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

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

(Mark One)

ý	Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2002.

OR

o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to .

Commission file number: 000-29365

~~For~~VICINITY ~~the quarterly period ended April 30, 2002~~ CORPORATION

(Exact ~~Commission~~name ~~file~~of ~~number:~~Registrant as ~~000-29365~~ Specified in its Charter)

VICINITY CORPORATION  (Exact name of Registrant as Specified in its Charter) 

  DELAWARE

  77-0414631

  (State or Other Jurisdiction of

  Incorporation or Organization)

  (I.R.S. Employer

  Identification No.)

  370

  San Aleso Avenue

  Sunnyvale,

  California 94085

  (Address of Principal Executive Offices)

  (408)

  543-3000

  (Registrant’s telephone number, including area

  code)

  The

  Registrant has changed the last day of its fiscal year from July 31 to June

  30

  (Former name, former address and former fiscal

  year, if changed since last report)

~~DELAWARE~~Indicate by check mark whether the Registrant: (~~State~~1) has filed all reports required to be filed by Section 13 or ~~Other~~15(d) ~~Jurisdiction~~of the Securities Exchange Act of ~~Incorporation~~1934 during the preceding 12 months (or ~~Organization~~for such shorter period that the registrant was required to file such reports), ~~77-0414631~~and (~~I.R.S.~~2) ~~Employer~~has ~~Identification~~been Nosubject to such filing requirements for the past 90 days.)

~~370 San Aleso Avenue~~Yes ~~Sunnyvale,~~ ý No ~~California 94085 (Address of Principal Executive Offices)~~ o

~~Registrant's~~The ~~telephone~~ number of shares of common stock, ~~including~~par ~~area~~value ~~code:~~$0.001 ~~(408) 543-3000~~ per share, of Vicinity Corporation outstanding as of October 31, 2002 was 27,249,643.

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

The number of shares of common stock, par value $0.001 per share, of Vicinity Corporation outstanding as of May 31, 2002 was 26,907,000.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended April 30, 2002 and 2001	4
	Unaudited Condensed Consolidated Balance Sheets as of April 30, 2002 and July 31, 2001	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended April 30, 2002 and 2001	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	29
Item 2.	Changes in Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Submission of Matters to a Vote of Security Holders	30
Item 5.	Other Information	30
Item 6.	Exhibits and Reports on Form 8-K	30

PART I. FINANCIAL INFORMATION

Unless the context otherwise requires, references herein to "we," "us," "our company," "the Company" or "Vicinity" are to Vicinity Corporation, a Delaware corporation. 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 Business Finder," "Vicinity Telephone Business Finder," "Vicinity Wireless Business Finder," and "Vicinity Brandfinder" are registered marks of our company. We have filed applications for the marks "Vicinity Location Server," "Vicinity Web Locator," "Vicinity Wireless Locator," "Vicinity Speech Locator," "Vicinity Data Manager," "VLS," "Vicinity Location Analyzer" and "Power of Location" with the United States Patent and Trademark Office, and these applications are currently pending. Each trademark, trade name or service mark of any other company appearing in this Quarterly Report belongs to its holder.

Item 1.	Financial Statements

	Unaudited Condensed Consolidated Statements of Operations for the three months ended September 30, 2002 and October 31, 2001

	Unaudited Condensed Consolidated Balance Sheets as of September 30, 2002 and June 30, 2002

	Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2002 and October 31, 2001

	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

Item 4.	Controls and Procedures

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

Certifications

~~References in~~Unless ~~this~~the ~~Quarterly~~context ~~Report~~otherwise torequires, ~~past~~references herein ~~fiscal~~to ~~years~~“we,” ~~refer~~“us,” to“our company,” “the ~~fiscal~~Company” ~~year~~or of“Vicinity” ~~our~~are ~~company~~to Vicinity ~~ended~~Corporation, ona ~~July 31~~Delaware ~~of that year~~corporation. We ~~recently~~were ~~changed~~incorporated ~~the~~as ~~last~~a California ~~day~~corporation ofin ~~our~~October ~~fiscal~~1995 ~~year from~~and ~~July 31~~reincorporated toas ~~June 30,~~a ~~commencing~~Delaware corporation ~~with~~in ~~the~~January ~~present~~2000. ~~fiscal~~“Vicinity,” ~~year~~“MapBlast!,” ~~2002.~~“GeoSearch,” As“Powered ~~a result~~by Vicinity,” ~~fiscal~~“Vicinity ~~2003~~Business ~~will~~Finder,” ~~commence~~“Vicinity onTelephone ~~July 1~~Business Finder,” “Vicinity ~~2002~~Wireless Business Finder,” and ~~end~~“Vicinity onBrandfinder” ~~June 30,~~are ~~2003~~registered marks of our company. ~~The~~We ~~period~~have ~~from~~filed applications for the marks “Vicinity ~~August 1~~ Location Server,” ~~2001~~“Vicinity toWeb ~~June 30~~Locator,” ~~2002~~“Vicinity ~~will~~Wireless beLocator,” “Vicinity aSpeech ~~transition~~Locator,” ~~period~~“Vicinity Data Manager,” “VLS,” “Vicinity Location Analyzer” and ~~will~~“Power ~~result~~of inLocation” awith ~~fiscal~~the ~~year~~United ~~2002~~States ~~that~~Patent ~~contains~~and ~~eleven~~Trademark Office, ~~months~~and these applications are currently pending. Each ~~Accordingly~~trademark, ~~our~~trade ~~fiscal~~name ~~fourth~~or ~~quarter~~service mark of ~~fiscal~~any ~~year~~other ~~2002,~~company ~~ending~~ appearing onin ~~June 30,~~this ~~2002,~~Form ~~will~~10-Q ~~contain~~belongs ~~two~~to ~~months.~~its holder.

We changed the last day of our fiscal year from July 31 to June 30 in the fourth quarter fiscal 2002. References in this quarterly report to the first quarter of fiscal 2003 refer to the quarter ended September 30, 2002, and references to the first quarter fiscal 2002 refer to the quarter ended October 31, 2001.

Forward Looking Statements

The statements contained in this ~~Quarterly~~quarterly ~~Report~~report that are not historical facts may be deemed to contain forward-looking statements which are subject to safe harbors created under the U.S. federal securities laws. These forward-looking statements include, among other things, statements about the proposed acquisition of our company by Microsoft Corporation, our anticipated future revenues, anticipated profitability, anticipated growth of our customer base, and more generally other projections of our future financial performance, our anticipated growth and other anticipated trends in our business. In some cases, you can identify these statements by words or phrases such as "“anticipate,"” "“estimate,"” "“projects,"” "“believes,"” "“intends,"” "“expects" ” and similar words and phrases. These statements are only predictions, based on on our current expectations about future events, and we cannot guarantee that they will be accurate. Actual results may differ materially from those expressed or implied in any forward-looking statement as a result of several risks and uncertainties, including, without limitation, the risks and uncertainties detailed herein under "“Item 2. Management'’s Discussion and Analysis of ~~Financial~~ 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, unless we are required to do so by law.

PART I. FINANCIAL INFORMATION

Item 1. ~~Unaudited Condensed Consolidated~~ Financial Statements

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

		Three Months Ended April 30,						Nine Months Ended April 30,
		2002			2001			2002			2001
REVENUES
	License and hosting fees	$	3,669		$	4,040		$	11,083		$	12,192
	Service and transaction fees		592			818			2,396			3,156
			4,261			4,858			13,479			15,348
COST OF REVENUES (1)			1,965			3,346			6,705			10,104
	Gross profit		2,296			1,512			6,774			5,244
OPERATING EXPENSES
	Product development (1)		1,278			1,879			4,181			5,104
	Sales and marketing (1)		2,452			3,967			8,417			14,545
	General and administrative (1)		779			1,979			3,227			6,536
	Stock-based compensation		13			77			60			439
	Impairment of intangible assets		—			751			3,752			751
	Restructuring and other special charges		—			2,549			(133	)		3,649
			4,522			11,202			19,504			31,024
LOSS FROM OPERATIONS			(2,226	)		(9,690	)		(12,730	)		(25,780	)
Other income, net			712			1,354			2,584			4,949
NET LOSS		$	(1,514	)	$	(8,336	)	$	(10,146	)	$	(20,831	)
BASIC AND DILUTED NET LOSS PER SHARE		$	(0.06	)	$	(0.29	)	$	(0.37	)	$	(0.74	)
WEIGHTED AVERAGE SHARES USED IN BASIC AND DILUTED NET LOSS PER SHARE CALCULATIONS			26,854			28,279			27,533			27,971
(1) Excludes stock-based compensation of:
	Cost of revenues	$	3		$	29		$	10		$	80
	Product development		7			14			34			50
	Sales and marketing		2			27			12			196
	General and administrative		1			7			4			113
		$	13		$	77		$	60		$	439

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

~~See Notes~~(In tothousands, ~~Unaudited~~except ~~Condensed~~per ~~Consolidated~~share ~~Financial Statements.~~ data)

	Three Months Ended
	Sept. 30, 2002			Oct. 31, 2001

REVENUES
License and hosting fees	$	3,612		$	3,895
Service and transaction fees	653			823

	4,265			4,718

COST OF REVENUES(1)	1,904			2,472

Gross profit	2,361			2,246

OPERATING EXPENSES
Product development(1)	1,385			1,681
Sales and marketing(1)	2,649			2,982
General and administrative(1)	1,511			1,188
Stock-based compensation	9			28
Litigation settlement charge	300			—
Other special charges	942			—

	6,796			5,879

LOSS FROM OPERATIONS	(4,435		)	(3,633		)
Other income, net	638			1,038

NET LOSS	$	(3,797	)	$	(2,595	)

BASIC AND DILUTED NET LOSS PER SHARE	$	(0.14	)	$	(0.09	)

WEIGHTED AVERAGE SHARES USED IN BASIC AND DILUTED NET LOSS PER SHARE CALCULATION	27,023			28,253

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

(1) Excludes stock-based compensation of:
Cost of revenues	$	2	$	4
Product development	5		16
Sales and marketing	1		6
General and administrative	1		2

	$	9	$	28

		April 30, 2002			July 31, 2001
ASSETS
CURRENT ASSETS
	Cash and cash equivalents	$	24,008		$	12,439
	Short-term investments		61,280			81,284
	Accounts receivable, net		1,836			2,893
	Prepaid expenses and other current assets		1,528			1,010
Total current assets			88,652			97,626
PROPERTY AND EQUIPMENT, net			6,704			9,229
INTANGIBLE ASSETS, net			1,824			6,610
OTHER ASSETS			345			317
Total Assets		$	97,525		$	113,782
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
	Accounts payable		305			845
	Accrued liabilities		1,869			4,054
	Deferred revenue		7,293			7,638
	Capital lease obligations, current portion		—			227
Total current liabilities			9,467			12,764
OTHER LIABILITIES			425			420
Total liabilities			9,892			13,184
STOCKHOLDERS' EQUITY
	Common stock		27			29
	Additional paid-in capital		155,719			158,364
	Deferred stock-based compensation		(41	)		(263	)
	Notes receivable from stockholders		—			(39	)
	Accumulated other comprehensive income (loss)		(94	)		339
	Accumulated deficit		(67,978	)		(57,832	)
Total stockholders' equity			87,633			100,598
Total Liabilities and Stockholders' Equity		$	97,525		$	113,782

See Notes to Unaudited Condensed Consolidated Financial Statements.

~~See Notes to Unaudited Condensed Consolidated Financial Statements.~~ 4

5VICINITY CORPORATION AND SUBSIDIARIES

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

			Nine Months Ended April 30,
			2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES
	Net loss		$	(10,146	)	$	(20,831	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation and amortization		4,064			3,578
		Provision for doubtful accounts		(100	)		220
		Stock-based compensation		99			711
		Write-off of fixed assets		—			85
		Impairment of intangible assets		3,752			751
		Restructuring and other special charges (credits)		(133	)		—
		Changes in operating assets and liabilities:
		Accounts receivable		1,019			1,620
		Prepaid expenses and other current assets		(584	)		1,030
		Accounts payable		(540	)		(632	)
		Accrued liabilities		(2,284	)		186
		Deferred revenue		(207	)		(1,317	)
	Net cash used in operating activities			(5,060	)		(14,599	)
CASH FLOWS FROM INVESTING ACTIVITIES
	Investments of excess cash:
		Purchases of available-for-sale securities		(73,897	)		(52,750	)
		Proceeds from sales and maturities of available-for-sale securities		93,468			48,297
	Purchases of property and equipment			(300	)		(6,467	)
	Purchase of technology			—			(2,985	)
	Purchase of NetCreate			—			(250	)
	Sublease deposit received			—			418
	Other			4			55
	Net cash provided by (used in) investing activities			19,275			(13,682	)
CASH FLOWS FROM FINANCING ACTIVITIES
	Proceeds from issuance of common stock, net			293			1,215
	Repurchase of common stock			(2,712	)		(207	)
	Principal payments on capital leases			(227	)		(827	)
	Net cash provided by (used in) financing activities			(2,646	)		181
Increase (decrease) in cash				11,569			(28,100	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD				12,439			48,195
CASH AND CASH EQUIVALENTS AT END OF PERIOD			$	24,008		$	20,095

(In thousands)

See Notes to Unaudited Condensed Consolidated Financial Statements.

	September 30, 2002			June 30, 2002
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	16,953		$	12,782
Short-term investments	65,877			70,781
Accounts receivable, net	2,218			2,437
Prepaid expenses and other current assets	1,026			1,472

Total current assets	86,074			87,472

PROPERTY AND EQUIPMENT, net	5,834			6,364
INTANGIBLE ASSETS, net	1,410			1,658
OTHER ASSETS	820			883

Total Assets	$	94,138		$	96,377

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payable	$	481		$	255
Accrued liabilities	2,400			2,151
Deferred revenue	7,001			7,119

Total current liabilities	9,882			9,525

OTHER LIABILITIES	986			424

Total liabilities	10,868			9,949

STOCKHOLDERS’ EQUITY
Common stock	27			27
Additional paid-in capital	155,965			155,619
Deferred stock-based compensation	(22		)	(32		)
Accumulated other comprehensive income	463			180
Accumulated deficit	(73,163		)	(69,366		)

Total stockholders’ equity	83,270			86,428

Total Liabilities and Stockholders’ Equity	$	94,138		$	96,377

6See Notes to Unaudited Condensed Consolidated Financial Statements.

~~VICINITY CORPORATION AND SUBSIDIARES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ 5

~~NOTE 1—PRESENTATION~~VICINITY CORPORATION OFAND ~~INTERIM FINANCIAL STATEMENTS~~ SUBSIDIARIES

~~The~~UNAUDITED ~~accompanying~~CONDENSED ~~unaudited~~CONSOLIDATED ~~condensed~~STATEMENTS ~~consolidated~~OF ~~financial~~CASH statements have been prepared on the same basis as the audited financial statements. In the opinion of management, all significant adjustments that are of a normal, recurring 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. FLOWS

~~NOTE 2—RECENT ACCOUNTING PRONOUNCEMENTS~~ (In thousands)

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 adoption of SFAS 141 had no impact to the Company's operating results, financial position or cash flows.

	Three Months Ended
	Sept. 30, 2002			Oct. 31, 2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(3,797	)	$	(2,595	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	989			1,613
Provision for (reduction in) doubtful accounts	(36		)	70
Stock-based compensation	9			28
Changes in operating assets and liabilities:
Accounts receivable	255			(822		)
Prepaid expenses and other current assets	446			35
Accounts payable	226			136
Accrued liabilities and other liabilities	811			(1,191		)
Deferred revenue	(118		)	250

Net cash used in operating activities	(1,215		)	(2,476		)

CASH FLOWS FROM INVESTING ACTIVITIES
Investments of excess cash:
Purchases of available-for-sale securities	(10,568		)	(35,821		)
Sales and maturities of available-for-sale securities	15,756			37,922
Purchases of property and equipment	(211		)	(157		)
Decrease in other assets	63			—

Net cash provided by investing activities	5,040			1,944

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net	346			104
Repurchase of unvested common stock	—			(2,227		)
Principal payments on capital leases	—			(145		)

Net cash provided by (used in) financing activities	346			(2,268		)

Increase (decrease) in cash and cash equivalents	4,171			(2,800		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	12,782			12,439

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	16,953		$	9,639

~~In July 2001,~~See ~~the~~Notes ~~FASB issued SFAS No. 142, Goodwill and Other Intangible Assets. SFAS 142 requires that goodwill no longer be amortized~~ to ~~earnings, but instead be~~Unaudited ~~reviewed for impairment. The Company will be required to implement SFAS 142 as of the beginning of its fiscal year 2003. The adoption of this statement is not expected to have a material impact~~ onCondensed ~~the~~Consolidated ~~Company's~~Financial ~~operating results, financial position or cash flows~~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 adoption of this statement is not expected to have a material impact on the Company's operating results, financial position or cash flows. 6

~~NOTE 3—NET~~VICINITY CORPORATION ~~LOSS~~AND ~~PER SHARE~~ SUBSIDIARIES

~~Basic~~NOTES ~~net~~TO ~~loss~~UNAUDITED ~~per~~CONDENSED ~~share~~CONSOLIDATED isFINANCIAL 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. STATEMENTS

7NOTE 1 - PRESENTATION OF INTERIM FINANCIAL STATEMENTS

~~Diluted~~The accompanying unaudited condensed consolidated ~~net~~ financial ~~loss~~statements ~~per~~have ~~share~~been ~~does~~prepared on the same basis as the audited financial statements. In the opinion of management, all significant adjustments that are 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 ~~include~~necessarily indicative of expected performance for the ~~effect~~entire year. The unaudited information should be read in conjunction with the audited financial statements of the ~~following~~Company ~~anti-dilutive~~and ~~common~~the ~~equivalent~~notes ~~shares~~thereto (for the year ended June 30, 2002 included in ~~thousands):~~the Company’s Form 10-KT filed with the Securities and Exchange Commission.

	Three months ended April 30,		Nine months ended April 30,
	2002	2001	2002	2001
Stock options	4,010	2,044	4,010	2,044
Shares of common stock subject to repurchase	—	283	—	283
	4,010	2,327	4,010	2,327

In March 2002, the Company announced a change to its fiscal year end. 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 July 31 to June 30, commencing with fiscal year 2002. The period from August 1, 2001 through June 30, 2002 was a transition period and resulted in a fiscal year 2002 that contained eleven months. The Company’s 2003 fiscal year commenced on July 1, 2002 and will end on June 30, 2003. Accordingly, the Company’s unaudited condensed consolidated statements of operations and cash flows provided in this quarterly report provide a comparison of results from the three months ended September 30, 2002 against results from the three months ended October 31, 2001.

~~The weighted-average~~NOTE ~~exercise~~2 ~~price~~– ofRECENT ~~stock options outstanding was $3.03 and $7.89 as of April 30, 2002 and 2001, respectively. The weighted-average exercise price of shares of~~ACCOUNTING ~~common stock subject to repurchase was $0.20 as of April 30, 2001. There were no shares of common stock subject to repurchase as of April 30, 2002.~~ PRONOUNCEMENTS

~~NOTE 4—COMPREHENSIVE~~In ~~LOSS~~ 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 implemented SFAS 142 on July 1, 2002. The adoption of this statement did not have a material impact on the Company’s operating results, financial position or cash flows.

~~The~~In ~~following~~October ~~table~~2001, ~~sets~~the ~~forth~~FASB issued Statement No. 144, “Accounting for the ~~calculation~~Impairment or Disposal of ~~comprehensive~~Long-Lived ~~loss~~Assets.” SFAS 144 applies to all long-lived assets (inincluding ~~thousands~~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. The company adopted SFAS 144 on July 1, 2002. The adoption of this statement did not have a material impact on the Company’s operating results, financial position or cash flows.

	Three Months Ended April 30,						Nine Months Ended April 30,
	2002			2001			2002			2001
Net loss	$	(1,514	)	$	(8,336	)	$	(10,146	)	$	(20,831	)
Unrealized loss on available-for-sale securities		(269	)		(1,221	)		(433	)		(2,080	)
Comprehensive loss	$	(1,783	)	$	(9,557	)	$	(10,579	)	$	(22,911	)

In June 2002, the FASB issued SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which addresses accounting for restructuring and similar costs. SFAS 146 supersedes previous accounting guidance. The Company will adopt the provisions of SFAS 146 for restructuring activities initiated after December 31, 2002. SFAS 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under previous guidance, a liability for an exit cost was recognized at the date of the Company’s commitment to an exit plan. SFAS 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS 146 may affect the timing of recognizing restructuring costs that may be incurred in the future as well as the amounts recognized.

NOTE ~~5—SEGMENT~~ ~~INFORMATION~~ 3 – NET LOSS PER SHARE

~~The~~Basic ~~Company's~~net ~~chief~~loss ~~operating~~per share ~~decision~~is ~~maker,~~computed orby ~~CODM,~~dividing isnet ~~considered~~loss toby be the ~~Company's~~weighted-average ~~Chief~~number ~~Executive~~of ~~Officer~~common shares outstanding for the period. ~~The~~Diluted ~~CODM~~net ~~evaluates~~loss ~~performance,~~per ~~makes~~share ~~operating~~is computed by ~~decisions~~ dividing ~~and~~net ~~allocates~~loss ~~resources~~by ~~based~~the onweighted-average ~~financial~~number ~~data~~of ~~consistent~~common ~~with~~and, ~~the~~when ~~presentation~~dilutive, potential incommon ~~the~~shares ~~accompanying~~outstanding ~~consolidated~~during ~~financial~~the ~~statements~~period. ~~Therefore,~~Potential common shares include the ~~Company~~effect ~~operates~~of inoutstanding astock ~~single~~options ~~segment~~and common stock subject to repurchase. All potential common

~~Revenue information by geographic area is summarized below for the three and nine-month periods ended April 30, 2002 and 2001 (in thousands):~~ 7

	Three Months Ended April 30,				Nine Months Ended April 30,
	2002		2001		2002		2001
North America	$	3,369	$	4,040	$	11,071	$	12,930
Europe		892		818		2,408		2,418
Revenues	$	4,261	$	4,858	$	13,479	$	15,348

shares have been excluded from the computation of diluted net loss per share for all periods presented because the effect would be anti-dilutive.

~~For the~~Diluted ~~three~~net ~~and~~loss ~~nine-month~~per ~~periods~~share ~~ended~~does ~~April 30,~~not ~~2002~~include ~~and~~the ~~2001,~~effect of nothe ~~customer~~following ~~accounted~~anti-dilutive ~~for~~potential ~~10%~~common orshares ~~more~~(in ~~of the Company's revenues.~~ thousands):

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

	Three Months Ended
	Sept. 30, 2002	Oct. 31, 2001

Stock options	4,398	2,517

8The weighted-average exercise price of stock options outstanding was $2.67 and $4.52 as of September 30, 2002 and October 31, 2001, respectively.

NOTE ~~6—LITIGATION~~ 4 – COMPREHENSIVE LOSS

The ~~Company~~following ~~and~~table ~~certain~~sets offorth ~~its former officers and directors have been named as defendants in four lawsuits filed in~~ the ~~United~~calculation ~~States District Court for the Southern District~~ of ~~New York, which have been consolidated into the case MBH Inc., v. Vicinity Corporation, et al. By order dated April 19, 2002, Robert Elka has been named as the lead~~ ~~plaintiff. 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,~~comprehensive ~~2000~~loss (in connection with and traceable to the Company's initial public offering, although no class has been certified. According to the Amended Complaint filed on April 20, 2002, 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, the Securities Exchange Act of 1934, and related rules, including Rule 10b-5, 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. thousands):

This lawsuit is one 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 the Second Circuit Court's has denied a petition for a writ of mandamus ordering the recusal. The Court recently set a schedule for defendants to make motions to dismiss, such that the motions are expected to be fully submitted to the Court by the end of September 2002. At present, discovery has not commenced and the Company has not responded to any of the complaints in the consolidated action. The Company believes 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.

	Three Months Ended
	Sept. 30, 2002			Oct. 31, 2001
Net loss	$	(3,797	)	$	(2,595	)
Unrealized gain on available-for-sale securities	283			184

Comprehensive loss	$	(3,514	)	$	(2,411	)

~~On December 13,~~NOTE ~~2001,~~5 Murex Securities Limited and Murex Licensing Corporation ("Murex") filed a complaint in the United States District Court for the Eastern District of Virginia (Murex Securities Limited, et al. v. Vicinity Corporation, et al, Civil Action No. 01-~~1895-A) naming the Company and two of its customers as defendants. In the~~ ~~Complaint, the plaintiffs alleged that the Company's Enterprise Location Services infringed claims of a number of the plaintiffs' patents, and it sought unspecified damages and permanent injunctive~~ ~~relief.~~SEGMENT In its response to the complaint, the Company denied that it infringed any valid claims of the patents-in-suit. On May 23, 2002, the Company and Murex reached a mutual settlement agreement (the "Settlement Agreement") regarding this matter. Under the Settlement Agreement, the Company was granted a license by Murex in exchange for cash payments. In addition, the Settlement Agreement includes a fee for past royalties. The Company expects that payments for past royalties, as well as litigation costs, will be largely covered by the Company's insurance. INFORMATION

The Company’s ~~has~~chief ~~received~~operating ~~correspondence~~decision ~~from~~maker, ~~Unisys~~or ~~Corporation~~CODM, is ~~asserting~~considered ~~that~~to be the Company'’s ~~services~~Chief ~~infringe~~Executive ~~various claims of patents owned by Unisys Corporation~~Officer. The ~~Company~~CODM isevaluates ~~unable~~ performance, atmakes ~~this~~operating ~~time~~decisions toand ~~evaluate~~allocates ~~the~~resources ~~merits~~based ofon financial ~~these~~data ~~claims.~~consistent ~~Any~~with ~~litigation over~~ the ~~scope~~presentation ~~and~~in ~~application~~the ofaccompanying consolidated ~~patents~~financial orstatements. ~~similar~~Therefore, ~~intellectual~~the ~~property~~Company ~~claims~~operates ~~could~~in ~~involve~~a ~~significant costs of defense~~single ~~and would involve risks and uncertainties~~ segment.

9Revenue information by geographic area is summarized below (in thousands):

NOTE 7—IMPAIRMENT OF INTANGIBLE ASSETS, RESTRUCTURING COSTS AND OTHER SPECIAL CHARGES

	Three Months Ended
	Sept. 30, 2002		Oct. 31, 2001
North America	$	3,618	$	4,058
Europe	647		660

Total Revenue	$	4,265	$	4,718

~~During~~For the ~~quarter~~three months ended ~~January 31~~September 30, 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. 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, the Company intends to market components/functionalities that are similar to SiteMaker, but based on~~ anOctober ~~entirely different code base. As a result, during the three months ended January~~ 31, ~~2002~~2001, ~~the~~no ~~Company~~customer ~~recorded~~accounted ~~an impairment charge totaling approximately $3.8 million~~ for ~~the remaining~~10% ~~goodwill~~or ~~and~~more ~~developed~~of ~~product technology related to~~ the ~~NetCreate acquisition~~Company’s revenues.

During the year ended July 31, 2001, the Company recorded restructuring costs, other special charges and charges for the impairment of intangible assets of $4.4 million, including restructuring costs of $2.8 million, other special charges of $0.8 million and charges for the impairment of intangible assets of $0.8 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’s ~~recorded $0.5 million of severance~~long-~~related~~lived ~~special~~assets ~~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~~are ~~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~~located ~~equipment costs associated with the termination of employees. In addition, during the three months ended April 30, 2001, the Company recorded approximately $0.8 million~~ in ~~charges for~~ the ~~impairment~~United of intangible assets 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 special charges of approximately $0States.~~3 million for the write-off of software and other similar costs related to the downsizing of the Company's operations.~~

~~The following~~NOTE ~~analysis~~6 ~~sets~~– ~~forth the significant components of total restructuring costs and other special charges recorded by the Company during fiscal 2001 and the nine months ended April 30, 2002 (in thousands):~~ LITIGATION

	Restructuring costs and other special charges		Payments/ Charges			Adjustments			Accrual Balance at April 30, 2002
Severance and employment costs	$	2,531	$	(2,487	)	$	(44	)	$	—
Facility and equipment costs		1,118		(564	)		(89	)		465
Impairment of intangible assets		751		(751	)		—			—
	$	4,400	$	(3,802	)	$	(133	)	$	465

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. By order dated April 19, 2002, Robert Elka has been named as the lead plaintiff. 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,

~~Payments on the remaining facility costs of $465,000 extend through approximately July 2003.~~ 8

10although no class has been certified. According to the Amended Complaint filed on April 20, 2002, 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, the Securities Exchange Act of 1934, and related rules, including Rule 10b-5, 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.

~~NOTE~~This ~~8—STOCK~~lawsuit ~~REPURCHASE~~is ~~PROGRAM~~ one 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 the Second Circuit Court’s has denied a petition for a writ of mandamus ordering the recusal. The Company believes 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.

OnThe ~~September 18,~~Company ~~2001,~~has ~~the~~received ~~Company~~correspondence ~~announced~~from Unisys Corporation (“Unisys”) asserting that ~~its~~the ~~Board~~Company’s services infringe various claims of ~~Directors~~a ~~had~~patent ~~authorized~~owned by Unisys covering LZW compression. Unisys has offered the Company a ~~stock~~license ~~repurchase~~under ~~program~~this ofpatent, upwhich toexpires $5in 2003.~~0 million~~ The Company is currently evaluating Unisys’ offer. AsIn ofthe event that this matter cannot be ~~April 30,~~ resolved ~~2002,~~through negotiation and Unisys files a claim against the Company ~~had~~under the ~~repurchased~~patent, ~~for~~the ~~retirement~~litigation ~~approximately~~could ~~1,785,000~~involve ~~shares~~significant costs of ~~its~~defense ~~common~~and ~~stock~~would involve ~~for~~risks ~~approximately~~and $2uncertainties.~~7 million.~~

~~NOTE~~Note ~~9—CHANGE~~7 IN– Restructuring ~~FISCAL~~and ~~YEAR~~Other ~~END~~ Special Charges

In ~~March~~ July 2002, the Company ~~announced~~renegotiated a ~~change~~sublease agreement to ~~its~~rent ~~fiscal~~additional ~~year~~space ~~end.~~in ~~Effective~~its ~~February 22,~~headquarters ~~2002,~~facility ~~the~~through ~~Audit~~July 2005. In ~~Committee~~connection ofwith the ~~Board of Directors of~~agreement, the Company, inincurred ~~accordance~~a ~~with~~loss ~~authority~~based ~~delegated~~on by the ~~Board~~difference ofbetween ~~Directors,~~the ~~adopted~~future aminimum payments ~~resolution~~to ~~changing~~be ~~the~~received ~~last~~from ~~day~~the ofsublessee and the ~~Company's~~payments ~~fiscal~~and ~~year~~costs ~~from~~that ~~July 31~~the Company towill ~~June 30,~~incur ~~commencing~~ with respect to the ~~present~~subleased ~~fiscal~~space ~~year~~through ~~2002.~~July 2005. As a result, ~~fiscal~~during ~~year~~the ~~2003~~three ~~will~~months ~~commence~~ended September ~~on July 1~~30, 2002 ~~and end on June 30~~, ~~2003.~~the ~~The~~Company ~~period~~recorded ~~from August 1, 2001 through June 30, 2002 will be~~ a ~~transition~~special ~~period~~charge ~~and~~of ~~will result in a fiscal year 2002 that contains eleven months~~$0.9 ~~Accordingly,~~million for the ~~Company's~~loss ~~fiscal fourth quarter of fiscal year 2002, ending~~ on ~~June 30, 2002,~~the ~~will~~renegotiated ~~contain two months~~sublease.

11During fiscal 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. Also, in fiscal 2002, the Company recorded adjustments of $0.1 million in connection with the reversal of previously anticipated but unincurred expenses.

The following analysis sets forth the significant ~~ITEM~~ components 2.of ~~MANAGEMENT'S~~total ~~DISCUSSION~~restructuring ~~AND~~and ~~ANALYSIS~~other OFspecial ~~FINANCIAL~~charges ~~CONDITION~~for ~~AND~~the ~~RESULTS~~three months OFended ~~OPERATIONS.~~ September 30, 2002 (in thousands):

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 on October 29, 2001. The following discussion contains forward-looking statements which are subject to the safe harbors created under the U.S. federal securities laws. These statements, including statements about revenue growth, earnings and trends in our business, are subject to risks and uncertainties. See "Factors That May Affect Future Operating Results."

	Facility and equipment costs			Loss on sublease			Total

Accrual as of June 30, 2002	$	418		$	—		$	418
Charges	—			942			942
Deductions	(103		)	(65		)	(168		)
Accrual as of September 30, 2002	$	315		$	877		$	1,192

~~Overview~~ 9

~~Vicinity~~Payments ison athe ~~leading~~sublease ~~provider~~loss ofagreement ~~Enterprise~~extend ~~Location Services, or ELS, solutions to Global 2000 companies across Web, wireless and speech platforms. Our~~through ~~solutions~~ approximately ~~enable~~July ~~our clients to direct their customers searching for a specific product or service to the nearest brick-and-mortar store that carries that product or service~~2005. ~~Our~~ ~~customers~~As ~~include~~of ~~such~~September ~~well-known companies as Best Western International~~30, ~~Citibank~~2002, ~~FedEx~~$315,000 ~~Ford Motor Company and McDonald's. Our suite~~ of ~~private-label~~the ~~and~~loss ~~co-branded~~on ~~content~~ sublease ~~and~~is ~~services—available~~in ~~via~~accrued ~~the~~liabilities ~~Internet,~~and ~~cellular phones~~$562,000 ~~wireless~~is ~~application~~included ~~protocol,~~in orother liabilities. Payments ~~WAP,~~on ~~phones, wireless devices and landline telephones—includes~~ the ~~Vicinity~~remaining ~~Location~~ facility ~~Server~~restructuring ~~along~~costs ~~with a comprehensive portfolio~~ of ~~application services and application programming interfaces~~$315,000 orextend ~~APIs,~~through ~~for~~approximately ~~embedding location intelligence deep within existing enterprise~~August ~~applications~~ 2005.

~~Change~~Note in8 ~~fiscal year end date. In March 2002, we announced that we have changed the last day of our fiscal year from~~– ~~July 31 to June 30, commencing with the present fiscal year 2002. As a result, fiscal year 2003 will commence on July 1, 2002 and end on June 30, 2003. The period from~~ ~~August 1,~~Stock ~~2001~~Repurchase through June 30, 2002 will be a transition period and will result in a fiscal year 2002 that contains eleven months. Accordingly, our fiscal fourth quarter of fiscal year 2002, ending on June 30, 2002, will contain two months. Program

~~Settlement~~In ofSeptember ~~Murex~~2001, ~~Patent~~the ~~Litigation. On~~Company ~~May 23,~~announced ~~2002,~~a westock repurchase ~~reached~~program aof ~~mutual~~up ~~settlement~~to ~~agreement~~$5.0 ~~with~~million. ~~Murex~~Under ~~regarding~~this program, stock repurchases ~~litigation~~ may ~~brought~~be bymade ~~Murex~~from ~~alleging~~time ~~patent~~to ~~infringement.~~time ~~Under~~in the ~~settlement~~open ~~agreement~~market, wethrough ~~were~~block ~~granted~~trades aor otherwise. ~~license~~As byof ~~Murex~~June in30, ~~exchange~~2002, ~~for~~the ~~cash~~Company ~~payments.~~had Inrepurchased ~~addition,~~and ~~the~~retired ~~settlement~~ approximately ~~agreement~~1,785,000 ~~includes~~shares afor ~~fee~~an ~~for~~aggregate ~~past~~purchase ~~royalties.~~price Weequal ~~expect~~to approximately ~~that~~$2.7 ~~payments~~million ~~for~~under ~~past~~the ~~royalties,~~stock asrepurchase ~~well~~program. The asCompany ~~our~~did ~~litigation~~not ~~costs,~~repurchase ~~will~~any beshares ~~largely~~during the ~~covered~~three bymonths ~~our~~ended ~~insurance.~~September 30, 2002.

~~Results~~Note of9 ~~Operations~~ – Subsequent Event

~~License~~On ~~and~~October ~~hosting~~22, ~~fees~~2002, ~~revenue~~the Company entered into a definitive agreement (the “Merger Agreement”) to be acquired by Microsoft Corporation. ~~Revenue~~ Under ~~from~~the ~~license~~terms ~~and~~of ~~hosting~~the ~~fees~~Merger isAgreement ~~recognized~~and ~~ratably~~subject ~~over~~to the conditions ~~life~~thereof, Microsoft will acquire all outstanding shares of the Company’s ~~contracts~~common stock (together with each right attached to each such share issued pursuant to the Rights Agreement entered into by the Company on August 9, 2002) for $3.33 per share in cash. In addition, and except for stock options held by the Company’s executive officers, which ~~typically~~will ~~have~~be ~~one-year~~converted into cash based on the difference between $3.33 and the exercise prices of those options, ~~non-refundable~~Microsoft ~~terms~~will assume the Company’s outstanding employee stock options and convert them into Microsoft stock options at an exchange ratio equal to $3.33 per share divided by the average closing price of Microsoft common stock during the 10 days preceding the closing.

~~For the~~The ~~three~~consummation ~~months ended April 30, 2002, we recognized $3.7 million~~ of ~~license~~the ~~and~~merger ~~hosting~~is ~~fees~~subject ~~revenue, compared~~ to ~~$4.0 million for~~ the ~~three months ended~~ ~~April 30,~~ approval ~~2001, representing a decrease~~ of ~~$0.4 million, or 9%. For~~ the ~~nine-month~~Company’s ~~period ended April 30~~stockholders, ~~2002,~~satisfaction ~~license~~of ~~and~~a ~~hosting~~minimum ~~fees~~“net ~~revenue decreased~~working ~~$1.1 million,~~ capital” ~~or 9%~~requirement, toreceipt ~~$11.1 million~~of ~~compared~~necessary toregulatory ~~$12.2 million~~approvals ~~for~~and ~~the~~other closing ~~comparable period in fiscal 2001~~conditions. Definitive ~~The decrease~~ dates for closing the ~~three-month~~merger and ~~nine-month~~for ~~periods~~the ~~is primarily~~Vicinity ~~due~~stockholder meeting to avote ~~reduction~~on in the merger ~~number~~have ofnot ~~sales~~yet ~~contracts~~been ~~for~~announced. Subject ~~our~~to ~~ELS solution entered into during~~ the ~~four~~merger ~~quarters~~requirements ~~ended~~and ~~April 30~~conditions, ~~2002~~the ~~when~~Company anticipates ~~compared~~that to the ~~four~~merger ~~quarters~~will ~~ended April 30,~~close ~~2001.~~by January 2003.

~~Deferred revenue~~In ~~consists~~May of2002, ~~customer~~the ~~payments~~Company ~~received~~and Murex Securities Limited and ~~accounts~~Murex ~~receivable~~Licensing ~~recorded~~Corporation (“Murex”) reached a settlement agreement (“Murex Settlement”) under which the Company was granted a license by Murex in exchange ~~advance~~for ofcash ~~recognizing~~payments, ~~revenue~~including a fee for ~~license~~past ~~and~~damages ~~hosting~~(Murex ~~services~~Securities Limited, et al. ~~Deferred~~v. ~~revenue~~Vicinity Corporation, et al, Civil Action No. 01-1895-A). The Company’s patent insurance provider paid for the past damages fees as ofwell as litigation costs ~~April~~ associated with the Murex Settlement. ~~30,~~ In September 2002, the patent insurance provider contacted the Company to discuss the finalization of the amount of the claim that was $7covered under the Murex Settlement.~~3 million~~ On November 12, 2002, ~~compared~~the Company entered into a settlement agreement with its patent insurance provider to pay the provider $60.4 3 million asin exchange for the release of ~~April 30,~~the Company ~~2001~~by its patent insurance provider with respect to any and all past and future claims against the Company associated with the Murex Settlement. Accordingly, ~~representing~~the anCompany ~~increase~~recorded ofa $0.9 3 million charge in the three months ended September 30, 2002. The Company expects to complete the merger transaction before the end of 2002, although the meeting could be adjourned or the ~~14%.~~closing could be delayed into early 2003, or later, depending on whether all closing conditions have been satisfied or waived.

1210

~~Service~~ITEM ~~and transaction fees revenue~~2. ~~Revenue~~ ~~from~~MANAGEMENT’S ~~service~~DISCUSSION ~~and~~AND ~~transaction~~ANALYSIS ~~fees~~OF ~~includes~~FINANCIAL ~~revenues~~CONDITION ~~from~~AND ~~implementation services,~~RESULTS ~~web~~OF development services, project-related professional services, training, volume usage in excess of the limits provided in the licenses, and, to a lesser degree, from advertising and e-commerce transactionsOPERATIONS. ~~This revenue is recognized as the services are performed.~~

~~For the~~The ~~three~~following ~~months~~discussion ~~ended~~of ~~April 30,~~the ~~2002,~~financial wecondition and ~~recognized~~results ~~$0.6 million~~ of ~~service~~operations ~~and~~of ~~transaction~~our ~~fees~~company ~~revenue,~~should abe ~~decrease~~read ofin ~~$0.2 million,~~conjunction orwith ~~28%, from~~our ~~$0.8 million~~ Form 10-KT for the ~~three~~fiscal ~~months~~year ended ~~April~~ June 30, ~~2001.~~2002, ~~The~~as ~~decrease~~filed ~~for~~with the Securities ~~three-month~~and ~~period~~Exchange isCommission ~~due~~on toSeptember a25, ~~slight decrease in volume usage revenues~~2002. The ~~For~~following ~~the~~discussion ~~nine~~contains forward-~~month~~looking ~~period~~ statements ~~ended~~which ~~April 30,~~are ~~2002,~~subject ~~service~~to ~~and~~the ~~transaction~~safe ~~fees~~harbors ~~revenue~~created ~~decreased~~under ~~$0.8 million,~~the ~~or 24%, to $2~~U.~~4 million~~S. ~~from~~federal securities $3laws.~~2 million~~ These ~~for~~statements, including ~~the~~statements ~~comparable~~about ~~period~~revenue ingrowth, ~~fiscal 2001.~~earnings ~~The~~and ~~decrease~~trends ~~for~~in ~~the~~our ~~nine-month~~business, are ~~period~~subject ~~is primarily attributable~~ to arisks ~~decrease~~and ~~in demand for~~uncertainties, and ~~our~~therefore ~~decreasing~~actual ~~focus~~results onmay ~~providing,~~vary materially. See ~~web~~“Factors ~~development~~That ~~services~~May Affect ~~for~~Future ~~our~~Operating ~~customers~~Results. ”

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 $1.4 million, or 41%, to $2.0 million for the three months ended April 30, 2002 compared to $3.3 million for the three months ended April 30, 2001. For the nine-month period ended April 30, 2002, cost of revenues decreased $3.4 million, or 34%, to $6.7 million from $10.1 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 nine months ended April 30, 2002 when compared to the three months and nine months ended April 30, 2001. Overview

~~Gross margin~~Vicinity ~~for~~is ~~the~~a ~~three~~leading ~~months~~provider ~~ended~~of ~~April 30~~Enterprise Location Services, ~~2002~~or ~~was 54%~~ELS, ~~compared~~solutions to ~~31%~~Global ~~for~~2000 ~~the~~companies ~~three~~across ~~months~~Web, ~~ended~~wireless ~~April 30,~~and speech ~~2001~~platforms. ~~Gross~~Our ~~margin~~solutions ~~for~~enable ~~the~~our ~~nine-month period~~clients ~~ended~~to ~~April 30,~~direct ~~2002~~their ~~was~~customers searching ~~50%,~~for ~~compared~~a tospecific ~~34%~~product ~~for~~or ~~the~~service ~~comparable~~to ~~period~~the innearest ~~fiscal~~brick-and-mortar store ~~2001.~~that ~~The~~carries ~~increase~~that inproduct ~~gross~~or ~~margin~~service. inOur ~~both~~customers ~~the~~include ~~three~~such well-known ~~months~~companies ~~and~~as ~~nine~~Best ~~months~~Western ~~ended~~International, ~~April 30~~Citibank, ~~2002~~FedEx, Ford Motor ~~reflects~~ Company ~~the~~and ~~impact~~McDonald’s. ofOur ~~cost~~suite ~~reduction~~of ~~programs~~private-label ~~that~~and weco-branded ~~began~~content ~~implementing~~and services—available ~~during~~via ~~our~~the ~~third~~Internet, ~~and~~cellular ~~fourth~~phones, ~~quarters~~wireless ofapplication protocol, ~~fiscal~~or ~~2001~~WAP, ~~offset~~phones, bywireless devices and landline telephones—includes the Vicinity ~~decreases~~Location inServer ~~license~~along ~~and~~with ~~volume~~a ~~usage~~comprehensive ~~revenues.~~portfolio Weof application ~~presently~~ services ~~expect~~and ~~gross~~application ~~margin~~programming tointerfaces, ~~continue~~or toAPIs, ~~improve~~for ~~slightly~~embedding location ~~during~~intelligence ~~the~~deep ~~next~~within ~~few~~existing ~~fiscal~~enterprise ~~quarters~~applications.

~~Product~~Change in ~~development~~fiscal ~~expense. Product~~year ~~development~~end ~~expense~~date. In March ~~consists~~2002, ~~primarily~~we ofannounced ~~salaries~~that ~~and~~we ~~benefits,~~changed ~~consulting~~the ~~expenses~~last ~~and equipment~~day ~~costs.~~of ~~Product~~our ~~development~~fiscal ~~expense~~year ~~decreased~~from July ~~$0.6 million,~~31 orto ~~32%~~June 30, tocommencing ~~$1.3 million~~with ~~for~~ the ~~three~~eleven months ended ~~April~~ June 30, 2002 (“fiscal ~~from~~year $12002”).~~9 million~~ ~~for~~As ~~the~~a ~~three months ended April 30~~result, ~~2001.~~fiscal ~~For~~year ~~the~~2003 ~~nine-month~~commenced ~~period~~on ~~ended~~July ~~April 30~~1, 2002, and ~~product~~will ~~development~~end ~~expenses~~on ~~decreased~~June ~~$0.9 million~~30, or2003. ~~18%,~~References toin ~~$4.2 million~~this ~~from $5.1 million~~quarterly ~~for~~report to the ~~comparable~~first quarter ~~period~~ of fiscal ~~2001.~~2003 ~~The~~refer ~~decrease~~to ~~in product development expense for~~ the three months ended ~~April~~ September 30, 2002, ~~was~~and references ~~generally~~to ~~attributable~~the first quarter fiscal 2002 refer to the ~~decrease~~three inmonths ended ~~amortization~~ October of31, ~~intangible~~2001. ~~assets~~We ~~that~~did ~~resulted~~not ~~from~~recast our ~~write-off~~financial ofstatements for the ~~remaining~~first ~~goodwill~~quarter of ~~and~~fiscal ~~developed~~2002 ~~product~~to ~~technology~~disclose ~~related~~financial toinformation ~~our~~for ~~acquisition~~the ofthree ~~NetCreate~~months inended ~~October 2000~~ September 30, ~~and~~2001 ~~headcount~~because ~~reductions.~~it ~~The~~was ~~decrease~~not incost ~~product~~justifiable ~~development~~or ~~expense~~practicable ~~for~~to compile ~~the~~such ~~nine-month~~information. Revenues ~~period~~from our islicense ~~due~~and tohosting ~~headcount~~fees ~~reductions~~consist inof ~~the~~annual ~~nine-month~~recurring ~~period ended~~fees ~~April 30,~~for ~~2002~~services ~~when~~and are ~~compared~~recognized toratably over the ~~comparable~~life ~~period~~of inthe ~~fiscal 2001~~contracts, ~~offset~~which bytypically ~~the~~have one-year ~~amortization~~terms. Accordingly, ofany potential ~~intangible~~seasonality ~~assets~~of ~~related~~revenue due to ~~our~~timing ~~BeeLine~~of ~~technology~~booking ~~purchase~~contracts ~~which~~would ~~did not begin until~~have ~~the~~ a ~~third~~minimal ~~quarter~~impact ofon ~~fiscal~~recasted ~~2001.~~financial results.

~~Sales~~Critical ~~and~~Accounting marketing expense. Sales and marketing expense consists primarily of salaries, commissions, promotion costs, advertising and travel-related expenses. Sales and marketing expense decreased $1.5 million, or 38%, to $2.5 million for the three months ended April 30, 2002 from $4.0 million for the three months ended April 30, 2001. For the nine-month period ended April 30, 2002, sales and marketing expense decreased $6.1 million, or 42%, to $8.4 million from $14.5 million for the comparable period of fiscal 2001. The decrease in sales and marketing expense for the three months and nine months ended April 30, 2002 was primarily attributable to a decrease in sales and marketing personnel and promotional expenses. Policies

13We believe there have been no significant changes in our critical accounting policies during the three months ended September 30, 2002 as compared to what was previously disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Form 10-KT for the fiscal year ended June 30, 2002.

~~General~~Recent 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 61%, to $0.8 million for the three months ended April 30, 2002 from $2.0 million for the three months ended April 30, 2001. For the nine-month period ended April 30, 2002, general and administrative expense decreased $3.3 million, or 51%, to $3.2 million from $6.5 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 nine months ended April 30, 2002 when compared to the three months and nine months ended April 30, 2001. In addition, bad debt expense for the three months ended April 30, 2002 included a credit of approximately $0.3 million as a result of a reduction in the allowance for doubtful accounts, which resulted from a significant improvement in our collection of accounts receivable. In the first quarter of fiscal 2002, we recorded a recovery of legal expenses of $0.2 million for attorney's fees that had been previously incurred in defending against a claim by a former employee. Events

~~Impairment~~On ofOctober ~~intangible assets. During the quarter ended January 31~~22, 2002, we entered ~~approved~~into a ~~plan~~definitive agreement to ~~retire~~be ~~our~~acquired ~~SiteMaker product~~by ~~as an actively marketed product~~Microsoft Corporation. Under Wethe ~~acquired~~terms ~~SiteMaker in connection with our acquisition~~ of ~~NetCreate, in October 2000. We arrived at~~ the ~~decision~~merger toagreement ~~retire~~and ~~SiteMaker~~subject ~~due~~ to ~~two~~the ~~primary~~ conditions ~~factors. First~~thereof, anMicrosoft ~~analysis~~will ofacquire ~~the~~all ~~revenue~~outstanding ~~stream~~shares ~~from~~of ~~SiteMaker~~our ~~indicated~~common stock ~~that~~for ~~actual~~$3.33 ~~and~~per ~~currently~~share ~~forecasted~~in ~~revenues~~cash. Stock ~~from~~options ~~SiteMaker~~held ~~are~~by ~~significantly~~our ~~lower than the estimated revenue~~executive ~~levels~~ officers ~~that~~will ~~were~~be ~~used~~converted ininto ~~the~~cash ~~original valuation of NetCreate. Secondly,~~ in ~~future~~an ~~releases~~amount ofequal ~~Vicinity Location Server, we intend~~ to ~~market~~the ~~components/functionalities~~difference ~~that are similar to SiteMaker,~~between ~~but based on an entirely different code base~~ $3.33 Asand ~~a result, during~~ the ~~three~~exercise ~~months~~price ~~ended~~of ~~January 31,~~each ~~2002~~option, wemultiplied ~~recorded~~by anthe ~~impairment~~number ~~charge~~of ~~totaling~~shares subject ~~approximately~~to $3that option.~~8 million~~ Microsoft ~~for the~~will ~~remaining~~ assume ~~goodwill~~our ~~and~~other ~~developed~~outstanding ~~product~~employee ~~technology~~stock ~~related~~options toand ~~the~~convert ~~NetCreate~~them ~~acquisition.~~into Microsoft Instock ~~addition,~~options ~~during~~at ~~the~~an ~~three~~exchange ~~months~~ratio ~~ended~~equal ~~April 30,~~to ~~2001, we recorded approximately~~ $03.~~8 million~~33 inper ~~charges~~share ~~for~~divided by the ~~impairment~~average ofclosing ~~intangible~~price ~~assets related to the write-off~~ of ~~goodwill,~~Microsoft ~~developed~~common ~~product~~stock ~~technology~~during ~~and~~ the ~~assembled~~10 ~~workforce~~days preceding ~~related to~~ the ~~NetCreate~~ ~~acquisition, reflecting our de-emphasis on providing custom Web development services~~closing.

~~Restructuring~~The ~~and~~consummation ~~other~~of ~~special~~the ~~charges. We~~merger ~~did~~is ~~not~~subject ~~record~~to ~~any~~the approval ~~restructuring~~of ~~or other special charges during~~ the ~~three~~Company’s ~~months ended April 30~~stockholders, ~~2002.~~satisfaction ~~During~~of ~~the~~a ~~three~~minimum ~~months~~“net ~~ended~~working capital” ~~April 30~~requirement, ~~2001,~~receipt weof ~~recorded~~necessary ~~restructuring~~regulatory approvals and other closing ~~special charges of $2~~conditions.~~5 million,~~ Definitive ~~consisting of $2.2 million in~~dates ~~charges~~ for ~~severance~~closing the merger and ~~employment-related~~for ~~costs,~~the ~~closure~~Vicinity ofstockholder ~~facilities,~~meeting ~~and~~to ~~$0.3~~vote ~~for~~on the merger ~~write-off~~have ofnot ~~software~~yet ~~and~~been ~~other~~announced. ~~similar~~We ~~costs~~expect ~~related~~ to complete the ~~downsizing~~merger oftransaction before the ~~Company's operations.~~end ~~Charges~~of ~~recorded~~2002, ~~during~~although the ~~nine~~meeting ~~months~~could ~~ended~~be ~~April 30,~~adjourned ~~2001~~or ~~consisted~~the ofclosing could ~~the~~be ~~above~~delayed ~~charges~~into ~~and~~early ~~additional~~2003, ~~severance~~or ~~and~~later, ~~benefit~~depending ~~costs~~on ~~related~~whether toall ~~restructuring~~closing conditions ~~plans~~have tobeen ~~reduce expenses.~~satisfied or waived.

Other income, net. Other income for the three- and nine-month periods ended April 30, 2002 was comprised of approximately $0.7 million and $2.6 million, respectively, of interest income earned on our cash equivalents and short-term investments. 11

~~Net loss. We have not achieved profitability on a quarterly or annual basis and expect to continue to incur net losses~~Results ~~through at least the first half~~ of ~~fiscal 2003.~~ Operations

~~LIQUIDITY~~License ~~AND~~and ~~CAPITAL~~hosting ~~RESOURCES~~ 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.

~~Overview. In~~For ~~February 2000,~~the wethree ~~completed~~months ~~our~~ended ~~initial~~September ~~public~~30, ~~offering~~2002, ~~from~~we recognized ~~which~~$3.6 wemillion ~~received~~of ~~net~~license ~~proceeds~~and of hosting fees revenue, compared to $~~125~~3.9 million infor ~~cash.~~the Wethree ~~have~~months ~~used~~ended October 31, 2001, representing a ~~portion~~decrease of approximately ~~these~~$0.3 ~~proceeds~~million, ~~and~~or ~~intend~~7%. The decrease toin ~~continue~~license toand ~~use~~hosting ~~these~~revenue ~~proceeds,~~was primarily due to ~~develop~~the orloss ~~purchase~~of ~~new~~one large ~~technologies,~~customer ~~products~~in ~~and/or~~February ~~businesses~~2002 and ~~improve our~~to ~~technology~~a ~~infrastructure,~~lesser ~~and~~degree ~~for~~a ~~working~~reduction ~~capital~~in ~~and~~the average ~~other~~selling ~~general~~price ~~corporate~~of ~~purposes.~~new ~~Our~~sales ~~excess~~contracts ~~financial~~for ~~resources~~our ~~are~~ELS ~~invested~~solution inentered ~~interest-bearing~~into during ~~securities,~~the ~~primarily~~twelve ~~government securities,~~months ~~municipal~~ended ~~bonds~~September 30, ~~time~~2002 ~~deposits,~~when ~~Eurodollar~~compared ~~deposits,~~to ~~certificates~~the oftwelve months ~~deposit~~ended ~~with~~October ~~approved~~31, 2001.

14Deferred revenue consists of customer payments received and accounts receivable recorded in advance of recognizing revenue for license and hosting services. Deferred revenue as of September 30, 2002 was $7.0 million, compared to $7.8 million as of October 31, 2001, representing a decrease of approximately $0.7 million, or 10%.

~~financial~~Service ~~institutions,~~and ~~commercial~~transaction ~~paper~~fees ~~rated~~revenue. Revenue ~~A-1/P-1/F-1,~~from ~~corporate~~service ~~notes~~ and ~~bonds~~transaction ~~and~~fees ~~other~~consists ~~money~~of ~~market~~revenue ~~instruments~~generated offrom project-related ~~similar~~professional ~~liquidity~~services and, ~~credit~~to ~~quality. See~~a ~~"Item~~lesser 3.degree, ~~Quantitative~~from advertising and ~~Qualitative~~other ~~Disclosures~~transactions. ~~About~~This ~~Market~~revenue ~~Risk"~~is ~~for~~recognized ~~further~~as ~~information~~the ~~related~~services ~~to our investments~~are performed.

~~Future capital~~For ~~requirements~~the ~~will~~three ~~depend~~months ~~upon~~ended ~~many~~September ~~factors~~30, ~~including~~2002, ~~overall~~we recognized ~~market~~$0.7 ~~conditions~~million of service and ~~the~~transaction ~~rate~~fees ofrevenue, ~~growth~~a decrease of approximately ~~our~~$0.1 ~~revenues~~million, or 21%, from $0.8 Wemillion ~~believe~~for ~~that~~the ~~our~~three ~~cash~~months ended October 31, ~~cash~~2001. ~~equivalents~~This decrease in service and ~~short-term~~ ~~investments~~transaction ~~will~~fees berevenue is ~~sufficient~~primarily attributable to ~~satisfy~~a ~~our~~decrease ~~cash~~in ~~requirements~~demand for, ~~the~~and ~~next~~our ~~several~~decreasing ~~years~~focus on atproviding, ~~our~~web ~~projected~~development ~~expense~~services ~~and~~for ~~revenue~~our ~~levels~~customers.

~~Comparative~~Cost ~~cash~~of ~~flow information~~revenues. ~~The~~ ~~following~~Cost ~~table~~of ~~compares~~revenues includes ~~cash~~salaries and benefits of our operations personnel, ~~cash~~the ~~equivalents~~cost of acquiring data and ~~short-term~~content, ~~investments~~ leasing and ~~working~~depreciation ~~capital~~costs ~~balances~~for asour ~~well~~computer hosting asequipment ~~sources~~and Internet connection and ~~uses~~data center charges. Cost of revenues ~~cash~~decreased as$0.6 million, or 23%, to $1.9 million for the three months ended September 30, 2002 compared to $2.5 million for the three months ended October 31, 2001. The decrease in cost of ~~and~~revenues is primarily attributable to a decrease in content fees paid to our content providers coupled with lower equipment depreciation expenses. Gross margin for the ~~nine~~three months ended September ~~April~~ 30, 2002 ~~and~~was 55%, compared to 48% for the three months ended October 31, 2001. The (increase in ~~millions):~~gross margin for the three months ended September 30, 2002 mainly reflects a decrease in content fees paid to our content providers.

	Nine Months Ended April 30,
	2002			2001
Cash, cash equivalents and short-term investments	$	85.3		$	93.8
Working capital		79.2			85.5
Cash used in operating activities		(5.1	)		(14.6	)
Cash provided by (used in) investing activities		19.3			(13.7	)
Cash provided by (used in) financing activities		(2.6	)		0.2

Product development expense. Product development expense consists primarily of salaries and benefits, consulting expenses and equipment costs. Product development expense decreased $0.3 million, or 18%, to $1.4 million for the three months ended September 30, 2002 from $1.7 million for the three months ended October 31, 2001. The decrease in product development expense for the three months ended September 30, 2002 was generally attributable to headcount reductions and the decrease in amortization of intangible assets that resulted from the write-off of the remaining goodwill and developed product technology related to our acquisition of NetCreate in October 2000.

~~Cash used~~Sales inand ~~operating~~marketing ~~activities~~expense. ~~was~~Sales ~~$5.1 million~~and marketing ~~for~~expense ~~the~~consists ~~nine-month~~primarily ~~period~~of ~~ended~~salaries, ~~April 30~~commissions, ~~2002~~promotion ~~compared~~costs, advertising toand ~~$14~~travel-related expenses.~~6 million~~ ~~for~~Sales ~~the~~and ~~nine~~marketing ~~months~~expense ~~ended~~decreased ~~April 30, 2001~~ $0.3 ~~This~~million, ~~decrease~~or ~~was~~11%, ~~primarily~~to a$2.7 ~~result~~million offor the ~~decrease~~three inmonths ~~our~~ended ~~net~~September ~~loss~~30, 2002 ~~to $10.1 million~~ from $203.8 0 million ~~and~~for anthe ~~increase~~three inmonths ~~non-cash~~ended ~~charges~~October ~~for depreciation~~31, ~~amortization~~2001. ~~and~~The decrease ~~impairment~~in ofsales ~~intangible~~and ~~assets~~marketing expense for the ~~nine~~three months ended ~~April~~ September 30, 2002 ~~when~~was ~~compared~~primarily attributable to the ~~nine~~decrease ~~months~~in ~~ended~~sales ~~April 30,~~and ~~2001.~~marketing personnel and promotional expenses.

~~Cash~~General and administrative expense. ~~provided~~ General byand ~~investing~~administrative ~~activities~~expense ~~was~~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 increased $190.3 million, or 27%, to $1.5 million for the three ~~nine-month~~months ~~period~~ ended ~~April~~ September 30, 2002 from $1.2 million for the three months ended October 31, ~~which~~2001. ~~resulted~~This increase was primarily ~~from~~attributable ~~sales~~to an increase in legal and ~~maturities~~consulting ofexpenses related to corporate development activities ~~short-term~~ for ~~investments~~the ~~exceeding~~three ~~purchases~~months ofended ~~short-term~~September ~~investments~~30, ~~during~~2002 when compared to the ~~period~~three months ended October 31, 2001. We expect

Cash used in financing activities was $2.6 million for the nine-month period ended April 30, 2002, which resulted primarily from $2.7 million in cash used to repurchase our common stock pursuant to the stock repurchase program that we announced in September 2001. 12

~~Stock~~general ~~repurchase~~and ~~program. In~~administrative ~~September 2001,~~expense ~~we announced a stock repurchase program of up~~ to ~~$5.0 million. Under~~increase ~~this~~for ~~program, stock repurchases may be made from time to time in~~ the ~~open~~three ~~market,~~months ended ~~through~~December ~~block trades or otherwise. As of April 30~~31, 2002, wedue ~~had~~to ~~repurchased~~investment ~~approximately 1~~banking,~~785,000 shares~~ ~~for~~legal anand ~~aggregate~~other ~~purchase~~fees related ~~price equal~~ to ~~approximately~~our ~~$2.7 million~~proposed ~~under~~acquisition ~~the~~by ~~stock repurchase program~~Microsoft.

15Other special charges. We recorded a special charge of $0.9 million for the three months ended September 30, 2002 related to the loss on a subleased office space in our headquarters facility. We did not record any restructuring or other special charges during the three months ended October 31, 2001. See Note 7 in the Notes to Unaudited Condensed Consolidated Financial Statements for additional information.

~~CONTRACTUAL~~Litigation Settlement ~~OBLIGATIONS~~ Charge. On November 12, 2002, we entered into a settlement agreement with our patent insurance provider to pay the provider $0.3 million in exchange for our release by the patent insurance provider with respect to any and all past and future claims against us associated with the settlement. Accordingly, we recorded the $0.3 million charge in the three months ended September 30, 2002. Without the charge, net loss per share would have been $3,497,000 or $0.13 per share.

~~Leases~~Other income, net. We Other ~~lease~~income ~~some~~for ofthe ~~our~~three ~~facilities~~months ended ~~under~~September ~~non-cancelable~~30, ~~operating~~2002 ~~leases~~and ~~with~~October ~~expiration~~31, ~~dates~~2001 ~~through~~was ~~2008~~comprised of approximately $0.6 million and $1.0 million, ~~Future~~ respectively, ~~minimum~~of ~~lease~~interest ~~payments~~income ~~under~~earned on our ~~non~~cash equivalents and short-~~cancelable~~term investments. The ~~operating~~decrease ~~leases~~was primarily attributable to a decrease in interest income as a result of ~~April 30,~~lower ~~2002~~average investment ~~are~~balances as ~~follows~~well (as the overall decrease in ~~thousands):~~interest rates.

Year ending June 30,	Operating Leases
2002	$	326
2003		1,938
2004		1,888
2005		1,901
2006		1,824
thereafter		4,241
	$	12,118

Recent Accounting Pronouncements

~~License~~In ~~Fees. We~~June ~~have~~2002, ~~entered~~the ~~into~~FASB ~~agreements~~issued SFAS 146, “Accounting for Costs Associated with ~~several~~Exit ~~content~~or ~~providers~~Disposal Activities,” which addresses accounting for restructuring and similar costs. ~~Some~~SFAS 146 supersedes previous accounting guidance. We will adopt the provisions of ~~these~~SFAS ~~agreements~~146 ~~call~~for restructuring activities initiated after December 31, 2002. SFAS 146 requires that the liability for ~~fixed~~costs ~~annual~~associated with an exit or disposal activity be recognized ~~payments.~~ when ~~Other~~the ~~agreements~~liability ~~contain~~is ~~fixed~~incurred. ~~annual~~Under ~~minimum~~previous ~~payments~~guidance, asa ~~well~~liability asfor ~~variable~~an exit ~~components~~cost ~~that~~was ~~require~~recognized ~~additional~~at ~~payments~~the ifdate of our ~~usage~~commitment ~~exceeds~~to ~~certain~~an ~~content~~exit ~~usage~~plan. ~~thresholds~~SFAS 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS 146 may affect the timing of recognizing restructuring costs that may be incurred in the future as well as the amounts recognized.

~~CRITICAL ACCOUNTING POLICIES AND PRACTICES~~ 13

~~In preparing our financial statements, we make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and~~LIQUIDITY ~~expenses, and any related disclosures of contingent assets and liabilities. We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the~~ ~~greatest~~AND ~~potential~~CAPITAL ~~impact on our financial statements.~~ RESOURCES

~~Impairment of intangible assets~~Overview. ~~At April 30, 2002 our intangible assets consisted of assets related to the Technology~~ ~~Purchase~~ In ~~Agreement~~February ~~the "BeeLine Agreement") with BeeLine LLC ("BeeLine")~~2000, ~~under which~~ we ~~paid~~completed ~~$3.0 million~~our toIPO ~~purchase technology~~ and, ~~related~~as ~~consulting~~a ~~services from BeeLine. The technology~~result, ~~was~~ issued ~~purchased~~8,050,000 ~~for~~shares ~~internal use. We are amortizing the costs over the estimated economic life~~ of ~~the~~common ~~services~~stock ~~into~~at ~~which~~a ~~this~~price ~~technology is incorporated, generally three years. The net book value~~ of ~~these~~ ~~intangible assets was~~ $117.~~8 million~~00 asper ~~of April 30, 2002~~share. ~~On an ongoing basis, we assess whether any events, including significant changes in demand for our products or changes in~~We ~~market~~ received ~~conditions~~approximately in$125.9 ~~the~~million ~~principle markets~~ in ~~which~~cash wefrom ~~sell~~ our ~~products~~IPO, ~~would~~net ~~adversely~~of ~~impact~~underwriting discounts ~~the~~and ~~carrying~~other ~~value~~offering ~~of these assets~~costs. We have ~~Possible~~used ~~examples~~a portion of these ~~events~~proceeds ~~include~~to ~~but~~expand ~~are~~our ~~not~~sales ~~limited~~and ~~to: a~~marketing ~~significant~~ efforts, ~~decline~~to inexpand our ~~market~~international ~~value;~~business, ato ~~decrease~~develop innew ~~the~~technologies ~~market~~and products ~~value~~and ofimprove aour ~~particular~~technology ~~asset;~~infrastructure, and ~~continued~~for ~~operating~~working orcapital ~~cash flow losses combined with forecasted future losses on either a~~and ~~consolidated~~ other ~~basis~~general orcorporate ~~for an individual revenue generating unit~~purposes. IfPending ~~such~~these ~~an event were to occur~~uses, we ~~would~~have ~~estimate~~invested ~~future discounted cash~~the ~~flows~~ proceeds ~~generated by each of these assets~~ in ~~order~~interest-bearing tosecurities, ~~assess~~primarily ~~the~~government ~~amount~~securities, municipal bybonds, ~~which~~time ~~the~~deposits, ~~asset~~Eurodollar ~~was~~deposits, ~~impaired~~certificates asof ~~required~~deposit with byapproved ~~Statement~~financial ofinstitutions, ~~Financial~~commercial ~~Accounting~~paper ~~Standard~~rated ~~No. 121~~A-1/P-1/F-1, corporate ~~("SFAS~~notes ~~No. 121"). We~~and ~~will~~bonds ~~continue~~and toother ~~assess~~money ~~the~~market ~~recoverability~~instruments of ~~our~~similar liquidity ~~intangible~~and ~~assets~~credit inquality. ~~accordance~~See ~~with~~“Item ~~SFAS No~~3. ~~121.~~ ~~Changes~~Quantitative ~~in market conditions~~ and ~~other~~Qualitative Disclosures ~~business~~About ~~indicators~~Market ~~could~~Risk” ~~give~~for ~~rise~~further toinformation ~~factors that~~related ~~would require us~~ to ~~assess whether~~ our ~~intangible assets are impaired~~ investments.

~~On July 1,~~We ~~2002,~~intend ~~we will be required~~ to ~~adopt~~maintain ~~Statement~~spending oflevels ~~Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets and Statement of Financial Accounting~~relatively ~~Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS No. 142 and SFAS 144"), which supersede SFAS 121, for impairment of~~ ~~intangible~~constant ~~assets.~~until ~~Following~~such ~~adoption~~time ofas ~~SFAS No. 142 and SFAS 144,~~ we ~~will~~experience ~~continue~~adequate togrowth ~~evaluate~~rates ~~whether~~in ~~any event has occurred which might~~ revenues.

16Future 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 at least the next year.

Comparative ~~indicate~~ cash ~~that~~flow ~~the~~information. The following ~~carrying~~table ~~value~~compares ofcash, ancash ~~intangible~~equivalents ~~asset~~and isshort-term ~~not~~investments ~~recoverable.~~and working Incapital ~~addition,~~balances ~~SFAS~~as ~~No. 142~~well ~~requires~~as ~~that~~sources weand ~~assess~~uses atof ~~least~~cash ~~once~~as aof ~~year~~and for the three ~~fair~~months ~~value~~ended September 30, 2002 and ~~recoverability~~October of31, ~~our intangible~~2001 ~~assets.~~(in millions):

Accounts receivable. As of April 30, 2002, the net accounts receivable balance on our balance sheet, after accounting for the allowance for doubtful accounts, is $1.8 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 and make a determination of collectibility based on the age of the receivable and the historical collection experience with that customer.

	Three Months Ended
	Sept. 30, 2002			Oct. 31, 2001
Cash, cash equivalents and short-term investments	$	82.8		$	89.0
Working capital	76.2			81.8
Cash used in operating activities	(1.2		)	(2.5		)
Cash provided by investing activities	5.0			1.9
Cash provided by (used in) financing activities	0.3			(2.3		)

~~FACTORS~~Cash ~~THAT~~used ~~MAY~~in ~~AFFECT~~operating ~~FUTURE~~activities ~~RESULTS~~ was $1.2 million for the three months ended September 30, 2002 compared to $2.5 million for the three months ended October 31, 2001. Net cash used in operating activities in each period primarily reflects the net losses in each period and the changes in the operating assets and liabilities, offset by the non-cash expenses. The decrease in cash used in operating activities for the three months ended September 30, 2002 as compared to the three months ended October 31, 2001 primarily reflects the increased net loss offset by cash provided by changes in operating assets and liabilities.

~~Current~~Cash ~~and~~provided ~~potential~~by ~~stockholders~~investing ~~should~~activities ~~consider~~was ~~carefully~~$5.0 ~~each~~million for of the ~~following~~three ~~factors~~months inended ~~making~~September ~~their~~30, ~~investment~~2002, ~~decisions.~~which ~~These~~resulted ~~factors~~primarily ~~should be~~from ~~considered~~ sales ~~together~~and ~~with~~maturities ~~the~~of ~~other~~available-for-sale ~~information~~securities ~~included~~exceeding orpurchases ~~incorporated~~of available-for-sale bysecurities ~~reference~~during inthe ~~this Quarterly Report~~period.

WeCash ~~have~~provided aby ~~history~~financing ofactivities ~~losses~~was ~~and~~$0.3 ~~negative~~million for the three months ended September 30, 2002, which reflects the cash ~~flows~~received from employees for common stock issued pursuant to the Employee Stock Purchase Plan and ~~anticipate~~as ~~continued~~a ~~net~~result ~~losses~~of stock option exercises.

WeStock repurchase ~~have~~program. ~~not~~In ~~generated~~September ~~enough~~2001, ~~revenues to exceed the substantial amounts~~ we ~~have~~announced ~~spent~~a tostock repurchase ~~develop~~program ~~and operate our business. We incurred net losses~~ of ~~approximately $10.1 million~~up ~~for~~to ~~the nine-month period ended April 30, 2002,~~ $275.3 0 million. ~~for~~Under ~~fiscal~~this ~~2001~~program, ~~$15.4 million~~stock ~~for fiscal 2000 and $5.5 million for fiscal~~repurchases ~~1999.~~ may Webe ~~expect~~made tofrom ~~continue~~time to ~~experience~~time ~~losses~~in ~~through at least~~ the ~~first~~open ~~half of fiscal 2003. Moreover~~market, wethrough ~~base~~block ~~current~~trades ~~and future expense levels on our operating plans and our estimates of future~~or ~~revenues~~ otherwise. IfAs ~~our~~of ~~revenues~~June ~~grow~~30, at2002, awe ~~slower~~had ~~rate~~repurchased ~~than~~approximately ~~we anticipate~~1,785,000 shares orfor ifan ~~our~~aggregate ~~spending~~purchase ~~exceeds~~price ~~our~~equal ~~expectations or cannot be adjusted~~ to ~~reflect~~approximately ~~such~~$2.7 ~~slower revenue growth, we may not generate~~million ~~sufficient~~ under ~~revenues~~the tostock ~~achieve~~repurchase ~~profitability~~program. IfWe wedid donot ~~achieve~~repurchase ~~profitability,~~any weshares ~~may~~during ~~be unable in~~ the three ~~future~~months toended ~~sustain~~September or30, ~~increase profitability on a quarterly or annual basis~~2002.

~~Our business is subject to quarterly fluctuations in operating results, which may negatively impact the price of our common stock.~~ 14

~~You should not rely on quarter-to-quarter comparisons of our operating results as an indication of future performance. It is possible that~~FACTORS in THAT ~~future~~MAY ~~periods~~AFFECT ~~our~~FUTURE ~~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.~~ RESULTS

~~Our operating~~Current ~~results~~and inpotential ~~the~~stockholders ~~immediate~~should ~~future~~consider carefully ~~will~~each ~~be particularly difficult to use for purposes~~ of ~~comparison due to~~ the ~~change~~following infactors ~~the end of our fiscal year, which will result~~ in ~~the upcoming~~making ~~quarter~~their ~~consisting~~investment ~~of only two months~~decisions. These Asfactors ashould ~~result, year-by-year comparisons will also~~ be ~~difficult,~~considered astogether ~~our~~with ~~fiscal year 2002 will only consist of eleven months, as compared to~~ the ~~twelve months for our~~ other ~~fiscal~~information ~~years.~~included or Inincorporated ~~addition, renewals of contracts~~ by ~~our~~reference ~~customers have historically occurred most often~~ in ~~the~~this ~~last~~quarterly ~~month of each of our previous fiscal quarters and as a result of changing our fiscal year, such renewals will now occur most often in the first month of each fiscal quarter, rather than the last month~~report.

~~Our quarterly~~If ~~net loss was approximately $1.5 million for~~ the ~~three months ended April 30, 2002, $6.0 million for the three months ended January 31, 2002,~~proposed ~~$2.6 million~~ merger ~~for~~with ~~the~~Microsoft ~~three~~Corporation ~~months~~is ~~ended~~not ~~October 31~~completed, ~~2001,~~our ~~$6.5 million~~business ~~for the three months ended July 31, 2001,~~ and ~~$8.3 million for the three months ended~~stock ~~April 30,~~ price ~~2001. Our quarterly operating results~~ may ~~fluctuate~~be ~~significantly~~adversely ~~in the future due to a variety of factors~~affected. ~~These factors include the following, which are generally outside of our control:~~

17On October 22, 2002, we entered into a definitive to be acquired by Microsoft Corporation. The merger is subject to a number of contingencies, including approval by a majority vote of our stockholders, satisfaction of a minimum “net working capital” requirement, receipt of regulatory approvals and other customary closing conditions. Therefore, there is a risk that the merger will not be completed or that it will not be completed in the expected time period. If the merger is not completed or the completion is substantially delayed, we could be subject to a number of risks that may adversely affect our business and stock price, including:

~~Other factors~~• the trading price of our common stock may decline to the extent that the current trading price reflects a market assumption that the merger will be completed; • the diversion of management attention and the unavoidable disruption to our relationships with customers and vendors may ~~cause~~detract from our ~~quarterly~~ability ~~operating~~to ~~results~~grow revenues and minimize costs; • we could lose important personnel as a result of the departure of employees who decide to ~~fluctuate~~pursue ~~significantly~~other ~~which~~opportunities ~~are~~in atlight ~~least~~of ~~partially~~the ~~under~~proposed merger; • we could suffer repercussions from the limitations on our ~~control~~ability ~~include:~~to conduct the business that we are bound by (until the merger is completed or terminated) in the merger agreement; • we have and will continue to incur significant expenses related to the merger prior to its closing, including fees paid to an investment bank for a fairness opinion for the merger, legal and accounting fees, that must be paid even if the merger is not completed; • depending on the circumstances, we may be obligated to pay Microsoft a $2,250,000 termination fee; and • we may be unable to respond effectively to competitive pressures, industry developments and future opportunities.

In ~~addition,~~ ~~our~~connection ~~operating~~with ~~expenses~~the ~~are~~proposed ~~based~~merger, onwe ~~our~~will ~~expectations~~mail to of our ~~future~~stockholders ~~revenues~~ and ~~some~~file ofwith ~~our operating expenses are relatively fixed in~~ the ~~short~~Securities ~~term,~~and ~~including~~Exchange ~~personnel~~Commission a ~~costs,~~ definitive ~~data~~proxy ~~support~~statement ~~expenses~~with ~~and~~ the ~~cost~~SEC ofwhich ~~licensing~~will ~~necessary~~contain important information. Weabout ~~may~~Vicinity beCorporation, ~~unable~~the toproposed ~~reduce~~merger ~~our expenses quickly enough to offset any additional future revenue shortfalls~~ and ~~may incur~~related ~~costs,~~ matters. ~~such~~We asurge ~~additional~~you ~~severance~~to ~~costs,~~read ~~imposed~~the bydefinitive ~~any~~proxy ~~such~~statement ~~additional~~when ~~expense~~it ~~reduction programs~~becomes available.

The ~~market~~uncertainty created ~~price~~by ofthe ~~our~~proposed ~~common~~merger ~~stock~~could ~~has~~have ~~been~~an ~~and~~adverse ~~may~~effect ~~continue~~on toour berevenue ~~highly~~and results ~~volatile~~of operations.

~~The~~Due ~~market~~to ~~price~~our ofagreement ~~our~~to ~~common~~be ~~stock~~acquired ~~has~~by ~~fluctuated~~Microsoft, ~~widely~~we are and ~~may~~will continue to dobe ~~so.~~operating ~~For~~in ~~example,~~a ~~during~~state ~~the~~of ~~period~~uncertainty ~~following~~about our future ~~initial~~until ~~public~~either ~~offering~~the ~~in February 2000~~proposed ~~through~~merger ~~the~~is ~~period~~closed ~~ended~~or ~~May 31,~~terminated. As ~~2002,~~a ~~the~~result ~~trading~~of ~~price~~this ofuncertainty, ~~our~~customers may ~~common~~decide ~~stock~~to ~~has~~delay, ~~ranged~~defer, ~~from~~or acancel ~~high~~purchases of ~~$76.25~~our ~~per~~products ~~share~~pending resolution ~~to a low~~ of ~~$1.19~~the ~~per~~proposed ~~share~~merger. ~~Many~~If ~~factors~~these ~~could cause~~decisions ~~the~~represent ~~market~~a ~~price~~significant portion of our ~~common~~anticipated ~~stock~~revenue, toour ~~rise~~results of operations and ~~fall~~quarterly revenues incould ~~the~~be ~~future.~~substantially ~~Some~~below ofthe ~~these~~expectations ~~factors~~of ~~include:~~market analysts.

~~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~~ 15

18Economic, political and market conditions can adversely affect our revenue growth.

~~continue~~Our torevenue begrowth ~~adverse~~ and ~~extremely~~profitability ~~volatile.~~depends ~~Volatility~~on in the overall ~~price~~demand offor ~~our~~computer ~~common~~software ~~stock~~and ~~may~~services. Because bewe ~~caused~~are bytargeting ~~factors~~our ~~outside~~sales ofefforts ~~our~~primarily ~~control~~at corporate and ~~may~~government becustomers, ~~unrelated~~our orbusiness ~~disproportionate~~depends toon ~~our~~general ~~operating~~economic and business ~~results~~ conditions. InThe general weakening of the ~~past,~~global ~~following~~economy ~~periods~~and the weakening of business ~~volatility~~conditions, particularly in the ~~market~~high ~~price~~technology, oftelecommunications and amanufacturing ~~public~~industry ~~company's securities~~sectors, ~~securities~~as ~~class~~well ~~action~~as ~~litigation~~governmental ~~has~~budgetary constraints, ~~often~~may ~~been~~result ~~instituted~~in ~~against~~delays, ~~that~~decreases ~~company~~and cancellations of customer purchases. ~~Securities~~ In ~~class~~addition, ~~action~~terrorist ~~litigation~~attacks ~~could~~upon ~~result~~the United inStates ~~substantial~~have ~~costs~~contributed to economic, political and aother ~~diversion~~uncertainties that ofcould adversely affect our ~~management's~~revenue ~~attention~~growth and ~~resources~~results. If economic and market conditions do not improve, our business may be adversely affected.

IfOur ~~demand~~business ~~for~~is ~~ELS solutions fails~~ difficult to ~~develop~~evaluate orbecause ~~develops more slowly than~~ we ~~expect,~~have wea ~~may~~limited ~~not~~operating ~~generate sufficient revenues to achieve profitability~~history.

Our ~~future~~company ~~success~~was isfounded ~~highly dependent on an increase~~ in ~~the~~October ~~use~~1995, ~~of the Internet~~ and ~~wireless~~our initial ~~platforms~~revenues aswere ~~marketing~~derived ~~channels~~from ~~including,~~providing ~~in particular~~maps, ~~the deployment~~driving ~~and~~directions ~~acceptance of wireless~~ and directory ~~broadband platforms~~services. IfWe ~~significant~~have ~~demand~~a ~~for~~limited ~~ELS~~operating ~~solutions~~history ~~fails~~from towhich ~~develop~~you orcan evaluate ~~develops~~our ~~more~~present ~~slowly~~business ~~than~~and wefuture ~~have~~prospects. ~~planned~~As ~~for,~~a werelatively ~~may~~new ~~not generate sufficient~~entrant ~~revenues~~ to ~~achieve~~the ~~profitability.~~business ~~The~~of ~~market~~providing ~~for~~ ELS solutions isfor ~~new~~companies ~~and~~on ~~rapidly~~the ~~evolving~~Internet, wireless and itspeech ~~cannot~~platforms, ~~yet~~we beface ~~compared~~risks ~~with~~and ~~traditional~~uncertainties ~~marketing~~relating ~~media~~ to ~~gauge its effectiveness. Companies that~~our ~~have~~ ability ~~historically relied on traditional marketing methods may be reluctant or slow~~ to ~~adopt~~implement ~~online~~our orbusiness ~~wireless~~plan ~~marketing~~successfully. AsOur aprospects ~~result,~~must ~~demand and market acceptance for Internet and wireless-based~~be ~~marketing~~ considered ~~solutions~~in ~~cannot~~light ~~yet be determined. Many~~ of ~~our current and potential clients have little or no experience using~~ the ~~Internet~~risks, orexpenses ~~wireless platforms for marketing purposes~~ and ~~may~~difficulties ~~allocate~~frequently ~~only~~ encountered aby ~~limited~~companies ~~portion~~in of their ~~marketing~~early ~~budgets~~stage ~~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~~development, particularly companies ~~that have invested a significant portion of their marketing budget~~ in ~~online~~new orand ~~wireless~~rapidly ~~marketing~~evolving ~~may~~markets ~~decide~~such ~~after~~as athe ~~time~~Internet. toIf ~~return~~we are to unsuccessful ~~more~~in ~~traditional~~addressing ~~methods~~these ifrisks ~~they~~and ~~find~~uncertainties, ~~that~~our ~~online~~business, ~~or wireless marketing is a less effective method~~ results of ~~promoting~~operations, ~~their~~financial ~~products~~condition and ~~services~~prospects ~~than~~will ~~traditional~~be ~~marketing~~materially ~~methods~~adversely affected.

~~Our~~We ~~management~~have ~~team~~a ~~must~~history ~~successfully~~of losses ~~integrate~~and ~~new~~negative ~~members~~cash inflows ~~order~~and ~~for~~anticipate ~~our~~continued ~~business~~net ~~to be successful~~losses.

We ~~face~~have ~~challenges~~not ingenerated ~~managing~~enough ~~our~~revenues ~~operations due~~ to exceed the amounts ~~addition~~we ofhave ~~new~~spent ~~members~~ to ~~our~~develop ~~management team~~ and ~~the~~operate ~~departures~~our ~~of other executives~~business. InWe ~~particular,~~incurred wenet ~~hired~~ losses ~~Charles~~of Wapproximately $3.8 ~~Berger~~million asfor ~~our~~the ~~new~~three ~~President~~months ~~and~~ended ~~Chief~~September ~~Executive Officer in December 2001~~30, 2002 ~~Teri~~and ~~Dahlbeck~~$11.5 asmillion ~~our~~for ~~Senior~~fiscal ~~Vice~~2002. ~~President,~~We ~~Marketing~~expect ~~and~~to ~~Business~~continue ~~Development~~to ~~in March 2002,~~experience ~~and~~ losses ~~Daniel~~through ~~Shaver~~the asimmediately ~~Senior~~foreseeable ~~Vice President~~future. Moreover, ~~Worldwide~~we ~~Sales~~base incurrent ~~April 2002,~~ and ~~several~~future ~~former~~expense ~~senior~~levels ~~executives~~on ~~left the company during~~our ~~2001~~ operating plans and ~~late 2000, including~~ our ~~former~~estimates ~~Chief~~of ~~Executive~~future ~~Officer and Chief Financial Officer~~revenues. ItIf ~~may~~our ~~take~~revenues ~~time~~grow ~~for~~at ~~our~~a slower ~~new~~rate ~~executives~~than towe ~~become~~anticipate, ~~acclimated~~or ~~into~~if ~~the~~our ~~company.~~spending ~~New~~exceeds ~~members~~our ofexpectations ~~our~~or ~~management~~ cannot ~~team~~be ~~may~~adjusted ~~bring~~to ~~management~~reflect ~~styles,~~such ~~philosophies~~slower ~~and~~revenue ~~policies~~growth, ~~that~~we ~~could~~may ~~take~~not ~~time~~generate sufficient revenues to ~~implement~~achieve profitability. ~~All~~If ofwe ~~our~~do ~~executives~~achieve ~~serve "at will"~~profitability, we ~~and~~may ~~therefore~~be itunable ~~is possible additional turnover could occur~~ in the future, ~~resulting~~to insustain ~~limited~~or ~~management~~increase ~~continuity~~profitability ~~and~~on ~~added~~a quarterly ~~expenses~~or toannual ~~the company, including recruitment and severance costs~~basis.

Our ~~ability to grow our~~ business ~~depends~~is onsubject to ~~whether~~quarterly ~~existing~~fluctuations ~~customers~~in ~~renew~~operating ~~their~~results, ~~contracts~~which ~~with~~may usnegatively ~~and~~impact ~~whether~~the price weof ~~are~~our ~~able~~common ~~to sell existing customers additional services~~stock.

WeYou ~~generally~~should ~~enter~~not ~~into~~rely ~~one~~on quarter-~~year~~to-quarter ~~license agreements with our customers, and our business model is centered around maintaining and growing these~~comparisons ~~customer relationships. If a significant number~~ of ~~customers fail to renew their contracts with us, this would have an immediate negative impact on~~ our ~~revenues~~operating ~~and~~results ~~earnings,~~ as wean ~~would~~indication ~~likely~~of ~~be unable~~future ~~to adjust our expense levels accordingly~~performance. InIt ~~addition, because much of our past sales growth~~ is ~~the result of selling additional services to existing clients, losses of existing customers would~~possible ~~also~~ that ~~have a negative long-term impact. Our growth strategy depends~~ in ~~part~~future onperiods ~~the introduction of new services that we hope to sell to~~ our ~~existing~~quarterly ~~clients,~~operating ~~including~~results bymay ~~means~~fall ofbelow ~~internal~~the ~~development~~ expectations ~~or through acquisitions. We may not develop any~~ of ~~these~~public ~~new~~market ~~services~~analysts inand ainvestors. ~~cost-effective~~In ~~and~~this ~~timely manner~~event, ~~and~~the ~~we have insufficient experience with these new service~~price ~~offerings~~ of ~~to know whether they will be well received by~~ our ~~clients.~~common ~~Any~~stock ~~new~~is ~~service~~likely weto fall.

19Our operating results in the immediate future will be particularly difficult to use for purposes of comparison due to the change in our fiscal year end to June 30 from July 31. As a result, quarter-by-quarter comparisons in this Quarterly Report compare the three months ended September 30, 2002 to the three months ended October 31, 2001. In addition, renewals of contracts by our customers have historically occurred most often in the last month of each of our previous fiscal quarters and as a result of changing our fiscal year, such renewals will now occur most often in the first month of each fiscal quarter, rather than the last month.

~~introduce~~Our ~~that~~quarterly isnet ~~not~~loss ~~favorably~~was ~~received~~approximately ~~could~~$3.8 ~~damage~~million for ~~our~~the ~~relationships~~three ~~with~~months ~~our~~ended ~~clients~~September 30, 2002, $1.4 Ifmillion ~~our~~for ~~existing~~the ~~clients~~two ~~decide~~months ended toJune ~~maintain~~30, ~~their~~2002, ~~current~~$1.5 ~~level~~million offor ~~service~~the ~~and~~three ~~not~~months ~~upgrade~~ended toApril ~~additional services~~30, we2002, $6.0 ~~might~~million ~~fall~~for ~~short~~the ofthree ~~our~~months ~~projected~~ended ~~sales~~January 31, 2002 and ~~would~~$2.6 ~~have~~million tofor the ~~cultivate~~three ~~other~~months ~~sales~~ended ~~opportunities~~October 31, ~~which~~2001. ~~might~~Our bequarterly ~~expensive~~operating ~~and~~results ~~might~~may fluctuate ~~not~~significantly ~~materialize~~in the future due to a variety of factors. These factors include the following, which are generally outside of our control:

~~Our~~• competition ~~strategy~~in the tomarkets ~~tailor~~for our ~~ELS solutions around specific vertical markets is unproven and may not be successful.~~ services;

~~One~~• variation ofin ~~our~~the demand ~~strategies~~for ~~to increase sales to existing customers and to sign up new customers is to further tailor~~ our ELS solutions offerings around specific vertical markets. To be successful, we will need to develop additional expertise in our target vertical markets. We may be required to hire new employees to implement this strategy, and ~~any~~industry ~~inability~~ or ~~delay~~seasonal intrends ~~hiring~~relating ~~any such new employees may impair our ability~~ to ~~execute on this strategy quickly. In particular, we intend to target the governmental market, and we do not have much experience in~~ ~~selling into this strategies that are different from those that we use with our corporate customers, longer sales cycles and complex approval processes, and reliance on the governmental budget~~ ~~process.~~marketing ~~Focusing around specific vertical markets may also make it more difficult to move into new vertical markets in the future. If this strategy is not successful, we may not achieve desired sales growth.~~ spending;

~~We may be unable to maintain our current pricing structure because our business is changing rapidly as are the services that we provide.~~ 16

~~Our current business model is to provide ELS solutions to~~ • our ~~business~~ability ~~clients. We may not achieve an acceptable level of profitability, or become profitable at~~to ~~all,~~ protect if our ~~clients'~~systems 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~~telecommunications ~~our services. ELS solutions are relatively new and unproven and may not achieve widespread customer acceptance. To be successful~~failures, wepower ~~must~~loss ~~adapt~~or ~~to our~~equipment ~~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~~or ~~pay for most of our services through set~~software-uprelated ~~and~~system 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. failures;

We• the ~~may~~availability and ~~seek~~cost ~~to acquire other companies as one means~~ of ~~growing~~geographic ~~our~~data ~~business,~~and ~~which~~content ~~gives~~from ~~rise~~third toparty aproviders; ~~number of risks that could have adverse consequences to future operating results.~~ and

~~In the future we may acquire or make investments in complementary businesses, technologies, services or products, or enter into strategic partnerships with~~• economic ~~parties~~ conditions ~~who~~specific ~~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~~Internet ~~course~~as ofwell ~~our~~as ~~business.~~general Weeconomic 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~~market ~~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~~conditions. Furthermore, we may need to incur indebtedness or issue equity securities to pay for any future acquisitions, which could be dilutive to our existing stockholders. Also, acquisitions could result in other expenses, such as restructuring charges, or could require us to record non-cash

20Other factors that may cause our quarterly operating results to fluctuate significantly which are at least partially under our control include:

~~charges~~• the torate ~~earnings, including amortization~~ of ~~certain~~new customer ~~types~~acquisitions ~~of intangible assets or write-offs of acquired in-process research~~ and ~~development~~existing ~~costs,~~customer as well as future impairment charges related to goodwill that we acquire. Any of the above or other factors could harm our ability to achieve profitability or to realize anticipated benefits of an acquisition. renewals;

~~Litigation~~• whether ~~over~~revenues related ~~intellectual~~to ~~property~~new ~~rights~~customer ~~could~~acquisitions ~~disrupt~~are orrecognized ~~otherwise~~currently ~~have~~or adeferred ~~negative~~over future ~~impact~~time ~~on our business.~~ periods;

~~There has been frequent litigation in~~ • the ~~high-technology~~timing ~~industry regarding intellectual property rights. We cannot be certain that our products do not~~ and ~~will not infringe issued patents, patents that may be issued in the future, or other intellectual property rights of others, and like others in our industry, we are from time to time subject~~ to effectiveness ~~claims regarding the alleged intellectual property rights~~ of ~~third parties. For instance, in December 2001, we were sued by Murex Licensing Corporation, which alleged that~~ our ~~ELS~~development solution infringed their patents and sought damages and permanent injunctive relief. We settled this litigation in May 2002 by entering into a patent license. We also resolved a different patent infringement claim in fiscal 1999. We have received, and expect in the future to receive, claims of ~~infringement~~new by us with respect to current or future products, trademarks or other proprietary rights. We may likewise be subject to claims from customers for indemnification with respect any such claims made against customers. 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.~~ ;

We• the ~~have~~timing ~~dedicated~~and effectiveness ~~significant~~of ~~resources~~potential ~~toward~~strategic ~~developing~~alliances ~~new~~or ~~clients~~other ~~internationally;~~business ~~any success in these efforts may prove not to have been worth the~~combinations; ~~associated expense.~~ and

~~Our~~• changes ~~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,~~ weoperating ~~intend to continue to enter into relationships with foreign businesses, and we cannot predict whether those relationships will be successful~~expenses. ~~Our international plans are subject to inherent risks, including:~~

WeIn addition, our ~~cannot~~ operating ~~predict~~expenses ~~whether~~are ~~our~~based ~~international~~on ~~business~~our ~~operations~~expectations ~~will~~of beour ~~successful.~~future ~~The~~revenues ~~results~~and some of our ~~efforts~~operating expenses are relatively fixed in the short term, including personnel costs, data support expenses and the cost of licensing necessary information. We may ~~prove~~be ~~not~~unable to ~~have~~reduce ~~been~~our ~~worth~~expenses ~~the~~quickly ~~associated~~enough to ~~expense~~offset any additional future revenue shortfalls and ~~opportunity~~may incur costs, such as ~~cost.~~ additional severance costs, imposed by any such additional expense reduction programs.

WeThe ~~have~~market ~~experienced~~price ~~fluctuation in the number~~ of our ~~employees,~~common stock has been and ~~any~~may ~~inability~~continue to ~~manage~~be ~~this~~highly ~~fluctuation could harm our business~~volatile.

The ~~number~~market price of our ~~employees~~common stock has fluctuated widely ~~significantly~~and ~~over~~may continue to do so. For example, during the ~~last~~period ~~two~~following ~~fiscal~~our ~~years~~initial public offering in ~~response~~February 2000 tothrough ~~changing~~the ~~market~~period ~~conditions~~ended ~~and~~October 31, 2002, the ~~evolution~~trading price of our common ~~business.~~ stock ~~The~~has ~~number~~ranged from a high of ~~our~~$76.25 ~~employees~~per ~~grew~~share ~~from~~to ~~106~~a aslow of ~~October 31,~~$1.19 ~~1999~~per share. Many tofactors ~~224~~could ascause the market price of ~~October 31,~~our ~~2000,~~common stock to rise and ~~then~~fall ~~decreased~~in tothe ~~approximately~~future. Some of these factors include:

21• actual or anticipated variations in our operating results;

~~126~~• not ~~as of April 30, 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~~receiving ~~among~~ governmental ~~our~~or ~~technical,~~regulatory ~~finance,~~approvals ~~sales~~associated ~~and~~with ~~marketing~~the ~~groups~~proposed inmerger ~~order to successfully manage such fluctuations in personnel.~~ with Microsoft;

We• announcement ~~will~~of technological ~~not be able to execute our business plan if we cannot increase our direct and indirect sales channels.~~ innovations;

We• conditions ~~will need to expand substantially our direct and indirect sales operations, both domestically and internationally, in order to increase market awareness and~~or ~~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~~trends ~~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~~Internet ~~in hiring new qualified sales personnel. In addition, we believe that our future success is dependent upon establishing~~ and ~~maintaining~~ELS ~~productive~~solutions 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. industries;

~~Similarly, the~~• acquisitions ~~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~~ alliances ~~support~~by ~~organization,~~us ~~and~~or weothers ~~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.~~ industry;

~~Our~~• changes ~~business~~in estimates isof ~~difficult~~our toperformance ~~evaluate~~or ~~because~~recommendations weby ~~have~~financial ~~a limited operating history.~~ analysts;

~~Our company was founded in October 1995, and our initial revenues were derived from providing maps, driving directions and directory services. We have a~~• market ~~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~~conditions ~~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,~~industry ~~expenses~~ and ~~difficulties~~ ~~frequently~~the ~~encountered~~economy ~~by companies in their early stage of development, particularly companies in new and rapidly evolving markets such~~ as ~~the~~a ~~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.~~ whole;

~~Our~~• introduction ~~business is dependent on the continuous, reliable and secure operation~~ of new ~~our databases and the related~~ services ~~that~~by ~~we provide, and a system failure could negatively impact~~ our ~~business.~~ competitors;

~~Our~~• changes ~~operations are dependent on our ability to maintain our databases, servers and communications equipment~~ in ~~effective working order and to protect them from~~the ~~fire, earthquakes and other natural disasters, sabotage, power loss, telecommunications failure, human error or similar events. Although we currently maintain two geographically dispersed data~~ ~~centers,~~market avaluations ~~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~~other 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.~~service 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 companies;

2217

• announcements by ~~for~~ us ~~any losses that may occur due to any failure in our system~~ or ~~interruption in~~ our ~~service.~~competitors ~~In addition, the growth~~ of ~~our~~significant ~~business may strain the capacity of our servers and telecommunications systems. If we are unable or otherwise fail to maintain or upgrade our systems~~acquisitions, ~~they~~strategic ~~could fail or suffer degradation in performance. Any damage~~partnerships, ~~failure or delay that causes significant interruption~~ in joint ~~our~~ventures ~~databases~~ or ~~other~~capital ~~systems would adversely affect our operating results and could cause the price of our common stock to decline.~~ commitments;

~~Our~~• the ~~current~~amount ~~business plan depends in significant part on third party relationships, many~~ of liquid ~~which~~financial ~~are~~resources ~~short-term~~available orto ~~terminable.~~ us;

We• additions 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 or ~~if any of our strategic partners were to go out of business, 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~~departures ~~or if our strategic relationships do not result in an increase in the number~~ of ~~users~~key ofpersonnel; ~~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• other ~~are~~events ~~dependent~~or factors, onmany aof ~~limited~~which ~~number~~are ofbeyond ~~third~~our ~~parties~~control ~~for~~or aonly ~~significant~~partially ~~portion~~in of our ~~geographic data~~control.

~~Most~~The ofoverall ~~our~~financial ~~services~~markets ~~rely on the availability and accuracy of geographic data. We~~ have ~~licensed~~recently experienced a significant ~~portion~~price ofand ~~our~~volume ~~geographic~~fluctuations, ~~data~~and ~~from~~the amarket ~~limited~~prices ~~number~~ of technology ~~sources~~companies, ~~through~~particularly ~~non~~Internet-~~exclusive~~related companies, ~~short-term~~have ~~contractual~~been ~~arrangements.~~and continue ~~If any of these third parties were~~ to ~~merge with or~~ be ~~acquired~~adverse byand ~~another~~extremely ~~company~~volatile. orVolatility toin ~~go out of business,~~ the ~~number~~price of ~~sources~~our common ~~providing~~stock ~~this~~may ~~geographic data could~~ be ~~further~~caused ~~reduced.~~by ~~Given~~factors ~~the~~outside ~~short terms~~ of our ~~geographic~~control ~~data~~and ~~licenses,~~may webe unrelated ~~will~~or ~~have~~disproportionate to ~~renegotiate~~ our ~~contracts~~operating inresults. In the ~~foreseeable~~ ~~future~~past, ~~which~~following periods ~~may~~of ~~result~~volatility in ~~contractual~~the ~~terms~~market ~~that~~price ~~are~~of ~~not~~a aspublic ~~favorable~~company’s tosecurities, securities usclass asaction ~~our~~litigation ~~existing~~has ~~data~~often ~~licenses.~~been Ifinstituted weagainst ~~cannot~~that company. ~~maintain~~Securities ~~these~~class ~~data~~action ~~licenses~~litigation orcould ~~any~~result ~~other~~in ~~third-party~~substantial ~~license~~costs ~~arrangement on commercially reasonable terms, the scope~~ and ~~quality~~a diversion of our ~~services~~management’s ~~may~~attention ~~suffer.~~and resources.

IfWe weface ~~are~~competition ~~unable~~and tomay ~~generate~~face ~~fast~~future competition ~~and~~from ~~accurate~~companies ~~responses~~with todifferent ~~queries,~~business ~~the~~strategies ~~marketability~~that ofcould cause us to lower our ~~services~~prices ~~will~~or beto ~~reduced~~lose a significant portion of our market share.

IfWe wemay ~~are~~be unable to ~~generate~~compete ~~responses~~successfully ~~quickly~~with current or iffuture ~~the~~competitors. ~~responses~~We weface ~~generate~~competition ~~are~~from ~~not~~many ~~accurate~~companies, ~~the~~both traditional ~~marketability of our services will be reduced~~ and weonline, ~~may experience~~several ~~a decline in the number~~ of ~~users~~which ofare ~~our~~affiliated ~~services.~~with ~~The~~companies ~~accuracy~~much larger ofthan our ~~services is substantially dependent on the accuracy of data that we license from third parties~~company. WeIncreased ~~plan~~competition tocould ~~update~~result ~~our geographic databases periodically. However,~~ in ~~view~~price ~~of the complexity of updating multiple databases and revising software, and the need to obtain geographic data~~ reductions for ~~address~~our ~~information from third parties~~services, wereduced ~~may~~gross ~~not~~margins beand ~~able~~loss toof ~~perform these updates as planned. This could harm~~ our ~~business,~~market ~~financial condition and results of operations~~share.

23Many 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.

WeELS ~~face~~solutions ~~competition~~is ~~and~~a ~~may~~rapidly ~~face~~developing ~~future~~industry, ~~competition~~and new ~~from~~types ~~companies~~of ~~with~~products ~~different~~and ~~business~~services ~~strategies~~may emerge that ~~could~~are ~~cause~~more usattractive to consumers ~~lower~~and ~~our~~marketers ~~prices~~than orthe totypes ~~lose~~ of services we offer. As a ~~significant~~result, ~~portion~~it ofis possible ~~our~~that ~~market~~new competitors may emerge and rapidly acquire significant market share.

WeIf ~~may~~demand befor ~~unable~~ELS solutions fails to ~~compete~~develop ~~successfully with current~~ or ~~future~~develops ~~competitors.~~more Weslowly ~~face~~than ~~competition~~we ~~from many companies~~expect, ~~both~~we ~~traditional~~may ~~and online, several of~~not ~~which~~ generate ~~are~~sufficient ~~affiliated~~revenues ~~with~~to ~~companies~~achieve ~~much larger than our company~~profitability. ~~Increased competition could result in price reductions for our services, reduced gross margins and loss of our market share.~~

~~Many~~Our future success is highly dependent on an increase in the use of ~~our~~the ~~existing~~Internet ~~competitors,~~and aswireless ~~well~~platforms as ~~potential~~marketing ~~future~~channels including, ~~competitors~~in particular, ~~have~~the ~~longer~~deployment ~~operating~~and ~~histories,~~acceptance ~~greater~~of ~~name~~wireless ~~recognition,~~and broadband ~~larger~~platforms. ~~customer~~If ~~bases~~significant ~~and~~demand ~~significantly~~for ~~greater financial,~~ELS ~~technical~~solutions ~~and~~fails ~~marketing~~to ~~resources~~develop or develops more slowly than ~~our~~we ~~company.~~have ~~These~~planned ~~advantages~~for, we may ~~allow~~not ~~them~~generate sufficient revenues to ~~respond~~achieve ~~more~~profitability. ~~quickly~~The ~~and~~market ~~effectively~~for toELS ~~new~~solutions oris ~~emerging~~new ~~technologies~~and rapidly evolving, and ~~changes~~it incannot ~~customer~~yet be compared with traditional marketing ~~requirements~~ media to gauge its effectiveness. ItCompanies that have historically relied on traditional marketing methods may ~~also~~be ~~allow~~reluctant ~~them~~or slow to ~~engage~~adopt inonline ~~more~~or wireless ~~extensive~~marketing. ~~research~~As ~~and~~a ~~development~~result, ~~undertake~~demand ~~farther~~and market acceptance for Internet and wireless-~~reaching~~based marketing ~~campaigns,~~solutions ~~adopt~~cannot ~~more~~yet ~~aggressive~~be ~~pricing~~determined. ~~policies~~Many ~~and~~of ~~make more~~our ~~attractive~~ current ~~offers~~and to potential ~~employees~~clients ~~and~~have ~~strategic~~little ~~partners.~~or ~~One~~no experience using the Internet or ~~more~~wireless ofplatforms ~~these~~for ~~companies~~marketing ~~could~~purposes ~~adopt~~and may allocate only a ~~different~~limited portion ~~business~~of ~~strategy~~their ~~for~~marketing ~~achieving~~budgets ~~profitability~~to ~~that~~these ~~could~~platforms. ~~allow~~Companies ~~them~~that tohave ~~charge~~invested ~~fees~~ substantial ~~that~~resources ~~are~~in ~~lower~~traditional ~~than~~methods ~~ours~~of inmarketing ~~order~~may be reluctant to reallocate ~~attract~~those ~~clients~~resources to online or wireless marketing. In addition, companies ~~current~~that ~~and~~have ~~potential~~invested ~~competitors~~a ~~have~~significant ~~established~~portion of their marketing budget in online or ~~may~~wireless ~~establish~~marketing ~~cooperative~~may ~~relationships~~decide ~~among~~after ~~themselves~~a ortime ~~with~~to ~~third parties~~return to ~~increase~~more traditional ~~the~~methods ~~ability~~if ofthey ~~their~~find ~~products~~that online or ~~services~~wireless tomarketing ~~address~~is ~~the~~a ~~needs~~less effective method of ~~our~~promoting ~~current~~their products and ~~prospective~~services ~~clients.~~than traditional marketing methods.

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. 18

~~Without~~We ~~the~~might ~~continued growth in use of the Internet and wireless devices, we may not~~ experience a significant ~~portion~~undetected oferrors ~~the~~or ~~growth currently~~“bugs” ~~anticipated~~ in our products.

~~Our~~Software ~~future~~products ~~success~~frequently iscontain ~~substantially~~errors ~~dependent~~or security ~~upon~~flaws, ~~continued~~especially ~~growth~~when ~~and~~first ~~use~~introduced or when new versions are released. Software errors that are undetected in testing prior to product release could affect the ability of our products to work with other hardware or software products, could delay the ~~Internet~~development or release of new products or new versions of products and ~~wireless~~could ~~devices~~adversely ~~such~~affect market asacceptance ~~cellular~~of ~~telephones~~our products. ~~Use~~Customers ofwho ~~and~~critically ~~interest~~rely on our in products ~~the~~that ~~Internet~~to ~~and~~run ~~wireless~~their ~~devices~~businesses may ~~not~~have ~~continue~~a greater sensitivity to ~~grow~~product errors atand ~~their~~security ~~current~~vulnerabilities ~~rates~~than customers for general software products. If ~~Internet~~we ~~usage~~experience ~~may~~errors beor delays ~~inhibited~~in ~~for~~releasing ~~many~~new ~~reasons~~products or new versions of products, ~~including~~we ~~the~~could ~~following:~~lose revenues. Software product errors could also subject us to product liability, performance and/or warranty claims, which could adversely affect our business and operating results.

~~Even if~~Our ~~the~~management ~~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~~team ~~support the demands placed upon them by this growth, especially in light of the financial troubles of many telecommunications companies whose networks comprise much of the Internet infrastructure. Our~~ ~~success~~must ~~and~~successfully ~~the~~integrate ~~viability~~new ofmembers ~~the Internet and wireless services as information media and commercial marketplaces will depend~~ in ~~large~~order ~~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~~business ~~stock is likely~~ to ~~fall~~be successful.

24We face challenges in managing our operations due to the addition of new members to our management team and the departures of other executives. In particular, we hired Charles W. Berger as our new President and Chief Executive Officer in December 2001, Teri Dahlbeck as our Senior Vice President, Marketing and Business Development in March 2002, Daniel Shaver as Senior Vice President, Worldwide Sales in April 2002, and Steven Weinstein as Chief Technology Officer in June 2002, and several former senior executives left the company during 2001 and late 2000, including our former Chief Executive Officer and Chief Financial Officer. It may take time for our new executives to become acclimated into the company. New members of our management team may bring management styles, philosophies and policies that could take time to implement. All of our executives serve “at will”, and therefore it is possible additional turnover could occur in the future, resulting in limited management continuity and added expenses to the company, including recruitment and severance costs.

WeOur ~~face~~ability ato ~~competitive~~grow ~~labor~~our business ~~market~~depends ~~for~~on ~~highly~~whether ~~skilled~~existing ~~employees~~customers ~~that~~renew wetheir ~~must~~contracts ~~attract,~~with ~~retain~~ us and ~~motivate~~whether inwe ~~order~~are able to ~~execute~~sell ~~our~~existing ~~growth~~customers ~~plan~~additional services.

~~Our~~We ~~future~~generally ~~success~~enter ~~depends~~into onone-year ~~our~~license ~~ability~~agreements with toour ~~attract~~customers, ~~train, motivate~~ and ~~retain~~our ~~highly~~business ~~skilled~~model ~~employees.~~is ~~Competition~~centered ~~for~~around ~~qualified~~maintaining ~~employees among Internet~~ and ~~software~~ growing ~~companies~~these iscustomer ~~intense, particularly in the Silicon Valley area in which our headquarters are located~~relationships. If ~~Market~~a ~~wages~~significant ~~for~~number ~~employees~~of ~~include~~customers ~~expectations~~fail ~~for~~to ~~significant~~renew ~~stock-based~~their ~~compensation~~contracts with ~~and~~ us, inthis ~~light~~would ofhave ~~the~~an ~~disappointing~~immediate ~~performance~~negative ofimpact on our ~~stock~~revenues ~~price~~and earnings, as we ~~may~~would likely be unable to ~~offer~~adjust ~~attractive~~our ~~equity~~expense ~~packages~~levels toaccordingly. In ~~potential employees~~addition, ~~and~~because ~~may~~much ~~also~~of beour ~~unable~~past ~~to retain and motivate our~~sales ~~existing~~ growth ~~employees~~is ~~whose~~the ~~stock~~result ~~options are out-~~of~~-the-money.~~ ~~These~~selling ~~circumstances could require~~ additional ~~stock~~services ~~option~~to ~~grants or restructurings of~~ existing ~~grants~~clients, ~~either~~ losses of ~~which~~existing customers would bealso ~~dilutive~~have toa ~~holders~~negative oflong-term ~~our common stock~~impact. ~~Additionally,~~Our ~~there~~growth strategy ~~are~~depends ~~several~~in ~~proposals~~part inon the ~~Congress~~introduction ~~and~~of innew ~~the~~services ~~accounting~~that ~~industry~~we tohope ~~require corporations~~ to ~~include~~ ~~compensation~~ sell ~~expense~~to inour ~~their~~existing ~~statement~~clients, ofincluding ~~operations~~by ~~relating~~means toof ~~the~~internal ~~issuance~~development ofor through ~~employee~~acquisitions. ~~stock~~We ~~options.~~may Ifnot ~~such~~develop aany ~~measure~~of isthese ~~approved,~~new weservices ~~may~~in ~~decide~~a cost-effective toand ~~issue~~timely ~~fewer~~manner, ~~stock~~and ~~options~~we inhave ~~the~~insufficient ~~future.~~experience Wewith ~~may~~ these benew ~~unable~~service offerings to ~~retain~~know ~~our~~whether ~~key~~they ~~employees~~will orbe ~~attract,~~well ~~assimilate~~received orby ~~retain~~our clients. ~~other~~Any ~~highly~~new ~~qualified~~service ~~employees~~we inintroduce ~~the~~that ~~future.~~is Wenot ~~have~~favorably ~~from~~received ~~time~~could damage toour ~~time~~relationships inwith ~~the~~our ~~past~~clients. ~~experienced,~~If ~~and~~our weexisting ~~expect~~clients todecide ~~continue~~ to maintain ~~experience~~their incurrent ~~the~~level ~~future,~~of ~~difficulty~~service ~~in hiring~~ and ~~retaining~~not ~~highly~~upgrade ~~skilled~~to ~~employees~~additional ~~with~~services, we ~~appropriate~~might ~~qualifications.~~fall ~~The~~short ~~inability~~of toour ~~attract~~projected ~~additional~~sales ~~qualified~~and ~~personnel~~would ~~could~~have ~~disrupt~~to ~~the~~cultivate other ~~implementation~~ sales ofopportunities, ~~our growth strategy upon~~ which ~~the~~might ~~success~~be ofexpensive ~~our~~and ~~business~~might ~~depends.~~not materialize.

WeOur ~~are~~strategy ~~highly~~to ~~dependent~~tailor our onELS ~~the~~solutions ~~acceptance~~around ~~and~~specific ~~effectiveness~~vertical ofmarkets ~~the~~is ~~Internet~~unproven ~~as a medium for consumer transactions~~ and onmay ~~the~~not ~~increased use of the~~be ~~Internet by consumers to locate our clients' products~~ successful.

~~The~~One ~~future~~of ~~success~~our ofstrategies ato ~~number~~increase ofsales ~~our~~to ~~services~~existing customers and to sign up new customers is ~~dependent~~to infurther ~~large~~tailor ~~part~~our onELS ansolutions offerings ~~increase~~around specific vertical markets. To be successful, we will need to develop additional expertise in ~~the~~our ~~use~~target vertical ofmarkets. We ~~the~~may ~~Internet~~be ~~for~~required ~~business~~to hire ~~transactions~~new ~~with~~employees ~~consumers~~to implement this strategy, and any inability or delay in on hiring ~~the~~any ~~increased~~such ~~use~~new ofemployees ~~the~~may ~~Internet~~impair byour ~~consumers~~ability to ~~locate~~execute ~~our~~on ~~clients'~~this strategy ~~products~~quickly. In ~~The~~particular, ~~electronic~~we intend ~~commerce~~to ~~market~~target isthe ~~relatively~~governmental ~~new~~market, and ~~rapidly~~we ~~evolving~~do ~~and~~not have much experience in selling into this vertical. Targeting the ~~extent~~governmental ofmarket ~~consumer~~may ~~acceptance~~introduce ofnew risks, including the requirement to ~~Internet~~ develop ~~cannot~~sales ~~yet~~strategies bethat ~~determined.~~are Ifdifferent afrom ~~sufficiently~~those ~~broad~~that ~~base~~we ofuse ~~consumers~~with doour corporate ~~not~~customers, ~~accept~~longer ~~the~~sales ~~use~~cycles ofand complex approval processes, and reliance on the ~~Internet~~governmental ~~for~~budget ~~transacting~~process. Focusing ~~business~~around orspecific dovertical ~~not~~markets ~~use~~may ~~the~~also ~~Internet~~make it more difficult to ~~locate~~move ~~our~~into ~~clients'~~new ~~products, our~~vertical ~~business,~~markets ~~financial~~in ~~condition~~the ~~and~~future. If ~~results~~this ofstrategy ~~operations~~is ~~could~~not besuccessful, ~~materially~~we ~~and~~may not ~~adversely~~achieve ~~affected.~~desired sales growth.

~~If we are unable to protect our proprietary rights adequately, our competitors might gain access to our technology and we might not compete successfully in our market.~~ 19

~~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. These legal protections provide only limited protection and may be ~~time~~unable ~~consuming and expensive~~ to ~~obtain and~~ ~~enforce.~~ maintain ~~If we fail to protect~~ our ~~proprietary~~current ~~rights~~pricing ~~adequately,~~structure ~~our~~because ~~competitors might gain access to~~ our ~~technology.~~business Asis ~~a result, our competitors might offer similar products and w might not be able~~changing ~~to compete successfully in our market. Moreover~~ rapidly, ~~despite~~as ~~our~~are ~~efforts~~the toservices ~~protect our proprietary rights, unauthorized parties may copy aspects of our products and obtain and use information~~ that we ~~regard~~ ~~as proprietary~~provide. Also, our competitors may independently develop similar, but not infringing, technology, duplicate our products, or design around our patents or our other intellectual property. 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.

InOur current business model is to provide ELS solutions ~~particular,~~ to weour ~~enter~~business ~~into~~clients. ~~confidentiality~~We ~~and~~may ~~invention~~not ~~assignment~~achieve ~~agreements~~an ~~with~~acceptable ~~employees~~level of profitability, ~~non-disclosure~~or ~~agreements~~become ~~with~~profitable ~~strategic~~at ~~partners~~all, ~~and~~if ~~other~~our ~~confidentiality~~clients’ marketing ~~and~~ executives ~~intellectual~~do ~~property-related~~not ~~agreements.~~perceive ~~Our~~that ~~failure~~the touse ~~enter~~of ~~into~~our ~~these~~services ~~agreements~~will ~~when~~improve ~~appropriate~~the effectiveness of their marketing efforts or ~~our~~if ~~inability~~they are otherwise unable to generate ~~enforce~~a significant return on investment from using our ~~rights~~services. ~~under~~ELS solutions ~~one~~are orrelatively ~~more~~new ofand ~~these~~unproven ~~agreements~~and ~~could~~may ~~jeopardize~~not achieve widespread ~~our~~ customer ~~ability~~acceptance. toTo ~~protect~~be successful, we must adapt to our ~~intellectual~~rapidly ~~property.~~changing market Weby ~~have~~continually ~~several~~enhancing ~~applications~~the ~~pending~~technologies ~~for~~used ~~trade~~in our services and introducing ~~service~~new ~~mark~~technology ~~registrations~~to inaddress the ~~United~~changing ~~States~~needs ~~and~~of inour ~~other~~clients. ~~countries~~Under our current pricing structure, clients pay for most of our services through set-up and itannual fees. There is ~~possible~~a risk that competition with respect to the ~~these~~ services ~~applications~~we ~~may~~provide will eventually result in very low prices for our services. If we are unable to maintain an adequate pricing structure, we will not begenerate sufficient revenues to achieve and maintain profitability.

25We may seek to acquire other companies as one means of growing our business, which gives rise to a number of risks that could have adverse consequences to future operating results.

Our merger agreement with Microsoft restricts us from ~~approved~~ acquiring other companies without the written consent of Microsoft. However, Wein ~~may~~the event that the proposed merger is not beconsummated, ~~granted~~then ~~certain~~in ~~patents~~the future we may acquire or make investments in complementary businesses, technologies, services or products, or enter into strategic partnerships with ~~respect~~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 ~~technology~~acquiring, investing in or partnering with their businesses, products, services or technologies, and we ~~any~~regularly ~~patent~~engage ~~that~~in isthese ~~granted~~discussions ~~may~~and benegotiations ~~challenged~~in orthe ~~invalidated~~ordinary course of our business. We may not ~~develop~~identify ~~proprietary~~suitable ~~products~~acquisition, investment or ~~technologies~~ strategic ~~that~~partnership ~~are patentable~~candidates, ~~and~~or ~~any~~if ~~issued~~we ~~patent~~do identify suitable candidates, we may not ~~provide~~complete usthose ~~with~~transactions ~~any~~on ~~competitive~~commercially ~~advantages~~acceptable terms or ~~withstand~~at ~~challenges~~all. We bycould ~~third~~have ~~parties~~difficulty in assimilating the personnel, operations, technology and software of another company that we acquire. In addition, the ~~patents~~key personnel of ~~others~~a company that we acquire may ~~adversely~~decide not to work for us. If we make ~~affect~~ acquisitions, we could have difficulty in integrating the acquired products, services or technologies into our ~~ability~~operations. toThese ~~conduct~~difficulties could disrupt our ongoing business, distract our management and employees and increase our expenses. Furthermore, we may need to incur indebtedness or issue equity securities to pay for any future acquisitions, which could be dilutive to our existing stockholders. Also, acquisitions could result in other expenses, such as restructuring charges, or could require us to record non-cash charges to earnings, including amortization of certain types of intangible assets or write-offs of acquired in-process research and development costs, as well as future impairment charges related to goodwill that we acquire. Any of the above or other factors could harm our ability to achieve profitability or to realize anticipated benefits of an acquisition.

~~Privacy~~Litigation ~~concerns~~over intellectual ~~may~~property ~~adversely~~rights ~~affect~~could ~~our~~disrupt ~~ability~~or tootherwise ~~implement~~have ~~our~~a ~~Internet~~negative ~~solutions~~impact on our business.

~~Web~~There ~~sites~~has ~~and~~been ~~Internet~~frequent ~~advertisement~~litigation ~~servers~~in ~~typically~~the high-technology ~~place~~industry aregarding ~~small~~intellectual ~~file~~property ~~commonly~~rights. ~~known~~We ascannot abe certain ~~"cookie"~~that onour aproducts ~~user's~~do ~~hard~~not ~~drive,~~and ~~generally~~will ~~without~~not ~~the~~infringe ~~user's knowledge~~issued orpatents, ~~consent.~~patents that We may ~~introduce~~be ~~services~~issued orin ~~features~~the ~~that~~future, ~~are~~or ~~dependent~~other onintellectual ~~the~~property ~~use~~rights of others, ~~cookies~~and tolike ~~collect,~~others ~~sort~~in ~~and~~our ~~analyze~~industry, ~~information~~we ~~about~~are ~~Internet~~from ~~users.~~time ~~Most~~to ~~currently~~time ~~available~~subject ~~Internet~~to ~~browsers~~ claims ~~allow~~regarding ~~users~~the toalleged ~~modify~~intellectual ~~their~~property ~~browser~~rights ~~settings~~of tothird ~~prevent~~parties. ~~cookies~~For instance, ~~from~~in ~~being~~December ~~stored~~2001, onwe ~~their~~were ~~hard~~sued ~~drive~~by orMurex toLicensing ~~delete~~Corporation, ~~cookies~~which alleged atthat ~~any~~our ~~time.~~ELS Insolution ~~addition,~~infringed ~~some~~their ~~Internet~~patents ~~commentators~~ and ~~privacy~~sought damages and ~~advocates~~ permanent ~~have~~injunctive ~~suggested~~relief. We ~~limiting~~settled this orlitigation ~~eliminating~~in ~~the~~May ~~use~~2002 ofby ~~cookies~~entering into ~~and~~a ~~the~~patent ~~Federal~~license. We ~~Trade~~also resolved ~~Commission~~a isdifferent ~~investigating~~patent ~~these~~infringement ~~issues~~claim in ~~response~~fiscal to1999. ~~recent~~We ~~publicity regarding Internet advertising~~have ~~companies.~~ received, ~~The~~and ~~effectiveness~~expect ofin ~~our~~the future ~~services~~to ~~could~~receive, beclaims ~~limited~~of infringement by aus with ~~significant~~respect ~~reduction~~to current or ~~limitation~~future inproducts, ~~the~~trademarks ~~use~~or ofother ~~cookies~~proprietary rights. InWe ~~addition,~~may ~~privacy~~likewise ~~concerns~~be ~~may~~subject ~~cause~~to ~~some~~claims ~~Web~~from ~~users~~customers tofor ~~be less~~indemnification ~~likely~~ with torespect ~~visit~~any ~~Web~~such ~~sites~~claims ~~that~~made ~~use~~against ~~cookies~~customers. Regardless Ifof ~~enough~~the ~~Web~~merits, ~~users~~these ~~choose~~claims ~~not~~could tobe ~~visit~~time-consuming, ~~sites~~result in ~~that~~costly ~~use cookies~~litigation, divert our ~~ability~~management’s toattention, ~~sell~~cause ~~our~~product ~~services~~ or service ~~features~~release ~~that~~delays, ~~are~~require ~~dependent~~us onto ~~the~~redesign ~~use~~our ofproducts ~~cookies~~or ~~would be~~services ~~adversely affected and could~~ or require us to ~~alter~~enter orinto ~~adjust~~costly ~~our~~royalty ~~business~~or ~~practices.~~licensing agreements.

~~Legislation~~We orhave ~~regulations~~dedicated significant ~~may~~resources betoward ~~adopted~~developing ~~that~~new ~~could~~clients ~~affect~~internationally; ~~our~~any success ~~ability~~in tothese ~~generate~~efforts ormay ~~use~~prove ~~information~~not ~~for~~to ~~profiles~~have ~~and~~been ~~may~~worth ~~hinder~~the ~~our ability to~~associated ~~conduct business~~ expense.

~~The~~Our ~~legal~~business ~~and~~plan ~~regulatory~~in ~~environment governing~~ the ~~Internet~~recent ~~and the use of information about Internet users is constantly evolving. United States legislators in the~~ past ~~have~~has ~~introduced~~included ~~a number of bills aimed at regulating~~ the expenditure ~~collection and use~~ of ~~personal~~significant ~~data~~resources ~~from Internet users and additional similar bills may be considered during any congressional session~~internationally. ~~Although~~To ~~we believe no current legislation has had a material adverse effect on our business~~date, itwe ishave ~~possible~~limited experience ~~that~~in amarketing ~~bill may be enacted into law that negatively affects~~ our ~~ability~~services tointernationally, ~~collect~~ and ~~use~~we ~~data~~cannot ~~about~~predict ~~Internet users or that otherwise affects~~ our success ~~business. The European Union has adopted a directive addressing data privacy that may result~~ in ~~limitations~~these oninternational ~~the collection and use of specific personal information regarding Internet users~~markets. In ~~addition,~~order ~~Germany~~to ~~has~~generate ~~imposed~~greater ~~laws protecting data that can become personally identifiable through subsequent processing. Other countries may~~revenues ~~also~~ overseas, ~~enact~~we ~~limitations~~intend onto ~~the~~continue ~~use~~to ofenter ~~personal~~into ~~data.~~ relationships

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. 20

Wewith doforeign ~~not~~businesses, ~~currently~~and ~~plan~~we tocannot ~~pay~~predict ~~dividends~~whether tothose relationships ~~the~~will ~~holders~~be ofsuccessful. ~~our~~Our ~~common~~international ~~stock.~~ plans are subject to inherent risks, including:

~~We do not currently anticipate paying cash dividends to~~ • the ~~holders~~impact of economic ~~our~~fluctuations ~~common~~in ~~stock.~~economies ~~Accordingly,~~outside ~~stockholders must rely on sales~~ of ~~their common stock after price appreciation, which may never occur, as~~ the ~~only~~United ~~way to realize on their investment. Investors seeking cash dividends should not purchase our common stock.~~ States;

26• greater difficulty in accounts receivable collection and longer collection periods;

A• unexpected changes ~~third party's ability to acquire us might be more difficult because of anti-takeover provisions~~ in ~~our~~regulatory ~~Restated~~requirements, ~~Certificate~~tariffs ~~of Incorporation~~ and ~~Bylaws.~~ other trade barriers;

~~Our~~• difficulties ~~Restated Certificate of Incorporation authorizes us to issue shares of preferred stock, with rights, preferences~~ and ~~privileges designated by our Board of~~ ~~Directors, without further stockholder approval. While this provides desirable flexibility in connection with possible acquisitions and other corporate purposes, any issued preferred stock could have~~ ~~the~~costs ~~effect~~ of ~~delaying,~~staffing deferring or preventing a change in control of our company. Any issuance of preferred stock may adversely affect the voting power of our common stockholders. In addition, provisions of our Restated Certificate of Incorporation and ~~Bylaws~~managing ~~eliminate~~foreign ~~the~~operations ~~right~~due ~~of stockholders~~ to ~~act by written consent without a meeting~~distance, ~~eliminate~~as ~~the~~well ~~right of stockholders to call a~~as ~~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~~ nolanguage ~~more than approximately one-third of our directors could be replaced each year~~ and itcultural would take three successive annual meetings to replace all directors. While continuity of the board was an important factor in adopting these provisions, these provisions also have the effect of reducing 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. differences;

~~Many~~• political instability, ~~corporate~~currency ~~actions~~exchange ~~will~~fluctuations ~~be controlled by officers, directors~~ and ~~affiliated~~potentially ~~entities~~adverse ~~regardless of the opposition of other investors or the desire~~tax of consequences; ~~other investors to pursue an alternative course of action.~~ and

~~Our executive officers, directors and entities affiliated with them, in the aggregate, beneficially own a significant percentage of our outstanding common stock.~~• reduced ~~These~~ protection ~~stockholders,~~for ifintellectual ~~acting~~property ~~together,~~rights ~~would~~outside ~~be able to significantly influence all matters requiring approval by our stockholders, including~~ the ~~election~~United ~~of directors and the approval of mergers or other business combination transactions~~States.

IfWe wecannot ~~were~~predict ~~deemed~~whether toour international business operations will be ansuccessful. ~~"investment~~The ~~company"~~results ~~under~~of ~~the~~our ~~Investment~~efforts ~~Company~~may ~~Act~~prove ofnot ~~1940,~~to ~~this~~have been ~~would~~worth ~~harm~~the ~~our~~associated ~~business~~expense and opportunity cost.

~~The~~We ~~Investment~~have ~~Company~~experienced fluctuation ~~Act~~in ~~of 1940 regulates mutual funds and closed-end investment companies that are traded on~~ the ~~public~~number ~~stock markets. Due to that fact that a large percentage~~ of our ~~assets consist of cash equivalents and investment securities~~employees, 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~~any ~~associated~~inability ~~contain provisions and set forth principles that are designed~~ to ~~differentiate~~ ~~"true"~~manage ~~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~~ orfluctuation ~~no-action relief from the SEC. Alternative solutions~~ could ~~involve~~harm ~~increasing the portion of~~ our ~~investment securities into government obligations with a likely reduction in the yield we earn on those investments~~business. ~~Further, any determination that we are an unregistered investment company would have a material adverse effect on our company.~~

27The 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 117 as of September 30, 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 ~~ITEM~~ to 3.execute ~~QUANTITATIVE~~our ~~AND~~business ~~QUALITATIVE~~plan ~~DISCLOSURES~~if ~~ABOUT~~we ~~MARKET~~cannot ~~RISK~~increase our direct and indirect sales channels.

~~The~~We ~~following~~will ~~discussion~~need ~~about~~to expand substantially our direct and indirect sales operations, both domestically and internationally, in order to increase market ~~rate~~awareness ~~risk~~and ~~involves~~sales ~~forward-looking~~of ~~statements~~our products. ~~Actual~~Our ~~results~~services ~~could~~require ~~differ~~a sophisticated ~~materially~~sales ~~from~~effort ~~those~~targeted ~~projected~~at inseveral ~~the~~people within our prospective ~~forward-looking~~ clients’ ~~statements~~organizations. WeCompetition ~~are~~for ~~exposed~~qualified tosales ~~market~~personnel ~~risk~~is ~~related~~intense, and we may not be able to ~~changes~~hire the kind and number of sales personnel that we are targeting. Also, the decline in ~~interest~~our ~~rates~~stock price may significantly increase the difficulty in hiring new qualified sales personnel. In addition, ~~foreign~~we ~~currency~~believe that ~~exchange~~our ~~rates~~future success is dependent upon establishing and ~~equity~~maintaining productive ~~security~~relationships ~~price~~with ~~risk~~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.

~~Interest~~Similarly, ~~rate~~the ~~risk. The~~complexity ~~primary objective~~ of our ~~investment~~products ~~activities is to preserve principal~~ and ~~assure sufficient~~the ~~liquidity~~ difficulty ~~to meet anticipated needs, while at the same time maximizing the income we receive from our investments within such constraints. Some~~ of ~~the~~installing ~~securities~~them ~~that~~require wehighly ~~invest~~trained incustomer ~~may~~service ~~be subject to~~and ~~market~~ support ~~risk~~personnel. ~~This~~We ~~means~~currently ~~that~~have a ~~change~~small incustomer ~~prevailing~~service ~~interest~~and ~~rates~~support organization, ~~may~~and ~~cause~~we ~~the~~may ~~principal~~need ~~amount~~to ofincrease ~~the~~our ~~investment~~staff to ~~fluctuate.~~support ~~For~~new ~~example~~services, ~~if we hold a security that was issued with a fixed~~ ~~interest~~ new ~~rate~~customers ~~at the then-prevailing rate~~ and the ~~prevailing~~expanding ~~interest~~needs ~~rate later rises, the principal amount~~ of ~~our~~existing ~~investment will probably decline~~customers. ToCompetition ~~minimize this risk in the future,~~for ~~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,~~customer ~~certificates~~service ~~of deposit, commercial paper, corporate notes~~ and ~~bonds~~support ~~and~~personnel ~~other~~is ~~specific~~intense ~~money~~in ~~market instruments. We classify~~ our ~~cash~~industry ~~equivalents~~due ~~and~~to ~~short-term investments as~~the ~~"fixed-rate"~~ limited ifnumber ~~the rate~~ of ~~return~~people onavailable ~~such~~with ~~instruments~~the ~~remains~~necessary ~~fixed~~technical ~~over~~skills ~~their term. We classify our cash equivalents~~ and ~~short-term investments as "variable rate" if the rate~~ of understanding ~~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 average interest rates of our investment portfolio at April 30, 2002 (dollars in thousands):~~ Internet.

		Average Interest Rate		Cost		Fair Value
Cash equivalents:
	Variable rate	1.79	%	$	23,111	$	23,111
Short-term investments:
	Fixed rate	3.70			60,173		60,079
	Variable rate	2.06			1,201		1,201

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.

~~Foreign~~Our ~~Currency~~operations ~~Exchange~~are ~~Rate~~dependent ~~Risk. We~~on ~~develop~~our ~~products~~ability into maintain ~~the~~our ~~United~~databases, ~~States~~servers and ~~market~~communications ~~our~~equipment ~~products~~ in ~~North~~effective working ~~America~~order and ~~Europe.~~ Asto aprotect ~~result~~them from fire, ~~our~~earthquakes ~~financial~~and ~~results~~other ~~could~~natural disasters, besabotage, ~~affected~~power byloss, ~~factors~~telecommunications ~~such~~failure, ashuman ~~changes~~error inor similar ~~foreign~~events. ~~currency~~Although ~~exchange~~we ~~rates~~currently ormaintain ~~weak~~two ~~economic~~geographically ~~conditions~~dispersed data incenters, ~~foreign~~a ~~markets.~~system ~~Since~~failure ~~all~~or ofnatural ~~our~~disaster ~~sales~~could ~~are~~significantly disrupt ~~currently~~ our ~~made~~operations. inAny ~~U.S.~~system ~~dollars~~failure, including a ~~strengthening~~network, ofsoftware ~~the~~or ~~dollar~~hardware failure, ~~could~~that ~~make~~causes ~~our~~an ~~products~~interruption ~~less~~in ~~competitive~~the inperformance ~~foreign~~of ~~markets.~~our services or a decrease in

2821

responsiveness of our services could result in lost clients, reduced revenue and harm to our reputation. Despite the implementation of security ~~PART~~ measures IIand 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. ~~OTHER~~A ~~INFORMATION~~ 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 ~~ITEM~~ business 1.plan ~~LEGAL~~depends ~~PROCEEDINGS~~in significant part on third party relationships, many of which are short-term or terminable.

~~Our~~We ~~company~~presently ~~and~~rely ~~certain~~on of our ~~former~~strategic ~~officers~~partners ~~and~~to ~~directors~~provide key ~~have~~services, ~~been~~marketing ~~named~~opportunities, astechnologies, ~~defendants~~clients inand ~~four~~users. ~~lawsuits~~These arrangements ~~filed~~can inbe ~~the~~terminated ~~United~~by ~~States~~our ~~District~~partners ~~Court~~in ~~for~~some ~~the Southern~~circumstances. ~~District~~If ofour relationships ~~New~~with ~~York,~~our ~~which~~strategic ~~have~~partners ~~been~~were ~~consolidated~~terminated ~~into~~or ~~the~~if ~~case~~any ~~MBH Inc.~~of v.our strategic ~~Vicinity~~partners ~~Corporation~~were etto ~~al.~~go Byout ~~order~~of ~~dated April 19~~business, ~~2002,~~we ~~Robert~~would ~~Elka~~have ~~has~~to ~~been~~adapt ~~named~~our operations asor ~~the~~business ~~lead plaintiff.~~plan, ~~This~~which ~~lawsuit~~may istake ~~purportedly~~time ~~being~~and ~~brought~~may asinterrupt ~~a class~~the ~~action~~ provision ~~on behalf~~ of ~~individuals~~the ~~who~~affected ~~purchased~~services. ~~shares~~In ofaddition, ~~our~~if ~~company's~~we ~~common~~do ~~stock~~not ~~between February 9~~establish additional, ~~2000~~ and ~~December 6~~maintain existing, ~~2000~~strategic inrelationships ~~connection~~on ~~with~~commercially reasonable ~~and~~terms ~~traceable~~or toif our ~~initial~~strategic ~~public offering,~~relationships ~~although~~do nonot ~~class~~result ~~has~~in ~~been~~an ~~certified.~~increase in ~~According to~~ the ~~Amended~~number ~~Complaint~~of ~~filed~~users onof ~~April 20,~~our ~~2002~~services, ~~this~~we ~~lawsuit~~may ~~alleges~~be ~~that~~unable ~~our~~to ~~company,~~continue ~~certain~~to ofoffer existing ~~our~~products ~~former~~or ~~officers~~to ~~and~~develop ~~directors,~~ new products and ~~our~~we ~~securities~~may ~~underwriters~~not ~~violated~~experience ~~various~~a significant ~~sections~~portion of the ~~Securities~~anticipated ~~Act~~growth ofin ~~1933,~~our ~~the~~clients ~~Securities~~and ~~Exchange~~the ~~Act~~number of end-users ~~1934,~~of ~~and~~our ~~related~~services. As ~~rules,~~a ~~including Rule 10b-5~~result, ~~by reason of~~ ~~alleged~~ we ~~false~~may ~~statements~~not ~~and~~generate ~~omissions~~sufficient ~~relating~~revenues to ~~underwriting~~achieve ~~discounts~~profitability, and ~~market~~the ~~stabilization~~price of ~~transactions.~~our ~~The~~common ~~plaintiffs~~stock ~~seek~~is ~~unquantified~~likely ~~actual~~to ~~damages~~fall. Finally, ~~recissionary~~new ~~damages~~strategic ~~and~~relationships ~~other~~that ~~relief to~~are ~~compensate~~entered ~~losses~~into ~~allegedly~~may ~~incurred~~prove difficult byto ~~purchasers~~implement ofand ~~our~~may ~~common~~fail ~~stock~~to inprovide ~~connection~~some ~~with~~or ~~our~~all ~~initial~~of ~~public~~the ~~offering~~anticipated benefits.

~~This lawsuit~~We isare ~~one~~dependent ~~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~~on ~~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~~limited ~~docket~~number ~~for coordination and decision~~ of ~~pre-trial~~third ~~motions,~~parties 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 the Second Circuit has denied a petition for a ~~writ~~significant portion of ~~mandamus~~our ~~ordering~~geographic ~~the recusal~~ data. ~~The court recently set a schedule for defendants to make motions to dismiss, such that the motions are expected to be fully submitted to the Court by the end of September 2002.~~

~~At present,~~Most ~~discovery~~of ~~has~~our ~~not~~services ~~commenced~~rely on the availability and accuracy weof geographic data. We have ~~not~~licensed ~~responded~~a tosignificant ~~any~~portion of ~~the~~our geographic ~~complaints~~data infrom ~~the~~a ~~consolidated~~limited ~~action~~number of sources through non-exclusive, short-term contractual arrangements. WeIf ~~believe~~any ~~that~~of ~~the~~these ~~claims~~third ~~against~~parties ~~our~~were to merge with or be acquired by another company ~~and~~or ~~certain~~to go out of ~~our~~business, the ~~former~~ number ~~officers~~of ~~and~~sources ~~directors~~providing ~~are~~this ~~without~~geographic ~~merit~~data ~~and~~could be further reduced. Given the short terms of our geographic data licenses, we ~~intend~~will have to renegotiate ~~vigorously~~our ~~defend~~contracts ~~against~~in ~~them~~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.

~~On December 13,~~If ~~2001,~~we ~~Murex~~are ~~Securities~~unable ~~Limited~~to ~~and~~generate ~~Murex~~fast Licensing Corporation ("Murex") filed a complaint in the United States District Court for the Eastern District of Virginia (Murex Securities Limited, et al. v. Vicinity Corporation, et al, Civil Action No. 01-1895-A) naming Vicinity and ~~two of our customers as defendants. In the Complaint,~~ ~~the plaintiffs alleged that our Enterprise Location Services infringed claims of a number of the plaintiffs' patents, and the plaintiffs sought unspecified damages and permanent injunctive relief. In~~ ~~our~~accurate ~~response~~responses to ~~the Complaint~~queries, wethe ~~denied~~marketability ~~that we infringed any valid claims~~ of ~~the~~our ~~patents-in-suit.~~services On May 24, 2002, we reached a mutual settlement agreement with Murex regarding this matter. Under the settlement agreement, we were granted a license by Murex in exchange for cash payments. In addition, the settlement agreement includes a fee for past royalties. We expect that payments for past royalties, as well as litigation costs, will be ~~largely covered by our insurance~~ reduced.

WeIf we are unable to generate responses quickly or if ~~have~~ the ~~received~~responses ~~correspondence~~we ~~from~~generate ~~Unisys~~are ~~Corporation~~not ~~asserting~~accurate, ~~that~~the marketability of our services will ~~infringe~~be ~~various~~reduced ~~claims~~and ofwe ~~patents~~may ~~owned~~experience bya ~~Unisys~~decline ~~Corporation~~in the number of users of our services. WeThe ~~are~~accuracy ~~unable~~of atour ~~this~~services ~~time~~is tosubstantially ~~evaluate the~~dependent ~~merits~~on the accuracy of ~~these~~data ~~claims~~that we license from third parties. ~~Any~~We ~~litigation~~plan ~~over~~to update our geographic databases periodically. However, in view of the ~~scope~~complexity of updating multiple databases and ~~application~~revising ofsoftware, ~~patents~~and orthe ~~similar~~need ~~intellectual~~to ~~property~~obtain geographic ~~claims~~data ~~could~~for ~~involve~~address ~~significant~~information ~~costs~~from ofthird ~~defense~~parties, ~~and~~we ~~would~~may ~~involve~~not ~~risks~~be ~~and~~able ~~uncertainties~~ to perform these updates as planned. This could harm our business, financial condition and results of operations.

Without the continued growth in use of the Internet and wireless devices, we may not ~~ITEM~~ experience 2.a ~~CHANGES~~significant INportion ~~SECURITIES~~of ~~AND~~the ~~USE~~growth OFcurrently ~~PROCEEDS~~anticipated.

~~Not~~Our ~~applicable~~future success is substantially dependent upon continued growth and use of the Internet and wireless devices such as cellular telephones. Use of and 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:

2922

• the inability of Web sites to provide security and authentication of confidential information ~~ITEM~~ contained 3.in ~~DEFAULTS~~transmissions ~~UPON~~over ~~SENIOR~~the ~~SECURITIES.~~ Internet; and

~~Not~~• the ~~applicable.~~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 ~~ITEM~~ wireless 4services infrastructures may not be able to support the demands placed upon them by this growth, especially in light of the financial troubles of many telecommunications companies whose networks comprise much of the Internet infrastructure. ~~SUBMISSION~~Our OFsuccess ~~MATTERS~~and TOthe Aviability ~~VOTE~~of OFthe ~~SECURITY~~Internet ~~HOLDERS~~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.

~~Not~~We ~~applicable.~~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 ~~ITEM~~ employees 5among Internet and software companies is intense, particularly in the Silicon Valley area in which our headquarters are located. ~~OTHER~~Market ~~INFORMATION~~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. Additionally, there are several proposals in the Congress and in the accounting industry to require corporations to include compensation expense in their statement of operations relating to the issuance of employee stock options. If such a measure is approved, we may decide to issue fewer stock options in the future. 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.

~~Not~~We ~~applicable.~~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 ~~ITEM~~ transactions 6with consumers and on the increased use of the Internet by consumers to locate our clients’ products. ~~EXHIBITS~~The ~~AND~~electronic ~~REPORTS~~commerce ONmarket ~~FORM~~is relatively ~~8-K~~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.

Exhibit No.		Description of Exhibit
10.47		Executive Employment Agreement, dated April 30, 2002, by and between Vicinity Corporation and J. Daniel Shaver.

If we are unable to protect our proprietary rights adequately, our competitors might gain access to our technology and we might not compete successfully in our market.

30Our 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. These legal protections provide only limited protection and may be time consuming and expensive to obtain and enforce. If we fail to protect our proprietary rights adequately, our competitors might gain access to our technology. As a result, our competitors might offer similar products and w might not be able to compete successfully in our market. Moreover, despite our efforts to protect our proprietary rights, unauthorized parties may copy aspects of our

~~SIGNATURES~~ 23

~~Pursuant~~products toand ~~the~~obtain ~~requirements~~and ofuse ~~the~~information ~~Securities~~that ~~Exchange~~we ~~Act~~regard ofas proprietary. Also, ~~1934~~our competitors may independently develop similar, ~~the~~but ~~Registrant~~not ~~has~~infringing, ~~duly~~technology, ~~caused~~duplicate ~~this~~our products, ~~Report~~or design around our patents or our other intellectual property. Our failure to beprotect ~~signed~~our onproprietary ~~its~~rights ~~behalf~~adequately byor ~~the~~our ~~undersigned,~~competitors’ ~~thereunto~~ successful ~~duly~~duplication ~~authorized.~~of our technology could harm our operating results and cause the price of our common stock to decline.

		VICINITY CORPORATION Registrant
Dated: June 12, 2002		By:		/s/ MAURY AUSTIN Maury Austin Senior Vice President and Chief Financial Officer

In particular, we enter into confidentiality and invention assignment agreements with employees, non-disclosure agreements with strategic partners, and other confidentiality and intellectual property-related agreements. 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. We have several applications pending for trade and service mark registrations in the United States and in other countries, and it is possible that these applications may not be approved. 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.

31Privacy concerns may adversely affect our ability to implement our Internet solutions.

~~QuickLinks~~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 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.

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 and our adoption of a stockholder rights plan.

Our Restated Certificate of Incorporation authorizes us to issue shares of preferred stock, with rights, preferences and privileges designated by our Board of Directors, without further stockholder approval. While this provides

desirable flexibility in connection with possible acquisitions and other corporate purposes, any issued preferred stock could have the effect of delaying, deferring or preventing a change in control of our company. Any issuance of preferred stock may adversely affect the voting power of our common stockholders. In addition, 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. While continuity of the board was an important factor in adopting these provisions, these provisions also have the effect of reducing 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.

In addition, in August 2002, we adopted a stockholder rights plan. This plan may provide the Board of Directors with leverage in negotiating for a premium in the event of a change of control of Vicinity, but may also have the effect of discouraging or delaying a change of control of the company. We have amended the stockholder rights plan to provide that the rights will not become exercisable for shares of our common stock in connection with the proposed acquisition of us by Microsoft and will expire and terminate immediately before the acquisition becomes effective.

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.

If we were deemed to be an “investment company” under the Investment Company Act of 1940, this would harm our business.

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 September 30, 2002 (dollars in thousands):

	Average Interest Rate		Cost		Fair Value

Cash equivalents:
Variable rate	1.76	%	$	16,379	$	16,379

Short-term investments:
Fixed rate	3.19	%	$	65,411	$	65,877

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.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Our chief executive officer and our chief financial officer, based on their evaluation of the effectiveness of our disclosure controls and procedures within 90 days before the filing date of this report, concluded that our disclosure controls and procedures were effective for this purpose.

(b) Changes in Internal Controls. There were no significant changes in our internal controls or to our knowledge, in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced above.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

Information with respect to this Item may be found in Note 6 and Note 9 of Notes to Condensed Consolidated Financial Statements in this Form 10-Q, which information is incorporated into this Item 1 by reference.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

On August 6, 2002, our Board of Directors adopted a stockholder rights plan designed to protect the long-term value of Vicinity for its stockholders during any future unsolicited acquisition attempt. Under the rights plan, the Board declared a dividend of one preferred share purchase right for each share of our common stock outstanding on August 9, 2002 and further directed the issuance of one such right with respect to each share of our common stock that is issued after that date, except in certain circumstances. If a person or group acquires 15% or more of our common stock, or announces an intention to make a tender offer for our common stock, the completion of which would result in a person or group exceeding such 15% ownership level, then the rights will become exercisable and will be distributed. After distribution of the rights, each right may be exercised for 1/100 of a share of a newly designated Series A Junior Participating Preferred Stock at an exercise price of $14 per 1/100 of a share. The preferred stock has been structured so that the value of 1/100 of a share of preferred stock will approximate the value of one share of common stock. When the rights become exercisable, the holders of the rights (other than any acquiring person) will have the right to acquire shares of our common stock having a market value of two times the exercise price of the right. The rights will expire in August 9, 2012. In the event of a merger or other acquisition of Vicinity by an acquiring person, holders of the rights (other than any held by an acquiring person) will have the right to receive shares of common stock of the acquiring corporation at a substantially discounted price; however, this provision will not apply to the proposed acquisition of Vicinity by Microsoft. Pursuant to an amendment to our stockholder rights plan approved by our board of directors, the rights will not become exercisable for shares of our common stock in connection with our proposed acquisition by Microsoft and will expire and terminate immediately before the acquisition becomes effective.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

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

Not applicable.

ITEM 5. OTHER INFORMATION.

Not applicable.

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

(a) Exhibits. The exhibits listed in the Exhibit Index which appears at the end of this quarterly report are filed as part of, or are incorporated by reference into, this quarterly report.

(b) Reports on Form 8-K:

1. We reported a current report on Form 8-K under Item 5 on August 6, 2002, announcing we adopted a Stockholder Rights Plan.

2. We reported a current report on Form 8-K under Item 5 on August 20, 2002, announcing that Moloco LLC had filed with the Securities and Exchange Commission an amended Schedule 13D setting forth an unsolicited proposal by Moloco to recapitalize and restructure our company and refocus our business.

3. We reported a current report on Form 8-K under Item 9 on September 19, 2002, announcing that our Board of Directors had unanimously rejected the unsolicited proposal by Moloco LLC to recapitalize and restructure our company and merge it with a privately held company.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

November 14, 2002	VICINITY CORPORATION


	By: /s/ MAURY AUSTIN
	Maury Austin
	Senior Vice President and Chief Financial Officer
	(Principal financial and duly authorized officer)

CERTIFICATIONS

I, Charles W. Berger, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Vicinity Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b. Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filling date of this quarterly report (the “Evaluation Date”); and

c. Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

/s/ CHARLES W. BERGER
President and Chief Executive Officer

CERTIFICATIONS

I, Maury Austin, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Vicinity Corporation;

b. Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filling date of this quarterly report (the “Evaluation Date”); and

c. Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

/s/ MAURY AUSTIN
Chief Financial Officer

EXHIBIT INDEX

Exhibit
Number

Incorporated by Reference

Filed
Herewith

Exhibit Description

Form

File No.

Exhibit

Filing Date

2.1

Agreement and Plan of Merger, dated October 22, 2002, between Microsoft Corporation, Bootstrap Merger Sub, Inc. and Vicinity Corporation.

8-K

2.1

10/22/02

2.2

Form of Voting Agreement, dated October 22, 2002, by and among Microsoft Corporation, Bootstrap Merger Sub, Inc. and certain stockholders of Vicinity Corporation.

Micro
soft
13D

005-60895

99.3

10/31/02

3.1

Amendments to Bylaws, adopted in December 2001 and August 2002.

10-K

3.3

9/25/02

3.2

Certificate of Designations specifying the terms of the Series A Junior Participating Preferred Stock, as filed with the Delaware Secretary of State on August 12, 2002.

8-A

3.2

8/12/02

4.1

Rights Agreement dated August 9, 2002 between Vicinity Corporation and American Stock Transfer and Trust Company, as Rights Agent.

8-A

4.1

8/12/02

4.2

Amendment to Rights Agreement, dated October 22, 2002, between Vicinity Corporation and American Stock Transfer and Trust Company, as Rights Agent.

8-A/A

4.02

10/25/02

99.1

Certification of President and Chief Executive Officer.

99.2

Certification of Senior Vice President and Chief Financial Officer.

DELAWARE		77-0414631
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

370 San Aleso Avenue
Sunnyvale, California 94085
(Address of Principal Executive Offices)

(408) 543-3000
(Registrant’s telephone number, including area code)

The Registrant has changed the last day of its fiscal year from July 31 to June 30
(Former name, former address and former fiscal year, if changed since last report)

Filing Compare · VICINITY CORP