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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the ~~Quarterly~~quarterly ~~Period~~period ~~Ended~~ended ~~October~~January 31, ~~2001~~2002

Commission file number: 000-29365

VICINITY CORPORATION (Exact name of ~~registrant~~Registrant as ~~specified~~Specified in its ~~charter~~Charter)

DELAWARE (State or Other Jurisdiction of Incorporation or Organization) 77-0414631 (~~IRS~~I.R.S. Employer Identification No.) ~~370 San Aleso Avenue Sunnyvale, California 94085 (Address of principal executive offices)~~

~~(Registrant's~~370 ~~telephone~~San ~~number~~Aleso Avenue Sunnyvale, ~~including~~California ~~area~~94085 (Address ~~code):~~of ~~(408~~Principal Executive Offices) ~~543-3000~~

~~Indicate~~Registrant's telephone bynumber, ~~check~~including ~~mark~~area ~~whether the registrant~~code: (1408) 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. /x/ Yes / / No 543-3000

~~The~~ Indicate ~~number~~by ofcheck ~~shares~~mark ofwhether ~~issuer's~~the ~~Common~~Registrant: ~~Stock,~~(1) has ~~par~~filed ~~value~~all ~~$0.001~~reports ~~per~~required ~~share,~~to be filed by Section 13 or 15(d) of ~~Vicinity~~the ~~Corporation~~Securities ~~outstanding~~Exchange asAct of ~~November~~1934 during the preceding 12 ~~30,~~months ~~2001~~(or for such shorter period that the registrant was 26required to file such reports),~~820,000~~ and (2) has been subject to such filing requirements for the past 90 days. ý Yes o No

The number of shares of common stock, par value $0.001 per share, of Vicinity Corporation outstanding as of February 28, 2002 was 26,745,000.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Unaudited Condensed Consolidated Statements of Operations for the three months ended October 31, 2001 and 2000	3
	Unaudited Condensed Consolidated Statements of Operations for the three and six months ended January 31, 2002 and 2001	3
	Unaudited Condensed Consolidated Balance Sheets as of October 31, 2001 and July 31, 2001	4
	Unaudited Condensed Consolidated Balance Sheets as of January 31, 2002 and July 31, 2001	4
	Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended October 31, 2001 and 2000	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended January 31, 2002 and 2001	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1011
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2427
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	2528
Item 2.	Changes in Securities and Use of Proceeds	2529
Item 3.	Defaults Upon Senior Securities	2529
Item 4.	Submission of Matters to a Vote of Security Holders	2629
Item 5.	Other Information	2629
Item 6.	Exhibits and Reports on Form 8-K	2629

Certain Defined Terms

Unless the context otherwise requires, references herein to "we," "us," "our company," "the Company" or "Vicinity" are to Vicinity Corporation, a Delaware corporation. References in this Quarterly Report to fiscal years refer to the fiscal year of our company ended on July 31 of that year. We were incorporated as a California corporation in October 1995 and reincorporated as a Delaware corporation in January 2000. "Vicinity," "MapBlast!," "GeoSearch," "Powered by Vicinity," "Vicinity ~~Telephone~~ Business Finder," ~~and~~"Vicinity Telephone Business Finder," "Vicinity Wireless Business Finder," and "Vicinity Brandfinder" are registered marks of our company. "Vicinity Business Finder LineDrive," "Vicinity Location Server," "Vicinity Web Locator," "Vicinity Wireless Locator," "Vicinity Speech Locator," "Vicinity Data Manager," "VLS," "Vicinity Location Analyzer" and "Power of Location" are marks currently filed by our company at the United States Patent and Trademark Office. Each trademark, trade name or service mark of any other company appearing in this Quarterly Report belongs to its holder.

Forward Looking Statements

The statements contained in this Quarterly Report that are not historical facts may be deemed to contain forward-looking statements. Such statements are indicated by words or phrases such as "anticipate," "estimate," "projects," "believes," "intends," "expects" and similar words and phrases. Actual results may differ materially from those expressed or implied in any forward-looking statement as a result of certain risks and uncertainties, including, without limitation, the risks and uncertainties detailed herein under "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors That May Affect Future Results" and in our other filings with the Securities and Exchange Commission. We disclaim any obligation to update any of the forward-looking statements contained herein to reflect future events or developments.

PART I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Financial Statements

VICINITY CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

		Three Months Ended October 31,
		Three Months Ended January 31,						Six Months Ended January 31,
		2001			2000
		2002			2001			2002			2001
REVENUES
	License and hosting fees	$	3,~~895~~519		$	4,~~030~~122		$	7,414		$	8,152
	Service and transaction fees		~~823~~981			~~1,400~~938			1,804			2,338
			4,718			5,430
			4,500			5,060			9,218			10,490
COST OF REVENUES(1)			2,~~472~~268			3,~~230~~528			4,740			6,758
	Gross profit		2,~~246~~232			21,~~200~~532			4,478			3,732
OPERATING EXPENSES
	Product development(1)		1,~~681~~222			1,~~417~~808			2,903			3,225
	Sales and marketing(1)		2,~~982~~983			5,~~312~~266			5,965			10,578
	General and administrative(1)		1,~~188~~260			2,~~372~~185			2,448			4,557
	Stock-based compensation		2819			~~201~~161			47			362
			5,879			9,302
	Impairment of intangible assets		3,752			—			3,752			—
LOSS FROM OPERATIONS			(3,633	)		(7,102	)
	Restructuring and other special charges		(133	)		1,100			(133	)		1,100
	Other income, net		1,038			1,918
			9,103			10,520			14,982			19,822
NET LOSS		$	(2,595	)	$	(5,184	)
LOSS FROM OPERATIONS			(6,871	)		(8,988	)		(10,504	)		(16,090	)
BASIC AND DILUTED NET LOSS PER SHARE		$	(0.09	)	$	(0.19	)
Other income, net			834			1,677			1,872			3,595
WEIGHTED AVERAGE SHARES USED IN BASIC AND DILUTED NET LOSS PER SHARE CALCULATION			28,253			27,311
NET LOSS		$	(6,037	)	$	(7,311	)	$	(8,632	)	$	(12,495	)
BASIC AND DILUTED NET LOSS PER SHARE		$	(0.22	)	$	(0.26	)	$	(0.31	)	$	(0.45	)
WEIGHTED AVERAGE SHARES USED IN BASIC AND DILUTED NET LOSS PER SHARE CALCULATIONS			26,915			28,100			27,695			27,718
(1) Excludes stock-based compensation of:
	Cost of revenues	$	3		$	42		$	7		$	51
	Product development		11			15			27			36
	Sales and marketing		4			70			10			169
	General and administrative		1			34			3			106
		$	19		$	161		$	47		$	362

Cost of revenues	$	4	$	9
Product development		16		21
Sales and marketing		6		99
General and administrative		2		72
	$	28	$	201

See Notes to Unaudited Condensed Consolidated Financial Statements.

VICINITY CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

		October 31, 2001			July 31, 2001
		January 31, 2002			July 31, 2001
ASSETS
CURRENT ASSETS
	Cash and cash equivalents	$	92,~~639~~714		$	12,439
	Short-term investments		7984,~~367~~068			81,284
	Accounts receivable, net		3,~~507~~749			2,893
	Prepaid expenses and other current assets		~~975~~1,068			1,010
Total current assets			9391,~~488~~599			97,626
PROPERTY AND EQUIPMENT, net			87,~~297~~670			9,229
INTANGIBLE ASSETS, net			62,~~074~~073			6,610
OTHER ASSETS			~~317~~344			317
Total Assets		$	~~108~~101,~~176~~686		$	113,782
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
	Accounts payable		~~981~~1,287			845
	Accrued liabilities		2,~~851~~652			4,054
	Deferred revenue		78,~~750~~030			7,638
	Capital lease obligations, current portion		8211			227
Total current liabilities			11,~~664~~980			12,764
OTHER LIABILITIES			420			420
Total liabilities			12,~~084~~400			13,184
STOCKHOLDERS' EQUITY
	Common stock		27			29
	Additional paid-in capital		~~156~~155,~~243~~715			158,364
	Deferred stock-based compensation		(~~235~~128	)		(263	)
	Notes receivable from stockholders		(39	)		(39	)
	Accumulated other comprehensive income		~~523~~175			339
	Accumulated deficit		(6066,~~427~~464	)		(57,832	)
Total stockholders' equity			9689,~~092~~286			100,598
Total Liabilities and Stockholders' Equity		$	~~108~~101,~~176~~686		$	113,782

See Notes to Unaudited Condensed Consolidated Financial Statements.

VICINITY CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

			Three Months Ended October 31,
			Six Months Ended January 31,
			2001			2000
			2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES
	Net loss		$	(28,~~595~~632	)	$	(512,~~184~~495	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation and amortization		12,~~613~~877			~~838~~2,093
		Provision for doubtful accounts		70130			~~110~~140
		Stock-based compensation		2884			~~201~~634
		Impairment of intangible assets		3,752			—
		Restructuring and other special charges (credits)		(133	)		—
		Changes in operating assets and liabilities:
		Accounts receivable		(~~822~~1,124	)		(1,~~805~~027	)
		Prepaid expenses and other current assets		35(58	)		~~606~~716
		Accounts payable		~~136~~442			~~1,271~~414
		Accrued liabilities		(1,~~191~~513	)		(1,~~495~~789	)
		Deferred revenue		~~250~~530			~~782~~(102	)
	Net cash used in operating activities			(23,~~476~~645	)		(49,~~676~~362	)
CASH FLOWS FROM INVESTING ACTIVITIES
	Investments of excess cash:
		Purchases of available-for-sale securities		(35,821	)		(16,520	)
		Purchases of short-term investments		(58,763	)		(33,694	)
		Sales and maturities of available-for-sale securities		37,922			6,975
		Sales and maturities of short-term investments		55,815			24,289
	Purchases of property and equipment			(~~157~~290	)		(25,~~530~~828	)
	Purchase of technology			—			(~~900~~2,085	)
	Purchase of NetCreate			—			(250	)
	Other			—(26	)		836
	Net cash provided by (used in) investing activities			1,944			(13,217	)
	Net cash used in investing activities			(3,264	)		(17,532	)
CASH FLOWS FROM FINANCING ACTIVITIES
	Proceeds from issuance of common stock, net			~~104~~112			~~833~~895
	Repurchase of unvested common stock			(2,227	)		—
	Repurchase of common stock			(2,712	)		(198	)
	Principal payments on capital leases			(~~145~~216	)		(~~282~~568	)
	Net cash provided by (used in) financing activities			(2,~~268~~816	)		~~551~~129
Decrease in cash				(29,~~800~~592	)		(1726,~~342~~765	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD				12,439			48,195
CASH AND CASH EQUIVALENTS AT END OF PERIOD			$	92,~~639~~714		$	3021,~~853~~430

See Notes to Unaudited Condensed Consolidated Financial Statements.

VICINITY CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—PRESENTATION OF INTERIM FINANCIAL STATEMENTS

The accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the audited financial statements. In the opinion of of management, all significant adjustments that are of a normal, recurring in nature and necessary for a fair presentation of the financial position and results of the operations of the Company have been consistently recorded. The operating results for the interim periods presented are not necessarily indicative of expected performance for the entire year. Certain previously reported amounts have been reclassified to conform to the current presentation format. The unaudited information should be read in conjunction with the audited financial statements of the Company and the notes thereto for the year ended July 31, 2001 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission.

NOTE 2—RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 141, Business Combinations. SFAS 141 requires that all business combinations be accounted for under the purchase method. Use of the pooling-of-interests method is no longer permitted. SFAS 141 requires that the purchase method be used for business combinations initiated after June 30, 2001. The Company adopted the provisions of SFAS 141 on July 1, 2001.

In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets. SFAS 142 requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment. The Company will be required to implement SFAS 142 as of the beginning of its fiscal year 2003. The Company has not yet evaluated the effect this standard will have on its consolidated financial statements.

In October 2001, the FASB issued Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144 applies to all long-lived assets (including discontinued operations). SFAS 144 develops one accounting model for long-lived assets that are to be disposed of by sale. SFAS 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less cost to sell. Additionally, SFAS 144 expands the scope of discontinued operations to include all components of an entity with operations that (1) can be distinguished from the rest of the entity and (2) will be eliminated from the ongoing operations of the entity in a disposal transaction. SFAS 144 will be effective for the Company in fiscal 2003. The Company has not yet evaluated the effects this standard will have on its consolidated financial statements.

NOTE 3—NET LOSS PER SHARE

Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing net loss by the weighted-average number of common and, when dilutive, potential common equivalent shares outstanding during the period. Common equivalent shares include the effect of outstanding stock options and common stock subject to repurchase. All potential common shares have been excluded from the computation of diluted net loss per share for all periods presented because the effect would be anti-dilutive.

Diluted net loss per share does not include the effect of the following anti-dilutive common equivalent shares (in thousands):

	Three Months Ended October 31,
	Three months ended January 31,		Six months ended January 31,
	2001	2000
	2002	2001	2002	2001
Stock options	23,~~517~~756	2,~~327~~627	3,756	2,627
Shares of common stock subject to repurchase	—	~~789~~449	—	449
	2,517	3,116
	3,756	3,076	3,756	3,076

The weighted-average exercise price of stock options outstanding was $43.5229 and $107.9464 as of ~~October~~January 31, ~~2001~~2002 and ~~2000~~2001, respectively. The weighted-average exercise price of ~~shares~~ shares of common stock subject to repurchase was $0.2520 as of ~~October~~January 31, ~~2000~~2001. There were no shares of common stock subject to repurchase as of January 31, 2002.

NOTE 4—COMPREHENSIVE LOSS

The following table sets forth the calculation of comprehensive loss (in thousands):

	Three Months Ended October 31,
	Three Months Ended January 31,						Six Months Ended January 31,
	2001			2000
	2002			2001			2002			2001
Net loss	$	(26,~~595~~037	)	$	(57,~~184~~311	)	$	(8,632	)	$	(12,495	)
Unrealized gain on available-for-sale securities		184			243
Unrealized loss on available-for-sale securities		(348	)		(1,102	)		(164	)		(859	)
Comprehensive loss	$	(26,~~411~~385	)	$	(48,~~941~~413	)	$	(8,796	)	$	(13,354	)

NOTE 5—SEGMENT INFORMATION

The Company's chief operating decision maker, or CODM, is considered to be the Company's Chief Executive Officer ~~or, in the event that the Company's Chief Executive Officer position is vacant, the Company's Chairman of the Board of Directors will act as CODM~~. The CODM evaluates performance, makes operating decisions and allocates resources based on financial data consistent with the presentation in the accompanying consolidated financial statements. Therefore, the Company operates in a single segment.

Revenue information by geographic area is summarized below for the three and six-month periods ended ~~October~~January 31, ~~2001~~2002 and ~~2000~~2001 (in thousands):

	Three Months Ended October 31,
	Three Months Ended January 31,				Six Months Ended January 31,
	2001		2000
	2002		2001		2002		2001
North America	$	43,~~058~~644	$	4,~~758~~132	$	7,702	$	8,890
Europe		~~660~~856		~~672~~928		1,516		1,600
Total Revenue	$	4,718	$	5,430
Revenues	$	4,500	$	5,060	$	9,218	$	10,490

For the three ~~months~~and six-month periods ended ~~October~~January 31, ~~2001~~2002 and ~~2000~~2001, no customer accounted for 10% or more of the Company's revenues.

Essentially all of the Company's long-lived assets are located in the United States.

NOTE 6—LITIGATION

The Company and certain of its former officers and directors have been named as defendants in four lawsuits filed in the United States District Court for the Southern District of New York, which have been consolidated into the case MBH Inc., v. Vicinity Corporation, et al. No lead plaintiff has been named. This lawsuit is purportedly being brought as a class action on behalf of individuals who purchased shares of the Company's common stock between February 9, 2000 and December 6, 2000 in connection with and traceable to the Company's initial public offering, although no class has been certified. This lawsuit alleges that the Company, certain of its former officers and directors, and its securities underwriters violated various sections of the Securities Act of 1933 and the Securities Exchange Act of 1934, and related rules, by reason of alleged false statements and omissions relating to underwriting discounts and market stabilization transactions. The plaintiffs seek unquantified actual damages, recissionary damages and other relief to compensate losses allegedly incurred by purchasers of the Company's common stock in connection with the Company's initial public offering.

This lawsuit is a small part of a large number of such actions brought against numerous securities underwriters and issuers of securities that appear to be related to an investigation currently being conducted by the United States Securities and Exchange Commission of the conduct of certain securities underwriters. These lawsuits, including the consolidated action brought against the Company, have been transferred to a consolidated docket for coordination and decision of pre-trial motions, discovery and related matters other than trial. Certain underwriter defendants have brought a motion to recuse the judge charged with managing the consolidated docket. The judge has denied the motion and indicated she will refrain from making any substantive rulings pending the Second Circuit Court's consideration of a petition for a writ of mandamus ordering the recusal.

At present, discovery has not commenced and the Company has not responded to any of the complaints in the consolidated action. We believe that the claims against the Company and certain of its former officers and directors are without merit and the Company intends to vigorously defend against them.

~~The~~ On ~~Company~~December 13, ~~has~~2001, ~~received~~Murex ~~correspondence~~Securities ~~from~~Limited and Murex Licensing Corporation ~~asserting~~("Murex") ~~that~~filed ~~the~~a ~~Company's~~complaint ~~services~~in ~~formerly~~the ~~known~~United asStates ~~Web,~~District ~~Telephone~~Court ~~and~~for ~~Wireless Business Finder and~~ the ~~Company's~~ ~~MapBlast!~~Eastern ~~Web~~District ~~site infringe various claims~~ of ~~patents owned by~~ Virginia (Murex Securities Limited, ~~Ltd.~~ ~~The~~et ~~Company~~al.v ~~believes~~Vicinity ~~that~~Corporation, ~~the~~et ~~patent~~al, ~~infringement~~Civil ~~claims~~Action ~~asserted~~No. 01-1895-A) innaming the ~~correspondence~~Company, ~~from Murex~~two ~~are~~of ~~without~~its ~~merit,~~customers and itQwest ~~intends~~Communications International, toInc. ~~defend~~as ~~against~~defendants. ~~them~~The ~~vigorously~~Complaint ~~should~~alleges ~~Murex~~that ~~assert them against~~ the Company's inEnterprise ~~litigation.~~Location ~~Murex~~Services ~~has~~infringe ~~also~~claims ~~asserted~~of ~~that~~a itnumber ~~expects~~of ~~additional~~the plaintiffs' patents, ~~including~~ ~~patent~~and ~~claims~~it ~~allegedly~~seeks ~~covering~~unspecified ~~the~~damages ~~Company's~~and permanent ~~services,~~injunctive torelief. beIn ~~issued~~its response to ~~Murex~~the inComplaint, the ~~future.~~Company ~~The~~has ~~Company~~denied isthat ~~unable~~it atinfringes ~~this~~any ~~time~~valid toclaims ~~evaluate~~of the ~~merits~~patents-in-suit. ofThe ~~any~~Court ~~patent~~has ~~infringement~~set ~~claims~~a trial date ~~Murex~~of ~~may~~June 17, ~~assert~~2002 ~~against~~for ~~the~~this ~~Company~~action. inThe ~~the~~Company ~~future~~intends ~~based~~to onvigorously ~~patent~~defend ~~claims~~against ~~which~~the ~~have~~plaintiffs' ~~not~~claims. ~~yet~~In ~~issued~~addition, orthe ~~which~~defendants ~~otherwise~~in ~~have~~this ~~not~~case ~~been~~include ~~brought~~two toof the Company's ~~attention~~customers. ~~Notwithstanding the existence~~The ofCompany has ~~meritorious~~received ~~defenses,~~communications ~~any~~from ~~litigation~~these ~~over~~customers ~~the~~demanding ~~scope~~that ~~and~~it ~~application~~provide ofindemnification ~~patents~~for orthe ~~similar intellectual property claims could involve significant~~ costs ofincurred ~~defense~~by ~~and~~them ~~would~~in ~~involve~~this ~~risks~~litigation. ~~and uncertainties,~~The ~~particularly~~Company inbelieves ~~light~~that of the ~~fact~~terms ~~that~~of ~~the~~its ~~products~~customer contracts ~~and~~place ~~technologies~~significant ~~described~~limitations ~~above~~on ~~are~~its ~~material~~liability to ~~the~~these ~~Company's business~~customers.

~~NOTE 7—RESTRUCTURING~~ Murex has ~~COSTS~~also ~~AND~~asserted ~~OTHER~~that ~~SPECIAL~~it ~~CHARGES~~ expects additional patents, including patent claims allegedly covering the Company's services, to be issued to Murex in the future. The Company is unable at this time to evaluate the merits of any patent infringement claims Murex may assert against it in the future based on patent claims which have not yet issued, or which have not otherwise been brought to the Company's attention. Notwithstanding the existence of meritorious defenses, any litigation over the scope and application of patents or similar intellectual property claims could involve significant costs of

Indefense ~~November 2000,~~and ~~the~~would ~~Company~~and ~~approved~~does ainvolve ~~plan~~risks toand ~~restructure~~uncertainties, ~~certain~~particularly ~~of its operations~~ in ~~order~~light ~~to reduce expenses. In connection with this restructuring, the Company reduced its worldwide headcount by approximately 15% and approved the closure~~ of the ~~Company's~~fact ~~German~~that sales facility. Expenses associated with this restructuring plan were approximately $0.6 million. Essentially all of this restructuring charge was for severance and benefits related costs, which represented the ~~reduction~~products ~~of approximately 30 employees from a variety of functional areas, including substantially all of our German sales employees. Facility closure~~ and ~~other~~technologies ~~expenses~~described ~~recorded~~above ~~were~~are ~~less~~material ~~than~~to ~~$0.1 million. In addition, during~~ the ~~three months ended January 31, 2001, the~~ Company's ~~recorded $0~~business.~~5 million~~ ~~of severance-related special charges in conjunction with the departure of four senior executives, including $0.3 million of stock-based compensation.~~

~~In February and April~~NOTE ~~2001,~~7—IMPAIRMENT ~~the~~OF ~~Company~~INTANGIBLE ~~approved plans to further restructure certain of its operations in order to reduce expenses. In connection with these restructurings~~ASSETS, ~~the~~ ~~Company~~RESTRUCTURING ~~reduced~~COSTS ~~its~~AND ~~worldwide~~OTHER ~~headcount~~SPECIAL by approximately 35%, significantly reduced the size of its sales force in France and announced a plan to shut down its San Diego operations, which consisted mainly of Web developers hired in connection with the Company's purchase of NetCreate Systems, Inc., or NetCreate, in October 2000. Expenses associated with this restructuring plan were approximately $2.2 million, of which approximately $1.3 million was for severance and employment related costs and $0.9 million was for the closure of facilities and equipment costs associated with the termination of employees. In addition, during the three months ended April 30, 2001, the Company recorded approximately in $1.1 million in other special charges, including approximately $0.8 million in expenses related to the write-off of goodwill, developed product technology and the assembled workforce related to the NetCreate acquisition, reflecting the Company's de-emphasis on providing custom Web development services going forward, and approximately $0.3 million in expenses for the write-off of software and other similar costs related to the downsizing of the Company's operations. CHARGES

During the quarter ended January 31, 2002, the Company approved a plan to retire the Company's SiteMaker product ("SiteMaker") as an actively marketed product. SiteMaker was acquired in the acquisition of NetCreate Systems, Inc., or NetCreate, in October 2000. The decision to retire SiteMaker was arrived at due to two primary factors. ~~following~~First, an analysis ~~sets~~of ~~forth~~the revenue stream from SiteMaker indicated that actual and currently forecasted revenues from SiteMaker are significantly lower than the ~~significant~~estimated ~~components~~revenue levels that were used in the original valuation of ~~total~~NetCreate. ~~restructuring~~Secondly, ~~costs~~in ~~and~~future ~~other~~releases ~~special~~of ~~charges~~Vicinity ~~recorded~~Location byServer, the Company intends to market components/functionalities that are similar to SiteMaker, but based on an entirely different code base. As a result, during ~~fiscal~~the ~~2001~~three ~~(in~~months ~~thousands):~~ended January 31, 2002, the Company recorded an impairment charge totaling approximately $3.8 million for the remaining goodwill and developed product technology related to the NetCreate acquisition.

	Restructuring costs and other special charges		Payments/ Charges			Accrual Balance at October 31, 2001
Severance and employment costs	$	2,528	$	(2,467	)	$	61
Facility and equipment costs	$	1,118	$	(419	)	$	699
Impairment of intangible assets		754		(754	)		—
	$	4,400	$	(3,640	)	$	760

During the year ended July 31, 2001, the Company recorded restructuring costs and other special charges of $4.4 million, including restructuring costs of $2.8 million and other special charges of $1.6 million. In November 2000, the Company approved a plan to restructure certain of its operations in order to reduce expenses. Expenses associated with this restructuring plan were approximately $0.6 million. Essentially all of this restructuring charge was for severance and benefits related costs. In addition, during the three months ended January 31, 2001, the Company recorded $0.5 million of severance-related special charges in conjunction with the departure of four senior executives. In February and April 2001, the Company approved plans to further restructure certain of its operations in order to reduce expenses. Expenses associated with this restructuring plan were approximately $2.2 million for severance and employment related costs, the closure of facilities, and equipment costs associated with the termination of employees. In addition, during the three months ended April 30, 2001, the Company recorded approximately in $1.1 million in other special charges related to the write-off of goodwill, developed product technology and the assembled workforce related to the NetCreate acquisition, reflecting the Company's de-emphasis on providing custom Web development services going forward, and the write-off of software and other similar costs related to the downsizing of the Company's operations. During the three months ended January 31, 2002, approximately $133,000 of restructuring costs recorded during fiscal 2001 were reversed.

It The isfollowing ~~anticipated~~analysis ~~that~~sets ~~most~~forth of the ~~payments~~significant ~~related~~components toof ~~the~~total ~~remaining~~restructuring ~~$61,000~~costs ~~accrued for severance~~ and ~~employment~~other ~~costs~~special ~~will~~charges berecorded ~~made~~ by ~~December 31, 2001. Payments on~~ the ~~remaining~~Company ~~facility~~(in ~~costs~~thousands): ~~of $699,000 extend through approximately July 2003.~~

NOTE 8—STOCK REPURCHASE PROGRAM

	Restructuring costs and other special charges		Payments/ Charges			Reversals			Accrual Balance at January 31, 2002
Severance and employment costs	$	2,528	$	(2,484	)	$	(44	)	$	—
Facility and equipment costs		1,118		(495	)		(89	)		534
Impairment of intangible assets		754		(754	)		—			—

	$	4,400	$	(3,733	)	$	(133	)	$	534

On September 18, 2001, the Company announced that its Board of Directors had authorized a stock repurchase program of up to $5.0 million. As of December 10, 2001, the Company had repurchased for retirement approximately 1,785,000 shares of its common stock for approximately $2.7 million.

Payments on the remaining facility costs of $534,000 extend through approximately July 2003.

NOTE 8—STOCK REPURCHASE PROGRAM

On September 18, 2001, the Company announced that its Board of Directors had authorized a stock repurchase program of up to $5.0 million. As of January 31, 2002, the Company had repurchased for retirement approximately 1,785,000 shares of its common stock for approximately $2.7 million.

NOTE 9—SUBSEQUENT EVENT

On March 6, 2002, the Company announced a change in its fiscal year end. The Company currently operates on a fiscal year ending on July 31. Effective February 22, 2002, the Audit Committee of the Board of Directors of the Company, in accordance with authority delegated by the Board of Directors, adopted a resolution changing the last day of the Company's fiscal year from the present July 31 to June 30, commencing with the present fiscal year. As a result, fiscal year 2003 shall commence on July 1, 2002 and end on June 30, 2003. The period from August 1, 2001 through June 30, 2002 will be a transition period and will result in a fiscal year 2002 that contains 11 months. Accordingly, the Company's fiscal fourth quarter of fiscal year 2002, ending on June 30, 2002, will contain 2 months.

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

The following discussion of the financial condition and results of operations of our company should be read in conjunction with our annual report on Form 10-K for the fiscal year ended July 31, 2001, as filed with the Securities and Exchange Commission.

~~OVERVIEW~~Overview

Vicinity is a leading provider of Enterprise Location Services, or ELS, solutions to Global 2000 companies across Web, wireless and speech platforms. We unify and enrich Web, wireless and speech inquiries in order to catalyze a fundamental improvement in the customer experience. We turn location information into a coherent, rich source of knowledge and embed location intelligence into the fabric of the organization.

We are an enterprise solution whose customer base includes such well-known companies as Best Western International, CitiBank, FedEx, Ford Motor Company and McDonald's. Our ELS solutions are available across the globe and in multiple languages.

Company history and evolution. Our company was formed in October 1995, and our initial revenues were derived from providing maps, driving directions and directory services to regional telephone companies and large portal companies. Historically, we have generated substantially all of our revenues from our product formerly known as Web Business Finder. In February 2000, we completed our initial public offering, or IPO. As a result, we issued 8,050,000 shares of common stock at a price of $17.00 per share and received approximately $125.9 million in cash, net of underwriting discounts and other offering costs. In October 2000, we acquired NetCreate Systems, Inc., or NetCreate, an Internet products and services company that provided tools and services to build or enhance the features and functionality of web sites, in a transaction that was accounted for as a purchase business combination. In September 2000, we purchased technology and related consulting services from BeeLine LLC.

Recently, we have focused our strategy on our ELS solution and have recently expanded our product offerings to include the Vicinity Location Server. The Vicinity Location Server is a technology platform that captures, manages and transforms data into geo-coded information, such as maps, driving directions and attributes about companies' stores, branches or offices.

~~Stock~~ Change ~~repurchase~~in ~~program~~fiscal year end date. In On ~~September~~March ~~2001~~6, 2002, we announced a ~~stock~~change ~~repurchase~~in ~~program~~our offiscal upyear ~~to $5~~end.0 We currently operate on a fiscal year ending on July ~~million~~31. ~~Under~~Effective ~~this~~February 22, ~~program~~2002, ~~stock~~the ~~repurchases~~Audit ~~may~~Committee beof ~~made~~our ~~from~~Board ~~time~~of toDirectors, ~~time~~ in accordance with authority delegated by the ~~open~~Board ~~market~~of Directors, ~~through~~adopted a ~~block~~resolution ~~trades~~changing orthe ~~otherwise.~~last Asday of ~~December~~our fiscal year from the present July 1031 to June 30, ~~2001~~commencing with the present fiscal year. As a result, wefiscal ~~had~~year ~~repurchased~~2003 shall commence on ~~approximately~~July 1, 2002 and end on June 30, 2003. The period from August 1,~~785~~ 2001 through June 30,~~000~~ ~~shares~~2002 ~~for~~will anbe ~~aggregate~~a ~~purchase~~transition ~~price~~period ~~equal~~and towill ~~approximately~~result ~~$2.7~~in a fiscal year 2002 that contains 11 ~~million~~months. ~~under~~Accordingly, ~~the~~our ~~stock~~fiscal ~~repurchase~~fourth ~~program~~quarter of fiscal year 2002, ending on June 30, 2002, will contain 2 months.

Results of Operations

License and hosting fees revenue. Revenue from license and hosting fees is recognized ratably over the life of the contracts, which typically have one-year, non-refundable terms.

For the three months ended ~~October~~January 31, ~~2001~~2002, we recognized $3.5 million of license and hosting fees revenue, ~~remained~~compared ~~relatively~~to ~~flat~~$4.1 million atas of January 31, 2001, representing a decrease of $30.6 million, or 15%. For the six-month period ended January 31, 2002, license and hosting fees revenue decreased $0.7 million, or 9%, to $7.4 million compared to $48.02 million for the ~~three months~~comparable ~~ended~~period ~~October 31,~~in ~~2000~~fiscal 2001. The decrease for the three-month and six-month periods is primarily due to a reduction in the number

Deferred revenue consists of customer payments received and accounts receivable recorded in advance of recognizing revenue for license and hosting services. Deferred revenue as of October 31, 2001 was $7.8 million, compared to $8.5 million as of October 31, 2000, representing a decrease of $0.8 million, or 9%.

Service and transaction fees revenue. Revenue from service and transaction fees consists of revenue generated from project-related professional services and, to a lesser degree, from advertising and other transactions. This revenue is recognized as the services are performed.

For the three months ended October 31, 2001, we recognized $0.8 million of service and transaction fees revenue, a decrease of $0.6 million, or 41%, from $1.4 million for the three months ended October 31, 2000. This decrease in service and transaction fees revenue is primarily attributable to a decrease in demand for, and our decreasing focus on providing, Web development services for our customers.

Cost of revenues. Cost of revenues includes salaries and benefits of our operations personnel, the cost of acquiring data and content, leasing and depreciation costs for our computer hosting equipment and Internet connection and data center charges. Cost of revenues decreased $0.8 million, or 24%, to $2.5 million for the three months ended October 31, 2001 compared to $3.2 million for the three months ended October 31, 2000. The decrease in cost of revenues is attributable to a decrease in headcount in the three months ended October 31, 2001 when compared to the three months ended October 31, 2000 and a decrease in content fees paid to our content providers. Gross margin for the three months ended October 31, 2001 was 48%, compared to 41% for the three months ended October 31, 2000. The increase in gross margin for the three months ended October 31, 2001 reflects the impact of cost reduction programs that we implemented during our third and fourth quarters of fiscal 2001. We presently expect gross margin to improve slightly during the remainder of fiscal 2002.

Product development expense. Product development expense consists primarily of salaries and benefits, consulting expenses and equipment costs. Product development expense increased $0.3 million, or 19%, to $1.7 million for the three months ended October 31, 2001 from $1.4 million for the three months ended October 31, 2000. The increase in product development expense for the three months ended October 31, 2001 was generally attributable to the amortization of intangible assets related to our acquisition of NetCreate and the BeeLine technology purchase.

Sales and marketing expense. Sales and marketing expense consists primarily of salaries, commissions, promotion costs, advertising and travel-related expenses. Sales and marketing expense decreased $2.3 million, or 44%, to $3.0 million for the three months ended October 31, 2001 from $5.3 million for the three months ended October 31, 2000. The decrease in sales and marketing expense for the three months ended October 31, 2001 was primarily attributable to the decrease in sales and marketing personnel and the decreased commission expense associated with the reduction of sales personnel.

General and administrative expense. General and administrative expense consists primarily of salaries and related costs for our executive, administrative, finance and human resources personnel as well as accounting, legal and other professional fees. General and administrative expense decreased $1.2 million, or 50%, to $1.2 million for the three months ended October 31, 2001 from $2.4 million for the three months ended October 31, 2000. This decrease was primarily attributable to a significant decrease in personnel and personnel-related costs for the three months ended October 31, 2001 when compared to the three months ended October 31, 2000. In addition, we recorded a recovery of legal expenses of $0.2 million for attorney's fees recovered during the three months ended October 31, 2001 that had been previously incurred in defending against a claim by a former employee.

Other income, net. Other income for the three months ended October 31, 2001 and 2000 was comprised of approximately $1.0 million and $1.9 million, respectively, of interest income earned on our cash equivalents and short-term investments.

Net loss. We have not achieved profitability on a quarterly or annual basis and expect to continue to incur net losses through at least fiscal 2002.

of sales contracts entered into during the four quarters ended January 31, 2002 when compared to the four quarters ended January 31, 2001.

Deferred revenue consists of customer payments received and accounts receivable recorded in advance of recognizing revenue for license and hosting services. Deferred revenue as of January 31, 2002 was $8.0 million, compared to $7.6 million as of January 31, 2001, representing an increase of $0.4 million, or 5%.

Service and transaction fees revenue. Revenue from service and transaction fees includes revenues from implementation services, project-related professional services, training, volume usage and, to a lesser degree, from advertising and e-commerce transactions. This revenue is recognized as the services are performed.

For the three months ended January 31, 2002, we recognized $1.0 million of service and transaction fees revenue, an increase of $0.1 million, or 5%, from $0.9 million for the three months ended January 31, 2001. For the six-month period ended January 31, 2002, service and transaction fees revenue decreased $0.5 million, or 23%, to $1.8 million from $2.3 million for the comparable period in fiscal 2001. The slight increase for the three-month period is due to a slight increase in volume usage revenues. The decrease for the six-month period is primarily attributable to a decrease in demand for, and our decreasing focus on providing, web development services for our customers, offset by the slight increase in volume usage revenues in the second quarter of fiscal 2002.

Cost of revenues. Cost of revenues includes salaries and benefits of our operations personnel, the cost of acquiring data and content, leasing and depreciation costs for our computer hosting equipment, and Internet connection and data center charges. Cost of revenues decreased $1.3 million, or 36%, to $2.3 million for the three months ended January 31, 2002 compared to $3.5 million for the three months ended January 31, 2001. For the six-month period ended January 31, 2002, cost of revenues decreased $2.0 million, or 30%, to $4.7 million from $6.8 million for the comparable period in fiscal 2001. The decrease in cost of revenues is attributable to a decrease in headcount and a decrease in content fees paid to our content providers in both the three months and six months ended January 31, 2002 when compared to the three months and six months ended January 31, 2001. Gross margin for the three months ended January 31, 2002 was 50%, compared to 30% for the three months ended January 31, 2001. Gross margin for the six-month period ended January 31, 2002 was 49%, compared to 36% for the comparable period in fiscal 2001. The increase in gross margin in both the three months and six months ended January 31, 2002 reflects the impact of cost reduction programs that we implemented during our third and fourth quarters of fiscal 2001. We presently expect gross margin to continue to improve slightly during the remainder of fiscal 2002.

Product development expense. Product development expense consists primarily of salaries and benefits, consulting expenses and equipment costs. Product development expense decreased $0.6 million, or 32%, to $1.2 million for the three months ended January 31, 2002 from $1.8 million for the three months ended January 31, 2001. For the six-month period ended January 31, 2002, product development expenses decreased $0.3 million, or 10%, to $2.9 million from $3.2 million for the comparable period of fiscal 2001. The decrease in product development expense for the three months ended January 31, 2002 was generally attributable to the decrease in amortization of intangible assets that resulted from our write-off of the remaining goodwill and developed product technology related to our acquisition of NetCreate in October 2000, and headcount reductions. The decrease in product development expense for the six-month period is due to headcount reductions in the six-month period ended January 31, 2002 when compared to the comparable period in fiscal 2001, offset by the amortization of intangible assets related to our BeeLine technology purchase which did not begin until the third quarter of fiscal 2001.

Sales and marketing expense. Sales and marketing expense consists primarily of salaries, commissions, promotion costs, advertising and travel-related expenses. Sales and marketing expense decreased $2.3 million, or 43%, to $3.0 million for the three months ended January 31, 2002 from $5.3 million for the three months ended January 31, 2001. For the six-month period ended January 31, 2002, sales and marketing expense decreased $4.6 million, or 44%, to $6.0 million from $10.6 million for the comparable period of fiscal 2001. The decrease in sales and marketing expense for the three months and six months ended January 31, 2002 was primarily attributable to the decrease in sales and marketing personnel.

General and administrative expense. General and administrative expense consists primarily of salaries and related costs for our executive, administrative, finance and human resources personnel as well as accounting, legal and other professional fees. General and administrative expense decreased $0.9 million, or 42%, to $1.3 million for the three months ended January 31, 2002 from $2.2 million for the three months ended January 31, 2001. For the six-month period ended January 31, 2002, general and administrative expense decreased $2.1 million, or 46%, to $2.4 million from $4.6 million for the comparable period of fiscal 2001. These decreases were primarily attributable to a significant decrease in personnel and personnel-related costs for the three months and six months ended January 31, 2002 when compared to the three months and six months ended January 31, 2001. In addition, we recorded a recovery of legal expenses of $0.2 million for attorney's fees during the six-month period ended January 31, 2002 that had been previously incurred in defending against a claim by a former employee.

Impairment of intangible assets. During the quarter ended January 31, 2002, we approved a plan to retire our SiteMaker product ("SiteMaker") as an actively marketed product. SiteMaker was acquired in the acquisition of NetCreate, in October 2000. The decision to retire SiteMaker was arrived at due to two primary factors. First, an analysis of the revenue stream from SiteMaker indicated that actual and currently forecasted revenues from SiteMaker are significantly lower than the estimated revenue levels that were used in the original valuation of NetCreate. Secondly, in future releases of Vicinity Location Server, we intend to market components/functionalities that are similar to SiteMaker, but based on an entirely different code base. As a result, during the three months ended January 31, 2002, we recorded an impairment charge totaling approximately $3.8 million for the remaining goodwill and developed product technology related to the NetCreate acquisition.

Other income, net. Other income for the three- and six-month periods ended January 31, 2002 was comprised of approximately $0.8 million and $1.9 million, respectively, of interest income earned on our cash equivalents and short-term investments.

Net loss. We have not achieved profitability on a quarterly or annual basis and expect to continue to incur net losses through at least fiscal 2002.

LIQUIDITY AND CAPITAL RESOURCES

Overview. In February 2000, we completed our IPO and, as a result, issued 8,050,000 shares of common stock at a ~~price~~ price of $17.00 per share. We received approximately $125.9 million in cash from our IPO, net of underwriting discounts and other offering costs. We have used a portion of these proceeds, and ~~intend~~ intend to continue to use these proceeds, to develop or purchase new technologies, ~~and~~ products and/or businesses and improve our technology infrastructure, and for working capital and other general corporate purposes. Our excess financial resources are invested in interest-bearing securities, primarily government securities, municipal bonds, time deposits, Eurodollar deposits, certificates of deposit with approved financial institutions, commercial paper rated A-1/P-1/F-1, corporate notes and bonds and other money market instruments of similar liquidity and credit quality. See "Item 3. Quantitative and Qualitative Disclosures About Market Risk" for further information related to our investments.

Future capital requirements will depend upon many factors, including overall market conditions and the rate of growth of our revenues. We believe that our cash, cash equivalents and short-term investments will be sufficient to satisfy our cash requirements for the next several years at our projected expense and revenue levels.

Comparative cash flow information. The following table compares cash, cash equivalents and short-term ~~investments~~ investments and working capital balances as well as sources and uses of cash as of and for the ~~three~~six months ended ~~October~~January 31, ~~2001~~2002 and ~~2000~~2001 (in millions):

	Three Months Ended October 31,
	Six Months Ended January 31,
	2001			2000
	2002			2001
Cash, cash equivalents and short-term investments	$	8986.08		$	~~109~~100.31
Working capital		8179.86			~~101~~91.4
Cash used in operating activities		(23.56	)		(49.74	)
Cash provided by (used in) investing activities		1.9			(13.2	)
Cash used in investing activities		(3.3	)		(17.5	)
Cash provided by (used in) financing activities		(2.38	)		0.61

Cash used in operating activities was $23.56 million for the ~~three~~six-month ~~months~~period ended ~~October~~January 31, ~~2001~~2002 compared to $49.74 million for the ~~three~~six months ended ~~October~~January 31, ~~2000~~2001. This decrease was primarily as a result of the decrease in our net loss to $28.6 million ~~for the three months ended October 31, 2001~~ from $512.25 million ~~for the~~and ~~three~~an ~~months~~increase ~~ended~~in ~~October 31, 2000, partially offset by~~ non-cash charges for depreciation, amortization and ~~stock-based~~impairment ~~compensation,~~of ~~and~~intangible assets for the ~~net~~six ~~change~~months inended ~~operating~~January 31, ~~assets~~2002 ~~and liabilities~~when compared to the six months ended January 31, 2001.

Cash ~~provided~~used byin investing activities was $13.93 million for the ~~three~~six-month ~~months~~period ended ~~October~~January 31, ~~2001~~2002, which resulted primarily from ~~sales~~purchases ~~and~~of ~~maturities~~short ofterm ~~available-for-sale~~investments ~~securities~~ exceeding ~~purchases~~sales and maturities of ~~available-for-sale~~short ~~securities~~term investments during the period.

Cash used in financing activities was $2.38 million for the ~~three~~six-month ~~months~~period ended ~~October~~January 31, ~~2001~~2002, which resulted primarily from ~~approximately~~ $2.27 million in cash used to repurchase our common stock pursuant to the stock repurchase program that we announced in September 2001.

12 Stock repurchase program. In September 2001, we announced a stock repurchase program of up to $5.0 million. Under this program, stock repurchases may be made from time to time in the open market, through block trades or otherwise. As of January 31, 2002, we had repurchased approximately 1,785,000 shares for an aggregate purchase price equal to approximately $2.7 million under the stock repurchase program.

CONTRACTUAL OBLIGATIONS

Leases. We lease some of our facilities under non-cancelable operating leases with expiration dates through 2008. Future minimum lease payments under our non-cancelable operating leases as of January 31, 2002 are as follows (in thousands):

	Operating Leases
2002	$	960
2003		1,938
2004		1,888
2005		1,901
2006		1,824
thereafter		4,241

	$	12,593

License Fees. We have entered into agreements with several content providers. Some of these agreements call for fixed annual payments. Other agreements contain fixed annual minimum payments as well as variable components that require additional payments if our usage exceeds certain content usage thresholds.

CRITICAL ACCOUNTING POLICIES AND PRACTICES

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and any related disclosures of contingent assets and liabilities. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Impairment of intangible assets. At January 31, 2002 our intangible assets consisted of assets related to the Technology Purchase Agreement (the "BeeLine Agreement") with BeeLine LLC ("BeeLine"), under which we paid $3.0 million dollars to purchase technology and related consulting services from BeeLine. The technology was purchased for internal use. We are amortizing such costs over the estimated economic life of the services into which such technology is incorporated, generally three years. The net book value of these intangible assets was $2.1 million as of January 31, 2002. On an ongoing basis, we assess whether any events, including significant changes in demand for our products or changes in market conditions in the principal markets in which we sell our products, would adversely impact the carrying value of these assets. Possible examples of these events include but are not limited to: a significant decline in our market value; a decrease in the market value of a particular asset; and continued operating or cash flow losses combined with forecasted future losses on either a consolidated basis or for an individual revenue generating unit. If such an event were to occur, we would estimate future discounted cash flows generated by each of these assets in order to assess the amount by which the asset was impaired as required by Statement of Financial Accounting Standard No. 121 ("SFAS No. 121"). We will continue to assess the recoverability of our intangible assets in accordance with SFAS No. 121 for the remainder of fiscal 2002. Changes in market conditions and other business indicators could give rise to factors that would require us to assess whether our intangible assets are impaired.

On July 1, 2002, we will be required to adopt Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets ("SFAS No. 142"), which supersedes SFAS 121, for impairment of intangible assets. Following adoption of SFAS No. 142, we will continue to evaluate whether any event has occurred which might indicate that the carrying value of an intangible asset is not recoverable.

Accounts receivable. As of January 31, 2002, our accounts receivable balance, net of the allowance for doubtful accounts, is $3.7 million. We continually review our accounts receivable for recoverability and estimate an allowance for doubtful accounts based on analysis of the portion of the outstanding accounts receivable that has been recognized as revenue. We review all receivables in excess of 60 days outstanding and make a determination of collectibility based on the age of the receivable and the historical collection experience with that customer.

FACTORS THAT MAY AFFECT FUTURE RESULTS

Current and potential stockholders should consider carefully each of the following factors in making their investment decisions. These factors should be considered together with the other information included or incorporated by reference in this Quarterly Report.

We have a history of losses and negative cash flows and anticipate continued net losses.

We have not generated enough revenues to exceed the substantial amounts we have spent to develop and operate our business. We incurred net losses of approximately $28.6 million for the ~~three~~six-month ~~months~~period ended ~~October~~January 31, ~~2001~~2002, $27.3 million for fiscal 2001, $15.4 million for fiscal 2000 and $5.5 million for fiscal 1999. We expect to continue to experience losses for the immediately foreseeable future. Moreover, we base current and future expense levels on our operating plans and our estimates of future revenues. If our revenues grow at a slower rate than we anticipate, or if our spending exceeds our expectations or cannot be adjusted to reflect such slower revenue growth, we may not generate sufficient revenues to achieve profitability. If we do achieve profitability, we may be unable in the future to sustain or increase profitability on a quarterly or annual basis.

Our business is subject to quarterly fluctuations in operating results, which may negatively impact the price of our common stock.

You should not rely on quarter-to-quarter comparisons of our operating results as an indication of future performance. It is possible that in future periods our quarterly operating results may fall below the expectations of public market analysts and investors. In this event, the price of our common stock is likely to fall.

Our quarterly net loss was approximately $6.0 million for the three months ended January 31, 2002, $2.6 million for the three months ended October 31, 2001, $6.5 million for the three months ended July 31, 2001, $8.3 million for the three months ended April 30, 2001 and $7.3 million for the three months ended January 31, 2001. We presently expect to continue to incur net losses through at least fiscal 2002. However, our quarterly operating results may fluctuate significantly in the future due to a variety of factors. These factors include the following, which are generally outside of our control:

•: competition in the markets for our services;
•: variation in the demand for our ELS solutions and industry or seasonal trends relating to marketing spending;
•: our ability to protect our systems from telecommunications failures, power loss or equipment or software-related system failures;
•: the availability and cost of geographic data and content from third party providers; and
•: economic conditions specific to the Internet as well as general economic and market conditions.

Other factors that may cause our quarterly operating results to fluctuate significantly which are at least partially under our control include:

•: the rate of new customer acquisitions;
•: whether revenues related to new customer acquisitions are recognized currently or deferred over future time periods;
•: the timing and effectiveness of our development of new services;
•: the timing and effectiveness of potential strategic alliances or other business combinations; and
•: changes in our operating expenses.

In addition, our operating expenses are based on our expectations of our future revenues and some of our operating expenses are relatively fixed in the short term, including personnel costs, data support expenses and the cost of licensing necessary information. We may be unable to reduce our expenses quickly enough to offset any additional future revenue shortfalls and may incur costs, such as additional severance costs, imposed by any such additional expense reduction programs.

The market price of our common stock has been and may continue to be highly volatile.

The market price of our common stock has fluctuated widely and may continue to do so. For example, during the period following our initial public offering in February 2000 through the period ended ~~November~~February 3028, ~~2001~~2002, the trading price of our common stock has ranged from a high of $76.25 per share to a low of $1.19 per share. Many factors could cause the market price of our common stock to rise and fall in the future. Some of these factors include:

•: actual or anticipated variations in our operating results;
•: announcement of technological innovations;
•: conditions or trends in the Internet and ELS solutions industries;
•: acquisitions and alliances by us or others in the industry;
•: changes in estimates of our performance or recommendations by financial analysts;
•: market conditions in the industry and the economy as a whole;
•: introduction of new services by our competitors;
•: changes in the market valuations of other Internet service companies;
•: announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
•: the amount of liquid financial resources available to us;
•: additions or departures of key personnel; and
•: other events or factors, many of which are beyond our control or only partially in our control.

The overall financial markets have recently experienced significant price and volume fluctuations, and the market prices of technology companies, particularly Internet-related companies, have been and continue to be adverse and extremely volatile. Volatility in the price of our common stock may be caused by factors outside of our control and may be unrelated or disproportionate to our operating results. In the past, following periods of volatility in the market price of a public company's securities, securities class action litigation has often been instituted against that company. Securities class action litigation could result in substantial costs and a diversion of our management's attention and resources.

If demand for ELS solutions fails to develop or develops more slowly than we expect, we may not generate sufficient revenues to achieve profitability.

Our future success is highly dependent on an increase in the use of the Internet and wireless platforms as marketing channels including, in particular, the deployment and acceptance of wireless and broadband platforms. If significant demand for ELS solutions fails to develop or develops more slowly than we have planned for, we may not generate sufficient revenues to achieve profitability. The market for ELS solutions is new and rapidly evolving, and it cannot yet be compared with traditional marketing media to gauge its effectiveness. Companies that have historically relied on traditional marketing methods may be reluctant or slow to adopt online or wireless marketing. As a result, demand and market acceptance for Internet and wireless-based marketing solutions cannot yet be determined. Many of our current and potential clients have little or no experience using the Internet or wireless platforms for marketing purposes and may allocate only a limited portion of their marketing budgets to these platforms. Companies that have invested substantial resources in traditional methods of marketing may be reluctant to reallocate those resources to online or wireless marketing. In addition, companies that have invested a significant portion of their marketing budget in online or wireless marketing may decide after a time to return to more traditional methods if they find that online or wireless marketing is a less effective method of promoting their products and services than traditional marketing methods.

1417

of our current and potential clients have little or no experience using the Internet or wireless platforms for marketing purposes and may allocate only a limited portion of their marketing budgets to these platforms. Companies that have invested substantial resources in traditional methods of marketing may be reluctant to reallocate those resources to online or wireless marketing. In addition, companies that have invested a significant portion of their marketing budget in online or wireless marketing may decide after a time to return to more traditional methods if they find that online or wireless marketing is a less effective method of promoting their products and services than traditional marketing methods.

We have experienced turnover at our senior management levels, which could harm our business and operations.

During the second and third quarters of fiscal 2001, several of our senior executive officers resigned. In particular, Emerick M. Woods, our former President and Chief Executive Officer, resigned effective April 23, 2001, Howard A. Bain III, our former Executive Vice President and Chief Financial Officer, resigned effective November 17, 2000, Scott Young, our former Senior Vice President, Products and Strategy and Chief Technology Officer resigned effective February 28, 2001, and Dinesh Wadhawan, our former Senior Vice President, Worldwide Sales, resigned effective January 31, 2001.

In April 2001, we announced that Norman H. Nie, one of our directors since 1998, would serve as our Executive Chairman while we search for a replacement Chief Executive Officer. In addition, also in April 2001, we announced the addition of Timothy J. McMullen as our Chief Operating Officer and subsequently announced the hiring of Daniel M. Shapero as our ~~new~~ Vice President, Marketing and Stephen D. Ackley as our Vice President, Worldwide Sales. In October 2001, we named Ronald S. Smith as our Chairman of the Board of Directors, replacing Mr. Nie, who continues to serve as one of our directors. In December 2001, we announced that Charles W. Berger would serve as our President and Chief Executive Officer. It is possible that this high turnover at our senior management levels will continue and that other senior executive officers could also resign, creating limited management continuity, recruitment costs and, in some cases, severance costs.

In December 2001, we announced that Charles W. Berger would serve as our President and Chief Executive Officer. In January 2002, we announced the resignation of Timothy J. McMullen, our interim Chief Operating Officer, effective January 18, 2002, and Daniel M. Shapero, our Vice President, Marketing, effective January 18, 2002. In March 2002, we announced the addition of Teri Dahlbeck as our Vice President, Marketing. It is possible that this turnover at our senior management levels will continue and that other senior executive officers could also resign, creating limited management continuity, recruitment costs and, in some cases, severance costs.

We have relied on our ability to sell existing customers additional services to generate revenue and the continued growth of our business depends on our ability to continue to do so in the future.

Much of our past sales growth is the result of selling additional services to existing clients. Our growth strategy depends on the introduction of new services that we hope to sell to our existing clients. We may not develop any of these new services in a cost-effective and timely manner, and we have insufficient experience with these new service offerings to know whether they will be well received by our clients. Any new service we introduce that is not favorably received could damage our relationships with our clients. If our existing clients decide to maintain their current level of service and not upgrade to additional services, we might fall short of our projected sales and would have to cultivate other sales opportunities, which might be expensive and might not materialize.

We may be unable to maintain our current pricing structure because our business is changing rapidly as are the services that we provide.

Our current business model is to provide ELS solutions to our business clients. We may not achieve an acceptable level of profitability, or become profitable at at all, if our clients' marketing executives do not perceive that the use of our services will improve the effectiveness of their marketing efforts or if they are otherwise unable to generate a significant return on investment from using our services. ELS solutions are relatively new and unproven and may not achieve widespread customer acceptance. To be successful, we must adapt to our rapidly changing market by continually enhancing the technologies used in our services and introducing new technology to address the changing needs of our clients. Under our current pricing structure, clients pay for most of our services through set-up and annual fees. There is a risk that competition with respect to the services we provide will eventually result in very low prices for our services. If we are unable to maintain an adequate pricing structure, we will not generate sufficient revenues to achieve and maintain profitability.

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result in very low prices for our services. If we are unable to maintain an adequate pricing structure, we will not generate sufficient revenues to achieve and maintain profitability.

Acquisitions or strategic investments may disrupt or otherwise have a negative impact on our business.

In the future we may acquire or make investments in complementary businesses, technologies, services or products, or enter into strategic partnerships with parties who can provide access to those assets, if appropriate opportunities arise. From time to time we have had discussions and negotiations with companies regarding our acquiring, investing in or partnering with their businesses, products, services or technologies, and we regularly engage in these discussions and negotiations in the ordinary course of our business. Some of those discussions also contemplate the other party making an investment in our company or a subsidiary of our company. We may not identify suitable acquisition, investment or strategic partnership candidates, or if we do identify suitable candidates, we may not complete those transactions on commercially acceptable terms or at all. We could have difficulty in assimilating the personnel, operations, technology and software of another company that we acquire. In addition, the key personnel of a company that we acquire may decide not to work for us. If we make acquisitions, we could have difficulty in integrating the acquired products, services or technologies into our operations. These difficulties could disrupt our ongoing business, distract our management and employees and increase our expenses. Furthermore, we may incur indebtedness or issue equity securities to pay for any future acquisitions. The issuance of equity securities would dilute the ownership interests of the holders of our common stock.

Litigation over intellectual property rights could disrupt or otherwise have a negative impact on our business.

There has been frequent litigation in the high-technology industry regarding intellectual property rights. Like others in our industry, we are from time to time subject to claims regarding the alleged intellectual property rights of third parties. In fiscal 1999, we entered into a settlement agreement and agreed to pay $441,000 for a patent license with respect to an intellectual property rights claim. We have received, and expect in the future to receive, claims of infringement by us with respect to current or future products, trademarks or other proprietary rights. Regardless of the merits, these claims could be time-consuming, result in costly litigation, divert our management's attention, cause product or service release delays, require us to redesign our products or services or require us to enter into costly royalty or licensing agreements.

Current intellectual property litigation, if decided against us, could have a material adverse effect on our business and operations.

On December 13, 2001, Murex Securities Limited and Murex Licensing Corporation sued us, two of our customers and Qwest Communications International, Inc. alleging that our Enterprise Location Services infringe claims of a number of the plaintiffs' patents, and seeking unspecified damages and permanent injunctive relief, as described more fully under Part II, Item I "Legal Proceedings." The allegedly infringing Vicinity services are material to our business. We have responded to these allegations, denying that we infringe any valid claim of the patents-in-suit, and we intend to vigorously defend against this lawsuit. Notwithstanding the existence of meritorious defenses, litigation over the scope and application of intellectual property rights is subject to uncertainty and can consume significant resources in terms of the cost of defense and the diversion of management time and energy. Further, if this lawsuit were ultimately to be decided against us and we were enjoined from providing one or more of the services at issue, there could be a material adverse effect on our business and operations.

We have dedicated significant resources toward developing new clients internationally; any success in these efforts may prove not to have been worth the associated expense.

Our business plan in the recent past has included the expenditure of significant resources internationally. During fiscal 2000, we opened sales offices in France, Germany and the United Kingdom. During fiscal 2001, we announced the closure of our office in Germany and the downsizing of our office in France in order to centralize functions in our United Kingdom office. To date, we have limited experience in marketing our services internationally, and we cannot predict our success in these international markets. In order to generate greater revenues overseas, we intend to continue to enter into relationships with foreign businesses, and we cannot predict whether those relationships will be successful. Our international plans are subject to inherent risks, including:

1619

of our office in France in order to centralize functions in our United Kingdom office. To date, we have limited experience in marketing our services internationally, and we cannot predict our success in these international markets. In order to generate greater revenues overseas, we intend to continue to enter into relationships with foreign businesses, and we cannot predict whether those relationships will be successful. Our international plans are subject to inherent risks, including:

•: the impact of economic fluctuations in economies outside of the United States;
•: greater difficulty in accounts receivable collection and longer collection periods;
•: unexpected changes in regulatory requirements, tariffs and other trade barriers;
•: difficulties and costs of staffing and managing foreign operations due to distance, as well as language and cultural differences;
•: political instability, currency exchange fluctuations and potentially adverse tax consequences; and
•: reduced protection for intellectual property rights outside the United States.

We cannot predict whether our international business operations will be successful. The results of our efforts may prove not to have been worth the associated expense and opportunity cost.

We have experienced fluctuation in the number of our employees, and any inability to manage this fluctuation could harm our business.

The number of our employees has fluctuated significantly over the last two fiscal years in response to changing market conditions and the evolution of our business. The number of our employees grew from 106 as of October 31, 1999 to 224 as of October 31, 2000, and then decreased to approximately ~~134~~120 as of ~~October~~January 31, ~~2001~~2002. This fluctuation has placed a significant strain on our management, systems and resources. We expect that we will need to continue to maintain close coordination among our technical, finance, sales and marketing groups in order to successfully manage such fluctuations in personnel.

We will not be able to execute our business plan if we cannot increase our direct and indirect sales channels.

We will need to expand substantially our direct and indirect sales operations, both domestically and internationally, in order to increase market awareness and sales of our products. Our services require a sophisticated sales effort targeted at several people within our prospective clients' organizations. Competition for qualified sales personnel is intense, and we may not be able to hire the kind and number of sales personnel that we are targeting. Also, the decline in our stock price may significantly increase the difficulty in hiring new qualified sales personnel. In addition, we believe that our future success is dependent upon establishing and maintaining productive relationships with a variety of distribution partners, resellers and joint marketing partners. We cannot be sure that we will be successful in signing up desired partners or that our partners will devote adequate resources or have the technical and other sales capabilities to sell our products.

Similarly, the complexity of our products and the difficulty of installing them require highly trained customer service and support personnel. We currently have a small customer service and support organization, and we may need to increase our staff to support new services, new customers and the expanding needs of existing customers. Competition for customer service and support personnel is intense in our industry due to the limited number of people available with the necessary technical skills and understanding of the Internet.

Our business is difficult to evaluate because we have a limited operating history.

Our company was founded in October 1995, and our initial revenues were derived from providing maps, driving directions and directory services. We have a limited operating history from which you can evaluate our present business and future prospects. As a relatively new entrant to the business of providing ELS solutions for companies on the Internet, wireless and speech platforms, we face risks and uncertainties relating to our ability to implement our business plan successfully. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving markets such as the Internet. If we are unsuccessful in addressing these risks and uncertainties, our business, results of operations, financial condition and prospects will be materially adversely affected.

Historically, we have depended on a limited number of services for most of our revenues.

Historically, we have derived most of our revenues from our products formerly known as Web Business Finder, maps, driving directions and directory services, which collectively represented

approximately 74%, 65%, 86% and 91% of our revenue in fiscal 2001, 2000, 1999 and 1998, respectively. Our results of operations would be materially and adversely affected by a reduction in demand or a change in the pricing structure for these services.

Our business is dependent on the continuous, reliable and secure operation of our databases and the related services that we provide, and a system failure could negatively impact our business.

Our operations are dependent on our ability to maintain our databases, servers and communications equipment in effective working order and to protect them from fire, natural disaster, sabotage, power loss, telecommunications failure, human error or similar events. Although we currently maintain two geographically dispersed data centers, a system failure or natural disaster could significantly disrupt our operations. Any system failure, including a network, software or hardware failure, that causes an interruption in the performance of our services or a decrease in responsiveness of our services could result in lost clients, reduced revenue and harm to our reputation. Despite the implementation of security measures and standard operating procedures, our infrastructure may also be vulnerable to computer viruses, hackers, human error or similar problems caused by our employees, clients or Internet users. A party who is able to circumvent our security measures could misappropriate proprietary database information or cause interruptions in our operations. As a result, we may be required to expend significant capital and other resources to help protect against, or to alleviate problems caused by, these security breaches. Our insurance may not adequately compensate us for any losses that may occur due to any failure in our system or interruption in our service. In addition, the growth of our business may strain the capacity of our servers and telecommunications systems. If we are unable or otherwise fail to maintain or upgrade our systems, they could fail or suffer degradation in performance. Any damage, failure or delay that causes significant interruption in our databases or other systems would adversely affect our operating results and could cause the price of our common stock to decline.

Our current business plan depends in significant part on third party relationships, many of which are short-term or terminable.

We presently rely on our strategic partners to provide key services, marketing opportunities, technologies, clients and users. These arrangements can be terminated by our partners in some circumstances. If our relationships with our strategic partners were terminated, we would have to adapt our operations or business plan, which may take time and may interrupt the provision of the affected services. In addition, if we do not establish additional, and maintain existing, strategic relationships on commercially reasonable terms or if our strategic relationships do not result in an increase in the number of users of our services, we may be unable to continue to offer existing products or to develop new products and we may not experience a significant portion of the anticipated growth in our clients and the number of end-users of our services. As a result, we may not generate sufficient revenues to achieve profitability, and the price of our common stock is likely to fall. Finally, new strategic relationships that are entered into may prove difficult to implement and may fail to provide some or all of the anticipated benefits.

We are dependent on a limited number of third parties for a significant portion of our geographic data.

Most of our services rely on the availability and accuracy of geographic data. We have licensed a significant portion of our geographic data from a limited ~~number~~ number of sources through non-exclusive, short-term contractual arrangements. If any of these third parties were to merge with or be acquired by another company, the number of ~~sources~~ sources providing this geographic data could be further reduced. Given the short terms of our geographic data licenses, we will have to renegotiate our contracts in the foreseeable future, which may result in contractual terms that are not as favorable to us as our existing data licenses. If we cannot maintain these data licenses or any other third-party license arrangement on commercially reasonable terms, the scope and quality of our services may suffer.

data licenses. If we cannot maintain these data licenses or any other third-party license arrangement on commercially reasonable terms, the scope and quality of our services may suffer.

If we are unable to generate fast and accurate responses to queries, the marketability of our services will be reduced.

If we are unable to generate responses quickly or if the responses we generate are not accurate, the marketability of our services will be reduced and we may experience a decline in the number of users of our services. The accuracy of our services is substantially dependent on the accuracy of data that we license from third parties. We plan to update our geographic databases periodically. However, in view of the complexity of updating multiple databases and revising software, and the need to obtain geographic data for address information from third parties, we may not be able to perform these updates as planned. This could harm our business, financial condition and results of operations.

We face competition and may face future competition from companies with different business strategies that could cause us to lower our prices or to lose a significant portion of our market share.

We may be unable to compete successfully with current or future competitors. We face competition from many companies, both traditional and online, several of which are affiliated with companies much larger than our company. Increased competition could result in price reductions for our services, reduced gross margins and loss of our market share.

Many of our existing competitors, as well as potential future competitors, have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than our company. These advantages may allow them to respond more quickly and effectively to new or emerging technologies and changes in customer requirements. It may also allow them to engage in more extensive research and development, undertake farther-reaching marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to potential employees and strategic partners. One or more of these companies could adopt a different business strategy for achieving profitability that could allow them to charge fees that are lower than ours in order to attract clients. In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products or services to address the needs of our current and prospective clients.

ELS solutions is a rapidly developing industry, and new types of products and services may emerge that are more attractive to consumers and marketers than the types of services we offer. As a result, it is possible that new competitors may emerge and rapidly acquire significant market share.

Without the continued growth in use of the Internet and wireless devices, we may not experience a significant portion of the growth currently anticipated.

Our future success is substantially dependent upon continued growth and use of the Internet and wireless devices such as cellular telephones. Use of and ~~interest~~ interest in the Internet and wireless devices ~~may not continue to grow at their current rates. Internet usage may be inhibited for many reasons, including the following:~~

19 may not continue to grow at their current rates. Internet usage may be inhibited for many reasons, including the following:

•: the inability of Web sites to provide security and authentication of confidential information contained in transmissions over the Internet; and
•: the inability of Web sites to respond to privacy concerns of potential users, including concerns related to the placement by Web sites of information, so-called cookies, on a user's hard drive without the user's knowledge or consent.

Even if the Internet and wireless services experience significant growth in the number of users and level of use, the Internet and wireless services infrastructures may not be able to support the demands placed upon them by this growth. Our success and the viability of the Internet and wireless services as information media and commercial marketplaces will depend in large part upon the development of robust telecommunications infrastructure for providing Internet access and carrying Internet and wireless traffic. If the use of the Internet and wireless services do not grow adequately, if the necessary telecommunications infrastructure or complementary products are not developed or do not effectively support growth that may occur or if the Internet and wireless services do not become viable information media and commercial marketplaces, we may not experience a significant portion of the growth currently anticipated and the price of our common stock is likely to fall.

We face a competitive labor market for highly skilled employees that we must attract, retain and motivate in order to execute our growth plan.

Our future success depends on our ability to attract, train, motivate and retain highly skilled employees. Competition for qualified employees among Internet and software companies is intense, particularly in the Silicon Valley area in which our headquarters are located. Market wages for employees include expectations for significant stock-based compensation and, in light of the disappointing performance of our stock price, we may be unable to offer attractive equity packages to potential employees, and may also be unable to retain and motivate our existing employees whose stock options are out-of-the-money. These circumstances could require additional stock option grants or restructurings of existing grants, either of which would be dilutive to holders of our common stock. We may be unable to retain our key employees or attract, assimilate or retain other highly qualified employees in the future. We have from time to time in the past experienced, and we expect to continue to experience in the future, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. The inability to attract additional qualified personnel could disrupt the implementation of our growth strategy upon which the success of our business depends.

We are highly dependent on the acceptance and effectiveness of the Internet as a medium for consumer transactions and on the increased use of the Internet by consumers to locate our clients' products.

The future success of a number of our services is dependent in large part on an increase in the use of the Internet for business transactions with consumers and on the increased use of the Internet by consumers to locate our clients' products. The electronic commerce market is relatively new and rapidly evolving and the extent of consumer acceptance of the Internet cannot yet be determined. If a sufficiently broad base of consumers do not accept the use of the Internet for transacting business or do not use the Internet to locate our clients' products, our business, financial condition and results of operations could be materially and adversely affected.

If we fail to protect our intellectual property rights or face a claim of intellectual property infringement by a third-party, we could lose our intellectual property rights or be liable for significant damages.

Our success depends significantly upon our proprietary technology. We currently rely on a combination of copyright and trademark laws, trade secrets, patents, confidentiality procedures and contractual provisions to protect our proprietary rights. Our employees are generally required to execute confidentiality and assignment agreements that transfer any rights they may have in copyrightable works or patentable technologies to us. In addition, prior to entering into discussions with strategic partners, we generally require that these parties enter into a non-disclosure agreement. If these discussions result in a license or other business relationship, we also generally require that the agreement setting forth the parties' respective rights and obligations include provisions for the protection of our intellectual property rights. Our failure to enter into these agreements when appropriate or our inability to enforce our rights under one or more of these agreements could jeopardize our ability to protect our intellectual property. This could materially and adversely affect our business.

2023

Wecontractual ~~have~~provisions ~~registered~~to ~~several~~protect ~~service~~our ~~marks~~proprietary ~~in the United States, including "Vicinity," "MapBlast!," "GeoSearch," "Powered by Vicinity," "Vicinity Telephone Business Finder" and "Vicinity Wireless Business Finder~~rights." WeOur ~~have~~employees ~~applied~~are ~~for~~generally ~~registration~~required ofto aexecute ~~number~~confidentiality ~~of additional service marks in the United States~~ and inassignment ~~other~~agreements ~~countries~~that ~~and~~transfer ~~will~~any ~~seek~~rights tothey ~~register additional service marks and trademarks, as appropriate. We~~ may behave ~~unsuccessful~~ in copyrightable ~~obtaining~~works ~~the~~or ~~service~~patentable ~~marks~~technologies ~~and~~to ~~trademarks for which we have applied~~us. WeIn ~~may~~addition, ~~not~~prior beto ~~granted~~entering ~~certain~~into ~~patents~~discussions with ~~respect~~strategic ~~to our technology~~partners, ~~and~~we ~~any~~generally ~~patent~~require that isthese ~~granted~~parties ~~may~~enter beinto ~~challenged~~a non-disclosure ~~or invalidated~~agreement. WeIf ~~may~~these ~~not~~discussions ~~develop~~result ~~proprietary~~in ~~products~~a license or ~~technologies~~other ~~that~~business ~~are patentable~~relationship, ~~and~~we ~~any~~also ~~issued~~generally ~~patent~~require ~~may~~that ~~not~~the ~~provide~~agreement ussetting ~~with any~~forth ~~competitive~~the ~~advantages~~parties' orrespective ~~withstand~~rights and ~~challenges~~obligations byinclude ~~third~~provisions ~~parties.~~for ~~In addition,~~ the ~~patents~~protection of ~~others may adversely affect~~ our ~~ability~~intellectual toproperty ~~conduct our business~~rights. ~~Despite~~Our ~~our~~failure ~~efforts~~ to ~~protect~~enter ~~our proprietary~~into ~~rights,~~these ~~unauthorized~~agreements ~~parties~~when ~~may~~appropriate ~~copy~~or ~~aspects of~~ our ~~products~~inability ~~or services or obtain and use information that we regard as proprietary. The laws of some foreign countries do not protect proprietary rights~~ to asenforce ~~great an extent as do the laws of the United States. Our means of protecting~~ our ~~proprietary~~ rights ~~may~~under ~~not be adequate, and our competitors may independently develop similar~~one ~~technology~~ or ~~duplicate~~more ~~our~~of ~~products~~these oragreements ~~design~~could ~~around~~jeopardize ~~patents~~our ~~issued~~ability to usprotect or our ~~other~~ intellectual property ~~rights~~. ~~Our~~This ~~failure to protect our proprietary rights adequately or our competitors' successful duplication of our technology~~ could ~~harm~~materially ~~our operating results~~ and ~~cause~~adversely ~~the~~affect ~~price of~~ our ~~common stock to decline~~business.

We have registered several service marks in the United States, including "Vicinity," "MapBlast!," "GeoSearch," "Powered by Vicinity," "Vicinity Business Finder," "Vicinity Telephone Business Finder," "Vicinity Wireless Business Finder" and "Vicinity Brandfinder." We have applied for registration of a number of additional service marks in the United States and in other countries and will seek to register additional service marks and trademarks, as appropriate. We may be unsuccessful in obtaining the service marks and trademarks for which we have applied. We may not be granted certain patents with respect to our technology, and any patent that is granted may be challenged or invalidated. We may not develop proprietary products or technologies that are patentable, and any issued patent may not provide us with any competitive advantages or withstand challenges by third parties. In addition, the patents of others may adversely affect our ability to conduct our business. Despite our efforts to protect our proprietary rights, unauthorized parties may copy aspects of our products or services or obtain and use information that we regard as proprietary. The laws of some foreign countries do not protect proprietary rights to as great an extent as do the laws of the United States. Our means of protecting our proprietary rights may not be adequate, and our competitors may independently develop similar technology or duplicate our products or design around patents issued to us or our other intellectual property rights. Our failure to protect our proprietary rights adequately or our competitors' successful duplication of our technology could harm our operating results and cause the price of our common stock to decline.

Privacy concerns may adversely affect our ability to implement our Internet solutions.

Web sites and Internet advertisement servers typically place a small file commonly known as a "cookie" on a user's hard drive, generally without the user's knowledge or consent. We may introduce services or features that are dependent on the use of cookies to collect, sort and analyze information about Internet users. Most currently available Internet browsers allow users to modify their browser settings to prevent cookies from being stored on their hard drive or to delete cookies at any time. In addition, some Internet commentators and privacy advocates have suggested limiting or eliminating the use of cookies and the Federal Trade Commission is investigating these issues in response to recent publicity regarding Internet advertising companies. The effectiveness of our future services could be limited by a significant reduction or limitation in the use of cookies. In addition, privacy concerns may cause some Web users to be less likely to visit Web sites that use cookies. If enough Web users choose not to visit sites that use cookies, our ability to sell our services or features that are dependent on the use of cookies would be adversely affected and could require us to alter or adjust our business practices.

Legislation or regulations may be adopted that could affect our ability to generate or use information for profiles and may hinder our ability to conduct business.

The legal and regulatory environment governing the Internet and the use of information about Internet users is constantly evolving. United States legislators in in the past have introduced a number of bills aimed at regulating the collection and use of personal data from Internet users and additional similar bills may be considered during any congressional session. Although we believe no current legislation has had a material adverse effect on our business, it is possible that a bill may be enacted into law that negatively affects our ability to collect and use data about Internet users or that otherwise affects our business. The European Union has adopted a directive addressing data privacy that may result in limitations on the collection and use of specific personal information regarding Internet users. In addition, Germany has imposed laws protecting data that can become personally identifiable through subsequent processing. Other countries may also enact limitations on the use of personal data.

21 similar bills may be considered during any congressional session. Although we believe no current legislation has had a material adverse effect on our business, it is possible that a bill may be enacted into law that negatively affects our ability to collect and use data about Internet users or that otherwise affects our business. The European Union has adopted a directive addressing data privacy that may result in limitations on the collection and use of specific personal information regarding Internet users. In addition, Germany has imposed laws protecting data that can become personally identifiable through subsequent processing. Other countries may also enact limitations on the use of personal data.

To date, these regulations have not materially restricted the use of our products. However, legislation or regulations may in the future be adopted which may limit our ability to target advertising or collect and use information in one or more countries. Further, a number of laws and regulations have been and may be adopted covering issues such as pricing, acceptable content, taxation and quality of products and services on the Internet. This legislation could dampen the growth in use of the Internet generally and decrease the acceptance of the Internet as a communications and commercial medium. In addition, due to the global nature of the Internet, it is possible that multiple federal, state or foreign jurisdictions might inconsistently regulate our activities or the activities of advertising networks or Web sites.

The large number of shares eligible for public sale could cause our stock price to decline.

In February 2000, we issued 8,050,000 shares of common stock pursuant to our IPO. These shares are freely tradable with the exception of those shares purchased by our affiliates. We had an aggregate of approximately 26.8 million shares of our common stock outstanding as of ~~November~~February 3028, ~~2001~~2002, which includes the shares sold in our IPO. The shares not registered as part of our IPO may be sold only pursuant to a registration statement under the Securities Act or an exemption from the registration requirements of the Securities Act. The market price of our common stock could decline as a result of the sales of a large number of these shares or the perception that sales could occur. In addition, the large number of shares eligible for sale may make it more difficult for us to sell common stock in the future at a time and at a price that we deem appropriate.

We do not currently plan to pay dividends to the holders of our common stock.

We do not currently anticipate paying cash dividends to the holders of our common stock. Accordingly, stockholders must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize on their investment. Investors seeking cash dividends should not purchase our common stock.

A third party's ability to acquire us might be more difficult because of anti-takeover provisions in our Restated Certificate of Incorporation and Bylaws.

We are authorized to issue five million shares of undesignated preferred stock. Our Board of Directors has the authority to issue the preferred stock in one or more series and to fix the price, rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting a series or the designation of any series, without any further vote or action by our stockholders. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of delaying, deferring or preventing a change in control of our company without further action by our stockholders and may adversely affect the market price of our common stock and the voting and other rights of our stockholders. The issuance of preferred stock with voting and conversion rights may adversely affect the voting power of the holders of our common stock, including the loss of voting control to others. We have no current plans to issue any shares of preferred stock.

Provisions of our Restated Certificate of Incorporation and Bylaws eliminate the right of stockholders to act by written consent without a meeting, eliminate the right of stockholders to call a special meeting of stockholders, specify procedures for nominating directors and submitting proposals for consideration at stockholder meetings and provide for a staggered Board of Directors, so that no more than approximately one-third of our directors could be replaced each year and it would take three successive annual meetings to replace all directors. These provisions are intended to enhance the likelihood of continuity and stability in the composition of our Board of Directors and in the policies formulated by our Board of Directors and to discourage some transactions that may involve an actual or threatened change of control of our company. These provisions are designed to reduce the vulnerability of our company to an unsolicited acquisition proposal and, accordingly, could discourage potential acquisition proposals and delay or prevent a change in control of our company. These provisions are also intended to discourage tactics that may be used in proxy fights but could, however, 25

22 Provisions of our Restated Certificate of Incorporation and Bylaws eliminate the right of stockholders to act by written consent without a meeting, eliminate the right of stockholders to call a special meeting of stockholders, specify procedures for nominating directors and submitting proposals for consideration at stockholder meetings and provide for a staggered Board of Directors, so that no more than approximately one-third of our directors could be replaced each year and it would take three successive annual meetings to replace all directors. These provisions are intended to enhance the likelihood of continuity and stability in the composition of our Board of Directors and in the policies formulated by our Board of Directors and to discourage some transactions that may involve an actual or threatened change of control of our company. These provisions are designed to reduce the vulnerability of our company to an unsolicited acquisition proposal and, accordingly, could discourage potential acquisition proposals and delay or prevent a change in control of our company. These provisions are also intended to discourage tactics that may be used in proxy fights but could, however, have the effect of discouraging others from making tender offers for our common stock and, consequently, may also inhibit fluctuations in the market price of our common stock that could result from actual or rumored takeover attempts. These provisions may also have the effect of preventing changes in the management of our company.

have the effect of discouraging others from making tender offers for our common stock and, consequently, may also inhibit fluctuations in the market price of our common stock that could result from actual or rumored takeover attempts. These provisions may also have the effect of preventing changes in the management of our company.

Many corporate actions will be controlled by officers, directors and affiliated entities regardless of the opposition of other investors or the desire of other investors to pursue an alternative course of action.

Our executive officers, directors and entities affiliated with them, in the aggregate, beneficially own a significant percentage of our outstanding common stock. These stockholders, if acting together, would be able to significantly influence all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions.

23Investment Company Act of 1940

The Investment Company Act of 1940 regulates mutual funds and closed-end investment companies that are traded on the public stock markets. Due to that fact that a large percentage of our assets consist of cash equivalents and investment securities, from time to time we could be viewed as holding a larger portion of our assets in these vehicles than is presumptively permitted by the 1940 Act for a company not registered as an investment company. The 1940 Act and its associated contain provisions and set forth principles that are designed to differentiate "true" operating companies from companies that may be considered to have sufficient investment company-like characteristics to require regulation by the 1940 Act. At this time, we believe that we qualify as an operating company under these provisions. In the future, however, our situation may change which might require us to seek an alternate solution such as exemptive or no-action relief from the SEC. Alternative solutions could involve increasing the portion of our investment securities into government obligations with a likely reduction in the yield we earn on those investments. Further, any determination that we are an unregistered investment company would have a material adverse effect on our company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The following discussion about our market rate risk involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. We are exposed to market risk related to changes in interest rates, foreign currency exchange rates and equity security price risk.

Interest rate risk. The primary objective of our investment activities is to preserve principal and assure sufficient liquidity to meet anticipated needs, while at the same time maximizing the income we receive from our investments within such constraints. Some of the securities that we invest in may be subject to market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. For example, if we hold a security that was issued with a fixed interest rate at the then-prevailing rate and the prevailing interest rate later rises, the principal amount of our investment will probably decline. To minimize this risk in the future, we intend to maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including government securities, municipal bonds, time deposits, Eurodollar deposits, certificates of deposit, commercial paper, corporate notes and bonds and other specific money market instruments. We classify our cash equivalents and short-term investments as "fixed-rate" if the rate of return on such instruments remains fixed over their term. We classify our cash equivalents and short-term investments as "variable rate" if the rate of return on such investments varies based on the change in a predetermined index or set of indices during their term. The table below presents the amounts and related weighted interest rates of our investment portfolio at ~~October~~January 31, ~~2001~~2002 (dollars in thousands):

		Average Interest Rate		Cost		Fair Value
				(In thousands)
Cash equivalents:
	Fixed rate	~~2.69~~—	%	$	~~1,333~~—	$	~~1,333~~—
	Variable rate	21.7585			71,~~249~~582		71,~~249~~582
Short-term investments:
	Fixed rate	3.7375			6679,~~377~~388		6679,~~892~~564
	Variable rate	41.7608			124,~~463~~501		124,~~471~~501

Foreign Currency Exchange Rate Risk. We develop products in the United States and market our products in North America and Europe. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. Since all of our sales are currently made in U.S. dollars, a strengthening of the dollar could make our products less competitive in foreign markets.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

Our company and certain of our former officers and directors have been named as defendants in four lawsuits filed in the United States District Court for the Southern District of New York, which have been consolidated into the case MBH Inc. v. Vicinity Corporation et al. No lead plaintiff has been named. This lawsuit is purportedly being brought as a class action on behalf of individuals who purchased shares of our company's common stock between February 9, 2000 and December 6, 2000 in connection with and traceable to our initial public offering, although no class has been certified. This lawsuit alleges that our company, certain of our former officers and directors, and our securities underwriters violated various sections of the Securities Act of 1933 and the Securities Exchange Act of 1934, and related rules, by reason of alleged false statements and omissions relating to underwriting discounts and market stabilization transactions. The plaintiffs seek unquantified actual damages, recissionary damages and other relief to compensate losses allegedly incurred by purchasers of our common stock in connection with our initial public offering.

This lawsuit is a small part of a large number of such actions brought against numerous securities underwriters and issuers of securities that appear to be related to an investigation currently being conducted by the United States Securities and Exchange Commission of the conduct of certain securities underwriters. These lawsuits, including the consolidated action brought against our company, have been transferred to a consolidated docket for coordination and decision of pre-trial motions, discovery and related matters other than trial. Certain underwriter defendants have brought a motion to recuse the judge charged with managing the consolidated docket. The judge has denied the motion and indicated she will refrain from making any substantive rulings pending the Second Circuit Court's consideration of a petition for a writ of mandamus ordering the recusal.

At present, discovery has not commenced and we have not responded to any of the complaints in the consolidated action. We believe that the claims against our company and certain of our former officers and directors are without merit and we intend to vigorously defend against them.

We On ~~have~~December 13, ~~received~~2001, ~~correspondence~~Murex ~~from~~Securities Limited and Murex Licensing Corporation ~~asserting~~("Murex") ~~that~~filed ~~our~~a ~~services~~complaint ~~formerly~~in ~~known~~the asUnited ~~Web,~~States ~~Telephone~~District ~~and~~Court ~~Wireless~~for ~~Business~~the ~~Finder~~Eastern ~~and~~District ~~our MapBlast! Web site infringe various claims~~ of ~~patents owned by~~ Virginia (Murex Securities Limited, ~~Ltd.~~ Weet ~~believe~~al.v ~~that~~Vicinity ~~the~~Corporation, ~~patent~~et ~~infringement claims~~al, ~~asserted~~Civil inAction ~~the~~No. 01-1895-A) ~~correspondence~~naming ~~from~~Vicinity, ~~Murex~~two ~~are~~of ~~without~~our ~~merit,~~customers and weQwest ~~intend~~Communications toInternational, Inc. ~~defend~~as ~~against~~defendants. ~~them~~The ~~vigorously~~Complaint ~~should~~alleges ~~Murex~~that ~~assert~~our ~~them~~Enterprise ~~against~~Location usServices ininfringe ~~litigation.~~claims ~~Murex~~of ~~has~~a ~~also~~number ~~asserted~~of ~~that~~the ~~it expects~~plaintiffs' ~~additional~~ patents, ~~including~~and ~~patent~~it ~~claims~~seeks ~~allegedly~~unspecified ~~covering~~damages ~~our~~and ~~services,~~permanent toinjunctive relief. beIn ~~issued~~its response to ~~Murex in~~ the ~~future.~~Complaint, Wewe ~~are~~have ~~unable~~denied atthat ~~this~~we ~~time~~infringe ~~to evaluate the merits of~~ any ~~patent~~valid ~~infringement~~ claims ~~Murex~~of ~~may~~the ~~assert against our company~~ patents-in-suit. ~~the~~The ~~future~~Court ~~based~~has onset ~~patent~~a ~~claims~~trial ~~which~~date ~~have~~of ~~not yet issued~~June 17, or2002 ~~which~~for this ~~otherwise~~action. ~~have~~We ~~not~~intend ~~been brought~~ to ~~our~~vigorously ~~attention.~~defend ~~Notwithstanding~~against the ~~existence~~plaintiffs' ~~of meritorious~~claims. ~~defenses~~In addition, ~~any~~the ~~litigation~~defendants ~~over~~in ~~the~~this ~~scope~~case ~~and~~include ~~application~~two of ~~patents~~our orcustomers. ~~similar~~We ~~intellectual~~have ~~property~~received ~~claims~~communications ~~could~~from ~~involve~~these ~~significant~~customers demanding ~~costs~~that ofwe ~~defense~~provide ~~and~~indemnification ~~would~~for ~~involve~~the ~~risks~~costs ~~and uncertainties,~~incurred ~~particularly~~by them in ~~light~~this oflitigation. ~~the~~We ~~fact~~believe that the ~~products~~terms ~~and~~of ~~technologies~~our ~~described~~customer ~~above~~contracts ~~are~~place ~~material~~significant tolimitations on our ~~business~~liability to these customers.

Murex has also asserted that it expects additional patents, including patent claims allegedly covering our services, to be issued to Murex in the future. We are unable at this time to evaluate the merits of any patent infringement claims Murex may assert against us in the future based on patent claims which have not yet issued, or which have not otherwise been brought to our attention. Notwithstanding the existence of meritorious defenses, any litigation over the scope and application of patents or similar intellectual property claims could involve significant costs of defense and would and does involve risks and uncertainties, particularly in light of the fact that the products and technologies described above are material to our business.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

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

(a): The annual meeting of the Company's shareholders (the "Annual Meeting") was held on January 3, 2002. At that time there were present, in person or by proxy, 17,539,684 shares of the Company's Common Stock.
(b): At the annual meeting, one item was submitted to a vote of stockholders: (1) the election of two directors.
(c): (1) The result of voting for the election of two directors at the Annual Meeting were as follows:

Not applicable.

NOMINEE		FOR		WITHHELD
Norman Nie		15,826,474		1,713,210
Michael Sears		17,253,200		286,484

ITEM 5. OTHER INFORMATION.

On Not ~~December 10, 2001, we issued a press release announcing that Charles W~~applicable. ~~Berger had become our President and Chief Executive Officer. In addition, Mr. Berger was elected to fill a vacancy on our Board of Directors.~~

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a): Exhibits. The following exhibits are included as part of this Report:

Exhibit No.		Description of Exhibit
10.42		Amended and Restated Executive Employment Agreement, dated October 24, 2001, by and between Vicinity Corporation and Timothy J. McMullen.
10.44		Letter Agreement, dated as of December 5, 2001 by and between the Registrant and Charles W. Berger (incorporated by reference to Exhibit 99.1 of the Registrant's Current Report on Form 8-K as filed with the Commission on December 11, 2001 (File No. 000-29365)).
10.43		Amended and Restated Executive Employment Agreement, dated October 24, 2001, by and between Vicinity Corporation and Daniel M. Shapero.
10.45		Non-Statutory Stock Option Agreement dated as of December 10, 2001 by and between the Registrant and Charles W. Berger (incorporated by reference to Exhibit 10.1 of the Registrant's Registration Statement on Form S-8 as filed with the Commission on February 28, 2002 (File No. 333-83526)).
10.46		Executive Employment Agreement, dated April February 12, 2002, by and between Vicinity Corporation and Teri Dahlbeck.

(b)

Reports on Form 8-K:

1.: The Registrant filed a Current Report on Form 8-K on December 11, 2001, reporting under Item 5 (Other Events) the employment of the Registrants new President and Chief Executive Officer.
2.: The Registrant filed a Current Report on Form 8-K on December 19, 2001, reporting under Item 5 (Other Events) that it had been served with a patent infringement lawsuit by Murex Licensing Corporation.

~~None.~~ 29

SIGNATURES

Pursuant to the requirements 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.

	VICINITY CORPORATION Registrant
Dated: December 11, 2001	By:	/s/ TIMOTHY J. MCMULLEN Timothy J. McMullen Senior Vice President and Chief Operating Officer
Dated: March 13, 2002	By:	/s/ CHARLES W. BERGER Charles W. Berger President and Chief Executive Officer

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TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Financial Statements

VICINITY CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
VICINITY CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
VICINITY CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
VICINITY CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

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

ITEM 5. OTHER INFORMATION.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

SIGNATURES

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