UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM 10-Q

For the Quarter ended September 30, 2002

OR

0-28252
(Commission File Number)

BROADVISION, INC.

(Exact name of registrant as specified in its charter)

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes  o No  ý

As of  NovemberMay 7, 2002,2003, there were 32,258,46732,723,949 shares of the Registrant’s Common Stock issued and outstanding.

BROADVISION, INC. AND SUBSIDIARIES
FORM 10-Q
Quarter Ended March 31, 2003

FORM 10-Q

Quarter Ended September 30, 2002

TABLE OF CONTENTS

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PART I.  FINANCIAL INFORMATION  FINANCIAL INFORMATION

Item 1.    Financial Statements           Financial Statements

BROADVISION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETSSHEETS
(In thousands, except per share data)

See Accompanying Notes to Condensed Consolidated Financial Statements

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BROADVISION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(In thousands, except per share amounts; Unaudited)unaudited)

See Accompanying Notes to Condensed Consolidated Financial Statements

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BROADVISION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)thousands; unaudited)

See Accompanying Notes to Condensed Consolidated Financial Statements

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BROADVISION, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1.   Organization and Summary of Significant Accounting Policies

Nature of Business

BroadVision (collectively with its subsidiaries, the “Company”) develops, markets and sells a comprehensive suite ofsupports enterprise business portal applications and technology that enable companies to manageunify their e-business infrastructure and conduct both interactions with, conductand transactions with employees, partners, and provide services to employees, customers and vendors inthrough a personalized self-service model that increases revenues, reduces costs, and collaborative self-service model.  BroadVision’s enterprise business portal applications 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.improves productivity. As of September 30, 2002,March 31 2003, more than 1,200 companies and government entities around the globe use the Company’s applications to enablefacilitate their portal-based commerce and information access 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 first to offer pre-integrated, packaged applications to power enterprise self-service initiatives. They are leveraging web and wireless technology in conjunction with BroadVision softwarebusiness portals.

BroadVision’s enterprise portal applications allow organizations to unify and extend their legacykey business applications, information, and business processes by taking advantage of the power of the web and new wireless and mobile devices to better serve their employees,allow customers, partners, and customersemployees to do business on their own terms, in a personalized and collaborative way.

Business managers are able  BroadVision solutions allow multiple constituents to modifyserve themselves from anywhere, at anytime, through any web device.  BroadVision enterprise portal applications enable organizations to create business rulesvalue by transforming the way they do business; moving business interactions and content in real time, offeringtransactions from a manual, human-assisted paradigm to an automated, personalized experience to each visitor. Because of BroadVision’s fundamental beliefself-service model that enhances growth, reduces costs and adherence to standards-based development and open architecture design, the Company’s applications are easily integrated with BroadVision’s customers’ existing systems and easily expanded as these customers’ needs and businesses grow.improves productivity.

The Company believes its products enhanceimprove its customers’ revenue opportunities for customers by enabling them to establish more effective and efficient “one-to-one”one-to-one relationships between an enterprise and its employees,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.  BroadVision’sThe Company’s 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,Because the Company provides pre-integrated, packaged solution nature of the Company’s products decreases its customers’solutions, time to deployment is shorter and allows themcustomers are able to easily manage and expandmaintain their web and wireless application usageapplications in a cost-effective manner. Because of the Company’s commitment to open standards and open architecture, BroadVision applications integrate with its customers’ existing systems and expand as its customers’ needs and businesses grow.

AsSupporting this application infrastructure, as of September 30, 2002,March 31, 2003, are more than 100 partner firms around the Company had developed key strategic business alliances with over 75 system integration, design, consulting and other services organizations throughout the world.  The Company’s  platform alliancesworld who are partnerships formedworking to integrate technologies to drive business growth.  Additionally, the Company has developed key technology partnerships with leading web- and wireless-focused companies in areas complementary to its solutions, such as data analysis and reporting, enterprise application integration, enterprise web management, payment processing and Extensible Markup Language.  These technology partnerships enhanceensure the Company’s ability to base products on industry standardsjoint customers’ success through complementary technology, applications, tools and to take advantage of currentservices offerings that extend and emerging technologies.enhance BroadVision customers’ implementations.

The Company sellsBroadVision markets its products and services worldwide through a direct sales force and independent distributors, value-added resellers (“VARs”) and application service providers (“ASPs”). In addition, its sales are promoted through independent professional consulting organizations, known as systems integrators. The Company has operations in North America, South America, Europe, and Asia/Pacific.

BroadVision Global Services (“BVGS”) organization provides a full spectrum of global services to help ensure success for businesses, including consultingstrategic services, implementation services, migration services and ongoing training and maintenance.  The BVGS organization consists of business, content and technical consultants with extensive experience in the design of online businesses and in the implementation of enterprise self-service applications.

There has been a general downturn in the economy since the beginning of 2001.  This downturn is likely to continue in the future and has and could continue to have an impact on the Company’s future financial results.  Comparisons of financial performance made in this document are not necessarily indicative of future performance.  The Company announced a corporate-wide reorganization and reduction in force and incurred a charge in fiscal 2001 of $153.3 million and during the nine months ended September 30, 2002 of $103.2 million, related to these actions and to consolidation of the Company’s facilities.  Please see Note 7 of Notes to Condensed Consolidated Financial Statements.

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Basis of Presentation and Use of Estimates

The accompanying consolidated financial statements include the accounts of the Company and its wholly-ownedwholly owned subsidiaries. All significant intercompany 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

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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.  The financial results and related information as of September 30, 2002March 31, 2003 and for the three and nine months ended September 30,March 31, 2003 and 2002 and 2001 are unaudited. The consolidated balance sheet at December 31, 20012002 has been derived from the audited consolidated financial statements as of that date but does not necessarily reflect all of the informational disclosures previously reported in accordance with accounting principles generally accepted in the United States of America.

The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included with the Company’s Form 10-K and other documents that have been filed with the Securities and Exchange Commission.Commission (“SEC”). The results of the Company’s operations for the interim periods presented are not necessarily indicative of operating results for the full fiscal year or any future periods.

Reclassifications— Certain prior period balances have been reclassified to conform to the current period presentation.

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 CPUsCentral 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; SOP No. 98-9, Software Revenue Recognition, With Respect to Certain 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. 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 ratably over the 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, maintenance, consulting services or customer training. The determination of fair value is based on objective evidence, which is specific to the Company. The Company limits its assessment of objective evidence for 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 yet sold separately. If evidence of fair value of all

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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 license agreements when cash has been received from the customer and the agreement does not qualify for revenue recognition under the Company’s revenue recognition

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policy. The Company records accounts receivable for software license agreements when the agreement 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 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 accordance with Financial Accounting Standards Board (“FASB”) Topic D-103, which the Company adopted as of January 1, 2002, the Company 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 services.  The Company’s results of operations for the three and nine months ended September 30, 2001 have been reclassified for comparable purposes in accordance with Topic D-103.  The effect of this reclassification was to increase services revenues and increase cost of services for the three and nine months ended September 30, 2001 by $1.0 million and $3.2 million, respectively.

Stock Split

On July 24, 2002, the Company announced that its Board of Directors had approved a one-for-nine reverse split of the Company’s 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.  The accompanying consolidated financial statements and related financial information contained herein have been retroactively restated to give effect for the July 2002this stock split.

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 on such date. Pursuant to Statement of Financial Accounting Standards (“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.

The Company applies APB Opinion Number 25, Accounting for Stock Issued to Employees, and related interpretations when accounting for its stock option and stock purchase plans. In accordance with APB No. 25, the Company applies the intrinsic value method in accounting for employee stock options. Accordingly, the Company generally recognizes no compensation expense with respect to stock-based awards to employees.

During the three months ended March 31, 2003, the Company recorded compensation expense of $49,000. This charge was recorded as a result of granting a third-party consultant common stock in the Company.  The charge was calculated based upon the market value of the underlying stock.  During the three months ended March 31, 2002, the Company recorded compensation expense of $608,000.  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.

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. 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):

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Net Earnings (Loss) Per Share

Statement of Financial Accounting Standard (“SFAS”)SFAS No. 128, Earnings Per Share, requires the presentation of basic and diluted earnings per share. Earnings per share are calculated by dividing net income available to common stockholders by a weighted average number of shares outstanding for the period. Basic earnings per share are determined solely on common shares whereas diluted earnings per share include common equivalent shares, as determined under the treasury stock method.

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The following table sets forth basic and diluted earnings per share computational data for the periods presented (in thousands, except per share amounts, unaudited):

31,937 and 266,844For the three months ended March 31, 2002, 455,000 potential common shares are excluded from the determination of diluted net loss per share for the three months and nine months ended September 30, 2002, respectively, as the effect of such shares is anti-dilutive.  751,826 and 1,369,790 potential common shares are excluded from the determination of diluted net loss per share for the three and nine months ended September 30, 2001, respectively, as the effect of such shares is anti-dilutive.

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Allowances and Reserves

Occasionally, the Company’s customers experience financial difficulty after the Company records the salerevenue 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.  The Company records estimated reductions to revenue for potential returns of products by its customers.  If market conditions were to decline, the Company may experience larger volumes of returns resulting in an incremental reduction of revenue at the time the return occurs.required

Restructuring

Based on the downturn in the economy,The Company has approved certain restructuring plans to, among other things, reduce its workforce and consolidate facilities. These restructuring charges were taken to align the Company’s industry and its business, the Company has recorded restructuring charges to align its cost structure with these changing market conditions and to create a more efficient organization. ToThe Company’s restructuring charges are comprised primarily of: (i) severance and benefits termination costs related to the extent actual eventsreduction of the Company’s workforce; (ii) lease termination costs and/or costs associated with permanently vacating its facilities; (iii) other incremental costs incurred as a direct result of the restructuring plan; and circumstances,(iv) 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) for exit or disposal activities initiated prior to December 31, 2002. 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 severance and benefits termination costs for exit or disposal activities initiated after December 31, 2002 in accordance with SFAS No. 146, Accounting for Costs Associated with Exit Activities.  SFAS No. 146 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.

The Company accounts for the costs associated with lease termination and/or abandonment in accordance with EITF 88-10, Costs Associated with Lease Modification or Termination. 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 amountsum 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 No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, 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 March 31, 2003, the Company reduced its lease obligations by estimated sublease income of $30.3 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

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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 estimates made whenamounts currently expected. The Company will review the status of restructuring charges are recorded, the Company may increase or decrease incomeactivities on a quarterly basis and, if appropriate, record changes to its restructuring obligations in the period when such changes are noted.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.

Foreign Currency Transactions

The functional currency of the Company’s foreign subsidiaries is the U.S. dollar. Foreign exchange gains and losses resulting from the remeasurement of foreign currency assets and liabilities are included in other income (expense), net in the Condensed Consolidated Statements of Operations.

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Valuation of Long-Lived Assets

The Company periodically assesses the impairment of long-lived assets in accordance with the provisions of SFAS No. 121,144, Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to be Disposed of. The Company assesses the impairment of goodwill and identifiable intangible assets in accordance with SFAS No. 121, SFAS 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 8 of Notes to Condensed Consolidated Financial Statements for additional information.Assets.

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 maturities and nature of its cash equivalents, short-term investments, long-term investments, accounts receivable and payable, and based on the current rates available to it on similar debt issues. Additionally, the Company periodically evaluates the carrying value of all of its investments for other-than-temporary impairment when events and 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. The Company’s equity investments are comprised of investments in public and non-public technology-related companies. The Company may record future impairment charges due to continued economic decline and the potential resulting negative impact on these companies. During the three months ended September 30, 2002, the Company recorded $503,000 inMarch 31, 2003, impairment charges on itsthe Company’s cost method equity investments.investments were not significant. During the three months ended September 30, 2001, the Company recorded $837,000 in impairment charges on its cost method equity investments.  During the nine months ended September 30,March 31, 2002, the Company recorded $10.3$8.6 million in impairment charges on its cost method equity investments.  During the nine months ended September 30, 2001, the Company recorded $3.9 million on its cost method equity investments and $2.4 million in equity in net losses of its equity method investee.  The Company recorded no equity in net losses charges during the three and nine months ended September 30, 2002 and during the three months ended September 30, 2001 as the Company did not have an equity method investment as of and during these periods.

New Accounting Pronouncements

On June 29, 2001, the FASB approved for issuance SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Intangible Assets. Major provisions of these Statements are as follows: all business combinations initiated after June 30, 2001 must use the purchase method of accounting; the pooling of interest method of accounting is prohibited except for transactions initiated before July 1, 2001; intangible assets acquired in a business combination must be recorded separately from goodwill if they arise from contractual or other legal rights or are separable from the acquired entity and can be sold, transferred, licensed, rented or exchanged, either individually or as part of a related contract, asset or liability; goodwill and intangible assets with indefinite lives are not amortized but are tested for impairment at least annually using a fair value approach, except in certain circumstances, and whenever there is an impairment indicator; other intangible assets will continue to be valued and amortized over their estimated lives except assembled workforce which, pursuant to SFAS No. 141, will not be recognized as an intangible asset apart from goodwill; in-process research and development will continue to be written off immediately; all acquired goodwill must be assigned to reporting units for purposes of impairment testing and segment reporting and effectiveIn January 1, 2002, existing goodwill will no longer be subject to amortization. Upon adoption of SFAS No. 142, on January 1, 2002, the Company no longer amortizes goodwill. Amortization of goodwill for the three and nine months ended September 30, 2001 was $64.1 million and $191.8 million, respectively.  Additionally, upon adoption of SFAS No. 141 and 142, the Company no longer amortizes its non-technology based intangible asset, or assembled workforce. Amortization for the non-technology based intangible asset was $709,000 and $2.1 million for the three and nine months ended September 30, 2001, respectively. 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 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, if impairment is indicated, record such impairment as a cumulative effect of an accounting change. There was no accounting charge to record upon adoption.

In August 2001,2003, the FASB issued SFASInterpretation No. 144, Accounting for46 (“FIN 46”), “Consolidation of Variable Interest Entities,” which addresses consolidation by business enterprises of variable interest entities that either: (i) do not have sufficient equity investment at risk to permit the Impairmententity to finance its activities without additional subordinated financial support, or Disposal(ii) the equity investors lack an essential characteristic of Long-Lived Assets, which supersedes both SFAS No. 121, Accounting fora 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 Impairmenttransition date: (i) the company will be the primary beneficiary of Long-Lived Assets and foran existing VIE that will require consolidation or, (ii) the company will hold a significant variable interest in, or have significant

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Long-Lived Assets to Be Disposed Of and the accounting and reporting provisions of Accounting Principles Board ("APB") Opinion No. 30, Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business (as previously defined in that Opinion). SFAS No. 144 retains the fundamental provisions in SFAS No. 121 for recognizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale, while also resolving significant implementation issues associatedinvolvement with, SFAS No. 121. For example, SFAS No. 144 provides guidance on how a long-lived asset that is used as part of a group should be evaluated for impairment, establishes criteria for when a long-lived asset is held for sale, and prescribes the accounting for a long-lived assetan existing VIE. The company does not have any entities that will be disposed of other than by sale. SFAS No. 144 retains the basic provisions of APB Opinion No. 30 on how to present discontinued operations in the statement of operations but broadens that presentation to include a component of an entity (rather than a segment of a business). Unlike SFAS No. 121, an impairment assessment under SFAS No. 144 will never result in a write-down of goodwill. Rather, goodwill is evaluated for impairment under SFAS No. 142, Goodwill and Other Intangible Assets. The Company adopted SFAS No. 144 as of January 1, 2002.  There was no material impact on the Company’s consolidated results of operations and financial positionrequire disclosure or new consolidation as a result of the adoption of SFAS No. 144.

In November 2001, the staff of the FASB reached consensus on Topic No. D-103 on the topic of Income 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 reduction of expenses incurred. The FASB staff 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 Topic No. D-103 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 Topic No. D-103.  The effect of this reclassification was to increase services revenues and increase cost of services for the three and nine months ended September 30, 2001 by $1.0 million and $3.2 million, respectively.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit Activities, which addresses financial accounting and reporting 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. 146 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. 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 exit or disposal activities initiated after December 31, 2002.  The Company will adoptadopting the provisions of SFAS No. 146 for restructuring activities initiated after December 31, 2002.  The Company does not expect the adoption of SFAS No. 146 will have a material impact on its consolidated results of operations or financial position.FIN 46.

Note 2.   Selective Balance Sheet Detail

Property and equipment consisted of the following (in thousands):

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Accrued expenses consisted of the following (in thousands):

Other noncurrent liabilities consisted of the following (in thousands):

Note 3.   Commercial Credit Facilities

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 facility. The amount available under the revolving line of credit was increased from $10.0 million to $25.0 million. The Company further renewed and amended its revolving credit facility in March 2003 under similar terms. 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 (4.75%(4.25% as of September 30, 2002). At September 30, 2002, $25.0 million was outstanding and the revolving credit facility is due to expire in March 2003. There were no outstanding borrowings under the revolving line of credit as of December 31, 2001.2003). Interest is due monthly and principal is due at expiration.expiration in February 2004. The amended and restated loan and security agreement requires the Company to maintain $80.0 millioncertain levels in unrestricted cash and cash equivalents, short-term investments and long-term investments (excluding equity investments). Additionally, the amended and $30.0 millionrestated loan and security agreement requires the Company to maintain certain levels on deposit with the Company’s commercial lender.  The Company was in compliance with these covenants as of September 30, 2002. As of September 30, 2002lender and certain quarterly net income (loss) levels.  At March 31, 2003 and December 31, 2001,2002, $25.0 million was outstanding.

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As of March 31, 2003 and December 31, 2002, outstanding term debt borrowings were approximately $3.2$2.7 million and $3.9$2.9 million, respectively and consist of two borrowings.respectively.  Borrowings bear interest at the bank’s prime rate (4.75%(4.25% as of September 30, 2002March 31, 2003 and December 31, 2001)2002) and prime rate plus 1.25% (6.0%(5.50% as of September 30, 2002March 31, 2003 and December 31, 2001)2002). Principal and interest are due in consecutive monthly payments through maturity based on the terms of the 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.

Commitments totaling $16.6$16.8 million and $25.0$16.7 million in the form of standby letters of credit were issued on the Company’s behalf from financial institutions as of September 30, 2002March 31, 2003 and December 31, 20012002, respectively, in favor of the Company’s various 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 require the Company to meet a financial covenant to maintain certain levels of available cash, cash equivalents, short-term investments and long-term investments (excluding equity investments). Borrowings are collateralized by a security interest in substantially all of the Company’s owned assets.

Note 4.   Commitments and Contingencies

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

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 prepayto Hewlett-Packard a portion of the unused prepaid royalty payments, received from Hewlett-Packard in

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prior periods totaling approximately $2.4 million. This amount wasThe amounts payable under this agreement are due quarterly and are 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.the accompanying consolidated balance sheets.

Warranties and Indemnification

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

                The Company has agreements whereby it indemnifies its officers and directors for certain events or occurrences while the officer is, or was, serving in such capacity. The term of the indemnification period is for so long as such officer or director is subject to an indemnifiable event by reason of the fact that such person was serving in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a director and officer insurance policy that limits its exposure and enables the Company to recover a portion of any future amounts paid. As a result of the Company's insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is insignificant. Accordingly, the Company has no liabilities recorded for these agreements as of March 31, 2003. The Company assesses the need for an indemnification reserve on a quarterly basis and there can be no guarantee that an indemnification reserve will not become necessary in the future.

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.

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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):

As of March 31, 2003, $80.1 million of future minimum lease payments, is as follows (in thousands); properties that are part of the restructuring have been excluded:

As of September 30, 2002, $94.6 million of lease termination costs, net of anticipated sublease income, is accrued in the Company’s restructuring reserves and is expected to be paid by the endaccruals. The restructuring accruals are net of the second quarter of fiscal 2013.  The Company expects to pay approximately $24.5 million over the next twelve months and the remaining $70.1 million from October 1, 2003 through June of fiscal 2013.  The $24.5 million and $70.1 million include approximately $48.8$43.7 million of estimated sublease income of which approximately $31.7$30.3 million represents estimated sublease income for sublease agreements yet to be negotiated.negotiated and the remaining $13.4 million represents sublease income to be received under non-cancelable sublease agreements signed prior to March 31, 2003.

Capital expenditures were $1.1 million and $50.3 million for the nine months ended September 30, 2002 and 2001, respectively.  The Company’s capital expenditures consisted of purchases of operating resources to manage its operations and included computer hardware and software, communications equipments, office furniture and fixtures and leasehold improvements.  The Company has no other significant capital commitments.  The Company has consolidated various facilities as part of its restructuring plan.  Please refer to Note 7 for additional information.

Standby Letter of Credit Commitments

As of September 30, 2002,March 31, 2003, the Company had $16.6$16.8 million of outstanding commitments in the form of standby letters of credit 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

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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 September 2, 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 the Company’s 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 under which the Company has answered the complaint and is defending itself vigorously.made a one-time payment of $2.2 million in April 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 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.

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Note 5.   Geographic, Segment and Significant Customer Information

The Company operates in one segment, electronic business commerce solutions. The Company’s reportable segment includes the Company’s facilities in North and South America (Americas)(“Americas”), Europe and Asia Pacific and Thethe Middle East (Asia/Pacific)(“Asia/Pacific”). The Company’s chief operating decision maker is considered to be the Company’s Chief Executive Officer (“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 disaggregated revenue information on a product basis reviewed by the CEO is as follows (in thousands; unaudited)thousands):

DuringThe Company sells its products and provides services worldwide through a direct sales force and through a channel of independent distributors, VARs and application service providers ASPs. In addition, the three and nine months ended September 30, 2002 and 2001, no single customer accounted for more than 10%sales of the Company’s total revenues.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, Americas, Europe and Asia/Pacific.

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Note 6.           Acquisitions and Dispositions

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 inDisaggregated financial information regarding the Company’s second quarter of 2001 Condensed Consolidated Statements of Operations.

Keyeon

On June 29, 2001, the Company completed its acquisition of Keyeon, LLC (“Keyeon”), formerly a corporate 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.  The acquisition was accounted for as a purchase.  The acquired assetsproducts and assumed liabilities,services and the related results of operations, are included in the consolidated financial statements of the Company from the date of acquisition.  The purchase price allocationgeographic revenues is as follows (in thousands):

At September 30,During the three months ended March 31, 2003 and 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 testcustomer accounted for impairment under the provisions of SFAS No. 142.  The Company estimated that $6.4 million10% or more 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 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 nine month period ended September 30, 2001 assuming Keyeon had been acquired at the beginning of the period presented (in thousands, except per share data):

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

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not reflect any synergies that might be affected from combined operations.Company’s revenues.

Note 7.6.   Restructuring Charges and Asset Impairments

During the first, second and third quarters of 2002, theThe 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 $63.2$1.0 million was recorded during the three months ended September 30, 2002March 31, 2003 and a pre-tax charge of $103.2$5.4 million was recorded during the ninethree months ended September 30,March 31, 2002 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 $68.4 millionnot materially different from the low end of the range for the charge

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related to the three months ended September 30, 2002 and $110.0 million related to the charges for the nine months ended September 30, 2002.March 31, 2003. 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 the first, second and third quarters of 2002three months ended March 31, 2003 for exit activities and asset write-downs (in thousands):