonment in accordance with EITF 88-10. Accordingly, the Company records the costs associated with lease termination and/or abandonment when the leased property has no substantive future use or benefit to the Company. Under EITF 88-10, the Company records the liability associated with lease termination and/or abandonment as the sum of the total remaining lease costs and related exit costs, less probable sublease income. The Company accounts for costs related to long-lived assets abandoned in accordance with SFAS 144 and, accordingly, charges to expense the net carrying value of the long-lived assets when the Company ceases to use the assets.
        Inherent in the estimation of the costs related to the Company's Restructuring efforts are assessments related to the most likely expected outcome of the significant actions to accomplish the Restructuring. In determining the charge related to the Restructuring, the majority of estimates made by management related to the charge for excess facilities. In determining the charge for excess facilities, the Company was required to estimate future sublease income, future net operating expenses of the facilities, and brokerage commissions, among other expenses. The most significant of these estimates related to the timing and extent of future sublease income in which to reduce the Company's lease obligations. Specifically, in determining the Restructuring obligations related to facilities as of
66

December 31, 2002, the Company reduced its lease obligations by estimated sublease income of $28.8 million. The Company based its estimates of sublease income, in part, on the opinions of independent real estate experts, current market conditions and rental rates, an assessment of the time period over which reasonable estimates could be made, the status of negotiations with potential subtenants, and the location of the respective facility, among other factors.
        These estimates, along with other estimates made by management in connection with the Restructuring, may vary significantly depending, in part, on factors that may be beyond the Company's control. Specifically, these estimates will depend on the Company's success in negotiating with lessors, the time periods required to locate and contract suitable subleases and the market rates at the time of such subleases. Adjustments to the facilities reserve will be required if actual lease exit costs or sublease income differ from amounts currently expected. The Company will review the status of Restructuring activities on a quarterly basis and, if appropriate, record changes to its Restructuring obligations in current operations based on management's most current estimates.
Legal Matters
        The Company's current estimated range of liability related to pending litigation is based on claims for which it is probable that a liability has been incurred and the Company can estimate the amount and range of loss. The Company has recorded the minimum estimated liability related to those claims, where there is a range of loss. Because of the uncertainties related to both the determination of the probability of an unfavorable outcome and the amount and range of loss in the event of an unfavorable outcome, the Company is unable to make a reasonable estimate of the liability that could result from the remaining pending litigation. As additional information becomes available, the Company will assess the potential liability related to its pending litigation and revise its estimates, if necessary. Such revisions in the Company's estimates of the potential liability could materially impact the Company's results of operations and financial position.
Cash and Cash Equivalents, Short-Term Investments, Long-Term Investments
        The Company considers all debt and equity securities with remainingoriginal maturities of three months or less at the date of purchase to be cash equivalents. The Company's cash equivalents consisted of the following (in thousands):

                                          December 31,
                                       ---------------------
                                         2000         1999
                                       --------     --------
Cash                                   $ 43,253     $ 16,945
Money market funds..............         94,011      125,807
Corporate notes/bonds...........          2,937            -
Government notes/bonds..........         10,412            -
Commercial paper................          2,524      137,071
                                       --------     --------
                                       $153,137     $279,823
                                       ========     ========

Short-term Investments

      The Company's short-term investments consist of marketabledebt and equity and
debt securities that are classified as available-for-sale. The Company's investment in marketable equitydebt securities isare carried at fair value with related unrealized gains or losses reported as other comprehensive income (loss), net of tax. The Company's long-term investments include debt securities that are classified as available-for-sale. These securities have remaining maturities greater than one year from December 31, 2002. These investments are carried at fair value with related unrealized gains or losses reported as other comprehensive income, net of tax. As
        All short term investments have a remaining maturity of December 31, 2000, the Company'stwelve months or less. Total short-term and long-term investment in marketable
equity securities had a fair value of $3.1unrealized gains (losses) were $(1.7) million and a cost basis of $5.0
million. The Company's debt securities are carried at fair value. As of
December 31, 2000, commercial paper investments consisted of $11.0$2.1 million
corporate notes/bonds of $16.9 million and government bonds/notes of $38.4
million. Short-term investments, excluding marketable equity securities, had
a weighted average remaining maturity as of December 31, 2000 of
approximately three months. Total short-term investment unrealized losses,
net, were $26.0 million, net of tax, for the yearyears ended December 31, 2000.2002 and 2001, respectively. Total realized gains during fiscal 20002002 and 2001 were $3.6$719,000 and $2.0 million, respectively, and are included in other income in the accompanying statementConsolidated Statements of operations.

Operations.
67

        The Company's cash and cash equivalents, short-term investments and long-term investments consisted of the following as of December 31, 2002 (in thousands):
 
 Amortized
costs
 Unrealized
gains
 Unrealized
losses
 Fair
value
Cash $36,070 $— $— $36,070
Money market  36,232  —  —  36,232
Corporate notes/bonds  23,369  50  (1) 23,418
Government notes/bonds  23,430  11  —  23,441
  
 
 
 
  $119,101 $61 $(1)$119,161

Included in cash and cash equivalents
 
$
94,090
 
$
—
 
$
—
 
$
94,090
Included in short-term investments  24,428  57  (1) 24,484

Included in long-term investments
 
 
583
 
 
4
 
 
—
 
 
587
  
 
 
 
  $119,101 $61 $(1)$119,161
        Included in the table above in cash and cash equivalents are $16.7 million of non-current restricted cash and investments.
        The Company's cash and cash equivalents, short-term investments and long-term investments consisted of the following as of December 31, 2001 (in thousands):
 
 Amortized
cost
 Unrealized
gains
 Unrealized
losses
 Fair
value
Cash $25,874 $— $— $25,874
Money market  36,299  364  (1) 36,662
Corporate note/bonds  75,842  1,056  (8) 76,890
Government notes/bonds  53,792  346  (17) 54,121
  
 
 
 
  $191,807 $1,766 $(26)$193,547
Included in cash and cash equivalents $75,393 $366 $(1)$75,758
Included in short-term investments  94,773  895  (14) 95,654
Included in long-term investments  21,641  505  (11) 22,135
  
 
 
 
  $191,807 $1,766 $(26)$193,547
        Included in the table above in short-term investments are non-current restricted cash and investments of $29.9 million.
        Remaining maturities of the Company's long-term investments as of December 31, 2002 are as follows:
 
 2004
Corporate notes/bonds $587
68
Concentrations of Credit Risk
        Financial assets that potentially subject the Companyus to significant concentrations of credit risk consist principally of cash, cash equivalents, short-term investments, and trade accounts receivable. The Company maintains its cash and cash equivalents and short-term investments with over tenseven separate financial institutions. The Company markets and sells its products throughout the world and performs ongoing credit evaluations of its customers. The Company generally does not require collateral on accounts
receivable as the majority of its customers are large, well-established
companies. The Company maintains reserves for potential credit losses but
historically has not experienced any significant losses related to individual
customers or groups of customers in any particular industry or geographic
area.losses. For the years ended December 31, 2000, 19992002, 2001 and 1998,2000, no one customer accounted for more than 10% of fiscal year total revenues.revenue. As of December 31, 2000, two customers2002, one customer individually accounted for more than 10% of the Company's accounts receivable. These customers accounted for 10% and 11%As of accounts
receivable, respectively. NoDecember 31, 2001, no one customer individually accounted for more than 10% of the Company's accounts receivable as of December 31, 1999.

                                       45
receivable.
Fair Value of Financial Instruments
        The Company's financial instruments consist of cash and cash equivalents, short-term investments, restricted cash and investments, long-term investments, equity investments, accounts receivable, accounts payable and debt. The Company does not have any derivative financial instruments. The Company believes the reported carrying amounts of its financial instruments approximates fair value, based upon the short maturitymaturities and nature of its cash and cash equivalents, short-term investments, long-term investments, restricted cash and investments, accounts receivable and payable, and based on the current rates available to the Companyit on similar debt issues. Long-term Investments

      Included inAdditionally, the Company's long-term investments are investments in debt
securities that are classified as available-for-sale. These securities have
remaining maturities greater than one year from December 31, 2000. These
investments are carried at fair value with related unrealized gains or losses
reported as other comprehensive income, net of tax. As of December 31, 2000,Company periodically evaluates the Company's long-term investments in debt securities had a faircarrying value of $34.3
million in corporate bonds/notesall of its investments for other-than-temporary impairment when events and $44.6 million in government bonds/notes.circumstances indicate that the book value of an asset may not be recoverable. If such assets are considered to be impaired, the impairment to be recognized is measured by the amounts by which the carrying amount exceeds its fair market value.
Equity Investments
        The remaining weighted average days to maturity asCompany's equity investments consist of December 31, 2000 was
approximately twenty three months.

      Also included in the Company's long-term investments are equity investments in public and non-public companies that are accounted for under either the cost method of accounting or the equity method of accounting. The Company had no equity method investments as of December 31, 2002. Equity investments are accounted for under the cost method of accounting when the Company has a minority interest and does not have the ability to exercise significant influence. These investments are classified as available for sale and are carried at fair value when readily determinable market values exist or at cost when such market values do not exist. Adjustments to fair value are recorded as a component of other comprehensive income unless the investments are considered permanently impaired in which case the adjustment is recorded as a component of other income (expense), net in the consolidated statement of operations. Equity investments are accounted for under the equity method of accounting when the Company has a minority interest and has the ability to exercise significant influence. These investments are classified as available for sale and are carried at cost with periodic adjustments to carrying value for the Company's equity in net income (loss) of the equity investee. Such adjustments are recorded as a component of other income, net. Any decline in value of the Company's investments, which is other than a temporary decline, is charged to earnings during the period in which the impairment occurs.
        The total fair value of the Company's cost method long-term equity investments in public and non-public companies as of December 31, 2002 was $19.4 million with a cost
basis of $27.3$2.1 million. This includes a $750,000 write down$12.6 million of an investmentwrite-
69

downs during 2002 of investments due to an other than temporaryother-than-temporary decline in fair value. There was also an
additional $250,000 write down of an investment duewere no unrealized gains or losses recorded to an other than
temporary decline in fair value. The total unrealized loss, net, duringdate and for the year ended December 31, 2000 in the Company's cost method2002 related to long-term investments was $4.3 million, net of tax. The total fair value of the
Company's equity method long-term investment was $4.4 million as of December
31, 2000. This includes approximately $600,000 of equity in net losses
realized during the twelve months ended December 31, 2000. The equity in net
losses realized is recorded as a component of other income, net in the
accompanying statement of operations.

investments.
Property and Equipment
        Property and equipment are stated at cost and depreciated on a straight-line basis over their estimated useful lives (two to eight years). Leasehold improvements are amortized over the correspondinglesser of the remaining life of the lease term or their estimated useful lives, whicheverlives. Depreciation expense for the year ended December 31, 2002 was $18.2 million. The Company recorded asset impairments of approximately $18.9 million during fiscal 2002 in connection with the Company's restructuring plan, which is shorter.

included in the Company's restructuring charge recorded in the Company's Statement of Operations. The Company also recorded a $3.1 million impairment of assets related to results from the Company's asset physical inventories during 2002.
Valuation of Long-Lived Assets

      In
        The Company periodically assesses the impairment of long-lived assets in accordance with the provisions of SFAS No. 121, "AccountingAccounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", theof. The Company periodically evaluates the carrying value of long-lived assets and certain
identifiable intangibles for impairment, when events and circumstances indicate
that the book value of an asset may not be recoverable. Recoverability of assets
is measured by a comparison of the carrying amount of an asset to future net
cash flows expected to be generated by the asset. If such assets are considered
to be impaired,assesses the impairment to be recognized is measured by the amount by
which the carrying amount of the propertygoodwill and equipment exceeds its fair market
value. Noidentifiable intangible assets in accordance with SFAS No. 121, impairment losses have been identifiedSFAS No. 141,Business Combinations and SFAS No. 142,Goodwill and Other Intangible Assets. The Company adopted the provisions of SFAS No. 142 as of January 1, 2002. Please see Note 4 of Notes to date.


                                       46
Consolidated Financial Statements for additional information.
Employee Stock Option and Purchase Plans
        The Company accounts for employee stock-based awards in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25,Accounting for Stock Issued to Employees, Financial Accounting Standards Board Interpretation No. 44 (FIN 44), Accounting for Certain Transactions Involving Stock Compensation—an Interpretation of APB No. 25, and related interpretations. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. Pursuant to SFAS No. 123,Accounting for Stock-Based Compensation, the Company discloses the pro forma effects of using the fair value method of accounting for stock-based compensation arrangements. The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force (EITF) 96-18,Accounting for Equity Instruments That Are Issued to Other Than Employees For Acquiring or in Conjunction with Selling Goods or Services.
        We apply Accounting Principles Board ("APB") Opinion Number 25,Accounting for Stock Issued to Employees, and related interpretations when accounting for our stock option and stock purchase plans. In accordance with APB No. 25, we apply the intrinsic value method in accounting for employee stock options. Accordingly, we generally recognize no compensation expense with respect to stock-based awards to employees.
70

        During the year ended December 31, 2002 the Company recorded compensation expense of $846,000. This charge was recorded as a result of granting terminated employees continued vesting of their stock options for a period beyond their actual termination date. The compensation charge was calculated using the Black-Scholes model. $739,000 of the charge is recorded in general and administrative expense and the remaining $107,000 is included in restructuring charge as it related to employees terminated under the Company's restructuring plan.
        We have determined pro forma information regarding net income and earnings per share as if we had accounted for employee stock options under the fair value method as required by Statement of Financial Accounting Standards ("SFAS") Number 123,Accounting for Stock Compensation. The fair value of these stock-based awards to employees was estimated using the Black-Scholes option pricing model. Please see Note 10 of Notes to Consolidated Financial Statements for assumptions used in the Black-Scholes option pricing model. Had compensation cost for the Company's stock option plan and employee stock purchase plan been determined consistent with SFAS No. 123, the Company's reported net income (loss) and net earnings (loss) per share would have been changed to the amounts indicated below (in thousands except per share data):
 
 Years Ended December 31,
 
 
 2002
 2001
 2000
 
Net loss as reported $(170,522)$(836,259)$(161,629)
Add: Stock-based employee compensation expense included in reported net loss, net of related tax effects  846  1,014  226 
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects  (47,979) 39,661  (323,184)
Pro forma net loss $(217,655)$(795,584)$(484,587)
Earnings per share:          
Basic—as reported $(5.32)$(27.20)$(5.60)
Basic—pro forma $(6.80)$(25.87)$(16.79)

Diluted—as reported
 
$
(5.32
)
$
(27.20
)
$
(5.60
)
Diluted—pro forma $(6.80)$(25.87)$(16.79)
Stock Splits
        On July 24, 2002, we announced that our Board of Directors had approved a one-for-nine reverse split of our common stock. The reverse split was effective as of 8:00 p.m. Eastern Daylight Time on July 29, 2002. Each nine shares of outstanding common stock of the Company automatically converted into one share of common stock. Our common stock began trading on a post-split basis at the opening of trading on the Nasdaq National Market on July 30, 2002. The accompanying consolidated financial statements and related financial information contained herein have been retroactively restated to give effect for the July 2002 stock split.
        On February 8, 2000, the Company's Board of Directors declared an additional three-for-one common stock split in the form of a stock dividend for Stockholders of record as of February 21, 2000.
71

The stock dividend payment date was March 13, 2000 and the Company's common stock traded ex-dividend starting March 14, 2000, reflecting the additional three-for-one stock split.
        On September 29, 1999, the Company's Board of Directors declared a three-for-one common stock split in the form of a stock dividend for Stockholders of record as of October 11, 1999. The stock dividend payment date was October 25, 1999 and the Company's common stock traded ex-dividend starting October 26, 1999, reflecting the three-for-one stock split.

      On February 8, 2000, the Company's Board of Directors declared an
additional three-for-one common stock split in the form of a stock dividend for
Stockholders of record as of February 21, 2000. The stock dividend payment date
was March 13, 2000 and the Company's common stock traded ex-dividend starting
March 14, 2000, reflecting the additional three-for-one stock split.
        The accompanying consolidated financial statements and related financial information contained herein have been retroactively restated to give effect for the July, 2002 reverse stock split and the February 2000 and September 1999 and February 2000 stock splits.
Per Share Information
        Basic earnings (loss) per share is computed using the weighted-average number of shares of common stock outstanding less shares subject to repurchase. Diluted earnings (loss) per share is computed using the weighted-average number of shares of common stock outstanding and, when dilutive, common equivalent shares from outstanding stock options and warrants using the treasury stock method and shares subject to repurchase. The following table sets forth the basic and diluted earnings (loss) per share computational data for the periods presented. Excluded from the computation of diluted earnings per share for the yearyears ended December 31, 2002, 2001 and 2000, are options and warrants to acquire 34,816,000552,000, 1,229,000 and 3,973,000 shares of common stock, respectively, because their effects would be anti-dilutive.

                                                         Years Ended December 31,
                                                    ----------------------------------
                                                       2000          1999       1998
                                                    -----------    --------   --------
                                                 (in thousands, except per share amounts)

Net income (loss) for basic and
  Diluted earnings (loss) per share .............   $  (161,629)   $ 18,809   $  4,039
                                                    ===========    ========   ========
Weighted-average common shares
  outstanding utilized for basic
  earnings (loss) per share .....................       259,780     229,128    210,114
Weighted-average common equivalent
  shares outstanding:
     Employee common stock options ..............            --      31,365     20,592
     Common stock warrant .......................            --         219        171
                                                    -----------    --------   --------
       Total weighted-average common and
         common equivalent shares outstanding
         utilized for diluted earnings (loss) per
         share ..................................       259,780     260,712    230,877
                                                    ===========    ========   ========
Basic earnings (loss) per share .................   $     (0.62)   $   0.08   $   0.02
                                                    ===========    ========   ========
Diluted earnings (loss) per share ...............   $     (0.62)   $   0.07   $   0.02
                                                    ===========    ========   ========




                                       47

 
 Years Ended December 31,
 
 
 2002
 2001
 2000
 
 
 (in thousands, except per share amounts)

 
Net income (loss) for basic and Diluted earnings (loss) per share $(170,522)$(836,259)$(161,629)
  
 
 
 
Weighted-average common shares outstanding to compute basic earnings (loss) per share  32,036  30,748  28,864 
Weighted-average common equivalent shares outstanding:          
 Employee common stock options  —  —  — 
 Common stock warrant  —  —  — 
  Total weighted-average common and common equivalent shares outstanding to compute diluted earnings (loss) per share  32,036  30,748  28,864 
  
 
 
 
Basic earnings (loss) per share $(5.32)$(27.20)$(5.60)
  
 
 
 
Diluted earnings (loss) per share $(5.32)$(27.20)$(5.60)
  
 
 
 
Foreign Currency Transactions
        The functional currency of the Company's foreign subsidiaries is the U.S. dollar. Resulting foreignForeign exchange gains and losses resulting from the remeasurement of foreign currency assets and liabilities are included in other income (expense), net in the Consolidated Statements of Operations and, to date, have not been significant.

Operations.
72

Comprehensive Income (Loss)

      The Company adopted SFAS No. 130, Reporting Comprehensive Income effective
January 1, 1998. SFAS No. 130 establishes standards for the reporting and
disclosure of comprehensive income (loss) and its components.
        Comprehensive income (loss) includes the Company's net income (loss) and all changes in equity during a period except those resulting from investments by or distributions to owners.
        For the years ended December 31, 2002, 2001 and 2000, 1999 and 1998, comprehensive income
(loss)loss was ($191,902,000), $41,536,000165.2) million, ($837.2) million, and $7,237,000,$(191.9) million, respectively. The components of other comprehensive income (loss) for these periods relate solely to unrealized gains and losses on available-for-sale investments.
Income Taxes and Deferred Tax Assets
        Income taxes are computed using an asset and liability approach, which requires the recognition of taxes payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in the Company's consolidated financial statements or tax returns. The measurement of current and deferred tax assets and liabilities is based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized.
        The Company analyzes its deferred tax assets with regard to potential realization. The Company has established a valuation allowance on its deferred tax assets to the extent that management has determined that it is more likely than not that some portion or all of the deferred tax asset will not be realized based upon the uncertainty of their realization. The Company has considered estimated future taxable income and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance. Based upon this analysis, the Company recorded a valuation allowance for its deferred tax assets during the three months ended June 30, 2002, which increased to 100% its valuation allowance and resulted in a charge of $6.3 million included in the provision for income taxes in the Company's Condensed Consolidated Statements of Operations and Comprehensive Loss.
Segment and Geographic Information
        The Company operates in one segment, electronic commerce business solutions. The Company's chief operating decision maker is considered to be the Company's CEO. The CEO reviews financial information presented on a consolidated basis accompanied by disaggregated information about revenues by geographic region and by product for purposes of making operating decisions and assessing financial performance.
Reclassifications
        Certain prior period balances have been reclassified to conform to the current period presentation.

Recent
New Accounting Pronouncements
        In January 2002, the Financial Accounting Standards Board's Emerging Issues Task Force (EITF) reached consensus on EITF 01-14 on the topic ofIncome Statement Characterization of Reimbursements Received for Out of Pocket Expenses Incurred. This topic addresses whether reimbursements received for out-of-pocket expenses incurred should be characterized in the income statement as revenue or as a
73

reduction of expenses incurred. The EITF concluded that reimbursements received for out of pocket expenses incurred should be characterized as revenue in the income statement. This announcement will be applied in financial reporting periods beginning after December 15, 2001, and comparative financial statements for prior periods will be reclassified to comply with the guidance in this announcement. The Company is currently recording reimbursement by its customers for out-of-pocket expenses as a component of services revenue. Prior to adoption of EITF 01-14 on January 1, 2002, the Company recorded reimbursement by its customers for out-of-pocket expenses as a reduction to cost of sales. Prior periods have been reclassified to comply with the guidance of EITF 01-14. The effect of this reclassification was to increase services revenues and increase cost of services for fiscal 2001 and fiscal 2000 by $3.9 million and $1.6 million, respectively.
        In June 1998,2002, the FASB issued SFAS No. 133, 146,Accounting for Derivative
InstrumentsCosts Associated with Exit Activities, which addresses financial accounting and Hedging Activities, as amended byreporting for costs associated with exit activities and supersedes Emerging Issues Task Force ("EITF") 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. 137146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. This differs from EITF 94-3, which required that a liability for an exit cost be recognized at the date of an entity's commitment to an exit plan. However, under SFAS No. 138,146, a liability for one-time termination benefits is recognized when an entity has committed to a plan of termination, provided certain other requirements have been met. In addition, under SFAS No. 146, a liability for costs to terminate a contract is not recognized until the contract has been terminated, and a liability for costs that will continue to be incurred under a contract's remaining term without economic benefit to the entity is recognized when the entity ceases to use the right conveyed by the contract. SFAS No. 146 is effective for all fiscal quarters of fiscal years beginningexit or disposal activities initiated after June
15, 2000. Accordingly, theDecember 31, 2002. The Company will adopt the provisions of SFAS No. 133 beginning on
January 1, 2001. SFAS No. 133, as amended, establishes standards146 for the
accounting and reporting of derivative instruments and hedgingrestructuring activities including certain derivative instruments embedded in other contracts.

      Under SFAS No. 133, entities are required to carry all derivative
instruments at fair value on their balance sheets. The accounting for changes in
the fair value (i.e., gains or losses) of a derivative instrument depends on
whether it has been designated and qualifies as part of a hedging activity and
the underlying purpose for it.initiated after December 31, 2002. The Company does not believe thatexpect the adoption of SFAS No. 133146 will have a significantmaterial impact on its consolidated results of operations or financial position.
        In November 2002, the Company's consolidated
financial statementsEITF reached a consensus on Issue 00-21, addressing how to account for arrangements that involve the delivery or related disclosures.

       In March 2000,performance of multiple products, services, and/or rights to use assets. Revenue arrangements with multiple deliverables are divided into separate units of accounting if the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation", an interpretationdeliverables in the arrangement meet the following criteria: (1) the delivered item has value to the customer on a standalone basis; (2) there is objective and reliable evidence of Accounting Principles Board, ("APB"), Opinion No. 25. This interpretation
provides guidance regarding the applicationfair value of APB Opinion No. 25undelivered items; and (3) delivery of any undelivered item is probable. Arrangement consideration should be allocated among the separate units of accounting based on their relative fair values, with the amount allocated to stock
compensation involving employees. This interpretation was effective July 1, 2000
and didthe delivered item being limited to the amount that is not contingent on the delivery of additional items or meeting other specified performance conditions. The final consensus will be applicable to agreements entered into in fiscal periods beginning after June 15, 2003 with early adoption permitted. The provisions of this Consensus are not expected to have a materialsignificant effect on the Company's financial position or operating results.
        In November 2002, the FASB issued Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others", which clarifies disclosure and recognition/measurement requirements related to certain guarantees. The
74

disclosure requirements are effective for financial statements issued after December 15, 2002 and the recognition/measurement requirements are effective on a prospective basis for guarantees issued or modified after December 31, 2002. The application of the requirements of FIN 45 did not have a material impact on the Company's financial position or results of operations.
        In December 2002, the FASB issued SFAS No. 148,Accounting for Stock-Based Compensation- Transition and Disclosure. This Statement amends SFAS No. 123,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. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The disclosure provisions of this Standard are effective for fiscal years ending after December 15, 2002 and have been incorporated into these financial statements and accompanying footnotes.
        In January 2003, the FASB issued Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities," which addresses consolidation by business enterprises of variable interest entities that either: (1) do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or (2) the equity investors lack an essential characteristic of a controlling financial interest. FIN 46 requires disclosure of Variable Interest Entities (VIEs) in financial statements issued after January 31, 2003, if it is reasonably possible that as of the transition date: (1) the company will be the primary beneficiary of an existing VIE that will require consolidation or, (2) the company will hold a significant variable interest in, or have significant involvement with, an existing VIE. The company does not have any entities that will require disclosure or new consolidation as a result of adopting the provisions of FIN 46.
Note 2—Acquired and Disposed Businesses
Keyeon
        On June 29, 2001, the Company completed its acquisition of Keyeon, LLC ("Keyeon"), formerly a joint venture in which the Company held an interest of approximately 36%. The acquisition was completed primarily to obtain technology to extend functionality of the Company's existing products. As consideration for the remaining interest in Keyeon, the Company issued 301,475 shares of its common stock valued at $13.6 million to the other former participants in the joint venture which resulted in the Company owning 100% of the outstanding shares of Keyeon, LLC. The acquisition was accounted for as a purchase. The acquired assets and assumed liabilities, and the related results of operations, orare
75

included in the consolidated financial statements of the Company from the date of acquisition. The purchase price allocation is as follows (in thousands):
Purchase price, net of cash acquired $6,395
Add: fair value of liabilities assumed  4,007
  
Total purchase consideration  10,402
Less: fair value allocated to acquired assets  3,104
  
Excess of purchase consideration over acquired assets and assumed liabilities  7,298
Excess allocated to:   
Acquired in-process technology  6,418
Goodwill  880
        At December 31, 2002, accumulated amortization related to goodwill acquired in the Keyeon acquisition totaled $246,000. Amortization of goodwill ceased as of December 31, 2001. As discussed in Note 1, the Company will no longer amortize goodwill in accordance with SFAS No. 142 but will periodically test for impairment under the provisions of SFAS No. 142. The Company estimated that $6.4 million of the purchase price for Keyeon represented acquired in-process technology that had not yet reached technological feasibility and had no alternative future use. Accordingly, this amount was immediately charged to expense in the Consolidated Statements of Operations during the fourth quarter of 2001. The income approach methodology was used to value the acquired in-process technology. Under the income approach, fair value reflects the present value of the projected free cash flows.

Note 2 -- Acquired Business:flows that will be generated by the products, incorporating the acquired technologies under development, assuming they will be successfully completed. These cash flows are discounted at a rate appropriate for the risk of the asset. The rate of return depends upon the stage of completion which was estimated at fifty percent. An overall after-tax discount rate of thirty percent was applied to the cash flows expected to be generated by the products incorporating technology currently under development.
        The following summary, prepared on an unaudited pro forma basis, reflects the condensed consolidated results of operations for the year ended December 30, 2001 and 2000 assuming Keyeon had been acquired at the beginning of the periods presented (in thousands, except per share data):
 
 2001
 2000
 
Revenue $248,423 $415,499 
Net loss $(834,071)$(163,511)
Basic and diluted net loss per share $(27.18)$(5.66)
        The pro forma results are not necessarily indicative of what would have occurred if the acquisition had been in effect for the period presented. In addition, they are not intended to be a projection of future results and do not reflect any synergies that might be affected from combined operations.
76

E-Publishing Corporation
        On April 30, 2001 and May 15, 2001, the Company entered into agreements with third parties to sell certain assets and liabilities of E-Publishing Corporation, a wholly-owned subsidiary of the Company, which the Company acquired as part of the acquisition of Interleaf in April 2000. The Company recorded a loss on sale of assets of approximately $1.3 million. The loss was included in other expense in the Company's second quarter of 2001 Condensed Consolidated Statements of Operations.
Interleaf
        On April 14, 2000, the Company completed its acquisition of Interleaf, Inc. and its subsidiaries ("Interleaf") pursuant to a statutory merger involving a stock-for-stock exchange. Interleaf's software products and related services enable automated electronic business, or e-business, and also enable the extension of e-business to wireless users. Interleaf provides customers with an integrated, easily implemented e-business solution based on extensible Markup Language, or XML, that enables the design, creation and management of XML-based content for transformation and delivery over the Web and related services. As a result of the acquisition, the Company will havehas the ability to combine technological resources to develop a robust Web-based business solution and reduce time to market for the combined Company's products. Through the acquisition of all of the equity securities of Interleaf, BroadVision acquired all of the assets and assumed liabilities of Interleaf and its existing operations which included in-process technology. Pursuant to the terms of the Agreement and Plan of Merger and Reorganization, dated as of January 26, 2000, (the "Merger Agreement"), each outstanding share of Interleaf common stock was exchanged for


                                       48
 1.0395 shares of Company common stock and all options to purchase shares of Interleaf common stock outstanding immediately prior to the consummation of the Merger were converted into options to purchase shares of Company common stock.
        The Company issued 14,391,9911,599,110 shares of Company common stock with a fair market value of $686.9 million and exchanged options to purchase 2,338,342259,815 shares of Company common stock with a fair market value of $102.7 million. The fair market value of the exchanged options to purchase 2,338,342259,815 shares of Company common stock was valued using the Black-Scholes option-pricing model. In connection with the acquisition, the Company incurred transaction costs consisting primarily of financial advisor, legal and accounting professional fees of $14.8 million, severance costs of $1.0 million and office closure costs of $1.3 million, resulting in a total purchase price of $806.7 million. The results of operations of Interleaf have been included with the Company's results of operations since the April 14, 2000 acquisition date.
        The acquisition was accounted for as a purchase business combination. Under this accounting treatment, the purchase price is allocated to the assets acquired and liabilities assumed based on the estimated fair values on the date of acquisition.
77

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

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

      Based upon the Company's estimates prepared in conjunction with a
third-party valuation consultant, $10.1 million was allocated to acquired
in-process technology and $28.9 million was allocated to intangible assets.
Property and equipment $2,896 
Net tangible liabilities assumed, excluding property and equipment  (1,041)
Identifiable intangible assets  28,910 
In-process technology  10,100 
Goodwill  765,805 
 Total $806,670 
        The amounts allocated to intangible assets include completed technologies of $20.4 million and assembled workforces of $8.5 million.
        At December 31, 2000,2002, accumulated amortization related to the goodwill and other intangible assets acquired in the Interleaf acquisition totaled $187.6$402.2 million. Goodwill amortization was $180.8$382.8 million and other intangible asset amortization was $6.8$19.3 million. As discussed in Note 4 of Notes to Consolidated Financial Statements, during the third quarter of fiscal 2001, the Company performed an impairment assessment of identifiable intangible assets and goodwill recorded in connection with its various acquisitions. The impairment assessment was performed primarily as a result of the significant decline in the Company's stock price, the net book value of assets significantly exceeding the Company's market capitalization, the underperformance of the Interleaf acquisition relative to projections, and the overall decline in industry growth rates which have negatively impacted the Company's revenues and forecasted revenue growth rate which indicate that this trend might continue for an indefinite period. Also, current economic indicators forecast that this trend may continue for an indefinite period. As a result, the Company recorded a $336.4 million impairment charge during the third quarter of 2001 to reduce goodwill by $330.2 million and other intangible assets by $6.2 million associated with the Company's acquisitions, primarily the Interleaf acquisition, to their estimated fair value.
        As further discussed in Note 4, upon adoption of SFAS No. 142, on January 1, 2002, the Company no longer amortizes goodwill. Additionally, upon adoption of SFAS No. 141 and 142, the Company no longer amortizes its non-technology based intangible asset, or assembled workforce. The remaining other intangible assets are being amortized on a straight-line basis over a three-year period.their remaining useful life of 3 months as of December 31, 2002. Amortization expense is estimated to be $887,000 in 2003.
        The Company estimated that $10.1 million of the purchase price for Interleaf represented acquired in-process technology that had not yet reached technological feasibility and had no alternative future use. Accordingly, this amount was immediately charged to expense in the consolidated statementsConsolidated Statements of operationsOperations upon consummation of the acquisition. The value assigned to acquired in-process technology was the amountsamount attributable to the efforts of Interleaf up to the time of acquisition. The amount was estimated through the application of the "stages of completion" by multiplying the estimated present value of future cash flows, excluding, cost of completion, by the percentage of completion of the purchased technology at the time of the acquisition. The discount rate included a factor that took into account the uncertainty surrounding the successful development of the acquired in-process technology.
78

        The following summary, prepared on an unaudited pro forma basis, reflects the condensed consolidated results of operations for the twelve-month period ended December 31, 2000, and 1999 assuming Interleaf had been acquired at the beginning of the periodsperiod presented (in thousands, except per share data):

                                              For the twelve months ended
                                                     December 31,
                                         --------------------------------------
                                                2000                1999
                                         --------------------  ----------------

Revenue................................. $          427,579    $      167,159
Net loss................................ $         (236,519)   $     (255,180)
Basic and diluted net loss per share.... $            (0.89)   $        (1.06)

 
 2000
 
Revenue $429,162 
Net loss $(236,519)
Basic and diluted net loss per share $(8.01)
        The pro forma results are not necessarily indicative of what would have occurred if the acquisition had been in effect for the periods presented. In addition, they are not intended to be a projection of future results and do not reflect any synergies that might be affected from combined operations. The charges for in-process technology have not been included in the unaudited pro forma results because they are nonrecurring.

      On November 24, 1999, the Company acquired all of the registered shares
of Fidutec Information Technology SA for a cash payment of 6,000,000 Swiss
Francs (equivalent U.S. dollar value of $3,765,000, net of cash acquired); of
which 1,200,000 Swiss Francs are held in escrow, subject to employee
retention conditions lasting 12 to 24 months depending on named employees.
The acquisition was accounted for as a purchase. The acquired assets and
assumed liabilities, and the related results of operations, are included in
the consolidated financial statements of the Company from the date of
acquisition. The name of the acquired business has been subsequently changed
to BroadVision Professional Services. The purchase price was allocated based
on fair values as follows (in thousands):


Purchase price, net of cash acquired                        $ 3,765
Add: fair value of liabilities assumed                          399
                                                            -------
     Total purchase consideration                             4,164
Less: fair value allocated to acquired assets                   798
                                                            -------
     Excess of purchase consideration over acquired
       assets and assumed liabilities                         3,366

Excess allocated to:
     Prepaid compensation                                     2,749
                                                            -------
     Goodwill                                               $   617
                                                            =======



                                       49

Note 3 -- 3—Property and Equipment (in thousands):

                                                  December 31,
                                              --------------------
                                                2000        1999
                                              --------    --------

          Furniture and fixtures              $  6,136    $  2,323
          Computer and software                 79,020      17,618
          Leasehold improvements                12,099       6,903
                                              --------    --------
                                                97,255      26,844
          Less accumulated depreciation and
            amortization                       (20,570)    (10,093)
                                              --------    --------
                                              $ 76,685    $ 16,751
                                              ========    ========

 
 December 31,
 
 
 2002
 2001
 
Furniture and fixtures $9,138 $9,646 
Computer and software  49,579  59,182 
Leasehold improvements  21,456  38,440 
  
 
 
   80,173  107,268 
Less accumulated depreciation and amortization  (53,573) (40,049)
  
 
 
Total property and equipment, net $26,600 $67,219 
  
 
 
Note 4 -- 4—Goodwill and Other Intangibles
        Goodwill and other intangibles consist of the following:
 
 December 31,
 
 
 2002
 2001
 
Goodwill $437,206 $437,206 
Other Intangibles  22,732  22,732 
  
 
 
   459,938  459,938 
  
 
 
Less:       
 Accumulated amortization  (402,618) (399,071)
  
 
 
Goodwill and other intangibles, net $57,320 $60,867 
  
 
 
        On January 1, 2002, the Company adopted SFAS No. 142,Goodwill and Intangible Assets. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no longer subject to amortization
79

but are tested for impairment at least annually using a fair value approach, and whenever there is an impairment indicator. Other intangible assets continue to be valued and amortized over their estimated lives. The following schedule shows the Company's reported net loss for periods prior to adoption of SFAS No. 142 as adjusted to add back goodwill and assembled workforce amortization as if SFAS No. 142 had been adopted:
 
 2001
 2000
 
Reported Net Loss $(836,259)$(161,629)
 Add back amortization:       
  Goodwill  202,542  181,029 
  Assembled workforce  2,687  2,009 
  
 
 
Adjusted net loss $(631,030)$21,409 
  
 
 

Basic and diluted net loss per share:
 
 
 
 
 
 
 
 Reported Net Loss $(27.20)$(5.60)
 Goodwill  6.59  6.27 
 Assembled workforce  0.09  0.07 
  
 
 
 Adjusted basic net (loss) income per share $(20.52)$0.74 
  
 
 
 Goodwill  6.59  6.18 
 Assembled Workforce  0.09  0.07 
 Adjusted diluted net (loss) income per share $(20.52)$0.65 
        During fiscal 2001, the Company recorded an impairment charge of $330.2 million related to goodwill and $6.2 million related to other intangible assets originally recorded primarily as part of the Interleaf acquisition that closed on April 14, 2000.
        Pursuant to SFAS No. 142, the Company is required to test its goodwill for impairment upon adoption and annually or more often if events or changes in circumstances indicate that the asset might be impaired. While there was no accounting charge to record upon adoption, at September 30, 2002, the Company concluded that, based on the existence of impairment indicators, including a decline in its market value, it would be required to test goodwill for impairment. SFAS No. 142 provides for a two-stage approach to determining whether and by how much goodwill has been impaired. Since the Company has only one reporting unit for purposes of applying SFAS No. 142, the first stage requires a comparison of the fair value of the Company to its net book value. If the fair value is greater, then no impairment is deemed to have occurred. If the fair value is less, then the second stage must be completed to determine the amount, if any, of actual impairment. The Company completed the first stage and has determined that its fair value at September 30, 2002 exceeded its net book value on that date, and as a result, no impairment of goodwill was recorded in the consolidated financial statements. The Company obtained an independent appraisal of fair value to support its conclusion. Additionally, the Company concluded that, based upon the market value of its stock in relation to the Company's net book value at December 31, 2002, there was no impairment of goodwill as of December 31, 2002.
        The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment. In estimating the fair value of the Company, the Company made estimates and
80

judgments about future revenues and cash flows. The Company's forecasts were based on assumptions that are consistent with the plans and estimates the Company is using to manage the business. Changes in these estimates could change the Company's conclusion regarding impairment of goodwill and potentially result in a non-cash goodwill impairment charge, for all or a portion of the goodwill balance at December 31, 2002.
        As discussed in Note 1, upon adoption of SFAS No. 142, on January 1, 2002, the Company no longer amortizes goodwill. Additionally, upon adoption of SFAS No. 141 and 142, the Company no longer amortizes its non-technology based intangible asset, or assembled workforce. The remaining other intangible assets are being amortized on a straight-line basis over their remaining useful life of 3 months as of December 31, 2002. Amortization expense is estimated to be $887,000 in 2003.
Note 5—Accrued Expenses (in thousands):

                                             December 31,
                                          -----------------
                                            2000      1999
                                          -------   -------

                Employee benefits         $ 3,900   $ 1,340
                Commissions and bonuses    22,790     6,747
                Taxes payable              11,439     1,122
                Other                      15,547     3,947
                                          -------   -------
                                          $53,676   $13,156
                                          =======   =======

 
 December 31,
 
 2002
 2001
Employee benefits $2,081 $3,121
Commissions and bonuses  2,027  5,543
Sales and other taxes  11,956  7,620
Restructuring  29,056  32,454
Other  10,667  12,974
  
 
  $55,787 $61,712
  
 
Note 5 -- 6—Long-term Debt and Other Noncurrent Liabilities
        Other noncurrent liabilities consist of the following:
 
 December 31,
 
 2002
 2001
Restructuring $67,139 $58,335
Other  1,067  1,131
  
 
  $68,206 $59,466
  
 
        The Company has various credit facilities with a commercial lender which include term debt in the form of notes payable and a revolving line of credit. In March 2002, the Company renewed and amended its revolving credit that provides for up tofacility. The amount available under the revolving line of credit was increased from $10.0 million to $25.0 million. Borrowings under the revolving line of additionalcredit are collateralized by all of the Company's assets and bear interest at the bank's prime rate (4.25% as of December 31, 2002). At December 31, 2002, $25.0 million was outstanding and the revolving credit facility is due to expire in March 2003. There were no outstanding borrowings (basedunder the revolving line of credit as of December 31, 2001. Interest is due monthly and principal is due at expiration. The amended and restated loan and security agreement requires the Company to maintain $80.0 million in unrestricted cash and cash equivalents, short-term investments and long-term investments (excluding
81

equity investments) and $30.0 million on eligible accounts receivable,deposit with the Company's commercial lender. The Company was in compliance with these covenants as defined).of December 31, 2002. As of December 31, 20002002 and 1999,December 31, 2001, outstanding term debt borrowings were $4.9approximately $2.9 million and $5.9$3.9 million, respectively.respectively and consist of two borrowings. Borrowings bear interest at the bank's prime rate (9.50%(4.25% as of December 31, 2000)2002 and December 31, 2001) and prime rate plus 1.25% (5.75% as of December 31, 2002 and December 31, 2001). Principal and interest isare due in consecutive monthly payments through maturity based on the termterms of the facility.facilities. Principal payments of $977,000 are due annually from 2000 through 2004, $611,000 due in 2005, and a final payment of $357,000 due in 2006.
        As discussed in Note 13 of December 31, 2000 and 1999,Notes to Consolidated Financial Statements, in March 2003, the Company had no outstanding
borrowingsrenewed and amended its revolving credit facility. The amount available under itsthe revolving line of credit. However, commitmentscredit remains unchanged at $25.0 million. Borrowings under the revolving line of credit are collateralized by all of the Company's assets and bear interest at the bank's prime rate (4.25% as of March 1, 2003). At December 31, 2002, $25.0 million was outstanding and is due to expire in February, 2004. Interest is due monthly and principal is due at expiration. The amended and restated loan and security agreement requires the Company to maintain certain levels in cash and cash equivalents, short-term investment and long-term investments (excluding equity investments). Additionally, the amended and restated loan and security agreement requires the Company to maintain certain levels on deposit with the Company's commercial lender and certain quarterly net income (loss) levels.
        Commitments totaling $2.4$16.7 million and $2.8$25.0 million in the form of standby letters of credit were issued under its revolving line of credit facility as of December 31, 2000 and
1999, respectively. Commitments totaling $23.0 million inon the form of standby
letters of credit were also issuedCompany's behalf from separate financial institutions as of December 31, 2000 for2002 and December 31, 2001 in favor of the Company's various facilities and leasehold
improvements; see Note 7. The Company had no outstanding capital leases as of
December 31, 2000.landlords to secure obligations under the Company's facility leases. The commercial credit facilities include covenants which impose certain restrictions on the payment of dividends and other distributions and requiresrequire the Company to meet a financial covenant to maintain monthly financial covenants, including a minimum quick
ratio, tangible net worth ratiocertain levels of available cash, cash equivalents, short-term investments and debt service coverage ratio.long-term investments (excluding equity investments). Borrowings are collateralized by a security interest in substantially all of the Company's owned assets. The Company was in compliance with its financial covenants as of
December 31, 2000 and December 31, 1999.


                                       50



NOTE 6 -- INCOME TAXES
82

Note 7—Income Taxes
        The components of income tax provision (benefit) are as follows (in thousands):

                                         YEARS ENDED DECEMBER 31,
                                     ------------------------------
                                        2000        1999       1998
                                     ----------  ---------- -------

Current:
  Federal                            $  20,491     $  458     $  192
  State                                  5,149          2         13
  Foreign                                2,987        536        416
                                     ---------     ------     ------
          Total current              $  28,627     $  996     $  621
Deferred:
  Federal                               (3,160)        --       (600)
  State                                 (2,419)        --       (100)
                                     ---------     ------     ------
          Total deferred             $  (5,579)    $   --     $ (700)
                                     ---------     ------     ------
                                     $   23,048    $  996     $  (79)
                                     ==========    ======     ======

 
 Years Ended December 31,
 
 
 2002
 2001
 2000
 
Current:          
 Federal $— $— $20,491 
 State  175  121  5,149 

Foreign
 
 
372
 
 
2,015
 
 
2,987
 
  
 
 
 
  Total current $547 $2,136 $28,627 

Deferred:
 
 
 
 
 
 
 
 
 
 
 Federal  4,537  —  (3,160)
 State  2,519  —  (2,419)
  
 
 
 
  Total deferred $7,056 $—  (5,579)
  
 
 
 
  $7,603 $2,136 $23,048 
  
 
 
 
        The differences between the income tax provision (benefit) computed at the federal statutory rate of 35% and the Company's actual income tax provision (benefit) for the periods presented are as follows (in thousands):

                                                            YEARS ENDED DECEMBER 31,
                                                       ------------------------------
                                                          2000        1999       1998
                                                       ----------  ---------- -------

Expected income tax provision (benefit)                $ (48,503)    $ 6,930    $ 1,346
Expected state income taxes (benefit), net of
federal tax benefit                                       (7,621)        853        (58)
Foreign taxes                                              2,987      (1,009)       416
Alternative minimum tax                                       --          --         97
Utilization of foreign net operating loss
carryforwards                                               (555)     (4,124)    (2,471)
Change in valuation allowance                                 --          --       (600)
Foreign losses not benefited                                 177          --        988
Non deductible Goodwill and Intangible amortization       76,038          --         --
Write off of acquired In process Technology                4,091          --         --
Research and development tax credits                      (2,877)     (1,492)        --
Foreign tax credits                                       (1,412)         --         --
Other                                                        723        (162)       203
                                                       ----------    --------   -------
Income tax provision (benefit)                         $   23,048    $   996    $   (79)
                                                       ==========    ========   =======

 
 Years Ended December 31,
 
 
 2002
 2001
 2000
 
Expected income tax provision (benefit) $(57,022)$(290,797)$(48,503)
Expected state income taxes (benefit), net of federal tax benefit  (8,961) (45,697) (7,621)
California net operating loss reduction  2,914  —  — 
Foreign taxes  2,361  2,015  2,987 
Utilization of foreign net operating loss carryforwards  (2,413) (390) (555)
Change in valuation allowance  67,070  109,802  — 
Foreign losses not benefited  2,353  2,154  177 
Non deductible goodwill and intangible amortization  1,418  221,724  76,038 
Write off of acquired in-process technology  —  2,599  4,091 
Tax credits  (758) —  (4,289)
Other  641  726  723 
  
 
 
 
Income tax provision $7,603 $2,136 $23,048 
  
 
 
 
83
        The individual components of the Company's deferred tax assets and liabilities are as follows (in thousands):

                                                                          DECEMBER 31,
                                                                       --------------------
                                                                         2000        1999
                                                                       ---------   --------

                   Deferred tax assets:
                     Depreciation and amortization                     $   1,490   $    895
                     Accrued liabilities                                   3,751      1,058
                     Capitalized research and development                  1,371        158
                     Net operating losses                                 50,470     18,935
                     Tax credits                                          14,212      4,190
                     Other                                                   463         --
                   Unrealized loss on Marketable securities                4,349         --
                                                                       ---------   --------
                          Total deferred tax assets                       76,106     25,236
                     Less valuation allowance                            (63,894)   (24,536)
                                                                       ---------   --------
                                                                          12,212        700
                   Deferred tax liabilities
                       State tax liability                                (1,584)        --
                       Unrealized gain on
                       Marketable securities                                  --    (17,318)
                                                                       ---------   --------
                          Net deferred tax asset (liability)           $  10,628   $(16,618)
                                                                       =========   ========

 
 December 31,
 
 
 2002
 2001
 
Deferred tax assets:       
 Depreciation and amortization $7,441 $2,278 
 Accrued liabilities  43,898  62,049 
 Capitalized research and development  598  957 
 Net operating losses  174,495  100,895 
 Tax credits  11,383  14,436 
 Other  143  238 

Unrealized loss on marketable securities
 
 
5,429
 
 
777
 
  
 
 
  Total deferred tax assets  243,387  181,630 
 Less valuation allowance  (234,697) (169,071)
  
 
 
   8,690  12,559 
  
 
 
Deferred tax liabilities       
 State tax liability  (8,690) (5,503)
  
 
 
  
Net deferred tax asset
 
$
—
 
$
7,056
 
  
 
 
        The Company has provided a valuation allowance for a significant portionall of its deferred tax assets as of December 31, 2000.2002 due to the uncertainty regarding their future realization. The total valuation allowance increased $39,358,000$67,070,000 from December 31, 19992001 to December 31, 2000.
Approximately $15,010,0002002. None of the increase in the valuation allowance relatingrelates to income tax benefits arising from the exercise of stock options that will be credited directly to stockholders' equity and will not be available to
benefit the income tax provision in any future periods.stockholder's equity. The remaining increase in the valuation allowance relates entirely to net operating losses and credit carryforwards from the Interleaf acquisition. The income tax benefits
arising from the deferred tax assets acquired from Interleaf will be credited
to Goodwill and will not be available to benefit the income tax provision in
any future periods.accrued liabilities.
        As of December 31, 2000,2002, the Company had federal and state net
operating loss carryforwards of approximately $138,400,000$462,109,000 and $22,800,000,$144,308,000 respectively, available to offset future regular and alternative minimum taxable income. In addition, the Company hashad federal and state research and development and foreign tax credit carryforwards of approximately $11,990,000$10,707,000 and $2,222,000 respectively, available to offset future tax liabilities. The Company's federal net operating loss and tax credit carryforwards expire in the years 20012003 through 2019,2022, if not utilized. The state net operating loss carryforwards expire in the years 20012004 through 2019.2012. The state research and development credits can be carried forward indefinitely. As of December 31, 20002002, the Company's foreign subsidiaries had net operating loss carryforwards in foreign jurisdictions of approximately $2,500,000$2,291,000 that can be used to offset future foreign income.
        Federal and state tax laws limit the use of net operating loss carryforwards in certain situations where changes occur in the stock ownership of a company. AnThe Company believes such an ownership change, as defined, hasmay have occurred and, accordingly, certain of the Company's federal and state net operating loss carryforwards acquired from Interleaf may be limited in their annual usage.

                                       51

84

Note 7 -- 8—Commitments and Contingencies
        On February 15, 2002, BroadVision and Hewlett-Packard signed an agreement, which terminated Hewlett-Packard's rights to resell BroadVision software effective February 15, 2002. In the event BroadVision becomes insolvent, files a petition for relief under the United States Bankruptcy Code, or materially breaches the agreement, Hewlett-Packard will have rights to a limited term license for BroadVision's business-to-business customer portals software products and a limited use license for BroadVision's One-to-One Enterprise software product. Hewlett-Packard's license will be limited in term until such time as Hewlett-Packard has received monies for sale of the products up to a maximum of $12.0 million. In addition, the Company will pay back to Hewlett-Packard a portion of the unused prepaid royalty payments, received from Hewlett-Packard in prior periods totaling approximately $2.4 million. This amount was included in Unearned Revenue as of December 31, 2001, and this amount was reclassified to Accrued Liabilities in fiscal 2002. The amount due is payable in quarterly installments by December 31, 2003.
Leases
        The Company leases its headquarters facility and its other facilities under noncancelable operating lease agreements expiring through the year 2013. Under the terms of the agreements, the Company is required to pay property taxes, insurance and normal maintenance costs.
        A summary of total future minimum lease payments under noncancelable operating lease agreements, together with amounts included in restructuring reserves is as follows (in thousands); properties that are part of the restructuring have been included:
Year Ended December 31,
 Total future minimum lease payments
2003 $26,281
2004  25,855
2005  25,652
2006  22,620
2007  20,495
2008 and thereafter  81,487
  
Total minimum lease payments  202,390
        As of December 31, 2002, $129.4 million of future minimum lease payments, net of anticipated sublease income, is as follows (in thousands):

                                                       Operating
               Year Ended December 31,                  leases
               -----------------------                 --------
               2001                                    $ 37,126
               2002                                      36,620
               2003                                      34,842
               2004                                      35,325
               2005                                      35,024
               2006accrued in the Company's restructuring accruals. The restructuring accruals are net of approximately $44.8 million of sublease income of which approximately $28.8 million represents estimated sublease income for sublease agreements yet to be negotiated and thereafter                       97,802
                                                       --------
               Total minimum lease payments            $276,739
                                                       ========

      Rental expense relating to operating leases was approximately $14,045,000,
$2,716,000, $1,101,000 for the years ended December 31, 2000, 1999 and 1998,
respectively. Minimumremaining $16.0 million represents sublease paymentsincome to be received in the future under noncancelable subleases total $82,000.

non-cancelable sublease agreements signed by December 31, 2002. See Note 9 of Notes to Consolidated Financial Statements for additional information.
85

Standby Letter of Credit Commitments
        As of December 31, 2000,2002, the Company had various$16.7 million of outstanding commitments in the form of standby letters of credit $25,380,000 in favor of the Company's various landlords to secure obligations under the Company's facility leases.
Legal Proceedings
        In April 2001, the Company filed a Form 8-K with the Securities and Exchange Commission reporting that several purported class action lawsuits had been filed against the Company and certain of its officers and directors. In each of the lawsuits, the plaintiffs sought to assert claims on behalf of a class of all persons who purchased securities of BroadVision between January 26, 2001 and April 2, 2001. The complaints alleged that BroadVision and the individual defendants violated federal securities laws in connection with its reporting of financial results for the quarter ended December 31, 2000. The lawsuits were consolidated into a single action. On November 5, 2001, BroadVision and the individual defendants filed motions to dismiss the consolidated complaint. On February 22, 2002, the Court granted these motions, dismissed the consolidated complaint without prejudice and ordered the lead plaintiff to file an amended complaint within 30 days. On March 25, 2002, the plaintiff filed its Second Amended Consolidated Complaint, which added claims for breach of fiduciary duty and named members of the Company's board of directors as additional defendants. All defendants filed motions to dismiss the Second Amended Consolidated Complaint on May 10, 2002. The hearing on the defendant's motion to dismiss was heard on August 30, 2002. On September 11, 2002, the Court (1) dismissed with prejudice the claims that the defendants violated federal securities laws, on the basis that the complaint failed to state a claim upon which relief could be granted, and (2) dismissed without prejudice the claims for breach of fiduciary duty, on the basis that the claims were made under state law and, in the absence of any remaining federal law claims, the Court would decline to exercise supplemental jurisdiction. The Company is not aware of plaintiffs filing an appeal of the Court's September 11, 2002 decision or filing another complaint in any other court. The Company believes that the action was without merit and will continue to defend itself vigorously should plaintiffs continue to pursue any of these claims.
        On June 7, 2001, Verity, Inc. filed suit against the Company alleging copyright infringement, breach of contract, unfair competition and other claims. The Company has answered the complaint denying all allegations and is defending itself vigorously. The trial date is set for July 14, 2003 in San Jose, California, in the United States District Court, Northern District, San Jose Division. The Company is unable to estimate the amount or range of any potential loss from this matter.
        On July 18, 2002, Avalon Partners, Inc., doing business as Cresa Partners ("Cresa"), filed a suit against the Company in the Superior Court of the State of California, San Mateo County, claiming broker commissions related to the Company's termination and restructuring of certain facilities leases associated with our restructuring plans taken during the second quarter of 2002. The matter was settled by way of a settlement agreement executed by both parties in March 2003 and the parties expect the lawsuit to be dismissed in the second quarter of fiscal 2003.
        The Company is also subject to various other claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate
86

disposition of these matters is not expected to have a material effect on the Company's business, financial condition or results of operations. Although management currently believes that the outcome of other outstanding legal proceedings, claims and litigation involving the Company will not have a material adverse effect on its business, results of operations or financial condition, litigation is inherently uncertain, and there can be no assurance that existing or future litigation will not have a material adverse effect on the Company's business, results of operations or financial condition.
Note 8 -- Stockholders' Equity

Convertible Preferred Stock9—Restructuring
        During fiscal 2001 and fiscal 2002, the Company approved restructuring plans to, among other things, reduce its workforce and consolidate facilities. These restructuring and asset impairment charges were taken to align the Company's cost structure with changing market conditions and to create a more efficient organization. A pre-tax charge of $110.4 million was recorded during fiscal 2002 and a pre-tax charge of $153.3 million was recorded during fiscal 2001 to provide for these actions and other related items. The Company recorded the low-end of a range of assumptions modeled for the restructuring charges, in accordance with SFAS No. 5,Accounting for Contingencies. The high-end of the range was estimated at $117.8 million for the charge related to fiscal 2002. Adjustments to the restructuring reserves will be made in future periods, if necessary, based upon the then current actual events and circumstances.
        The following table summarizes charges recorded during fiscal 2002 for exit activities and asset write-downs (in thousands):
 
 Severance
and Benefits
 Facilities/Excess
Assets
 Other
 Total
 
Reserve balances, December 31, 2001 $817 $89,859 $113 $90,789 
Restructuring charges  7,644  101,742  1,063  110,449 

Cash payments
 
 
(6,929
)
 
(78,019
)
 
(1,097
)
 
(86,045
)

Non-cash portion
 
 
(107
)
 
(18,891
)
 
—
 
 
(18,998
)
  
 
 
 
 

Reserve balances, December 31, 2002
 
$
1,425
 
$
94,691
 
$
79
 
$
96,195
 
  
 
 
 
 
        The nature of the charges summarized above is as follows:
        Severance and benefits—The Company recorded a charge of approximately $7.6 million during fiscal year ended December 31, 2002 related to severance benefits to terminated employees in the United States and various international locations. Costs incurred include severance, payroll taxes and COBRA benefits. Included in the $7.6 million is $107,000 of non-cash charges. These non-cash charges represent a one-time compensation charge taken as a result of granting certain terminated employees extended vesting of stock options beyond the standard vesting schedule for terminated employees. The compensation charge was calculated using the Black-Schools option pricing model. Approximately $817,000 of severance and benefits related costs remained accrued as of December 31, 2001 as a result of the Company's 2001 restructuring plan. Approximately $6.9 million of severance and benefits costs had been paid out during fiscal 2002 and the remaining $1.4 million of severance, payroll taxes and COBRA benefits is expected to be paid in full by December 31, 2003. The Company's restructuring
87

plan included plans to terminate the employment of approximately 430 employees in North and South America and approximately 95 employees throughout Europe and Asia/Pacific during the first three quarters of fiscal 2002, impacting all departments within the Company. The employment of approximately 525 employees was terminated during fiscal year 2002. As a result of these reductions, the Company expects annual salary savings of approximately $44.6 million.
        Facilities/Excess Assets—During fiscal year 2002, the Company revised its estimates and expectations with respect to its facilities disposition efforts due to further consolidation and abandonment of additional facilities and to account for changes in estimates used in the Company's 2001 restructuring plan based upon actual events and circumstances. Total lease termination costs include the impairment of related assets, remaining lease liabilities and brokerage fees offset by estimated sublease income. The estimated costs of abandoning these leased facilities, including estimated sublease income, were based on market information analyses provided by a commercial real estate brokerage firm retained by the Company. Based on the factors above, a facilities/excess assets charge of $101.7 million was recorded during fiscal year 2002 and includes non-cash asset impairment charges of approximately $18.9 million.
        Approximately $89.9 million of facilities related costs remained accrued as of December 31, 2001 as a result of the Company's 2001 restructuring plan. Net cash payments during fiscal year 2002 related to abandoned facilities amounted to $78.0 million. Actual future cash requirements may differ materially from the accrual at December 31, 2002, particularly if actual sublease income is significantly different from historical estimates. As of December 31, 2000,2002, $94.7 million of lease termination costs, net of anticipated sublease income, is expected to be paid by the end of the second quarter of fiscal 2013. The Company expects to pay approximately $26.9 million over the next twelve months and the remaining $67.8 million from January 1, 2004 through June of fiscal 2013. The $94.7 million is net of approximately $44.8 million of estimated sublease income of which approximately $28.8 million represents sublease agreements yet to be negotiated.
        Other—The Company recorded charges of approximately $1.1 million during fiscal year 2002 for various incremental costs incurred as a direct result of the restructuring plan. The remaining reserve balance of $79,000 is expected to be paid in full by the end of the fourth quarter of 2003.
Note 10—Stockholders' Equity
Convertible Preferred Stock
        As of December 31, 2002, there were no outstanding shares of convertible preferred stock. The Board of Directors and the stockholders have approved authorized shares of convertible preferred stock to 10,000,000 shares.

10,000,000.
    Warrants
        As of December 31, 2000,2002, there were warrants outstanding to acquire 86,6679,628 shares of common stock at an average price of $20.84.$187.53. These warrants were issued in 1997 and 2000 in connection with revenue transactions. The warrants were valued using the Black-Scholes option-pricing model and revenues recorded net of the fair value of the warrants.
88
Common Stock
        On July 24, 2002, the Company announced that its Board of Directors had approved a one-for-nine reverse split of its common stock. The reverse split was effective as of 8:00 p.m. Eastern Daylight Time on July 29, 2002. Each nine shares of outstanding common stock of the Company automatically converted into one share of common stock. The Company's common stock began trading on a post-split basis at the opening of trading on the Nasdaq National Market on July 30, 2002.
        During April, 2000,June 2001, the Company completed an acquisition in which it acquired Interleaf in a stock-for-stock transaction.Keyeon. Please see Note 2, Acquired Business, to Consolidated Financial Statements.

      In September 1999,
        During fiscal 2002 there were no increases in the stockholders approved an increase to the
Company's authorizedaggregate number of shares of Common Stock from 50,000,000 to
500,000,000, further, during May 2000, the stockholders approved an increase
in the authorized shares of common stock available to 2,000,000,000 shares.

                                       52
be issued under the Company's Equity Incentive Stock Option Plan. During May 2000,2001, the Board of Directors and the stockholders approved an increase in the aggregate number of shares of common stock available to be issued under the Company's Equity Incentive Stock Option Plan by 13,125,00012,000,000 shares. In addition, the Board of Directors approved 6,000,000 shares of common
stock available to be issued under the Company's Non-Officer Stock Option Plan
        The Company applies APB Opinion No. 25 and related interpretations when accounting for its stock option and stock purchase plans. As of December 31, 2000,2002, the Company had reserved 84,000,00096 million shares of common stock for issuance under its Equity Incentive Plan. Under this plan, the Board of Directors may grant incentive or nonqualified stock options at prices not less than 100% or 85%, respectively, of the fair market value of the Company's common stock, as determined by the Board of Directors, at the date of grant. The vesting of individual options may vary but in each case at least 20%25% of the total number of shares subject to options will become exercisable per year. These options generally expire ten years after the grant date. When an employee option is exercised prior to vesting, any unvested shares so purchased are subject to repurchase by the Company at the original purchase price of the stock upon termination of employment. The Company's right to repurchase lapses at a minimum rate of 20% per year over five years from the date the option was granted or, for new employees, the date of hire. Such right is exercisable only within 90 days following termination of employment. No3,165 unvested shares were repurchased by the Company during the year ended December 31, 2000.2002 at a weighted-average price of $11.77. As of December 31, 2000,
612,8452002, 270 shares were subject to repurchase at a weighted-average price of $0.81.
1,438,200$8.48. At December 31, 2001 and 2,119,6352000, 7,952 and 68,094 shares, respectively, were subject to repurchase as of December 31,
1999 and 1998, respectively.repurchase.
        The Company's President and Chief Executive Officer ("CEO") has options to purchase 9,000,0002,219,999 shares of common stock at an average exercise price of $3.56$30.16 per share. On April 1, 1995, the Company's President and CEO was granted options to purchase 4,500,000500,000 shares of common stock at an exercise price of $0.44$4.00 per share. These options vest ratably over a 60-month period commencing on grant whereas the first year is subject to cliff vesting. As of December 31, 2000,2002, all of the 4,500,000500,000 options were vested.exercised. On June 23, 1999, the CEO was granted additional options to purchase 4,500,000500,000 shares of common stock at an exercise price of $6.67$60.00 per share. The options vest ratably, 20% after year 1 and the remainder ratably over the next 48 months, over a 60-month period commencing on grant. As of December 31, 2000,
1,350,0002002, 350,001 of the 4,500,000500,000 additional options were vested. On May 25, 2001, the CEO was granted additional options to purchase 500,000 shares of common stock at an exercise price of $66.51 per share. The options vest ratably over the next 48 months, commencing on grant. As of December 31, 2002, 197,917 options from the May 25, 2001 grant were vested. On
89

November 27, 2001, the CEO was granted additional options to purchase 4,444 shares of common stock at an exercise price of $35.01 per share. The options vest ratably over the next 24 months, commencing on grant. As of December 31, 2002, 2,407 options from the November 27, 2001 grant were vested. On February 19, 2002, the CEO was granted additional options to purchase 55,555 shares of common stock at an exercise price of $18.63 per share. The options vest ratably over the next 48 months, commencing on grant. As of December 31, 2002, 11,574 options from the February 19, 2002 grant were vested. On October 30, 2002, the CEO was granted additional options to purchase 1,160,000 shares of common stock at an exercise price of $2.16 per share. The options vest ratably over the next 48 months, commencing on grant. As of December 31, 2002, 48,333 options from the October 30, 2002 grant were vested.
        Activity in the Company's stock option plan is as follows:

                                                                 Years ended December 31,
                                         -------------------------------------------------------------------------
                                                  2000                     1999                      1998
                                         ----------------------   ----------------------    ----------------------
                                                      Weighted-                Weighted-                 Weighted-
                                                      Average                  Average                   Average
                                         Options      Exercise     Options     Exercise     Options      Exercise
Fixed Options                            (000's)       Price       (000's)      Price       (000's)       Price
- -------------                            -------      ---------   --------     ---------    --------     ---------


Outstanding at beginning of period        39,978       $ 6.36       31,482       $ 0.96       26,163       $0.50

Granted                                   10,899        30.93       20,565        11.42       14,292        1.52

Exercised                                 (7,378)        1.83       (9,759)        0.71       (5,193)       0.40

Forfeited                                 (3,105)       14.21       (2,310)        1.67       (3,780)       0.64
                                          ------                   -------                   -------

Outstanding at end of period              40,394       $13.23       39,978       $ 6.36       31,482       $0.96
                                          ======       ------      =======                   =======

Options exercisable at end of period      10,115       $ 5.63        6,195       $ 0.82        7,227       $0.48
                                          ======       ------      =======                   =======

Weighted-average fair value of options
  Granted during the period                            $28.67                    $ 9.36                    $0.99
                                                       ------                    ------                    =====




                                       53

 
 Years ended December 31,
 
 2002
 2001
 2000
Fixed Options
 Options
(000's)
 Weighted-Average
Exercise Price
 Options
(000's)
 Weighted-Average
Exercise Price
 Options
(000's)
 Weighted-Average
Exercise Price
Outstanding at beginning of period 5,239 $44.73 4,488 $119.07 4,442 $57.24
Granted 3,635  4.76 3,511  44.82 1,211  278.37
Exercised (226) 4.52 (417) 12.15 (820) 16.47
Forfeited (2,612) 34.57 (2,343) 190.17 (345) 127.89
Outstanding at end of period 6,036 $26.32 5,239 $44.73 4,488 $119.07
Options exercisable at end of period 1,861 $45.02 1,558 $41.31 1,124 $50.67
    
   
   

Weighted-average fair value of options Granted during the period
 
 
 
$
4.16
 
 
 
$
41.13
 
 
 
$
258.03
    
   
   
90
        The following table summarizes stock options outstanding under the plan as of December 31, 2000:



                                              Outstanding
                              ---------------------------------------------           Exercisable
                                              Weighted-Avg.                   ----------------------------
                                               Remaining      Weighted-Avg.                  Weighted-Avg.
Range of                         Options    Contractual Life    Exercise         Options       Exercise
Exercise Prices                  (000's)       In Years          Price           (000's)        Price
- ---------------               ------------  ----------------  ------------    ------------   -------------

$0.01 -- $ 1.22                   8,052           6.33            0.69            4,565         $ 0.59
 1.29 --   4.40                   7,857           7.69            2.51            1,891           2.49
 4.42 --   6.67                   8,266           8.44            5.85            2,158           5.97
13.55 --  28.00                   8,395           9.25           19.93              992          19.35
29.33 --  52.83                   7,824           8.49           37.50              509          34.41
                                 ------                                          ------
                                 40,394           8.05           13.23           10,115         $ 5.63
                                 ======                                          ======

2002:
 
  
  
  
 Exercisable
 
  
 Outstanding
Weighted-Average
Remaining Contractual
Life in Years
  
Range of
Exercise Prices
 Options
(000's)
 Weighted-Average
Exercise Price
 Options
(000's)
 Weighted-Average
Exercise Price
$1.50—1.50 423 9.81 1.50 14  1.50
2.16—2.16 1,494 9.83 2.16 54  2.16
2.36—7.92 877 8.89 5.20 136  6.86
8.50—12.15 626 9.06 10.07 82  11.95
12.50—30.50 433 6.42 19.03 318  17.96
35.01—35.01 686 8.91 35.01 412  35.01
35.25—60.00 674 6.45 55.33 484  54.98
66.51—66.51 662 8.40 66.51 267  66.51
87.19—448.31 160 7.36 188.34 93  182.87
475.31—475.31 1 7.49 475.31 1  475.31
  
 
 
 
 
  6,036 8.66 26.32 1,861 $45.02
        The Company grants options outside of the Company's stock option plan. The terms of these options are generally identical to those granted under the Company's plan. A summary of options outside of the plan is presented below:

                                                                     Years ended December 31,
                                             ----------------------------------------------------------------------------
                                                    2000                       1999                          1998
                                             --------------------      ----------------------      ----------------------
                                                        Weighted-                   Weighted-                   Weighted-
                                                        Average                     Average                     Average
                                             Options    Exercise       Options      Exercise       Options      Exercise
Fixed Options                                (000's)     Price         (000's)       Price         (000's)       Price
- -------------                                -------     -----         -------       -----         -------       -----

Outstanding at beginning of period           15,657      $ 6.06          6,651       $ 0.47          7,155       $ 0.45
Granted                                      11,569       23.54          9,405         9.84             --           --
Exercised                                    (2,384)       6.28           (333)        0.74           (504)        0.21
Forfeited                                    (2,544)      13.36            (66)        7.49             --           --
                                             ------                     ------                       -----
Outstanding at end of period                 22,298      $14.27         15,657       $ 6.06          6,651       $ 0.47
                                                                        ======                       =====
Options exercisable at end of Period          8,210      $ 3.06          5,433       $ 0.45          4,473       $ 0.45
                                                                        ======                       =====
Weighted-average fair value of options
     granted during the period                           $31.04                      $ 8.06                      $  --
                                                         ======                      ======                      ======

 
 Years ended December 31,
 
 2002
 2001
 2000
Fixed Options
 Options
(000's)
 Weighted-Average
Exercise Price
 Options
(000's)
 Weighted-Average
Exercise Price
 Options
(000's)
 Weighted-Average
Exercise Price
Outstanding at beginning of period 975 $78.26 2,478 $128.43 1,740 $54.54
Granted 2,123  2.26 330  28.35 1,286  211.86
Exercised (9) 7.50 (653) 6.66 (265) 56.52
Forfeited (618) 56.94 (1,180) 213.66 (283) 120.24
Outstanding at end of period 2,471 $18.49 975 $78.30 2,478 $128.43
Exercisable at end of Period 458 $59.49 418 $74.70 913 $27.54
    
   
   
Weighted-average fair value of options granted during the period   $1.96   $32.04   $279.36
    
   
   
91
        The following table summarizes stock options, granted outside the plan, outstanding as of December 31, 2000:



                                          Outstanding
                       -------------------------------------------------
                                          Weighted-Avg.                            Exercisable
                                           Remaining                        -------------------------
Range of                  Options      Contractual Life    Weighted-Avg.    Options     Weighted-Avg.
Exercise Prices           (000's)          In Years       Exercise Price    (000's)    Exercise Price
- ---------------        ------------    ----------------   --------------   ---------   --------------

$0.09 --  $0.44            4,950             5.16             $ 0.41         4,950         $ 0.41
 0.61 --   7.16            4,352             5.57               4.19         2,115           2.76
 7.22 --  12.97            5,494             8.68              11.36           932          10.65
13.48 --  26.88            5,087             9.28              26.68            78          23.24
28.74 --  50.38            2,415             9.09              41.36           135          40.94
                          ------                                             -----
                          22,298             7.47             $14.27         8,210         $ 3.06
                          ======                                             =====




                                       54
2002:
 
  
  
  
 Exercisable
 
  
 Outstanding
Weighted-Average
Remaining Contractual
Life in Years
  
Range of
Exercise Prices
 Options
(000's)
 Weighted-Average
Exercise Price
 Options
(000's)
 Weighted-Average
Exercise Price
$0.80—$.80 50 3.16 $.80 50 $.80
1.50—1.50 1,773 9.81  1.50 66  1.50
2.55—30.50 255 7.97  12.41 108  18.68
31.93—116.75 334 7.42  74.11 197  77.81
164.25—241.88 48 7.29  240.82 29  240.44
258.66—258.66 1 7.01  258.66 —  258.66
310.50—310.50 5 2.67  310.50 5  310.50
381.94—381.94 4 7.09  381.94 2  381.94
435.98—453.46 1 7.09  435.98 1  435.98
  
 
 
 
 
  2,471 9.10 $18.49 458 $59.49
        During the year ended December 31, 2002 the Company recorded compensation expense of $846,000. This charge was recorded as a result of granting terminated employees continued vesting of their stock options for a period beyond their actual termination date. The compensation charge was calculated using the Black-Scholes model. $739,000 of the charge is recorded in general and administrative expense and the remaining $107,000 is included in restructuring charge as it related to employees terminated under the Company's restructuring plan.
        During the year ended December 31, 2001 the Company recorded compensation expense of $1.0 million. This charge was recorded as a result of granting terminated employees continued vesting of their stock options for a period beyond their actual termination date. The compensation charge was calculated using the Black-Scholes model. $350,000 of the charge is recorded in general and administrative expense and the remaining $664,000 is included in restructuring charge as it related to employees terminated under the Company's restructuring plan.
        During the second quarter of 2001, the Company announced a voluntary stock option exchange program, or Offer, for its employees and directors. Under the program, BroadVision employees and directors had the opportunity, if they so chose, to cancel outstanding "underwater" stock options, which were options that had an exercise price that was higher than the price of the Company's Common Stock on the date that the Offer expired, previously granted to them in exchange for an equal number of new options to be granted at a future date. The Offer remained outstanding until 5:00p.m., Pacific Daylight Time, on May 25, 2001 (the "Expiration Date"). The exercise price of the new options was equal to the fair market value of our common stock on the date of grant, which was November 27, 2001. Acceptance of the Offer required a participant electing to exchange any underwater options to also exchange any other options granted to him or her during the six months before or after the Expiration Date. The exchange program was designed to comply with FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation, and is not expected to result in any additional compensation charges or variable plan accounting. Employees located in Sweden were not eligible for this program. A total of 937 individuals elected to participate in the Offer. These
92

individuals tendered a total of 2.7 (just divided by 9) million options to purchase common stock in return for the Company's promise to grant new options on the grant date of November 27, 2001. A total of 1.1 million options were granted at the fair market value of $35.01 per share, the opening price of the Company's common stock on November 27, 2001, to those employees who had been continuously employed with the Company from the date they tendered their original options through November 27, 2001.
Pro Forma Disclosure
Employee Stock Purchase Plan

      As
        On February 7, 2002, the Board of December 31, 2000,Directors approved an increase by an amount not to exceed 5% of the Company had reserved 9,900,000number of shares outstanding for issuance under the Company's Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan permits eligible employees to purchase common stock equivalent to a percentage of the employee's earnings, not to exceed 15%, at a price equal to 85% of the fair market value of the common stock at dates specified by the Board of Directors as provided in the Plan. Under the Purchase Plan, the Company issued approximately 1,088,000, 1,833,000,555,278, 293,112 and 2,052,000120,889 shares to employees in the years ended December 31, 2000, 19992002, 2001 and 1998,2000, respectively. Under SFAS No. 123, compensation cost is recognized for the fair value of the employees' purchase rights, which was estimated using the Black-Scholes option pricing model with no expected dividends, an expected life of approximately 72 months, and the following weighted-average assumptions:


                                                      Years ended December 31,
                                                     ---------------------------
                                                     2000       1999       1998
                                                     ----       ----       ----

Risk-free interest rate                              4.50%      6.00%      4.48%
Volatility                                            136%        97%       112%

 
 Years ended December 31,
 
 
 2002
 2001
 2000
 
Risk-free interest rate 1.06%1.67%4.50%
Volatility 122%143%136%
        The weighted-average fair value of the purchase rights granted in the years ended December 31, 2002, 2001, and 2000, 1999,was $2.94, $18.00, and 1998, was $12.87, $3.24, and $0.46,$115.83, respectively.
        The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with no expected dividends and the following weighted-average assumptions:

                                                Years ended December 31,
                                          --------------------------------------
                                            2000          1999          1998
                                          ---------     ---------     ---------

Expected life                             4.4 years     4.1 years     3.0 years
Risk-free interest rate                        4.75%         6.55%         4.70%
Volatility                                      136%           97%          112%

 
 Years ended December 31,
 
 
 2002
 2001
 2000
 
Expected life 3.5 years 4.0 years 4.4 years 
Risk-free interest rate 1.93%3.82%4.75%
Volatility 122%143%136%
        Had compensation cost for the Company's stock option plan and stock purchase plan been determined consistent with SFAS No. 123, the Company's reported net income (loss) and net income earnings
93
(loss) per share would have been changed to the amounts indicated below (in thousands except per share data):

                                                   Years ended December 31,
                                         -----------------------------------------
                                             2000           1999           1998
                                         -----------    -----------    -----------

Net income (loss):
  As reported                            $  (161,629)   $    18,809    $     4,039
  Pro forma                              $  (484,587)   $   (25,015)   $    (1,885)
Basic net income (loss) per share:
  As reported                            $     (0.62)   $      0.08    $      0.02
  Pro forma                              $     (1.87)   $     (0.11)   $     (0.01)
Diluted net income (loss) per share:
  As reported                            $     (0.62)   $      0.07    $      0.02
  Pro forma                              $     (1.87)   $     (0.11)   $     (0.01)

 
 Years ended December 31,
 
 
 2002
 2001
 2000
 
Net (loss) income:          
 As reported $(170,522)$(836,259)$(161,629)
 Pro forma $(217,655)$(795,584)$(484,587)
Basic net (loss) earnings per share:          
 As reported $(5.32)$(27.20)$(5.60)
 Pro forma $(6.80)$(25.87)$(16.79)
Diluted net (loss) earnings per share:          
 As reported $(5.32)$(27.20)$(5.60)
 Pro forma $(6.80)$(25.87)$(16.79)
Note 9 -- 11—Employee Benefit Plan
        The Company provides for a defined contribution employee retirement plan in accordance with section 401(k) of the Internal Revenue Code. Eligible employees are entitled to contribute up to 20%50% of their annual compensation, subject to certain limitations ($10,50012,000 for the year ended December 31, 2000)2002).

      Effective January 1, 2000,
        As of August 15, 2001, the Company provided adiscontinued the 50% match for all employee contributions, up to 6% of the employees' annual compensation
subject to certain limitations ($5,100 per employee for the year ended
December 31, 2000). Employees vest in Company matching contributions based on
years of service with the company, 50% upon the employees' first anniversary
and 100% on the second anniversary and thereafter.contributions. The Company contributed $2.2$2.3 million for the year ended December 31, 2000,2001, all of which has been funded or accrued as of December 31, 2000.

                                       55
2001.
Note 10 -- 12—Geographic, Segment and Significant Customer Information
        The Company adoptedoperates in one segment, electronic business commerce solutions. The Company's reportable segment includes the provisions of SFAS No. 131, Disclosure about
Segments of an EnterpriseCompany's facilities in North and Related Information, during 1998. SFAS No. 131
establishes standards forSouth America (Americas), Europe and Asia Pacific and the reporting by public business enterprises of
information about operating segments, products and services, geographic areas,
and major customers. The method for determining what information to report is
based on the way that management organizes the operating segments within the
Company for making operational decisions and assessments of financial
performance.Middle East (Asia/Pacific). The Company's chief operating decision maker is considered to be the Company's CEO. The CEO reviews financial information presented on a consolidated basis accompanied by disaggregated information about revenues by geographic region and by product for purposes of making operating decisions and assessing financial performance. The Company operates in one segment, electronic
business commerce solutions.
        The disaggregated revenue information on a product basis reviewed by the CEO is as follows (in thousands):

                                          Years Ended December 31,
                                    ------------------------------------
                                      2000          1999         1998
                                    ---------     ---------    -------

Software licenses:
  One-To-One Enterprise              $ 18,599      $ 14,569     $ 19,303
  One-To-One Packaged Solutions       232,239        60,814       16,764
Services                              116,928        26,737        9,739
Maintenance                            46,150        13,394        5,105
                                     --------      --------     --------
  Total Company                      $413,916      $115,514     $ 50,911
                                     ========      ========     ========

 
 Years Ended December 31,
 
 2002
 2001
 2000
Software licenses $40,483 $101,480 $250,838
Services  36,763  87,083  118,511
Maintenance  38,652  59,860  46,150
  
 
 
 Total Revenues $115,898 $248,423 $415,499
  
 
 
94
        The Company sells its products and provides services worldwide through a direct sales force and through a channel of independent distributors, value-added resellers ("VARs") and application service providers ("ASPs"). In addition, the sales of the Company's products are promoted through independent professional consulting organizations known as systems integrators. The Company provides services worldwide through its BroadVision Global Services Organization and indirectly through distributors, VARs, ASPs, and systems integrators. The Company currently operates in three primary geographical territories, NASA,
which includes NorthAmericas, Europe and South America, Europe which includes Europe, the Middle
East, Africa and India and Asia/Pacific/Japan ("APJ") which includes the Pacific
Rim and the Far East.Pacific.
        Disaggregated financial information regarding the Company's products and services and geographic revenues is as follows (in thousands):

                                                Years Ended December 31,
                                      ------------------------------------------
                                        2000             1999             1998
                                      --------         --------         --------

Revenues:
  Americas                            $281,331         $ 79,323         $ 29,330
  Europe                               103,611           26,211           16,944
  Asia/Pacific                          28,974            9,980            4,637
                                      --------         --------         --------
  Total Company                       $413,916         $115,514         $ 50,911
                                      ========         ========         ========

                                                           December 31,
                                                  ------------------------------
                                                     2000                1999
                                                  ----------          ----------
Identifiable assets:
  Americas                                        $1,102,343          $  400,858
  Europe                                              33,254               4,122
  Asia/Pacific                                         7,427               1,148
                                                  ----------          ----------
  Total Company                                   $1,143,024          $  406,128
                                                  ==========          ==========
 
 Years Ended December 31,
 
 2002
 2001
 2000
Revenues:         
 Americas $70,125 $150,248 $273,616
 Europe  39,511  75,130  107,542
 Asia/Pacific  6,262  23,045  34,341
  
 
 
 Total Company $115,898 $248,423 $415,499
  
 
 
 
 

December 31,
 
 2002
 2001
Long-lived assets:      
 Americas $84,727 $131,874
 Europe  1,175  3,547
 Asia/Pacific  892  2,425
  
 
 Total Company $86,794 $137,846
  
 
        During the years ended December 31, 2000, 19992002, 2001 and 19982000 no customer accounted for 10% or more of the Company's revenues.
Note 13—Subsequent Events
        In March 2003, the Company renewed and amended its revolving credit facility. The amount available under the revolving line of credit remains unchanged at $25.0 million. Borrowings under the revolving line of credit are collateralized by all of the Company's assets and bear interest at the bank's prime rate (4.25% as of March 1, 2003). At December 31, 2002, $25.0 million was outstanding and is due to expire in February, 2004. Interest is due monthly and principal is due at expiration. The amended and restated loan and security agreement requires the Company to maintain certain levels in cash and cash equivalents, short-term investment and long-term investments (excluding equity investments). Additionally, the amended and restated loan and security agreement requires the Company to maintain certain levels on deposit with the Company's commercial lender and certain quarterly net income (loss) levels.
95

        On July 18, 2002, Avalon Partners, Inc., doing business as Cresa Partners ("Cresa"), filed a suit against the Company in the Superior Court of the State of California, San Mateo County, claiming broker commissions related to the Company's termination and restructuring of certain facilities leases associated with our restructuring plans taken during the second quarter of 2002. The matter was settled by way of a settlement agreement executed by both parties in March 2003 and the parties expect the lawsuit to be dismissed in the second quarter of fiscal 2003.
96


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

      None


                                       56

        On April 8, 2002, we received notice from our independent public accountant Arthur Andersen LLP ("Andersen") of its resignation as our auditor as a result of our plans to change independent public accountants for the fiscal year ending December 31, 2002 due to an anticipated future non-audit business relationship between the two companies.
        The reports of Andersen on our financial statements for the past two fiscal years contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.
        During our two most recent fiscal years, and through April 8, 2002, there were no disagreements with Andersen on any matter of accounting principles or practices, financial statement disclosures or auditing scope or procedures, which disagreements if not resolved to the satisfaction of Andersen would have caused them to make reference thereto in their report.
        During our two most recent fiscal years, except as described below, there were no reportable events (as defined in Regulation S-K Item 304(a)(1)(v)). In a letter dated March 30, 2001, Andersen informed us that they noted certain matters involving our internal controls that they considered to be reportable conditions under standards established by the American Institute of Certified Public Accountants. The reportable conditions related to our purchase requisition processes and invoice processing procedures. Members of our Audit Committee of the Board of Directors discussed this matter with Andersen. We have implemented procedures to address this matter. We have authorized Andersen to respond fully to the inquiries of the successor accountant concerning this matter.
        On May 7, 2002, we engaged the services of BDO Seidman, LLP as our new independent auditors for our fiscal year ended December 31, 2002. Our Board of Directors, with the recommendation of the Audit Committee of the Board of Directors, authorized and approved the engagement of BDO Seidman. In deciding to select BDO Seidman, the Audit Committee and our management considered auditor independence issues raised by commercial relationships we have or may have with certain accounting firms. With respect to BDO Seidman, we do not have any commercial relationship with BDO Seidman that would impair its independence. During our two most recent fiscal years ended December 31, 2001, and the subsequent interim period through May 7, 2002, we did not consult with BDO Seidman regarding any of the matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.

PART III
        Certain information required by Part III is incorporated by reference in this Report from the Company's definitive proxy statement for its 20012003 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A (the "Proxy Statement").

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

                        DIRECTORS AND EXECUTIVE OFFICERS

     OUR DIRECTORS AND EXECUTIVE OFFICERS AND THEIR AGES AS OF APRIL 1, 2001 ARE
AS FOLLOWS:



NAME                                                             Age                          Position
- ----                                                             ---        --------------------------------------

Pehong Chen..........................................            43         Chief Executive Officer, President and
                                                                            Chairman of the Board
David L. Anderson (3)................................            57         Director
Yogen K. Dalal (1)(2)................................            50         Director
Todd A. Garrett......................................            59         Director
Koh Boon Hwee (3)....................................            50         Director
Klaus Luft...........................................            59         Director
Carl Pascarella......................................            58         Director
Randall C. Bolten....................................            48         Chief Financial Officer and Executive Vice
                                                                            President, Operations
Chris Grejtak (4)....................................            52         Executive Vice President, Marketing and
                                                                            Business Development, and Chief Marketing
                                                                            Officer
Nancy Mills-Turner (5)...............................            48         Executive Vice President and General
                                                                            Manager, Worldwide Products and Services
                                                                            Organization
James Thanos (5).....................................            52         Executive Vice President and General
                                                                            Manager, Worldwide Field Organization




(1)  Dr. Dalal
        Other than the identification of executive officers, which is not standing for re-election of the Board of Directorsset forth in 2001.
(2)  Members of the Audit Committee - Upon the expiration of Dr. Dalal's term as
     a director, he will no longer serve on the Audit Committee.
(3)  Members of the Compensation Committee.
(4)  Became an executive officer in 2001.
(5)  Became an executive officer in 2000.

Set forth below is biographical information for members of the Board of
Directors whose biography information is not provided in Item 1. SeePart I, Item 1 forhereof, the biographical information of the executive officers.

DAVID L. ANDERSON has served as a director of the Company since November 1993.
Since 1974, Mr. Anderson has been a managing director of Sutter Hill Ventures, a
venture capital investment firm. Mr. Anderson currently serves on the Board of
Directors of Cytel Corporation, Dionex Corporation, and Molecular Devices
Corporation. He holds a B.S. in Electrical Engineering from the Massachusetts
Institute of Technology and an M.B.A. from Harvard University.

YOGEN K. DALAL has served as a director of the Company since November 1993. He
joined Mayfield Fund ("Mayfield"), a venture capital firm, in September 1991 and
has been a general partner of several venture capital funds affiliated with
Mayfield since November 1992. Dr. Dalal holds a B.S. in Electrical Engineering
from the India Institute of Technology, Bombay, and an M.S. and a Ph.D. in
Electrical Engineering and Computer Science from Stanford University. Dr. Dalal
sits on the boards of directors of Nuance Communications, Inc. and TIBCO
Software, Inc.

TODD A. GARRETT has served as director of the Company since January 1999. Mr.
Garrettrequired by this Item is currently a private consultant. In 1999, Mr. Garrett retired from
Procter & Gamble Company where he held various key executive positions within
the company since joining it in 1985. These positions included: Vice President,
Asia/Pacific; Vice President, US Beauty Care; Group President, President of
Worldwide Strategic Planning, Beauty Care Products and Senior Vice President. In
October 1996, he was appointedincorporated by reference to the post of Chief Information Officer. Mr.
Garrett holds a B.A. from the University of Rochester and an M.B.A. from Xavier
University.

                                       57



KOH BOON HWEE has served as a director of the Company since February 1996. Since
1991, Mr. Koh has been Executive Chairman of the Wuthelam Group of Companies, a
diversified Singapore company with subsidiaries engaged in, among other things,
real estate development, hotel management and high technology. Since 1992, he
has also served as Chairman of the Board of Singapore Telecommunications, Ltd.
Mr. Koh currently serves on the Board of Directors of Excel Machine Tools Ltd.,
Raffles Medical Group Ltd. and Qad Inc. Mr. Koh holds a B.S. in Mechanical
Engineering from the University of London and an M.B.A. from Harvard University.

KLAUS LUFT has served as a director of the Company since February 2000. Mr. Luft
is the founder, owner and President of MATCH (Market Access for Technology
Services GmbH), a private company in Munich, Germany that provides sales and
marketing services to high technology companies. He is also the founder and
Chairman of the supervisory board of Artedona AG, a privately held e-commerce
company established in 1999 and headquartered in Munich. Since August 1990, Mr.
Luft has served as Vice Chairman and International Advisor to Goldman Sachs
Europe Limited. He also serves on the Board of Directors of Dell Computer
Corporation and Sagent Technology Inc. Mr. Luft is a member of the International
Advisory Board of the Business School of International University of Germany.
Mr. Luft received his German Arbitur in Bruchsal, Germany.

CARL PASCARELLA has served as a director of the Company since September 1997.
Since August 1993, Mr. Pascarella has been President and Chief Executive Officer
of Visa USA. From January 1983 to August 1993, he was Assistant Chief General
Manager of the Asia-Pacific region of Visa USA. Before joining Visa USA, Mr.
Pascarella was Vice President of the International Division of Crocker National
Bank. He also served as Vice President of Metropolitan Bank at BankersTrust
Company. Mr. Pascarella holds a B.A. from the University of Buffalo and an
M.B.A. from Harvard University.

Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION
        The information required by this Item is incorporated by reference fromto the sections entitled "Executive Compensation" in the Proxy Statement.
97


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference fromto the section entitled "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
        The information required by this Item is incorporated by reference fromto the sections entitled "Executive Compensation" and "Certain Transactions" in the Proxy Statement.


                                       58


ITEM 14. CONTROLS AND PROCEDURES
        (a)  Based on his evaluation of our disclosure controls and procedures conducted within 90 days of the date of filing this report on Form 10-K, our Chief Executive Officer, who is also acting in the capacity of chief financial officer, has concluded that our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) promulgated under the Securities Exchange Act of 1934) are effective.
        (b)  There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced in paragraph (a) above.
Limitations on the Effectiveness of Controls
        The Company's management, including the Chief Executive Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART IV

ITEM 14.15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
        (a)  The following documents are filed as a part of this Report.
    1.
    Consolidated Financial Statements.Statements. The following Consolidated Financial Statements of the Company are included at Part II, Item 8, of this Annual Report on Form 10-K.
      Reports of Independent Auditors' Report
      Public Accountants
      Consolidated Balance Sheets as of December 31, 20002002 and 1999
      2001
98

      Consolidated Statements of Operations for each of the years in the three-year period ended December 31, 2000.
      2002.
      Consolidated Statements of Stockholders' Equity for each of the years in the three-year period ended December 31, 2000.
      2002.
      Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2000.
      2002.
      Notes to Consolidated Financial Statements
    2.
    Financial Statement Schedule.Schedule. Attached to this Annual Report on Form 10-K.
      Report on Financial Statement Schedule and Consent of Independent
            Auditors
            
      Schedule II -- II—Valuation and Qualifying Accounts
    3.    Exhibits.
    Exhibits. The exhibits listed on the accompanying Index to Exhibits immediately following the consolidated financial statement schedule are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K.
        (b)  Reports on Form 8-K.

      1.    On January 31, 2000 we filed a Current Report on Form 8-K (File No.
            0-28252) as notice of our definitive agreement to acquire Interleaf,
            Inc. ("Interleaf") in a stock-for-stock transaction announced on
            January 26, 2000.
      2.    On March 1, 2000 we filed a Current Report on Form 8-K (File No.
            0-28252) as notice that the Company effected a three-for-one stock
            split in the form of a two-for-one stock dividend on October 11,
            1999.
      3.    On May 1, 2000 we filed a Current Report on Form 8-K (File No.
            0-28252) as notice that the Company completed an acquisition of
            Interleaf, Inc. ("Interleaf") in a stock-for-stock transaction.


                                       59

99


SIGNATURES
        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in Redwood City, State of California, on this 30th31st day of March 2001.

                                        BroadVision, Inc.


                                        By: /s/ Pehong Chen
                                           -------------------------------------
                                           2003.
BROADVISION, INC.



By:
/s/  PEHONG CHEN      
Pehong Chen
Chairman of the Board, President
                                           And Chief Executive Officer and President

POWER OF ATTORNEY
        KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Pehong Chen and Randall C. Bolten his
attorney-in-fact, with the power of substitution, for him in any and all
capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that the said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
        Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
          ---------                                -----                         ----

/s/ 





/s/  PEHONG CHEN      
Pehong Chen		Chairman of the Board, President   March 30, 2001
- -----------------------------------      and Chief Executive Officer Pehong Chenand President (Principal Executive Officer)


/s/ Randall C. BoltenMarch 31, 2003

/s/  DAVID L. ANDERSON      
David L. Anderson

Director

March 31, 2003

/s/  TODD A. GARRETT      
Todd A. Garrett

Director

March 31, 2003

/s/  KOH BOON HWEE      
Koh Boon Hwee

Director

March 31, 2003

/s/  JAMES D. DIXON      
James D. Dixon

Director

March 31, 2003

/s/  CARL PASCARELLA      
Carl Pascarella

Director

March 31, 2003
100

CERTIFICATIONS
        I, Pehong Chen, certify that:
            1.    I have reviewed this annual report on Form 10-K of BroadVision, Inc.;
            2.    Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
            3.    Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
            4.    The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
              a)    Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
              b)    Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
              c)    Presented in this annual report my conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
            5.    The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
              a)    All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
              b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
            6.    The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date:March 31, 2003
/s/  PEHONG CHEN      
Pehong Chen
Chief Executive Vice President,           Officer
101
        I, Pehong Chen, certify that:
            1.    I have reviewed this annual report on Form 10-K of BroadVision, Inc.;
            2.    Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
            3.    Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
            4.    The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
              a)    Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
              b)    Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
              c)    Presented in this annual report my conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
            5.    The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
              a)    All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
              b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
            6.    The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date:March 30, 2001
- -----------------------------------      Operations,31, 2003
/s/  PEHONG CHEN      
Pehong Chen
Acting Chief Financial Randall C. Bolten                        Officer (Principal Financial
                                         and Accounting Officer)


/s/ David L. Anderson                            Director                   March 30, 2001
- -----------------------------------
David L. Anderson

/s/ Yogen K. Dalal                               Director                   March 30, 2001
- -----------------------------------
Yogen K. Dalal

/s/ Todd A. Garrett                              Director                   March 30, 2001
- -----------------------------------
Todd A. Garrett

/s/ Koh Boon Hwee                                Director                   March 30, 2001
- -----------------------------------
Koh Boon Hwee

/s/ Klaus Luft                                   Director                   March 30, 2001
- -----------------------------------
Klaus Luft

/s/ Carl Pascarella                              Director                   March 30, 2001
- -----------------------------------
Carl Pascarella




                                       60

102

REPORT ON FINANCIAL STATEMENT SCHEDULE
OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
        The audit referred to in our report dated January 24, 2003, except for Note 13 and the penultimate paragraph of Note 6, as to which the date is March 28, 2003, relating to the consolidated financial statements of BroadVision, Inc., which is contained in Item 8 of this Form 10-K, included the audit of the financial statement schedule listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based upon our audit. The financial statement schedule of BroadVision, Inc. as of December 31, 2001 and 2000 and for the two years then ended were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on this financial statement schedule, when considered in relation to the basic financial statements taken as a whole, in their report dated March 29, 2002.
        In our opinion, the financial statement schedule as of and for the year ended December 31, 2002, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
                        /s/ BDO Seidman, LLP
San Jose, California
January 24, 2003, except for Note 13
and the penultimate paragraph of Note 6,
as to which the date is March 28, 2003
103
THIS IS A COPY OF THE REPORT PREVIOUSLY ISSUED IN CONNECTION WITH BROADVISION, INC.'S 2001 REPORT ON FORM 10-K AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP.

REPORT ON FINANCIAL STATEMENT SCHEDULE
OF INDEPENDENT PUBLIC ACCOUNTANTS

The
To the Board of Directors and Stockholders of BroadVision, Inc.: and Subsidiaries:
        We have audited in accordance with auditing standards generally accepted in the United States of America, the consolidated financial statements of BroadVision, Inc. and subsidiaries included in this annual report on Form 10-K for the years ended December 31, 2000 and 1999 and have issued our report thereon dated March 30, 2001.January 23, 2002. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule, Schedule II, is the responsibility of the Company's management, is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
                        /s/ ARTHUR ANDERSEN LLP
San Jose, California
March 30, 2001


                                       61
29, 2002
104

BROADVISION, INC. AND SUBSIDIARIES
SCHEDULE II -- II—VALUATION AND QUALIFYING ACCOUNTS

                                 (in
(in thousands)

                                 Balance at    Charged to
                                Beginning of   Costs and                      Balance at
                                   Period       Expenses   Deductions (1)   End of Period
                                ------------   ----------  --------------   -------------

Year Ended December 31, 2000      $1,446        $2,687        $  118             $4,015
                                  ======        ======        ======             ======

Year Ended December 31, 1999      $  788        $  758        $  100             $1,446
                                  ======        ======        ======             ======

Year Ended December 31, 1998      $  671        $  458        $  341             $  788
                                  ======        ======        ======             ======


 
 Balance at
Beginning of
Period
 Charged to
Costs and
Expenses
 Deductions (1)
 Balance at End of
Period
Allowance for doubtful accounts and reserves:            
Year Ended December 31, 2002 $8,194 $3,979 $6,671 $5,502
  
 
 
 
Year Ended December 31, 2001 $4,015 $8,298 $4,119 $8,194
  
 
 
 
Year Ended December 31, 2000 $1,446 $2,687 $118 $4,015
  
 
 
 
(1)
Represents net charge-offs of specific receivables.


                                       62

105

BROADVISION, INC. ANNUAL REPORT ON FORM 10-K DECEMBER 31, 2000

                                2001

INDEX TO EXHIBITS

Exhibit    Description
- -------    -----------

3.1(1)     Amended and Restated Certificate of Incorporation.
3.2(6)     Certificate of Amendment of Certificate of Incorporation, dated June
           28, 2000.
3.3(1)     Amended and restated Bylaws.
4.1(1)     References are hereby made to Exhibits 3.1 to 3.2.
4.3(1)     Second Amended and Restated Investor's Rights Agreement dated April
           15, 1997 among the Company and certain of its stockholders.
10.1(1)(a) Form of Indemnity Agreement between the Company and each of its
           directors.
10.2(6)(a) Equity Incentive Plan as amended February 8, 2000 (the "Equity
           Incentive Plan").
10.3(1)(a) Form of Incentive Stock Option under the Equity Incentive Plan.
10.4(1)(a) Form of Nonstatutory Stock Option under the Equity Incentive Plan.
10.5(1)(a) Form of Nonstatutory Stock Option (Performance-Based).
10.6(1)(a) 1997 Employee Stock Purchase Plan (the "Employee Stock Purchase
           Plan").
10.7(1)(a) Employee Stock Purchase Plan Offering (Initial Offering).
10.8(1)(a) Employee Stock Purchase Plan Offering (Subsequent Offering).
10.9(1)(b) Terms and Conditions dated January 1, 1997 between IONA Technologies
           LTD and the Company.
10.10(1)   Series D Preferred Stock Option Agreement dated February 27, 1997
           between the Company and Pehong Chen.
10.11(1)(a) Stock Option Plan.
10.12(1)(a) Form of Incentive Stock Option under the Stock Option Plan.
10.13(1)(a) Form of Nonstatutory Stock Option under the Stock Option Plan.
10.14(1)   Lease dated February 5, 1997 between the Company and Martin/Campus
           Associates, L.P.
10.15(2)   Loan and Security, dated July 2, 1997, between Silicon Valley Bank
           and the Company.
10.16(3)   First Amendment to Loan and Security Agreement, dated as of February
           5, 1998 between the Company and Silicon Valley Bank.
10.17(4)   Agreement and Plan of Merger and Reorganization dated January 26,
           2000 among the Company, Infiniti Acquisition Sub, Inc. and Interleaf,
           Inc.
10.18(5)   Triple Net Building Lease dated April 12, 2000 between Pacific Shores
           Development LLC, as Lessor, and BroadVision, Inc., as Lessee, for
           Premises at Pacific Shores Center, Building 4, Redwood City,
           California.
10.19(5)   Triple Net Building Lease dated February 16, 2000 between Pacific
           Shores Development LLC, as Lessor, and BroadVision, Inc., as Lessee,
           for Premises at Pacific Shores Center, Building 5, Redwood City,
           California.
10.20(5)   Triple Net Building Lease dated April 12, 2000 between Pacific Shores
           Development LLC, as Lessor, and BroadVision, Inc., as Lessee, for
           Premises at Pacific Shores Center, Building 6, Redwood City,
           California.
10.21(5)(a) 2000 Non-Officer Incentive Plan
10.22(6)   Building Lease dated March 21, 2000 between VEF III Funding LLC, as
           Landlord, and Interleaf, Inc., as Tenant, for premises located at 400
           Fifth Avenue, Waltham, Massachusetts.
10.23(6)   Amendment, dated April 26, 2000, of lease dated March 21, 2000
           between VEF III Funding LLC, as Landlord, and Interleaf, Inc., as
           Tenant, for premises located at 400 Fifth Avenue, Waltham,
           Massachusetts
21.1       Subsidiaries of the Company.
23.1       Report on Financial Statement Schedule and Consent of KPMG LLP,
           Independent Auditors.
23.2       Consent of Arthur Andersen LLP.
24.1       Power of Attorney.
           (See page 60)



Exhibit
Description
3.1(1)Amended and Restated Certificate of Incorporation.

3.2(13)

Certificate of Amendment of Certificate of Incorporation.

3.3(1)

Amended and restated Bylaws.

4.1(1)

References are hereby made to Exhibits 3.1 to 3.2.

4.3(1)

Second Amended and Restated Investor's Rights Agreement dated April 15, 1996 among the Company and certain of its stockholders.

10.1(16)(a)

Equity Incentive Plan as amended May 1, 2002 (the "Equity Incentive Plan").

10.2(1)(a)

Form of Incentive Stock Option under the Equity Incentive Plan.

10.3(1)(a)

Form of Nonstatutory Stock Option under the Equity Incentive Plan.

10.4(1)(a)

Form of Nonstatutory Stock Option (Performance-Based).

10.5(16)(a)

1996 Employee Stock Purchase Plan as amended May 1, 2002 (the "Employee Stock Purchase Plan").

10.6(1)(a)

Employee Stock Purchase Plan Offering (Initial Offering).

10.7(1)(a)

Employee Stock Purchase Plan Offering (Subsequent Offering).

10.8(1)(b)

Terms and Conditions dated January 1, 1995 between IONA Technologies LTD and the Company.

10.9(1)

Series D Preferred Stock Option Agreement dated February 27, 1996 between the Company and Pehong Chen.

10.10(1)(a)

Stock Option Plan.

10.11(1)(a)

Form of Incentive Stock Option under the Stock Option Plan.

10.12(1)(a)

Form of Nonstatutory Stock Option under the Stock Option Plan.

10.13(2)

Lease dated February 5, 1997 between the Company and Martin/Campus Associates, L.P.

10.14(3)

Loan and Security Agreement dated July 2, 1997 between the Company and Silicon Valley Bank.

10.15(4)

First Amendment to Loan and Security Agreement dated February 5, 1998 between the Company and Silicon Valley Bank.

10.16(5)

Agreement and Plan of Merger and Reorganization dated January 26, 2000 among the Company, Infiniti Acquisition Sub, Inc. and Interleaf, Inc.

10.17(6)

Triple Net Building Lease dated April 12, 2000 between Pacific Shores Development LLC, as Lessor, and the Company, as Lessee, for Premises at Pacific Shores Center, Building 4, Redwood City, California.

10.18(6)

Triple Net Building Lease dated February 15, 2000 between Pacific Shores Development LLC, as Lessor, and the Company, as Lessee, for Premises at Pacific Shores Center, Building 5, Redwood City, California.



106

10.19(6)

Triple Net Building Lease dated February 15, 2000 between Pacific Shores Development LLC, as Lessor, and the Company, as Lessee, for Premises at Pacific Shores Center, Building 6, Redwood City, California.

10.20(7)(a)

2000 Non-Officer Incentive Plan.

10.21(8)

Lease dated March 21, 2000 between VEF III Funding LLC, as Landlord, and Interleaf, Inc., as Tenant, for premises located at 400 Fifth Avenue, Waltham, Massachusetts.

10.22(8)

Amendment of Lease dated April 26, 2000 between VEF III Funding LLC, as Landlord, and Interleaf, Inc., as Tenant, for premises located at 400 Fifth Avenue, Waltham, Massachusetts.

10.23(9)(b)

Independent Software Vendor Agreement dated June 30, 1998 between the Company and IONA Technologies, PLC, as amended.

10.24(10)

Fourth Loan Modification Agreement dated August 3, 2001 between the Company and Silicon Valley Bank.

10.25(11)

Loan Modification Agreement dated November 1, 2001 between the Company and Silicon Valley Bank.

10.26(11)(a)

Offer Letter dated October 19, 2001 between the Company and Francis Barton.

10.27(12)

Amended and Restated Loan and Security Agreement dated March 31, 2002 between the Company and Silicon Valley Bank.

10.28(14)

Agreement to Resolve Certain Tenant Improvement Disputes with Respect to B-4, B-5 & B-6 dated January 8, 2002 between the Company and Pacific Shores Development LLC.

10.29(14)

First Amendment to Lease (Building 4 and 5—1700 and 1800 Seaport Boulevard) (Lease Termination and Mutual General Release Agreement) dated May 9, 2002 between the Company and Pacific Shores Development LLC.

10.30(14)

First Amendment to Lease (Building 6—1600 Seaport Boulevard) dated May 9, 2002 between the Company and Pacific Shores Development LLC.

10.31(14)

Offer Letter dated May 14, 2002 between the Company and Andrew Nash.

10.32(15)

Offer Letter dated September 3, 2002 between the Company and Philip L. Oreste.

10.33(15)

Form of Indemnity Agreement between the Company and each of its directors and executive officers.

21.1

Subsidiaries of the Company.

23.2

Consent of BDO Seidman, LLP.

24.1

Power of Attorney, pursuant to which amendments to this Annual Report on 10-K may be filed, is included on the signature pages hereto.

99.1

CEO and Acting CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.§ 1350, as adopted)
(1)
Incorporated by reference to the Company's ProxyRegistration Statement on Form S-1 filed on September 13, 1999.

April 19, 1996 as amended by Amendment No. 1 filed on May 9, 1996, Amendment No. 2 filed on May 29, 1996 and Amendment No. 3 filed on June 17, 1996.
107
(2)
Incorporated by reference to the Company's Form 10-K for the fiscal year ended December 31, 1996 filed on March 31, 1997 (SEC File No. 000-28252).

(3)
Incorporated by reference to the Company's Form 10-Q for the quarter ended SeptemberJune 30, 1997 filed on November 12, 1997.


                                       63


(3)   August 14, 1997 (SEC File No. 000-28252).

(4)
Incorporated by reference to the Company's Registration Statement on Form S-3 filed on March 4, 1998.

(4)   1998 (SEC File No. 333-47339).

(5)
Incorporated by reference to the Company's Registration Statement on Form S-4 filed on March 6, 2000.

(5)   

(6)
Incorporated by reference to the Company's Form 10-Q for the quarter ended March 31, 2000 filed on May 15, 2000.

(6)   

(7)
Incorporated by reference to the Company's Registration Statement on Form S-8 filed on April 19, 2000.

(8)
Incorporated by reference to the Company's Form 10-Q for the quarter ended June 30, 2000 filed on August 14, 2000.

(9)
Incorporated by reference to the Company's Form 10-Q for the quarter ended June 30, 2001 filed on August 14, 2001.

(10)
Incorporated by reference to the Company's Form 10-Q for the quarter ended September 30, 2001 filed on November 14, 2001.

(11)
Incorporated by reference to the Company's Form 10-K for the fiscal year ended December 31, 2001 filed on April 1, 2002.

(12)
Incorporated by reference to the Company's Form 10-Q for the quarter ended March 31, 2002 filed on May 16, 2002.

(13)
Incorporated by reference to the Company's Proxy Statement filed on May 14, 2002.

(14)
Incorporated by reference to the Company's Form 10-Q for the quarter ended June 30, 2002 filed on August 14, 2002.

(15)
Incorporated by reference to the Company's Form 10-Q for the quarter ended September 30, 2002 filed on November 14, 2002.

(16)
Incorporated by reference to the Company's Registration Statement on Form S-8 filed on August 1, 2002.

(a)
Represents a management contract or compensatory plan or arrangement.

(b)
Confidential treatment requested.


                                       64

108



QuickLinks

BROADVISION, INC. ANNUAL REPORT ON FORM 10-K YEAR ENDED DECEMBER 31, 2002
TABLE OF CONTENTS
PART I.
PART II
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BROADVISION, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts)
BROADVISION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
BROADVISION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands)
BROADVISION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued) (in thousands)
BROADVISION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
BROADVISION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (in thousands)
BROADVISION, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2002
PART III
PART IV
SIGNATURES
POWER OF ATTORNEY
CERTIFICATIONS
REPORT ON FINANCIAL STATEMENT SCHEDULE OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
REPORT ON FINANCIAL STATEMENT SCHEDULE OF INDEPENDENT PUBLIC ACCOUNTANTS
BROADVISION, INC. AND SUBSIDIARIES SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS (in thousands)
BROADVISION, INC. ANNUAL REPORT ON FORM 10-K DECEMBER 31, 2001 INDEX TO EXHIBITS