boris feldman, state bar no. 128838 wilson sonsini...

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DECL OF GAW ISO DEFS. MOTION TO DISMISS FOURTH CONSOL. AMENDED COMPL. [C-03-5138 VRW]

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BORIS FELDMAN, State Bar No. 128838 NINA F. LOCKER, State Bar No. 123838 PERI NIELSEN, State Bar No. 196781 KRISANA M. HODGES, State Bar No. 234629 RANDOLPH GAW, State Bar No. 223718 WILSON SONSINI GOODRICH & ROSATI Professional Corporation 650 Page Mill Road Palo Alto, CA 94304-1050 Telephone: (650) 493-9300 Facsimile: (650) 565-5100 Email: [email protected]; [email protected]; [email protected]; [email protected]; [email protected] Attorneys for Defendants PORTAL SOFTWARE, INC., JOHN E. LITTLE, HOWARD A. BAIN, III and ARTHUR C. PATTERSON

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

In re PORTAL SOFTWARE, INC. SECURITIES LITIGATION _______________________________________ This Document Relates To: ALL ACTIONS.

))))))))))))))))))

CASE NO.: C –03-5138 VRW DECLARATION OF RANDLOPH GAW IN SUPPORT OF DEFENDANTS’ MOTION TO DISMISS PLAINTIFFS’ FOURTH CONSOLIDATED AMENDED COMPLAINT Date: March 23, 2006 Time: 2:00 p.m. Dept: Courtroom 6 Before: Hon. Vaughn R. Walker

Case 3:03-cv-05138-VRW Document 142 Filed 01/24/2006 of 4

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I, Randolph Gaw, declare as follows:

I am an attorney duly licensed to practice law before this Court, and am associated with

the law firm of Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel of record

for Defendants Portal Software, Inc. (“Portal”), John E. Little, Howard A. Bain, III, and Arthur

C. Patterson (collectively “Defendants”). I submit this declaration in support of Defendants’

Motion to Dismiss Plaintiffs’ Fourth Consolidated Amended Complaint and Defendants’

Request for Judicial Notice, filed concurrently herewith. I have personal knowledge of the facts

set forth in this declaration and can testify competently to those facts.

Public Filings with the Securities and Exchange Commission (“SEC”)

1. Attached hereto as Exhibit A is a true and correct copy of Portal’s Form S-3

Registration Statement filed with the SEC on September 10, 2002.

2. Attached hereto as Exhibit B are true and correct copies of excerpts from Portal’s 2003

Form 10-K filed with the SEC on May 1, 2003.

3. Attached hereto as Exhibit C are true and correct copies of excerpts from Portal’s 2004

Form 10-Q filed with the SEC on June 16, 2003.

4. Attached hereto as Exhibit D is a true and correct copy of Portal’s Form S-3

Registration Statement filed with the SEC on September 12, 2003.

5. Attached hereto as Exhibit E are true and correct copies of excerpts from Portal’s 2004

Form 10-Q filed with the SEC on September 12, 2003.

6. Attached hereto as Exhibit F are true and correct copies of excerpts from Portal’s 2004

Form 10-Q filed with the SEC on December 15, 2003.

7. Attached hereto as Exhibit G are true and correct copies of excerpts from Portal’s

2004 Form 10-K filed with the SEC on April 14, 2004.

8. Attached hereto as Exhibit H are true and correct copies of Portal’s Post-Effective

Amendment No. 2 on Form S-1 to Registration Statement on Form S-3 filed with the SEC on

July 13, 2005.


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Press Releases

9. Attached hereto as Exhibit I is a true and correct copy of Portal’s press release dated

May 20, 2003

10. Attached hereto as Exhibit J is a true and correct copy of Portal’s press release dated

August 19, 2003.

11. Attached hereto as Exhibit K is a true and correct copy of Portal’s press release dated

November 13, 2003.

12. Attached hereto as Exhibit L is a true and correct copy of Portal’s press release dated

December 2, 2003.

13. Attached hereto as Exhibit M is a true and correct copy of Portal’s press release dated

February 24, 2004.

14. Attached hereto as Exhibit N is a true and correct copy of Portal’s press release dated

November 28, 2005.

Conference Call Transcript

15. Attached hereto as Exhibit O is a true and correct copy of Portal’s Third Quarter

Revenue and Earnings Conference Call Transcript dated November 13, 2003.

16. Attached hereto as Exhibit P is a true and correct copy of Portal’s Third Quarter

Revenue and Earnings Conference Call Transcript dated November 20, 2003.

Court Order

17. Attached hereto as Exhibit Q is a true and correct copy of the Court’s Order Dated

August 10, 2005.

18. Attached hereto as Exhibit R is a true and correct copy of the order in In re Veritas

Software Corp. Sec. Litig., No. C 03-0283 (N.D. Cal. May 19, 2004).

Accounting Literature

19. Attached hereto as Exhibit S is a true and correct copy of “Statement of Position 97–2

Software Revenue Recognition.”


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Stock Prices

20. Attached hereto as Exhibit T is a true and correct copy of a printout of historical stock

prices for Portal Software, Inc. as provided by Yahoo! Finance.

I declare under penalty of perjury under the laws of the State of California that the

foregoing is true and correct. Executed in New York, New York on December 9, 2005.

/s/ Randolph Gaw

Randolph Gaw

I, Peri Nielsen, am the ECF User whose identification and password are being used to file this Declaration of Randolph Gaw In Support of Defendants’ Motion to Dismiss the Second Consolidated Amended Complaint. In compliance with General Order 45.X.B, I hereby attest that Randolph Gaw has concurred in this filing.

Dated: December 9, 2005 WILSON SONSINI GOODRICH & ROSATI Professional Corporation By: /s/ Peri Nielsen

Peri Nielsen


Exhibit A

Prepared by R.R. Donnelley Financial -- Amendment No. 4 to Form S-3 Page 1 of 29

S-3/A 1 ds3a .htm AMENDMENT NO. 4 TO FORM S-3

Table of Contents

As filed with the Securities and Exchange Commission on September 10, 2002Registration No. 333-85070

SECURITIES AND EXCHANGE COMMISSIONWashington , D.C. 20549

AMENDMENT NO. 4TO

FORM S-3REGISTRATION STATEMENT

UnderThe Securities Act of 193 3

PORTAL SOFTWARE, INC .(Exact name of registrant as specified in its charter )

Delaware 77-0369737(State or other jurisdiction (I.R .S . Employer

of incorporation or organization) Identification Number)10200 South De Anza Boulevar d

Cupertino, California 95014(408) 572-2000

(Address, including zip code, and telephone number , including area code, of the registrants ' principal executive offices)

Mitchell L . GaynorVice President, General Counsel and Secretary

Portal Software, Inc.10200 South De Anza Boulevard

Cupertino, California 95014(408) 572-200 0

(Name, address, including zip code, and telephone number , including area code , of agent for service)

Copies to:Timothy R. Curry, Esq .

Brobeck, Phleger & Harrison LLP2000 University Avenu e

East Palo Alto, California 94303(650) 331-8000

Facsimile: (650) 331-8100

Approximate date of commencement of proposed sale to the public : From time to time after the effective date of the registration statement, as determined by market conditions andother factors .

If the only securities being registered on this Form are being offered pursuant to a dividend or interest reinvestment plan, please check the following box : ❑If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the

following box. EIf this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration

statement number of the earlier effective registration statement for the same offering . ❑If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the

earlier effective registration statement for the same offering . ❑

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box . ❑

CALCULATION OF REGISTRATION FEE

Amount to be Proposed Maximum Proposed Maximu mTitle of Each Class of Registered (1) Aggregate Offering Aggregate Offering Price (1) Amount of

Securities to be Registered (2) Price Per Unit(3) (2) Registration Fee

Common Stock(4 )

Preferred Stock(4)

Warrants(4 )

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Debt Securities(4)

Total $ 50,000,000 $ 50,000,000 $ 4,600(5)

(1) In United States dollars or the equivalent thereof in foreign currencies or currency units . Such amount represents the aggregate initial offering price of the securities registered hereunder .

(2) Not specified as to each class of securities to be registered, pursuant to General Instruction ILD of Form S-3 . The aggregate offering price shall not exceed $50,000,000, including any

amounts receivable upon exercise of any warrants .(3) To be determined from time to time by the registrant in connection with the issuance by the registrant of the securities registered hereunder .(4) Also includes such indeterminate principal amount of debt securities or such indeterminate number of shares of common stock or preferred stock as may be issued upon conversion,

exchange or exercise of any debt securities, preferred stock or warrants that provide for conversion, exchange or exercise into or for such other securities . No separate consideration will be

received for any securities registered hereunder that are issued in exchange for, or upon conversion of, as the case may be, the debt securities or preferred stock .

(5) Represents amounts previously paid .

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment

which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 , as amended , or until the

Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8 ( a), may determine .

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Prepared by R.R. Donnelley Financial -- Amendment No . 4 to Form S-3 Page 3 of 29

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The information in this prospectus is not complete and may be changed . We may not sell these securities until theregistration statement filed with the Securities and Exchange Commission is effective . This prospectus is not an offer tosell securities, and we are not soliciting offers to buy securities, in any state where the offer or sale is not permitted .

SUBJECT TO COMPLETION, DATED September 10, 200 2

PROSPECTUS

P RT . L.PORTAL SOFTWARE, INC .

$50,000,000

COMMON STOC K

PREFERRED STOCK

WARRANT S

DEBT SECURITIE SWe may offer up to $50,000,000 of these securities separately or in any combination. We will determine the type and amount of securities

and the price and other terms of any offering on the basis of market conditions and other factors existing at the time of the offering . We willdisclose the specific terms of any offering in a supplement to this prospectus .

The terms of each offering of these securities will be set forth in a prospectus or indenture supplement . You should read this prospectus andthe accompanying prospectus or indenture supplement carefully before you invest .

Our common stock is quoted on the Nasdaq National Market under the symbol "PRSF" .

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of thesesecurities or passed upon the adequacy or accuracy of this prospectus . Any representation to the contrary is a criminal offense .

This prospectus is dated , 200 2

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TABLE OF CONTENT S

A BOUT THIS PROSPECTU SWHERE YOU CAN FIND MORE INFORMATION

INCORPORATION OF DOCUMENTS BY REFERE NCE

RISK FACTORSPORTAL SOFTWAREINC.RECENT DEVELOPMENTS

t_ S E OF PROCEED SRATIO OF EARNINGS TO FIXED CHARGES

FORWARD-LOOKING STATEMENTS. ... .. .... .. .DESCRIPTION OF CAPITAL STOCK

DESCRIPTION OF DEBT SECURITIES

PLAN OF DISTRIBUTIO NLEGAL MATTERS

EXPERTS

ABOUT THIS PROSPECTU S

We may from time to time sell these securities in one or more offerings up to a total dollar amount of $50,000,000 . The dollar amountsreferred to in this prospectus include equivalent amounts in foreign currencies or foreign currency units .

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This prospectus provides you with a general description of the securities . Each time we offer the securities, we will provide a prospectus orindenture supplement that will contain specific information about the terms of that offering and the price of the securities offered for salehereunder, which price may be at a discount to the market price for such securities . The prospectus supplement may also supplement, modify orsupersede other information contained in this prospectus . Before investing, you should read both this prospectus and any prospectus or indenturesupplement together with the information incorporated by reference as described below under the heading "Incorporation of Documents byReference . "

You should rely only on the information provided in this prospectus and in any prospectus or indenture supplement, including theinformation incorporated by reference . We have not authorized anyone to provide you with different information . We are not offering thesecurities in any state where the offer is not permitted . You should not assume that the information in this prospectus, or any prospectus orindenture supplement, is accurate at any date other than the date indicated on the cover page of these documents .

WHERE YOU CAN FIND MORE INFORMATIO N

We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission, or theSEC. You may read and copy any document we file at the SEC's public reference room in Washington D.C. Please call the SEC at 1-800-SEC-

0330 for further information on the public reference room . Our SEC filings are also available to the public at the SEC's web site a t

http ://www.sec .gov .

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INCORPORATION OF DOCUMENTS BY REFERENCE

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The SEC allows us to "incorporate by reference" the information we file with it, which means that we can disclose important information to

you by referring you to those documents . The information incorporated by reference in this prospectus is considered to be part of this prospectus,and later information filed with the SEC or contained in this prospectus updates and supersedes this information . We incorporate by reference the

documents listed below and any future filings made with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,as amended, after the date of the initial filing of the registration statement of which this prospectus is a part and prior to the time that the offering

made by this prospectus is completed :

• our Annual Report on Form 10-K for the fiscal year ended January 31, 2002, as filed with the SEC on March 25, 2002 and as amended

on August 27, 2002 ;

• our Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2002, as filed with the SEC on June 14, 2002 and as amended

on August 27, 2002 ;

• our Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2002, as filed with the SEC on August 28, 2002 ;

• our current report on Form 8-K, as filed with the SEC on July 16, 2002 ;

• our current report on Form 8-K, as filed with the SEC on July 31, 2002 ;

• our current report on Form 8-K, as filed with the SEC on August 20, 2002 ;

• the description of our common stock contained in our Form 8-A/A filed on April 28, 1999 ; and

• the description of rights to purchase our Series A junior participating preferred stock contained in our Form 8-A filed on August 26,

2002 .

You may request a copy of these documents at no cost by writing to us at the following address or calling us at the following number :

Portal Software, Inc .10200 South De Anza BoulevardCupertino, California 95014(408) 572-2000Attn : Chief Financial Officer

RISK FACTORS

Before deciding to invest in our securities, you should consider carefully the risks described below and the risks set forth in any prospectussupplement, as well as other information we include or incorporate by reference in this prospectus and the additional information in the reportsthat we file with the SEC, including the risks set forth in our Annual Report on Form 10-K for the fiscal year ended January 31, 2002, filed onMarch 25, 2002 and as amended on August 27, 2002, under the heading "Risks Associated with Portal's Business and Future Operating Results"contained in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the risks set forth in ourQuarterly Reports on Form 10-Q for the quarter ended April 30, 2002, filed on June 14, 2002 and as amended on August 27, 2002, and for thequarter ended July 31, 2002, filed on August 28, 2002 under the headings "Risks Associated with Portal's Business and Future Operating Results"and "Management's Discussion and Analysis of Financial Condition and Results of Operations ." These risks are not the only ones we face .

Additional risks and uncertainties that we do not presently know about, that we currently believe are immaterial or that are similar to those facedby other companies in our industry or business in general, may also adversely impact our business . If any of the risks described actually occur, our

business, financial condition or results of operations could be materially and adversely affected . In such case, the price of our securities could

decline and you may lose all or part of your investment .

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PORTAL SOFTWARE, INC .

Page 6 of 2 9

We develop, market and support customer management and billing product-based solutions for communications and content service

providers . Our products and services are used by communications providers to support voice, data, video and content services across wireless,

wireline, cable and satellite networks . Our real-time, convergent Infranet® platform enables our customers to rapidly define, deploy and bill for

services with flexible business models . Infranet, which is our core product, enables the real-time provisioning and reporting of services, includingsuch functions as account creation, user authentication and authorization, activity tracking, pricing and rating, billing and customer service,including self-service, all on a scale of up to millions of users . Service offerings supported by Infranet include wireless services ; broadband and

Internet services, such as DSL, cable and satellite ; and next generation services, such as unified messaging, gaming and electronic content

delivery . Infranet is the foundation for our comprehensive software and services offerings . It is a standard software platform built on an open

architecture that can be easily integrated with other business system components . While Infranet is designed to meet the needs of the nextgeneration communications markets and services, it is enhanced with a number of optional modules to provide additional capabilities for specificindustry segments, including wireless, wireline, cable, ISP and Internet telephony . We believe that these product-based solutions provide

customers with superior total cost of ownership . Our customers range from emerging small companies offering an innovative service to a smallnumber of subscribers to large telecommunications carriers with millions of subscribers .

Our executive offices are located at 10200 South De Anza Boulevard, Cupertino, California 95014 . Our telephone number is (408) 572-

2000 . Our common stock trades on the Nasdaq National Market under the symbol "PRSF" .

RECENT DEVELOPMENT S

During the fiscal year ended January 31, 2002, the business climate for emerging next generation telecommunications companies, includingbroadband, electronic content and Internet access companies, as well as other Internet and e-commerce companies rapidly deteriorated . In

connection with this deterioration, our financial condition and results of operations were adversely affected . For example, our net loss for the fiscal

year ended January 31, 2002 rose to $395 .5 million from $2 .3 million in the prior year. In addition, during the fiscal quarter ended April 30, 2002,

we incurred a net loss of $12 .0 million and for the quarter ended July 31, 2002, we incurred a net loss of $18 .0 million compared to $46.8 million

for the fiscal quarter ended April 30, 2001 and $274.6 million for the fiscal quarter ended July 31, 2001 .

Our revenues were $154 .8 million for the fiscal year ended January 31, 2002, a 42% decrease from our revenues of $268 .3 million for the

fiscal year ended January 31, 2001 . Our revenues were $31 .1 million for the fiscal quarter ended April 30, 2002 and $28 .8 million for the fiscal

quarter ended July 31, 2002 compared to $44 .6 million for the fiscal quarter ended April 30, 2001 and $44 .7 million for the quarter ended July 31,

2001 . Revenues decreased in each period as a result of a continued general economic slowdown affecting the primary markets for our productsand services and, in particular, capital spending by telecommunication service providers . This decrease in technology and software capitalspending dramatically hurt our business in the fiscal year ended January 31, 2002 and will continue to seriously harm our business until conditionsimprove . As a consequence of these market conditions, in an effort to reduce operating expenses during the last fiscal year, we implemented plansto restructure, which included a reduction in workforce, consolidation of facilities and the write-off of assets .

In July 2002, Portal began implementation of a plan to further reduce its cost structure . The plan includes a reduction in workforce ofapproximately 250 employees, facilities reductions and asset write-offs . A restructuring liability was recorded for the fiscal quarter ended July 31,

2002 .



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USE OF PROCEEDS

Unless otherwise specified in the accompanying prospectus supplement, we will use the net proceeds from the sale of our securities offeredhereby for general corporate purposes, which may include the repayment of outstanding indebtedness, acquisitions, product and serviceexpansions and further investments in technology . We have no agreements or commitments in place with respect to any acquisition and are notcurrently involved in any negotiations with respect to any such transaction .

RATIO OF EARNINGS TO FIXED CHARGES

"Earnings" consist of income before taxes or loss from continuing operations, excluding the cumulative effect of a change in accountingprinciples, plus fixed charges . "Fixed charges" consist of interest expense incurred and the portion of rental expense deemed by us to berepresentative of the interest factor of rental payments under leases . For the year ended January 31, 2001, our ratio of earnings to fixed chargeswas $2 .09 . Our earnings were insufficient to cover fixed charges in each of the years ended January 31, 2002, 2000, 1999 and 1998 . The extent towhich earnings were insufficient to cover fixed charges is as follows :

Year Ended January 31 ,

2002 2001 2000 1999 1998

(In millions ; unaudited)

Deficiency of earnings available to cover fixed charges $ 390 .8 $ - $6.0 $16.7 $7. 6

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FORWARD-LOOKING STATEMENTS

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This prospectus contains and incorporates by reference , and the accompanying prospectus or indenture supplement may contain , forward-

looking statements within the meaning of Section 27A of th e Securities Act of 1933, as amended , and Section 21E of the Securities Exchange Act

of 1934, as amended , that involve substantial risks and unce rtainties . Forward-looking statements generally can be identified by the use of

forward-looking terminology such as "may ," "will," "expect," " intend," "estimate," "anticipate ," "believe" or "continue " or the negative thereof or

variations thereon or similar terminology . The expectations reflected in forward- looking statements may prove to be incorrect . Important factors

that could cause actual results to differ materially from our expectations include the following :

• va riations in demand for our products and se rv ices , including decreases caused by reductions in technology spending wi th in our target

markets;

• the timing and execution of individual contracts , particularly large contracts that would materially affect our operating results in a given

quarter;

• the timing of sales of our products and services ;

• our ability to develop and attain market acceptance of enhancements to our primary product, Infranet, and new products and services ;

• delays in introducing new products and services ;

• new product introductions by competitors ;

• changes in our pricing policies or the pricing policies of our competitors ;

• announcements of new versions of products by us or our competitors that cause customers to postpone purchases of our currentproducts ;

• the mix of products and services sold ;

• the mix of sales channels through which our products and services are sold ;

• the mix of domestic and international sales ;

• substantial changes in the value of certain currencies relative to U .S . dollars ;

• costs related to acquisitions of technologies or businesses ;

• the timing of releases of new versions of third-party software and hardware products that work with our products ;

• our ability to attract, retain and motivate highly skilled sales and marketing, research and development, technical support and othermanagement personnel with the needed competencies ;

• our ability to manage changes in the size of our operations ;

• our ability to sublease surplus facilities rapidly and on advantageous terms ;

• global economic conditions generally, as well as those specific to providers of communications and content services ; and

• acts of God or public authorities, war, civil unrest, fire, floods, earthquakes, acts of terrorism, the weather and other matters beyond ourcontrol .

In addition to the foregoing and any risks and uncertainties identified in the text surrounding forward-looking statements, any statementscontained elsewhere in this prospectus, the accompanying prospectus or indenture supplement or the reports, proxy statements and otherdocuments incorporated by reference herein or referred to in "Where You Can Find More Information" that warn of risks or uncertaintiesassociated with future results, events or circumstances identify factors that could cause our actual results to differ materially from those expressedin or implied by the forward-looking statements .


Prepared by R.R. Donnelley Financial -- Amendment No . 4 to Form S-3 Page 9 of 29

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DESCRIPTION OF CAPITAL STOCK

General

The securities that may be offered by this prospectus include shares of our common stock . Our authorized capital stock consists of on ebillion shares of common stock and five million shares of preferred stock issuable in series . The following summary is qualified in its entirety byreference to our articles of incorporation and bylaws, copies of which have been filed with the SEC and are incorporated herein by reference .

We will describe in a prospectus supplement the specific terms of any common stock, preferred stock, warrants or other securities we mayoffer pursuant to this prospectus . If indicated in a prospectus supplement, the terms of such securities may differ from the terms described below .

Common Stoc k

Holders of common stock are entitled to one vote per share on all matters to be voted upon by our stockholders . The holders of our commonstock are not entitled to cumulate voting rights with respect to the election of directors and, as a result, minority stockholders will not be able toelect directors on the basis of their votes alone . Subject to preferences that may be applicable to any then-outstanding shares of preferred stock,holders of our common stock are entitled to receive ratably such dividends as may be declared by our board of directors out of funds legallyavailable therefor. In the event of our liquidation, dissolution or winding up, holders of our common stock would be entitled to share ratably in anyassets remaining after payment of our liabilities and the liquidation preference of any then-outstanding shares of our preferred stock . Holders ofour common stock have no preemptive, conversion or other rights to subscribe for additional securities of Portal . There are no redemption orsinking fund provisions applicable to our common stock . As of July 31, 2002, 176,539,966 shares of our common stock were issued andoutstanding .

Preferred Stock

Our board of directors is authorized to issue from time to time, without stockholder authorization , in one or more designated series, any orall of our authorized but unissued shares of preferred stock with any dividend, redemption , conversion and exchange provisions as may beprovided in the particular series . Any series of preferred stock may possess voting, dividend , liquidation and redemption rights superior to that ofour common stock . The rights of the holders of our common stock wi ll be subject to, and may be adversely affected by, the rights of the holders ofany of our preferred stock that may be issued in the future . Issuance of a new series of preferred stock, while providing desirable flexibili ty inconnection with possible acquisitions , financings and other corporate purposes, could have the effect of entrenching our board of directors andmaking it more difficult for a third party to acquire , or discourage a third par ty from acquiring, a majority of our outstanding voting stock . As ofJuly 31, 2002 , no shares of preferred stock were issued and outstanding .

Whenever preferred stock is to be sold pursuant to this prospectus, we will file a prospectus supplement relating to that sale which willspecify :

• the number of shares in the series of preferred stock ;

• the price of the preferred stock, which may be at a discount to the market price ;

• the designation for the series of preferred stock by number, letter or title that shall distinguish the series from any other series ofpreferred stock;

• the dividend rate, if any, and whether dividends on that series of preferred stock will be cumulative, noncumulative or partiallycumulative ;

• the voting rights of that series of preferred stock, if any ;


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• any conversion provisions applicable to that series of preferred stock, which provisions may provide conversion at a discount to themarket price of our common stock ;

• any redemption or sinking fund provisions applicable to that series of preferred stock ;

• the liquidation preference per share of that series of preferred stock, if any; and

• the terms of other preferences or rights, if any, applicable to that series of preferred stock .

Stockholder Rights Agreement

On August 16, 2002, our board of directors declared a dividend of one preferred share purchase right for each outstanding share of ourcommon stock . The dividend was paid on August 26, 2002 to the stockholders of record at the close of business on that date . Each right entitlesthe registered holder to purchase from us a unit of one one-thousandth of a share of our Series A junior participating preferred stock, at a price of$14 .00 per unit . The description and terms of the rights are set forth in a Rights Agreement, dated as of August 16, 2002, between us andEquiserve Trust Company, N .A., as rights agent.

Until the earlier to occur of (i) the tenth day after a public announcement that a person or group of affiliated or associated persons hasacquired, or obtained the right to acquire, beneficial ownership of 15% or more of our outstanding common stock, other than as a result ofrepurchases of stock, or (ii) 10 business days (or such later date as may be determined by action of our board of directors) following thecommencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in thebeneficial ownership by a person or group of 15% or more of such outstanding common stock (the earlier of such dates is the distribution date),the rights will be evidenced, with respect to any of the common stock certificates outstanding as of the record date, by the common stock . Therights agreement specifically provides that our founder and Chairman, John Little, who currently owns more than 15% of our common stock, mayacquire up to an additional 5% of our common stock without triggering the exercisability of the rights .

The rights agreement provides that, until the distribution date, the rights will be transferred with and only with the common stock . Until thedistribution date (or earlier redemption or expiration of the rights), new common stock certificates issued after the record date, upon transfer ornew issuance of common stock will contain a notation incorporating the rights agreement by reference . Until the distribution date (or earlierredemption or expiration of the rights), the surrender for transfer of any certificates of common stock will also constitute the transfer of the rightsassociated with the common stock represented by such certificate . As soon as practicable following the distribution date, separate certificatesevidencing the rights will be mailed to holders of record of the common stock as of the close of business on the distribution date and such separaterights certificates alone will evidence the rights .

The rights are not exercisable until the distribution date . The rights will expire at the close of business on August 16, 2012, unless that finalexpiration date is extended or unless the rights are earlier redeemed or exchanged by us, in each case as described below .

The purchase price payable, and the number of units of Series A preferred stock or other securities or property issuable, upon exercise of therights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination orreclassification of, the Series A preferred stock, (ii) upon the grant to holders of the units of Series A preferred stock of certain rights or warrantsto subscribe for or purchase units of Series A preferred stock at a price, or securities convertible into units of Series A preferred stock with aconversion price, less than the then current market price of the units of Series A preferred stock or (iii) upon the distribution to holders of the unitsof Series A preferred stock of evidences of indebtedness or assets (excluding regular periodic cash dividends paid out of earnings or retainedearnings or dividends payable in units of Series A preferred stock) or of subscription rights or warrants (other than those referred to above) .



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The number of outstanding rights and the number of units of Series A preferred stock issuable upon exercise of each right are also subject toadjustment in the event of a stock split of the common stock or a stock dividend on the common stock payable in common stock or subdivisions,consolidations or combinations of the common stock occurring, in any such case, prior to the distribution date .

The Series A preferred stock purchasable upon exercise of the rights will not be redeemable . Each share of Series A preferred stock will beentitled to an aggregate dividend of 1,000 times the dividend declared per share of common stock . In the event of liquidation, the holders of theshares of Series A preferred stock will be entitled to an aggregate payment of 1,000 times the payment made per share of common stock . Eachshare of Series A preferred stock will have 1,000 votes, voting together with the common stock . Finally, in the event of any merger, consolidationor other transaction in which shares of common stock are exchanged, each share of Series A preferred stock will be entitled to receive 1,000 timesthe amount received per share of common stock . These rights are protected by customary anti-dilution provisions .

Because of the nature of the dividend, liquidation and voting rights, the value of each unit of Series A preferred stock purchasable uponexercise of each right should approximate the value of one share of common stock .

If, after the rights become exercisable, we are acquired in a merger or other business combination transaction with an acquiring person orone of its affiliates, or 50% or more of our consolidated assets or earning power are sold to an acquiring person or one of our affiliates, properprovision will be made so that each holder of a right will thereafter have the right to receive, upon exercise thereof at the then current exerciseprice of the right, that number of shares of common stock of the acquiring company which at the time of such transaction will have a market valueof two times the exercise price of the right .

If any person or group of affiliated or associated persons becomes the beneficial owner of 15% or more of the outstanding shares of ourcommon stock, proper provision will be made so that each holder of a right, other than rights beneficially owned by the acquiring person (whichwill thereafter be void), will have the right to receive upon exercise that number of shares of common stock or units of Series A preferred stock (orcash, other securities or property) having a market value of two times the exercise price of the right .

At any time after the acquisition by a person or group of affiliated or associated persons of beneficial ownership of 15% or more of theoutstanding shares of common stock and prior to the acquisition by such person or group of 50% or more of the outstanding common stock, ourboard of directors may exchange the rights (other than rights owned by such person or group which have become void), in whole or in part, at anexchange ratio per unit of Series A preferred stock equal to the purchase price divided by the then current market price per unit of Series Apreferred stock on the earlier of (i) the date on which any person becomes an acquiring person and (ii) the date on which a tender or exchangeoffer is announced which, if consummated, would result in the offeror being the beneficial owner of 15% or more of the shares of common stockthen outstanding .

With certain exceptions, no adjustment in the purchase price will be required until cumulative adjustments require an adjustment of at leastI% in the purchase price . No fractional shares of Series A preferred stock will be issued (other than fractions which are integral multiples of oneone-thousandth of a share of Series A preferred stock, which may, at our election, be evidenced by depositary receipts) and, in lieu thereof, anadjustment in cash will be made based on the market price of the units of Series A preferred stock on the last trading day prior to the date ofexercise .

At any time on or prior to the earlier of (i) the close of business on the tenth day after a public announcement that a person or group ofaffiliated or associated persons acquire beneficial ownership of 15% or more of our outstanding common stock (unless our board of directorsextends the ten-day period) or (ii) the tenth business day after a person commences, or announces its intention to commence, a tender offer orexchange offer that would result in the bidder's beneficial ownership of 15% or more of the shares of our common stock, ou r

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board of directors may redeem the rights in whole, but not in part, at a price of $0 .01 per right . The redemption of the rights may be made effectiveat such time on such basis and with such conditions as our board of directors in its sole discretion may establish. Immediately upon anyredemption of the rights, the right to exercise the rights will terminate and the only right of the holders of rights will be to receive the redemptionprice . The rights are also redeemable under other circumstances as specified in the rights agreement .

The terms of the rights may be amended by our board of directors without the consent of the holders of the rights except that from and aftersuch time that there is an acquiring person no amendment may adversely affect the interests of the holders of the rights .

Until a right is exercised, the holder of a right will have no rights by virtue of ownership as a stockholder of Portal, including, withoutlimitation, the right to vote or to receive dividends .

The rights have certain anti-takeover effects . The rights will cause substantial dilution to a person or group that attempts to acquire Portal onterms not approved by our board of directors, except pursuant to an offer conditioned on a substantial number of rights being acquired . The rightsshould not interfere with any merger or other business combination approved by the board of directors since the rights may be redeemed by thecompany at the redemption price prior to the occurrence of a distribution date .

Warrants

At July 31, 2002, there were no warrants outstanding . In this offering from time to time , we may issue warrants , including warrants topurchase common stock , preferred stock, debt securities or any combination of the foregoing . Warrants may be issued independently or togetherwith any securities and may be a ttached to or separate from the other securities . The warrants will be issued under warrant agreements to beentered into between us and a warrant agent as detailed in the prospectus supplement relating to any warrants being offered .

The applicable prospectus supplement will describe the following terms, where applicable, of the warrants in respect of which thisprospectus is being delivered:

• the title of the warrants ;

• the aggregate number of the warrants ;

• the price or prices at which the warrants will be issued;

• the currencies in which the price or prices of the warrants may be payable ;

• the designation, amount and terms of the offered securities purchasable upon exercise of the warrants ;

• the designation and terms of the other offered securities, if any, with which the warrants are issued and the number of the warrantsissued with each security;

• if applicable, the date on and after which the warrants and the offered securities purchasable upon exercise of the warrants will beseparately transferable ;

• the price or prices at which and currency or currencies in which the offered securities purchasable upon exercise of the warrants may bepurchased, which price may be at a discount to the market price of the securities purchasable hereunder ;

• the date on which the right to exercise the warrants shall commence and the date on which the right shall expire ;

• the minimum or maximum amount of the warrants which may be exercised at any one time ;

• information with respect to book-entry procedures, if any ;

• a discussion of any federal income tax considerations ; and

• any other material terms of the warrants, including terms, procedures and limitations relating to the exchange and exercise of thewarrants .

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Registration Rights

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Under the Amended and Restated Investor Rights Agreement dated as of January 29, 1998, as amended on March 3, 1998 and April 17,1998, among us and certain holders of our securities, the holders of certain shares of common stock, or Registrable Securities, are entitled tocertain rights with respect to the registration of the Registrable Securities under the Securities Act . Under the Investor Rights Agreement, if wepropose to register any of our securities under the Securities Act, either for our own account or the account of other stockholders, the holders ofRegistrable Securities are entitled to notice of such registration and are entitled to include their Registrable Securities in the registration . Inaddition, if at any time we receive a request from certain holders of at least 20% of the Registrable Securities, we are obligated to cause theseshares to be registered under the Securities Act, provided that the offering size would exceed $10,000,000 . Certain holders of RegistrableSecurities have the right to cause three demand registrations . Further, holders of Registrable Securities may require us to register all or a portion oftheir Registrable Securities on Form S-2 or Form S-3 under the Securities Act, provided that the offering size would exceed $1,000,000, if theseforms are available for use by us, and subject to certain other conditions and limitations . The holders' rights with respect to all these registrationsare subject to certain conditions, including the right of the underwriters of any of these offerings to limit the number of shares included in any ofthese registrations . We have agreed to pay all expenses related to certain of these registrations, except for underwriting discounts andcommissions, to effect the registration and sale of the Registrable Securities .

Antitakeover Effects of Provisions of our Certificate of Incorporation, Bylaws, Delaware Law and Certain Provisions of a StrategicPartner Agreement

Our certificate of incorporation authorizes the board to establish one or more series of undesignated preferred stock, the terms of which canbe determined by the board at the time of issuance . Our certificate of incorporation also provides that all stockholder action must be effected at aduly called meeting of stockholders and not by a consent in writing . In addition, our certificate of incorporation and bylaws do not permit ourstockholders to call a special meeting of stockholders . Only the Chief Executive Officer, President, Chairman of the Board or a majority of theboard are permitted to call a special meeting of stockholders . Our certificate of incorporation also provides that the board is divided into threeclasses, with each director assigned to a class with a term of three years, and that the number of directors may only be determined by the board ofdirectors . Our bylaws also require that stockholders give advance notice to our Secretary of any nominations for director or other business to bebrought by stockholders at any stockholders' meeting, and that the Chairman has the authority to adjourn any such meeting . Our bylaws alsorequire a supermajority vote of stockholders or a majority vote of the board of directors to amend the bylaws . These provisions of our restatedcertificate of incorporation and our bylaws could discourage potential acquisition proposals and could delay or prevent a change in control ofPortal .

We are subject to Section 203 of the Delaware General Corporation Law, which, subject to certain exceptions, prohibits a Delawarecorporation from engaging in any business combination with any interested stockholder for a period of three years following the date that thestockholder became an interested stockholder, unless :

(i) prior to that date, the board of directors of the corporation approved either the business combination or the transaction that resultedin the stockholder becoming an interested stockholder ;

(ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interestedstockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding forpurposes of determining the number of shares outstanding those shares owned :

(x) by persons who are directors and also officers ; and

(y) by employee stock plans in which employee pa rt icipants do not have the right to determine confidentially whether sharesheld subject to the plan will be tendered in a tender or exchange offer ; or

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(iii) on or subsequent to that date, the business combination is approved by the board of directors and authorized at an annual or

special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that isnot owned by the interested stockholder .

Section 203 defines "business combination" to include the following :

• any merger or consolidation involving the corporation and the interested stockholder ;

• any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder ;

• subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation tothe interested stockholder;

• any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of thecorporation beneficially owned by the interested stockholder ; or

• the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided byor through the corporation .

In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding votingstock of the corporation and any entity or person affiliated with or controlling or controlled by any of these entities or persons .

In addition, if we enter into negotiations with certain third parties regarding a potential merger, acquisition or other business combination,we must notify Cisco Systems of our intent to enter into such transaction no later than seven days prior to executing a definitive agreement . Ciscohas seven days from the date of our notification to prepare its own offer for consideration by us and our board of directors . This right ofnotification terminates if:

• Cisco sells or transfers more than 25% of the 6,000,000 shares of common stock acquired by it ; or

• Cisco announces or otherwise indicates its intention to acquire a controlling interest in us .

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DESCRIPTION OF DEBT SECURITIE S

Genera l

The securities that may be offered by this prospectus may include secured or unsecured convertible or non-convertible notes, debentures orother evidences of our indebtedness (collectively, the "Debt Securities") . We may issue the Debt Securities, in one or more series, under anIndenture (the "Indenture") to be entered into by us, as issuer, and a trustee to be determined at such time (the "Trustee") . A copy of the form of

Indenture is set forth as Exhibit 4 .1 to the registration statement of which this prospectus is a part and incorporated herein by reference .

The provisions of the Indenture will generally be applicable to all of the Debt Securities . Selected provisions of the Indenture are described

in this prospectus . Additional or different provisions that are applicable to a particular series of Debt Securities may be provided for in aprospectus or indenture supplement applicable to such series and will, if material, be described in a prospectus or indenture supplement relating tothe offering of Debt Securities of that series . Such provisions may include, among other things and to the extent applicable, the following :

• the title of such Debt Securities ;

• any limit on the aggregate principal amount of such Debt Securities ;

• the persons to whom any interest on such Debt Securities will be payable, if other than the registered holders thereof on the regularrecord date therefor ;

• the date or dates on which the principal of such Debt Securities will be payable ;

• the rate or rates at which such Debt Securities will bear interest, if any, and the date or dates from which such interest will accrue ;

• the dates on which such interest will be payable and the regular record dates for such interest payment dates ;

• the place or places where the principal of and any premium and interest on such Debt Securities will be payable ;

• the period or periods, if any, within which, and the price or prices at which, such Debt Securities may be redeemed, in whole or in part,at our option ;

our obligation, if any, to redeem or purchase such Debt Securities pursuant to sinking fund or analogous provisions or at the option of aholder thereof and the terms and conditions of any such redemption or purchase ;

• the denominations in which such Debt Securities will be issuable, if other than denominations of $1,000, and any integral multiplethereof;

• the currency or currencies or currency units, if other than currency of the United States of America, in which payment of the principal ofand any premium or interest on such Debt Securities will be payable, and the terms and conditions of any elections that may be madeavailable with respect thereto ;

• any index or formula used to determine the amount of payments of principal of, and any premium or interest on, such Debt Securities ;

• whether such Debt Securities are to be issued in whole or in part in the form of one or more global securities and, if so, the identity ofthe depositary, if any, for such global securities ;

• whether any event of default or covenants or other provisions in addition to or instead of those set forth in the Indenture apply to theDebt Securities of such series ;

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• the principal amount (or any portion of the principal amount) of such Debt Securities which will be payable upon any declaration ofacceleration of the maturity of such Debt Securities pursuant to an event of default ;

• the applicability to such Debt Securities of the provisions described in "-Legal Defeasance and Covenant Defeasance" below ;

• any subordination provisions applicable to such Debt Securities ;

• any guarantees applicable to such Debt Securities and any subordination provisions or other limitations applicable to any suchguarantees ;

• any features applicable to such Debt Securities for conversion of such Debt Securities into common stock, preferred stock or othersecurities or property, which features may include the conversion at a discount to the market price of the Securities into which such DebtSecurities may be convertible ; and

• any provision for collateral to secure such Debt Securities .

We may issue Debt Securities at a discount from their stated principal amount . Certain federal income tax considerations and other special

considerations applicable to any Debt Security issued with original issue discount (an "original issue discount security") may be described in anapplicable prospectus or indenture supplement .

If the purchase price of any of the Debt Securities is denominated in a foreign currency or currencies or a foreign currency unit or units or ifthe principal of and any premium and interest on any of the Debt Securities is payable in a foreign currency or currencies or a foreign currencyunit or units, the restrictions, elections, general tax considerations, specific terms and other information with respect to such Debt Securities andsuch foreign currency or currencies or foreign currency unit or units will be set forth in an applicable prospectus or indenture supplement .

Unless otherwise indicated in an applicable prospectus or indenture supplement, (1) the Debt Securities will be issued only in fully registeredform (without coupons) in denominations of $1,000 or integral multiples thereof and (2) payment of principal, premium (if any) and interest on theDebt Securities will be payable, and the exchange, conversion and transfer of Debt Securities will be registerable, at our office or agencymaintained for such purposes and at any other office or agency maintained for such purpose . No service charge will be made for any registrationof transfer or exchange of the Debt Securities, but we may require payment of a sum sufficient to cover any tax or other governmental chargeimposed in connection therewith .

Global Securitie s

The Debt Securities of a series may be issued in whole or in part in the form of one or more global securities that will be deposited with, oron behalf of, a depositary or its nominee identified in an applicable prospectus or indenture supplement . Unless and until it is exchanged in wholeor in part for Debt Securities in registered form, a global security may not be registered for transfer or exchange except as a whole by th edepositary for such global security to a nominee of such depositary or by a nominee of such depositary to such depositary or another nominee ofsuch depositary or by such depositary or any nominee to a successor depositary or a nominee of such successor depositary and except in any other

circumstances described in an applicable prospectus or indenture supplement . We expect that the following provisions will apply to such

depositary arrangements, unless otherwise specified in an applicable prospectus or indenture supplement .

Debt Securities which are to be represented by a global security to be deposited with or on behalf of a depositary will be represented by aglobal security registered in the name of such depositary or its nominee . Upon the deposit of such global security with or on behalf of thedepositary for such global security, the depositary will credit, on its book-entry registration and transfer system, the respective principal amountsof the Debt Securities represented by such global security to the accounts of institutions that are participants in suc h

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system. The accounts to be credited will be designated by the underwriters or agents of such Debt Securities or by us, if such Debt Securities areoffered and sold directly by us .

Ownership of beneficial interests in Debt Securities represented by a global security will be limited to participants in the book-entryregistration and transfer system of the applicable depositary or persons that may hold interests through such participants . Ownership of such

beneficial interests by such participants will be shown on, and the transfer of such ownership will be effected only through, records maintained bythe depositary or its nominee for such global security . Ownership of such beneficial interests by persons that hold through such participants will beshown on, and the transfer of such ownership will be effected only through, records maintained by such participants . The laws of some

jurisdictions require that certain purchasers of securities take physical delivery of such securities in definitive form . Such laws may impair your

ability to transfer beneficial interests in a global security .

So long as the depositary for a global security, or its nominee, is the registered owner of such global security, such depositary or suchnominee, as the case may be, will be considered the sole owner or holder of the Debt Securities represented by such global security for allpurposes under the Indenture . Except to the extent otherwise specified in an applicable prospectus or indenture supplement applicable to aparticular series of Debt Securities represented by a global security, owners of beneficial interests in such global security will not be entitled tohave any of the Debt Securities represented by such global security registered in their names, will not receive or be entitled to receive physicaldelivery of any such Debt Securities in certificated form, and will not be considered the owners or holders thereof for any purpose under theIndenture . Accordingly, each person owning a beneficial interest in Debt Securities represented by a global security must rely on the procedures ofthe applicable depositary and, if such person is not a participant in the book-entry registration and transfer system of the applicable depositary, onthe procedures of the participant through which such person owns its interest, to exercise any rights of an owner or holder of such Debt Securitiesunder the Indenture .

We understand that, under existing industry practices, if an owner of a beneficial interest in Debt Securities represented by a global securitydesires to give any notice or take any action that an owner or holder of Debt Securities is entitled to give or take under Indenture, the applicabledepositary would authorize its participants to give such notice or take such action, and such participants would authorize persons owning suchbeneficial interests through such participants to give such notice or take such action or would otherwise act upon the instructions of such persons .

Principal of and any premium and interest on Debt Securities represented by a global security will be payable in the manner described in anapplicable prospectus or indenture supplement . Payment of principal of, and any premium or interest on, such Debt Securities will be made to theapplicable depository or its nominee, as the case may be, as the registered owner or the holder of the global security representing such DebtSecurities . None of us, the Trustee, any paying agent or the registrar for such Debt Securities will have any responsibility or liability for any aspectof the records relating to or payments made on account of beneficial ownership interests in Debt Securities represented by a global security or formaintaining, supervising or reviewing any records relating to such beneficial ownership interests .

Certain Covenants

Maintenance of Office or Agency. We will be required to maintain an office or agency in each place of payment for each series of DebtSecuri ties for notice and demand purposes and for the purposes of presenting or surrendering Debt Securities for payment, registration of transferor exchange .

Paying Agents, Etc . If we act as our own paying agent with respect to any series of Debt Securities, on or before each due date of theprincipal of, or any premium or interest on, any of the Debt Securities of that series, it will be required to segregate and hold in trust for the benefitof the persons entitled thereto a sum sufficient to pay such amount due and to notify the Trustee promptly of its action or failure so to act . If wehave one or more

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paying agents for any series of Debt Securities, prior to each due date of the principal of or any premium or interest on any Debt Securities of thatseries, we will be required to deposit with a paying agent a sum sufficient to pay such amount, and to promptly notify the Trustee of its action orfailure so to act (unless such paying agent is the Trustee) . All moneys paid by us to a paying agent or the Trustee for the payment of principal of,and interest on, any Debt Securities that remain unclaimed for two years after such principal or interest has become due and payable may be repaidto us, and thereafter the holder of such Debt Securities may look only to us for payment thereof .

Payment of Taxes and Other Claims . We will be required to pay and discharge , before the same become delinquent , ( 1) all taxes,

assessments and governmental charges levied or imposed upon us or our subsidia ries or our or their prope rties and (2 ) all claims that if unpaid

would result in a lien on our property and have a material adverse effect on the business, assets, financial condition or results of operations of us

and our subsidiaries , taken as a whole (a "Material Adverse Effect"), unless the same is being contested by proper proceedings .

Maintenance of Properties . We will be required to cause all properties used in our business or the business of our subsidiaries to bemaintained and kept in good condition, repair and working order and to make any necessary repairs, renewals, replacements and improvements tosuch properties, except to the extent that the failure to do so would not have a Material Adverse Effect .

Existence. We will be required to, and will be required to cause our subsidiaries to, preserve and keep in full force and effect theirexistence, charter rights, statutory rights and franchises, except to the extent that the failure to do so would not have a Material Adverse Effect .

Compliance with Laws . We will be required to, and will be required to cause our subsidiaries to, comply with all applicable laws to theextent that the failure to do so would have a Material Adverse Effect .

Restrictive Covenants . Any restrictive covenants applicable to any series of Debt Securities, if material, will be described in an applicableprospectus or indenture supplement.

Events of Default

The following are Events of Default under the Indenture with respect to Debt Securities of any series except, with respect to any series, tothe extent provided otherwise in the indenture supplement applicable to such Debt Securities :

(1) default in the payment of the principal of (or premium, if any, on) any Debt Security of that series when it becomes due andpayable ;

(2) default in the payment of any interest on any Debt Security of that series when it becomes due and payable, and continuance ofsuch default for a period of 30 calendar days ;

(3) default in the making of any sinking fund payment as and when due by the terms of any Debt Security of that series ;

(4) default in the performance, or breach, of any other covenant or warranty of ours in the Indenture (other than a covenant included inthe Indenture solely for the benefit of a series of Debt Securities other than that series) and continuance of such default for a period of 60calendar days after written notice thereof has been given to us as provided in the Indenture ;

(5) any nonpayment at maturity or other default (beyond any applicable grace period) under any agreement or instrument relating toany other indebtedness of ours, or of our significant subsidiaries, the principal amount of which is not less than $25 .0 million, which defaultresults in such indebtedness becoming due prior to its stated maturity or occurs at the final maturity thereof;

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(6) any judgment or decree for the payment of money in excess of $25 .0 million is entered against us , or our significant subsidiaries,

and is not discharged, waived or stayed ; and

(7) certain events of bankruptcy, insolvency or reorganization involving us or our significant subsidiaries .

In addition, the prospectus or indenture supplement applicable to Debt Securities of a particular series may provide for other Events ofDefault with respect to that series .

Pursuant to the Trust Indenture Act, the Trustee is required, within 90 calendar days after the occurrence of a default in respect of any seriesof Debt Securities, to give to the holders of the Debt Securities of such series notice of all such uncured defaults known to it (except that, in thecase of a default in the performance of any covenant of the character contemplated in clause (4) of the preceding sentence, no such notice toholders of the Debt Securities of such series will be given until at least 30 calendar days after the occurrence thereof), except that, other than in thecase of a default of the character contemplated in clause (1), (2) or (3) of the preceding sentence, the Trustee may withhold such notice if and solong as it in good faith determines that the withholding of such notice is in the interests of the holders of the Debt Securities of such series .

If an Event of Default (other than an Event of Default described in clause (7) above) with respect to Debt Securities of any series occurs andis continuing, either the Trustee or the holders of at least 25% in principal amount of the Debt Securities of that series by notice as provided in theIndenture may declare the principal amount (or, if the Debt Securities of that series are original issue discount securities, such portion of theprincipal amount as may be specified in the terms of that series) of all Debt Securities of that series to be due and payable immediately . However,at any time after a declaration of acceleration with respect to Debt Securities of any series has been made, but before a judgment or decree basedon such acceleration has been obtained, the holders of a majority in principal amount of the Debt Securities of that series may, under certaincircumstances, rescind and annul such acceleration. See "-Modification and Waiver" below . If an Event of Default described in clause (7) aboveoccurs, then the principal of, premium on, if any, and accrued interest on the Debt Securities of that series will become immediately due andpayable without any declaration or other act on the part of the Trustee of any holder of the Debt Securities of that series .

The Indenture provides that, subject to the duty of the Trustee thereunder during an Event of Default to act with the required standard ofcare, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of theholders of Debt Securities, unless such holders shall have offered to the Trustee reasonable security or indemnity . Subject to certain provisions,

including those requiring security or indemnification of the Trustee, the holders of a majority in principal amount of the Debt Securities of anyseries will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercisingany trust or power conferred on the Trustee, with respect to the Debt Securities of that series . In the event that we default on the payment of anyinterest on the Debt Securities for a period of 30 days or default on the payment of any principal on the Debt Securities when due and payable andfail, upon demand for such payment made by the Trustee, to make such payments, the Trustee, in its own name, may institute a legal proceedingagainst us to collect any amounts adjudged to be payable .

No holder of a Debt Security of any series will have any right to institute any proceeding with respect to the Indenture or for any remedythereunder unless, (1) such holder shall have previously given to the Trustee written notice of a continuing Event of Default, (2) unless the holdersof at least 25% in aggregate principal amount of the outstanding Debt Securities of the same series have also made such a written request, (3) suchholder or holders have offered reasonable indemnity to the Trustee to institute such proceeding as trustee, (4) the Trustee has not received from theholders of a majority in aggregate principal amount of the outstanding Debt Securities of the same series a direction inconsistent with such request,and (5) the Trustee has failed to institute such proceeding within 60 calendar days . However, such limitations do not apply to a suit instituted by aholder of a Debt Security for enforcement of payment of the principal of and interest on such Debt Security on or after the respective due datesexpressed in such Debt Security .

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We are required to furnish to the Trustee annually a statement as to the performance by us of our obligations under the Indenture and as to

any default in such performance .

Any additional Events of Default with respect to any series of Debt Securities, and any variations from the foregoing Events of Defaultapplicable to any series of Debt Securities, will be described in an applicable prospectus or indenture supplement .

Modification and Waiver

Unless otherwise specified in a prospectus or indenture supplement applicable to a particular series of the Debt Securities, modifications andamendments of the Indenture may be made by us and the Trustee with the consent of the holders of not less than a majority in aggregate principalamount of the Debt Securities of each series affected thereby, except that no such modification or amendment may, without the consent of theholder of each Debt Security affected thereby :

• change the stated maturity of, or any installment of principal of, or interest on, any Debt Security ;

• reduce the principal amount of, the rate of interest on, or the premium, if any, payable upon the redemption of, any Debt Security ;

• reduce the amount of principal of an original issue discount security payable upon acceleration of the maturity thereof ;

• change the place or currency of payment of principal of, or premium, if any, or interest on any Debt Security ;

• impair the right to institute suit for the enforcement of any payment on or with respect to any Debt Security on or after the statedmaturity or prepayment date thereof; o r

• reduce the percentage in principal amount of Debt Securities of any series, the consent of the holders of which is required formodification or amendment of the applicable Indenture or for waiver of compliance with certain provisions of the Indenture or forwaiver of certain defaults .

In addition, the supplemental prospectus or indenture applicable to a particular series of Debt Securities may provide that other particularprovisions applicable to that series may not be modified or amended without the consent of the holder of each Debt Security affected thereby .

The holders of at least a majority in aggregate principal amount of the Debt Securities of any series may on behalf of the holders of all DebtSecurities of that series waive, insofar as that series is concerned, compliance by us with certain covenants of the Indenture . The holders of not lessthan a majority in principal amount of the Debt Securities of any series may, on behalf of the holders of all Debt Securities of that series, waiveany past default under the Indenture with respect to that series, except a default in the payment of the principal of, or premium, if any, or intereston, any Debt Security of that series or in respect of a provision which under the Indenture cannot be modified or amended without the consent ofthe holder of each Debt Security of that series affected thereby .

Legal Defeasance and Covenant Defeasance

unless otherwise specified in a prospectus or indenture supplement applicable to a particular series of Debt Securities, we may, at our optionand at any time, elect to have all of its obligations discharged with respect to the outstanding Debt Securities of such series ("Legal Defeasance")except for :

(1) the rights of the holders of outstanding Debt Securities of such series to receive payments in respect of the principal of or premiumor interest, if any, on such Debt Securities when such payments are due from the trust referred to below ;

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(2) our obligations with respect to issuing temporary Debt Securities of such series, registering the transfer or exchange of such DebtSecurities, replacing mutilated, destroyed, lost or stolen Debt Securities, maintaining an office or agency and holding funds for holders of the

Debt Securities in trust ; and

(3) the rights, powers, trusts, duties and immunities of the Trustee, and our obligations in connection therewith .

In addition, unless otherwise specified in a prospectus or indenture supplement applicable to a particular series of Debt Securities or in aprospectus or indenture supplement with respect to such series, we may, at our option and at any time, elect to have our obligations released withrespect to certain covenants that are described in the Indenture ("Covenant Defeasance"), and thereafter any omission to comply with thosecovenants will not constitute a Default or Event of Default with respect to the Debt Securities of such series . In the event Covenant Defeasance

occurs, certain events (not including non-payment, bankruptcy, insolvency and reorganization events) described under "Events of Default" will nolonger constitute an Event of Default with respect to the Debt Securities of such series .

In order to exercise either Legal Defeasance or Covenant Defeasance with respect to a particular series of Debt Securities :

(1) we must irrevocably deposit with the Trustee, in trust for the benefit of the holders of the Debt Securities of such series, cash in

U.S . dollars, non-callable Government Securities, or a combination of cash in U .S . dollars and non-callable Government Securities, inamounts as will be sufficient, in the opinion of a nationally recognized firm of independent accountants, to pay the principal of, or interestand premium, if any, on the outstanding Debt Securities of such series on the stated maturity or on the applicable redemption date, as thecase may be, and we must specify whether such Debt Securities are being defeased to maturity or to a particular redemption date ;

(2) in the case of Legal Defeasance, we must deliver to the Trustee an opinion of counsel reasonably acceptable to the Trustee statingthat (a) we have received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the date on the Indenture,there has been a change in the applicable federal income tax law, in either case to the effect that, among other things the holders of theoutstanding Debt Securities of such series will not recognize income, gain or loss for U .S . federal income tax purposes as a result of such

Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would havebeen the case if such Legal Defeasance had not occurred ;

(3) in the case of Covenant Defeasance, we must deliver to the Trustee an opinion of counsel reasonably acceptable to the Trusteestating that the holders of the outstanding Debt Securities of such series will not recognize gain or loss for U .S . federal income tax purposes

as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the sametime as would have been the case if such Covenant Defeasance had not occurred ;

(4) no Default or Event of Default applicable with respect to the Debt Securities of such series may have occurred and be continuingon the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit),and no Default or Event of Default described under clause (7) under "Events of Default" with respect to Portal may have occurred and becontinuing at any time on or prior to the 91st calendar day following such date of deposit ;

(5) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under anymaterial agreement or instrument (other than the Indenture) to which we are a party or by which we are bound ;

(6) we must deliver to the Trustee an officers' certificate stating that the deposit was not made by us with the intent of preferring theholders of Debt Securities of such series over our other creditors with the intent of defeating, hindering, delaying or defrauding our creditorsor others ; and

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(7) we must deliver to the Trustee an officers' certificate and an opinion of counsel, each to the effect that all conditions precedentrelating to the Legal Defeasance or the Covenant Defeasance have been complied with .

If we fail to comply with its remaining obligations under the Indenture after a Covenant Defeasance of such Indenture with respect to theDebt Securities of any series and the Debt Securities of such series are declared due and payable because of the occurrence of any undefeasedEvent of Default, the amount of money and U .S . Government Obligations on deposit with the Trustee may be insufficient to pay amounts due on

the Debt Securities of such series at the time of the acceleration resulting from such Event of Default . However, we will remain liable in respect of

such payments .

Satisfaction and Discharge

Unless otherwise specified in a prospectus or indenture supplement applicable to a particular series of Debt Securities, we may, at ouroption, satisfy and discharge the Indenture with respect to the Debt Securities of such series (except for specified obligations of us and the Trustee,including, among others, the obligations to apply money held in trust) when :

either (1) all Debt Securities of such series previously authenticated and delivered (subject to specified exceptions relating to DebtSecurities that have otherwise been satisfied or provided for) have been delivered to the Trustee for cancellation or (2) all such DebtSecurities not theretofore delivered to the Trustee for cancellation have become due and payable, will become due and payable at theirstated maturity within one year, or are to be called for redemption within one year under arrangements satisfactory to the Trustee for thegiving of notice of redemption by the Trustee, and we have deposited or caused to be deposited with the Trustee as trust funds in trustfor such purpose an amount sufficient to pay and discharge the entire indebtedness on such Debt Securities not previously delivered tothe Trustee for cancellation, for principal and any premium and interest to the date of such deposit (in the case of Debt Securities whichhave become due and payable) or to the stated maturity or redemption date, as the case may be ;

• we have paid or caused to be paid all other sums payable under the Indenture with respect to such Debt Securities by us ; and

• we have delivered to the Trustee an officer's certificate and an opinion of counsel, each to the effect that all conditions precedentrelating to the satisfaction and discharge of the Indenture have been satisfied .

Limitations on Merger and Certain Other Transaction s

Unless otherwise specified in a prospectus or indenture supplement applicable to a particular series of Debt Securities, prior to thesatisfaction and discharge of the Indenture, we may not consolidate with or merge with or into any other person, or transfer all or substantially allof our properties and assets to another person unless :

• either (1) we are the continuing or surviving person in such a consolidation or merger or (2) the person (if other than us) formed by suchconsolidation or into which we are merged or to which all or substantially all of our properties and assets are transferred (we or suchother person being referred to as the "Surviving Person") is a corporation organized and validly existing under the laws of the UnitedStates, any state thereof, or the District of Columbia, and expressly assumes, by a supplemental indenture, all of our obligations under

such Debt Securities and the Indenture with respect to such series ;

• immediately after the transaction and the incurrence or anticipated incurrence of any indebtedness to be incurred in connectiontherewith, no Event of Default exists ; and

• an officer's certificate is delivered to the Trustee to the effect that both of the conditions set forth above have been satisfied and anopinion of outside counsel has been delivered to the Trustee to the effect that the first condition set forth above has been satisfied .

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The Surviving Person will succeed to and be substituted for us with the same effect as if it has been named in the Indenture as a partythereto, and thereafter the predecessor corporation will be relieved of all obligations and covenants under such Indenture and the Debt Securities .

Governing Law

The Indentures and the Debt Securities will governed by, and construed in accordance with, the laws of the State of New York .

Regarding the Trustee

The Indenture contains certain limitations on the right of the Trustee, should it become a creditor of ours within three months of, orsubsequent to, a default by us to make payment in full of principal of or interest on any series of Debt Securities when and as the same becomesdue and payable, to obtain payment of claims, or to realize for its own account on property received in respect of any such claim as security or

otherwise, unless and until such default is cured . However, the Trustee's rights as a creditor of ours will not be limited if the creditor relationship

arises from, among other things :

• the ownership or acquisition of securities issued under any indenture or having a maturity of one year or more at the time of acquisitionby the Trustee ;

• certain advances authorized by a receivership or bankruptcy court of competent jurisdiction or by the Indenture ;

• disbursements made in the ordinary course of business in its capacity as indenture trustee, transfer agent, registrar, custodian or payingagent, or in any other similar capacity ;

• indebtedness created as a result of goods or securities sold in a cash transaction or services rendered or premises rented ; o r

• the acquisition, ownership, acceptance or negotiation of certain drafts, bills of exchange, acceptances or other obligations .

The Indenture does not prohibit the Trustee from serving as trustee under any other indenture to which we may be a party from time to timeor from engaging in other transactions with Portal . If the Trustee acquires any conflicting interest within the meaning of the Trust Indenture Act of1939 and there is an Event of Default with respect to any series of Debt Securities, it must eliminate such conflict or resign .

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PLAN OF DISTRIBUTION

We may sell the securities in any one or more of the following ways :

• through one or more underwriters ;

• through one or more dealers or agents ; or

• directly to one or more purchasers .

We may effect the distribution of the securities from time to time in one or more transactions, including negotiated transactions, at a fixedpublic offering price or at varying prices determined at the time of sale, which may be at a discount from the market price of the securities sold . In

connection with sales of the securities, underwriters, dealers and agents may receive compensation from us or from purchasers of the securities inthe form of discounts, concessions or commissions . Underwriters, dealers and agents who participate in the distribution of the securities may bedeemed to be underwriters, and any discounts or commissions received by them from us and any profit on the resale of securities by them may bedeemed to be underwriting discounts and commissions under the Securities Act of 1933, as amended . Any underwriter, dealer, or agent will be

identified, and any compensation received from us will be described, in an applicable prospectus or indenture supplement . Any initial public

offering price and any discounts or concessions allowed or reallowed or paid to dealers may be changed from time to time .

Under agreements that we may enter into, underwriters, dealers and agents who participate in the distribution of the securities may beentitled to indemnification by us against certain liabilities, including under the Securities Act of 1933, as amended, or contribution from us forpayments that the underwriters, dealers or agents may be required to make in respect thereof . The underwriters, dealers and agents may engage in

transactions with, or perform services for, us in the ordinary course of business .

Any underwriters to whom we sell securities for public offering and sale may make a market in those securities, but will not be obligated todo so and may discontinue any market making at any time without notice . We cannot give you any assurance as to the liquidity of the secondary

market for any of the securities .

LEGAL MATTERS

Unless otherwise indicated in an applicable prospectus or indenture supplement, the validity of the securities offered hereby will be passedupon for us by Brobeck, Phleger & Harrison LLP, East Palo Alto, California .

EXPERTS

The consolidated financial statements of Portal Software, Inc . appearing in Portal Software, Inc .'s Annual Report (Form 10-K) for the yearended January 31, 2002, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein andincorporated herein by reference . Such consolidated financial statements are incorporated herein by reference in reliance upon such report givenon the authority of such firm as experts in accounting and auditing .

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PART II

Information Not Required in Prospectus

Page 25 of 29

Item 14 . Other Expenses of Issuance and Distribution.

The following table sets forth the costs and expenses, other than the underwriting discount, payable by the registrant in connection with the

sale of securities being registered. All amounts are estimates except the SEC registration fee and the Nasdaq National Market listing fee .

SEC registration feePrinting and engraving expensesLegal fees and expensesAccounting fees and expensesMiscellaneous expenses(1 )

Total

$ 4,60025,00090,000

5,000100,000

$ 194,600

(l) Includes estimate of blue sky fees and expenses, rating agency fees, trustee fees and transfer agent fees .

Item 15 . Indemnification of Directors and Officers.

Section 145 of the Delaware General Corporation Law authorizes a court to award or a corporation's board of directors to grantindemnification to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities(including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended (the "Securities Act") . Article VII, Section6 of our Amended and Restated Bylaws provides for mandatory indemnification of our directors and officers and permissible indemnification ofemployees and other agents to the maximum extent permitted by the Delaware General Corporation Law . Our Amended and Restated Certificateof Incorporation provides that, subject to Delaware law, our directors shall not be personally liable for monetary damages for breach of thedirectors' fiduciary duty as directors to us and our stockholders . This provision in our Amended and Restated Certificate of Incorporation does noteliminate the directors' fiduciary duty, and in appropriate circumstances equitable remedies such as injunctive or other forms of non-monetaryrelief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director's dutyof loyalty to us or our stockholders for acts or omissions not in good faith or involving intentional misconduct, for knowing violations of law, foractions leading to improper personal benefit to the director and for payment of dividends or approval of stock repurchases or redemptions that areunlawful under Delaware law. The provision also does not affect a director's responsibilities under any other law, such as the federal securitieslaws or state or federal environmental laws. We entered into indemnification agreements with our officers and directors, a form of which waspreviously filed with the Securities and Exchange Commission as an Exhibit to the Registrant's Registration Statement on Form S-1 (No . 333-7299) (the "Indemnification Agreements") . The Indemnification Agreements provide our officers and directors with further indemnification to themaximum extent permitted by the Delaware General Corporation Law .

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Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits .

ExhibitNumber Description

1 .1 Form of Underwriting Agreement (to be filed, as applicable to a particular offering of securities, as an exhibit to a Current Report onForm 8-K and incorporated herein by reference) .

4 .1 Form of Indenture. *

4 .2 The form or forms of securities with respect to each particular series of securities registered hereunder will, if appropriate, be filed asan exhibit to a Current Report on Form 8-K and incorporated herein by reference .

5 .1 Opinion of Brobeck, Phleger & Harrison LLP .

23.1 Consent of Ernst & Young LLP, Independent Auditors .

23 .2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5 .1) .

* Previously filed.

Item 17 . Undertakings.

Each undersigned registrant hereby undertakes :

(1) to file, during any period in which offers or sales are being made of the securities registered hereby, a post-effective amendment tothis registration statement :

(a) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933 ;

(b) to reflect in the prospectus any facts or events arising after the effective date of this registration statement (or the most recentpost-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forthin this registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the totaldollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of theestimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, inthe aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price setforth in the "Calculation of Registration Fee" table in the effective registration statement ; and

(c) to include any material information with respect to the plan of distribution not previously disclosed in this registrationstatement or any material change to such information in this registration statement ;

provided, however, that the understandings set forth in paragraphs (a) and (b) above shall not apply if the information required to be

included in a post-effective amendment by those paragraphs is contained in periodic reports fi led by the registrant pursuant to Section 13 or

Section 15(d) of the Secu ri ties Exchange Act of 1934 that are incorporated by reference in this registration statement .

(2) that, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment will bedeemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time will bedeemed to be the initial bona fide offering thereof.

(3) to remove from registration by means of a post-effective amendment any of the securities registered hereby which remain unsoldat the termination of the offering .

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(4) that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual reportpursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefitplan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in this registrationstatement will be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that

time will be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controllingpersons of the registrant pursuant to the foregoing provisions, the registrant has been advised that in the opinion of the Securities and ExchangeCommission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable . In the event that a

claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer orcontrolling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controllingperson in connection with the securities being registered hereunder, the registrant will unless in the opinion of its counsel the matter has beensettled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against publicpolicy as expressed in the Securities Act and will be governed by the final adjudication of such issue .

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SIGNATURES

Page 28 of 29

Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that itmeets all of the requirements for filing on Form S-3 and has duly caused this Amendment No . 4 to registration statement to be signed onits behalf by the undersigned , thereunto duly authorized , in the City of Cupertino , State of California , on September 10, 2002 .


By: /S/ MITCHELL L. GAYNOR

Mitchell L . Gayno rVice President, General Counsel and Secretary

Pursuant to the requirements of the Securities Act of 1933, as amended , this Amendment No. 4 to Registration Statement has beensigned by the following persons in the capacities and on the dates indicated :

Name Title Date

* Chief Executive Officer and Chairman of the Board September 10, 2002

(Principal Executive Officer)John E. Little

* Senior Vice President and Chief Financial Officer September 10, 200 2(Principal Financial Officer)

Howard A . Bain II I

* Vice President, Finance (Principal Accounting Officer) September 10, 200 2

Bret L . Englan d

* Director September 10, 200 2

Arthur C . Patterson

* Director September 10, 2002

David C . Peterschmid t


Robert P . Wayma n


Lewis O . Wilks


Edward J. Zander

*By: /S/ MITCHELL L. GAYNOR September 10, 200 2

Mitchell L . GaynorAttorney - in-Fact

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EXHIBIT INDEX

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1 .1 Form of Underwriting Agreement (to be filed, as applicable to a particular offering of securities, as an exhibit to a Current Report onForm 8-K and incorporated herein by reference) .

4 .1 Form of Indenture . *

4 .2 The form or forms of securities with respect to each particular series of securities registered hereunder will, if appropriate, be filed asan exhibit to a Current Report on Form 8-K and incorporated herein by reference .

5 .1 Opinion of Brobeck, Phleger & Harrison LLP .

23.1 Consent of Ernst & Young LLP, Independent Auditors .

23 .2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5 .1) .

* Previously filed .

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Exhibit B

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SECURITIES AND EXCHANGE COMMISSIO NWashington , D .C. 20549

FORM 10-KFOR ANNUAL AND TRANSITION REPORTS PURSUANT TO

SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 193 4

(Mark One)

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

For the fiscal year ended January 31, 2003

OR

❑ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 193 4

For the transition period from t o

Commission file number : 000-25829

PORTAL SOFTWARE, INC .(Exact name of registrant as Specified in its Charter )

Delaware 77-0369737(State or OtherJurisdiction of (I.R.S. EmployerIncorporation or Organization ) Identification No.)

10200 South De Anza Boulevard, Cupertino, California 9501 4(Address of principal executive offices and Zip Code)

Registrant's telephone number, including area code: (408) 572-200 0

Securities registered pursuant to Section 12(b) of the Act:

Non e

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0 .001 par value

Rights to Purchase Series A Junior Participating Preferred Stoc k

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 duringthe 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 forthe past 90 days . YES ❑ NO ❑

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best ofRegistrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to thi sForm 10-K . O

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2) . YES ❑ NO ❑

The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sale price of the common stock on July 31, 2002as reported on the Nasdaq National Market System, was approximately $52,462,000 . Shares of common stock held by each officer, director and holder of 5% ormore of the outstanding common stock have been excluded from this calculation in that such persons may be deemed to be affiliates . This determination ofaffiliate status is not necessarily a conclusive determination for other purposes . As of March 31, 2003, Registrant had outstanding 178,658,661 shares of commonstock .

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FORM 10-K

FISCAL YEAR 2003

INDEX

Pag e

PART I

Item 1 : Business IItem 2 : Properties 9Item 3 : Legal Proceedings 10Item 4 : Submission of Matters to a Vote of Security Holders 10

PART lI

Item 5 : Market for Registrant's Common Eauity and Related Stockholder Matters 13Item 6 : Selected Consolidated Financial Data 14Item 7 : Management's Discussion and Analysis of Financial Condition and Results of Operations 15Item 7A : Ouantitative and Oualitative Disclosures About Market Risk 43Item 8 : Financial Statements and Supplementary Data 44Item 9 : Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 78

PART III

Item 10 : Directors and Executive Officers of the Registrant 78Item It : Executive Compensation 80Item 12 : Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 83Item 13 : Certain Relationships and Related Transactions 86Item 14: Controls and Procedures 87

PART I V

Item 15 : Exhibits . Financial Statement Schedules and Reports on Form 8-K 88Signatures 90Certifications 91Exhibit Index 93

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PART I

ITEM 1 . BUSINES S

General Informatio n

This report contains forward-looking statements that are not historical facts but rather are based on current expectations, estimates, projections, beliefs andassumptions about our industry, our company, our business and prospects . Words such as "anticipates", "expects", "intends", "plans", "believes", "seeks","estimates" and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees offuture performance and are subject to numerous risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and couldcause actual results to differ materially from those expressed or forecasted in the forward-looking statements . These risks and uncertainties include thosedescribed in "Risks Associated With Our Business and Future Operating Results" ; "Management's Discussion and Analysis of Financial Condition and Resultsof Operations" and elsewhere in this report. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect ourmanagement's view only as of the date of this report . We undertake no obligation to update these statements or publicly release the results of any revisions to theforward-looking statements that we may make to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events .

References in this document to "Portal", "we", "our" and "us" refer to Portal Software, Inc ., a Delaware corporation, its predecessors and each of its subsidiaries .Portal, Intranet, Infranet Interconnect, Content Connector, the Portal logo, Infranet IPT, Infranet Cable and Real Time-No Limits are trademarks of Portal . Eachtrademark, trade name or service mark of any other company appearing in this report belongs to its holder .

Business Overview

Portal develops, markets and supports billing and customer management solutions for communications and content service providers . Our products and servicesare used by communications providers to support voice, data, video and content services across wireless, wireline, cable and satellite networks . Ourproduct-centric, convergent Infranetx platform enables our customers to rapidly define, deploy and bill for services with flexible business models . Infranetenables the real time provisioning and reporting of services, including such functions as account creation, user authentication and authorization, activity tracking,pricing and rating, billing and customer service, including self-service, all on a scale of up to tens of millions of users . Service offerings supported by Infranetinclude wireless services; cable and satellite services; broadband and Internet services, such as DSL ; and next generation services, such as unified messaging,gaming, electronic content delivery and mobile commerce . Infranet is the foundation for our comprehensive product-centric solutions . It is a standard softwareplatform built on an open architecture that can be easily integrated with other business system components . While Infranet is designed to meet the needs of nextgeneration communications markets and services, it can be enhanced with a full suite of prebuilt modules for specific industry segments, including wireless,wireline, cable, ISP and Internet telephony . Portal believes that this product-based solution provides customers with significant time to market advantages aswell as superior total cost of ongoing operations. Our customers range from emerging small companies offering innovative services to a small number ofsubscribers to large global telecommunications carriers with millions of subscribers .

Industry Background

The communications industry is dramatically changing due to rapid advancements in Inte rn et, broadband and wireless technologies and an increasinglycompetitive and uncertain business environment . Wireless devices transmit voice and text messages between users around the globe . Satellite networks broadcasttelevision and Inte rnet access to previously unreachable geographies . Broadband providers deliver videoconferencing to enterprises wanting to keep keypersonnel close to home . Today, voice, data, commerce and content are flowing simultaneously over multiple networks, giving users access to the most relevantservices and content on the most appropriate device . As many network-based se rv ices become more mature or commoditized , the providers of

Table of Content sthese services are focusing on developing premium and value added services in order to increase revenue from their customers . To differentiate themselves andcreate new revenue opportunities, service providers are experimenting with a multitude of new services, price plans and business models . To do this quickly andefficiently, they need a fully convergent business system, such as Intranet, that is easy to modify and maintain, is technology independent and can scale tosupport millions of customers . Furthermore, service providers must increasingly seek to reduce their operating expenses, including the costs of implementing andoperating their systems and services .

The traditional customer management and billing ("CM&B") systems of communications companies were typically designed and built to service one particulartype and size of service provider-such as a large, traditional national or regional carrier, or a small competitive cellular telephone provider-and to interfacewith and process data from the specific equipment and technologies used in a single network or for a particular service, such as circuit switched wirelinetelephone, cellular telephones or cable television networks . These traditional highly customized CM&B solutions can generally be characterized as (1) inflexible,

(2) proprietary and (3) difficult to evolve to meet the complex requirements of providers of new wireless and Internet-based services . As a result, such CM&Bsolutions are often not able to address one of the most fundamental requirements facing providers of communication and content services : minimizing the time tomarket for new products and services . Moreover, because such traditional systems have generally been highly customized, their support costs are high andchanges to increase the functionality or features of the system or to introduce new services typically require extensive programming using either internal orexternal professional services, resulting in additional ongoing expenses, significant time delays and therefore a very high total cost of ownership .

The Portal Strategy

Our strategy is to establish ourselves as providing the most flexible, scalable and cost-effective solutions for communication and content service providers . Keyelements of this solutions strategy are :

All Portal Solutions are Based on the Same Extensible Software Platform . Portal has focused on the development of an integrated, off-the-shelf softwareplatform that can address the rapidly changing, highly flexible and complex requirements of evolving communications networks and service offerings and canprovide a superior total cost of ownership . Our extensible platform provides a framework for integration with a wide variety of other business systems and afoundation for the development of market-specific solutions . Although there are unique aspects to every service, most share the same underlying businessinfrastructure requirements, such as transactional security, financial security and ability to be rapidly deployed . Rather than provide a highly customized solutionto every customer, our platform strategy enables Portal to provide every customer with the same basic product, which, in contrast to customized "one off"solutions, creates a future support and upgrade path to all its customers . Moreover, this approach enables Portal to translate its experience across a wide variety ofmarkets and leverage its research and development efforts into improvements to the platform that can in turn benefit a broad range of our existing and potentialcustomers . To meet the unique requirements of specific markets and industries, our platform has been designed to enable Portal and its partners to developspecific solutions that integrate with the core platform to address those unique and evolving requirements . For example, there are modules for our Intranetplatform specifically designed for providers of wireless voice and data services, Internet telephony and cable broadband, to name a few . Portal believes that thisapproach facilitates the rapid development and deployment of unique solutions to address new services without the need for Portal, its system integration partnersor customers to build an entirely new infrastructure to support each service .

Leverage Partnerships and Alliances with Systems Integrators and with Platform, Software and Network Equipment Providers . Portal has established a seriesof partnerships and alliances with systems integrators, such as Accenture, Cap Gemini Ernst & Young, BearingPoint and Deloitte Consulting, and platform,software and services providers, such as Cisco, Hewlett-Packard, IBM, Microsoft, Nokia, Oracle, SAP, Siebel, Siemens, Sun Microsystems, and others . Portalworks with these industry leading partners to offer customers an extensive set of complete market-specific solutions using third-party components andtechnology that perform

Table of Contentscomplementary functions such as taxation or payment processing . In addition, more than 4,000 system integrator professionals have been trained to implementInfranet and integrate Infranet with customers' existing legacy systems . These partners and alliances also provide a global extension of Portal's direct sales forceand are a significant source of leads and referrals .

Grow with Customers and the Markets . While initial sales to customers are often significant, Portal's strategy is to maximize its available opportunities forlong-term revenue growth by targeting service providers it believes have excellent growth potential and building long-term relationships by continuouslyproviding solutions which will require additional software licenses and professional services . Portal's subsequent revenue growth can then occur through theaddition of subscribers, additional Infranet modules, additional sales for other users by or to other divisions of an existing customer, performance of a widevariety of professional services as well as maintenance and support agreements . In turn, Portal intends to continue to evolve and refine its business to track thegrowth of evolving communication and content services, so that as these services proliferate, Portal's market and growth opportunities can also increase .

Infranet Software Platform

Portal's core product, Infranet, is specifically designed to meet the complex, mission-critical provisioning, accounting, reporting and marketing needs ofproviders of a wide range of communication and content services . Portal's Infranet software is an integrated extensible platform that enables service providers toswiftly define, price, and bill for an any number of convergent services . Because Intranet can be deployed in a modular fashion, it enables co-existence betweenlegacy billing systems and new next generation services . In this way, enterprises can protect their existing technology investments while making a well-plannedshift to Intranet to support new market critical services .

In fiscal 2003 Portal introduced the latest version of its product, Infranet 6.5, with significantly enhanced functionality and performance . Infranet 6 .5 is the firstfully convergent billing platform supporting the voice, data, video and content services requirements for multinational service providers . Infranet 6.5 supports awide range of innovative billing options, including postpaid, prepaid, pre-billed and other models . The Infranet platform's rating technology allows providers tochoose either transactional real time or high-speed batch processing .

In addition to the basic Infranet platform, we offer a number of optional modules that extend the platform for specific customer needs . Such options includemodules for supporting multiple databases, maintaining high availability and fault tolerance, managing multiple brands, and connecting to various standardenterprise applications and payment processing and tax packages .

We provide localized versions of Infranet in a number of languages, including English, traditional Chinese, simplified Chinese, French, German, Italian,Japanese, Korean, Brazilian Portuguese and Spanish .

Business Benefits

Intranet is designed to enable service providers to capture the business benefits of increased revenues, reduced costs of operations and improved customer servicethrough its ability to enable providers to more effectively and efficiently manage customers and the rating and billing of services .

Increased Revenues . By helping to accelerate the time to market for new services, Infranet enables service providers to offer a variety of services quickly and tobundle and price these services in an optimal manner . Infranet enables services to be activated immediately when ordered by a subscriber, so that the serviceprovider can immediately begin to collect revenue . Subscriber activity can then be monitored in real time, which allows the service provider to promote theconsumption of more services through such means as targeted offers or increased credit limits . In addition, Intranet enables a service provider to analyze and"mine" subscribers' service

Table of Contentsusage data in real time, which can in turn be used to measure the success of marketing and targeting efforts and to identify new opportunities for subscriber

revenue . Using Infranet's data analysis features, a service provider can quickly determine which offerings are not successful and easily make appropriate

adjustments . For example, an unsuccessful pricing offer can quickly be terminated or tuned for better subscriber response . Finally, increased billing accuracyreduces the incidence of uncollected revenue and fraud .

Reduced Ongoing Total Cost of Operations . Infranet is designed to enable product centric solutions that minimize the service provider's softwareimplementation, and ongoing maintenance and subscriber servicing costs . We believe that our Portal solutions provide Total Cost of Operations ("TCO")advantages over competitive approaches, including custom solutions or product solutions which require significant ongoing customization to meet evolvingcustomer requirements . The flexibility, functionality and extensibility of the Infranet platform enables service providers to cost-effectively add newfunctionality, integrate with other legacy applications or scale their operations without custom programming or extensive systems integration .

Improved Customer Service. Intranet enables service providers to offer improved billing accuracy, enhanced customer service quality and responsiveness to

their subscribers . Using Infranet, service providers can easily tailor their offerings on a bundled or unbundled basis, substantially increasing customer choice

without incurring additional costs . Up-to-the-minute account balances and status information can be made available to users on a 24x7 basis, either over the

Internet or via customer service representatives . Potential customer account issues can be identified and resolved quickly, since there is no need to wait forregular billing cycles to expose these issues . Infranct's real time capability enhances responsiveness to subscribers' needs, which can help reduce subscriber"chum", or turnover.

Intranet Technolog y

Portal's software architecture consists of the Intranet platform, upon which market-specific functionality is layered using documented open application programinterfaces . This approach, designed from the start to use object-oriented programming techniques, enables new processes and services to be readily incorporated,thus allowing an evolving multi-service model to be built without the need to change the underlying software foundations . Similarly, changes can be made in theobject-based platform without affecting the market-specific functions . Portal designed Infranet to meet the critical functional requirements sought by serviceproviders . These requirements include scalability, enterprise integration and interoperability, comprehensive functionality and ease of use, flexibility andimproved time to market-all operating on a real time basis .

Scalability and Reliability . Infranet runs on a wide range of systems, from a laptop computer to a large cluster of UNIX-based servers . Infranet has beendesigned to scale from hundreds to millions of users through the incremental addition of servers . This capability allows a service provider to grow its businessoperating system infrastructure incrementally as its level of business grows without the need for architecture redesign or large-scale system replacements . Forexample, new servers can be added without taking the system offline, eliminating costly downtime . By running Infranet on multiple servers, a service providercan reduce exposure to various types of failures, including individual server failure, power failure and loss of physical facilities . Automatic load balancingfeatures smooth out usage spikes and ensure high availability . Infranet's object-to-relational data model is optimized for high performance on-line transactionprocessing and high reliability .

Enterprise Integration and Interoperability . Intranet has been designed with documented, open APIs that allow Portal, its customers, partners and third-partysoftware developers to integrate Intranet with existing applications and services requiring minimal effort and programming overhead . This capability enablesnew services to be deployed quickly and efficiently while maintaining smooth interoperability with pre-established services . For example, a telecommunicationscarrier might use Infranet to add Internet-related services, which then appear on a subscriber's monthly telephone bill . Infranet runs on server operating systemsfrom Hewlett-Packard, IBM, Microsoft and Sun Microsystems and utilizes database software from Microsoft and Oracle . Infranet also can be readily integratedwith a variety of packaged software applications, such as help desk, accounting, taxation and payment systems .

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ITEM 7 . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION S

The following Management's Discussion and Analysis of Financial Condition and Results of Operations may contain forward-looking statements within themeaning of Section 21E of the Securities Exchange Act of 1934, as amended, including, but not limited to, statements relating to future sales, gross margins,product development, operating expense levels and the sufficiency offinancial resources to support our future operations, and are subject to the Safe Harbor

provisions created by that statute. Such statements are based on current expectations that involve inherent risks and uncertainties, including those discussedbelow and under the heading "Risks Associated with Our Business and Future Operating Results" that could cause actual results to differ materially from thoseexpressed. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak as of the date hereof. We undertake noobligation to update any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events .

Overvie w

Portal develops, markets and supports customer management and billing ("CM&B") solutions for communications and content service providers . Our convergentplatform enables service providers to deliver voice, data, video and content services with multiple networks, payment models, pricing plans and value chains .

Beginning with fiscal 1997, substantially all of our revenues have come from the license of one product line, Infranet, and from related services . Revenuesconsist of Infranet licenses, professional services, support and maintenance fees . License revenues are comprised of perpetual or multiyear license fees, which are

primarily derived from contracts with communications and content service providers . Professional services consist of a broad range of implementation services,training, business consulting and operational support services . These services are provided throughout the customer lifecycle . We believe that future revenueswill be generated primarily from the following sources :

license fees from new customers ; for new products or new Infranet modules to existing customers ; and growth in the subscriber base of existingcustomers, which will lead to increased revenue from subscriber-based licenses ;

consulting services for the deployment of licenses and follow-on solutions related to our customers' end to end billing needs ; an d

annual maintenance fees for the support of existing deployments and rights to access when-and-if available upgrade enhancements to our platform .

We have established a series of relationships with systems integrators and hardware platform, software and service providers . We have derived, and anticipatethat we will continue to derive, a substantial portion of our revenues from customers that have significant relationships with our integration and platform partners .

As a result of continuing consolidation in the communications and content delivery industries and the reduction in capital available for emerging companies, weexpect to derive an increasing portion of our total revenues from large communications and content service providers . In this regard, we anticipate that asubstantial majority of our revenues will be derived from a fewer number of customers than in prior years . We also plan to structure more of our transactions toprovide for payments over a period of one year or more and to increase the number of arrangements where license and service fees are combined . One of theimpacts of this change in license structuring could be that license revenue would be recognized ratably over the term of the license arrangement or as paymentsfrom customers become due, or services are completed rather than being recorded as revenue upon delivery . The portion of our total revenues that is derivedfrom international operations has increased in recent years . As a result, we will face greater exposure to the risks associated with international operations . Withrespect to our services revenues, most of our professional services fees have been paid pursuant

Table of Contentsto time and materials arrangements . We believe that in the future a larger portion of our services revenues will be based on fixed price contracts . This could resultin the deferral of revenue until contract completion, in the event that we were unable to reliably budget and estimate our obligations under these contracts ordetermine the fair value of the services being performed. For a description of factors that may affect our future results see "Risks Associated with Our Businessand Future Operating Results . "

Critical Accounting Policies and Estimate s

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been preparedin accordance with accounting principles generally accepted in the United States . The preparation of these financial statements requires us to make estimates andjudgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent liabilities . On a regular basis, weevaluate and may revise our estimates, including those related to the allowance for doubtful accounts, non-marketable investments, long-lived assets andgoodwill and accrued restructuring expenses . We base our estimates on historical experience and various other assumptions that we believe to be reasonableunder the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent .Actual results could differ materially from these estimates under different assumptions or conditions.

We believe the following critical accounting policies, among others, affect our more significant judgments and estimates used in the preparation of ourconsolidated financial statements .

Revenue Recognition

We recognize revenue in accordance with current generally accepted accounting principles that have been prescribed for the software indust ry. Revenuerecognition requirements are ve ry complex and are affected by interpretations of the rules and an understanding of indust ry practices , both of which are subject tochange . Our revenue recognition policy is significant because our revenue is a key component of our results of operations . We follow very specific and detailedguidelines in measuring revenue ; however , ce rt ain judgments affect the application of our revenue recognition policy .

Revenue from license fees is recognized when persuasive evidence of an arrangement exists , delivery of the product has occurred, the fee is fixed ordeterminable and collectibility is probable . Pursuant to the requirements of Statement of Position (" SOP") 97-2 "Software Revenue Recognition" and SOP 98-9"Modification of SOP 97-2, Software Revenue Recognition , with Respect to Certain Transactions ," Po rtal uses the residual method to recognize revenue when alicense agreement includes one or more elements to be delivered at a future date and vendor specific objective evidence ("VSOE") of the fair value of allundelivered elements exists . VSOE for undelivered elements is based on normal pricing for those elements when sold separately and, for maintenance se rv ices, isadditionally measured by the renewal rate . The software is considered to have been delivered when we have provided the customer with the access codes thatallow for immediate possession of the software . Our revenue recognition policy takes into consideration the creditwo rthiness of the customer in determining theprobability of collection as a criterion for revenue recognition . The determination of creditwo rthiness requires the exercise of judgment , which affects ourrevenue recognition . If a customer is deemed to not be creditwo rthy , all revenue under arrangements with that customer is recognized upon receipt of cash . Thecreditworthiness of customers is re-assessed on a regular basis and revenue is deferred until cash receipt , if appropriate. Additionally , when we enter intocontracts with indust ry- standard payment terms, it is Po rt al's policy to recognize such revenue when the customer is deemed to be creditwo rthy and collection ofthe receivable is probable . Revenue from arrangements with customers who are not the ultimate users , such as resellers, is not recognized until evidence of anarrangement with an end user has been received . Our policy should we enter into a transaction with a customer to purchase the customer's productscontemporaneously with the customer ' s purchase of software from Po rt al, is to recognize the amount of license fees paid to Portal net of the fees paid for thecustomer ' s products .

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Services revenues are primarily comprised of revenue from product deployment, follow-on enhancements and other consulting fees, maintenance agreementsand training . When licenses arrangements include services, the license fees are recognized upon delivery, provided that (1) the criteria set forth in the aboveparagraph have been met, (2) payment of the license fees is not dependent upon the performance of the services, and (3) the services are not essential to the

functionality of the software. When software services are not considered essential, which has been the case in the majority of our license arrangements, therevenue related to the time and materials services is recognized as the services are performed . Portal recognizes consulting revenue as services are performed . If aservices agreement includes milestones Portal does not recognize revenue until customer acceptance has occurred . To date, management has been successful inestimating efforts required under its services contracts, including its fixed price contracts, and accordingly, has not incurred any losses on its fixed pricedcontracts . In the event that cost estimates exceed revenues in the future, we will accrue for the estimated losses if and when the losses become evident .

For arrangements that do not meet the above criteria, both the license revenues and services revenues are recognized under the percentage-of-completioncontract method in accordance with the provisions of SOP 81-1, "Accounting for Performance of Construction Type and Certain Production Type Contracts ."Portal follows the percentage-of-completion method since reasonably dependable estimates of progress toward completion of a contract can be made . Weestimate the percentage-of-completion on contracts utilizing hours incurred to date as a percentage of the total estimated hours at project completion .

Recognized revenues and profit are subject to revisions as the contract progresses to completion . Revisions in profit estimates are charged to income in the periodin which the facts that give rise to the revision become known .

Maintenance agreements provide technical support and include the right to unspecified upgrades on an if-and-when-available basis . Maintenance revenue isdeferred and recognized on a straight-line basis as services revenue over the life of the related agreement, which is typically one year . Customer advances andbilled amounts due from customers in excess of revenue recognized are generally recorded as deferred revenue.

Portal periodically updates its revenue recognition policies to reflect changes in the marketplace, its business practices and experiences with its customers toensure compliance with revenue recognition rules and good business practices . During the quarter ended July 31, 2002 Portal revised its policy to better reflectindustry practices and the shift in Portal's customer base from Internet service providers to diversified telecommunications companies . The new policy continuesto ensure compliance with technical pronouncements associated with software revenue recognition . Previously, Portal's policy presumed that arrangements withpayment terms extending beyond 60 days did not meet the criteria for fixed and determinable fees . Under Portal's revised policy, arrangements with paymentterms extending beyond 60 days may meet the fixed and determinable fee criteria based upon Portal's evaluation of the risk of concession, subject to review andapproval by Portal's Chief Financial Officer . This change increased revenue recognized during the year ended January 31, 2003 by approximately $0 .5 million .

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Allowance for Doubtful Account s

The allowance for doubtful accounts is established through a charge to general and administrative expenses . This allowance is for estimated losses resulting from

our customers' failure or inability to make required payments . It is a significant estimate and is regularly evaluated by us for adequacy by taking intoconsideration factors such as past experience, credit quality of the customer, age of the receivable balance, individually and in the aggregate, and currenteconomic conditions that may affect a customer's ability to pay. The use of different estimates or assumptions could produce different allowance balances . Ourcustomer base is highly concentrated in the communications and content service provider industries . Several of the leading companies in these industries haveexperienced financial difficulty . If collection is not probable at the time the transaction is consummated, we do not recognize revenue until cash is collected . If

the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required .

Non-Marketable Investments

We review the net realizable value of the non-marketable investments on a quarterly basis, including reviewing the latest financial information available of our

investee companies for signs of financial deterioration and recent press releases relating to the companies . We also consider the impact of new stockholderpreferences, if any, upon our investment position . If we consider the net realizable value of our investments to be less than historical cost, then we determinewhether a decline in fair value below the cost basis is "other than temporary ." If the decline in fair value is judged to be other than temporary, we will reduce thecost basis of the individual security to fair value as a new cost basis and the amount of the write-down shall be included in earnings and accounted for as a

realized loss . The new cost basis will not be changed for subsequent recoveries in fair value .

Long-Lived Assets and Goodwil l

Portal evaluates the carrying value of long-lived assets and intangibles, including goodwill, whenever certain events or changes in circumstances indicate thatthe carrying amount of an asset may not be recoverable . On a regular basis, the estimated future net cash flows associated with the asset are compared to the

asset's carrying amount to determine if impairment has occurred . If such assets are deemed impaired, an impairment loss equal to the amount by which thecarrying amount exceeds the fair value of the assets is recognized . If quoted market prices for the assets are not available, the fair value is calculated using the

present value of estimated expected future net cash flows . The cash flow calculations are based on management's best estimates, using appropriate assumptions

and projections at the time .

During the fiscal year ended January 31, 2002, we identified indicators of possible impairment of the intangible assets arising from our acquisitions . These

indicators included deterioration in the business climate and prospects and intentions for these subsidiaries, implying that the downturn may be for a long periodof time .

As related to our acquisition of Solution42, the indicators of impairment included the other than temporary decline in market values of technology companies ingeneral and Portal specifically . Our stock price experienced a steady decline over the course of several quarters, with a slight rebound at the end of the firstquarter of fiscal 2002 . The slight rebound in stock prices appeared to indicate a temporary decline in market values, but the stock continued on a downward trendin the second quarter of fiscal 2002 . Had Solution42 been an independent company, we concluded that its valuation would have declined in a similar manner toPortal's based on the similarity of products, target markets and declining revenue . Additionally, in the second quarter of fiscal 2002 the forecasted revenue forSolution42 products deteriorated significantly from the forecasts made at the time of the acquisition . In connection with our restructuring plans (see RestructuringCosts below and Note 4 in Notes to Consolidated Financial Statements), we planned to reduce our headcount overseas which included many Solution42employees and cancelled research and development activities related to the Solution42 product, both of which were a result of an other than temporarydeterioration in business climate and a drastic reduction in forecasted revenue opportunities.

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The following table summarizes our other commitments as of January 31, 2003 and the effect such commitments could have on our liquidity and cash flows infuture periods if the letters of credit or the guarantees were drawn upon. Restricted investments represent the collateral for these commitments .

Less than Ove rTotal 1 year 1-3 years 4-5 years 5 year s

(In thousands. )

Letters of credit $ 10,236 $ - $ 312 $ - $ 9,924

Guarantees 2,569 1,528 464 - 57 7

$ 12,805 $ 1,528 $ 776 $ - $ 10,501

Our capital requirements depend on numerous factors, including the timing of customer orders and engagements, and related obligations and payments, marketacceptance of our products, the resources we devote to developing, marketing, selling and supporting our products, the timing and extent of changes in the size ofour operations and other factors . Our planned expense levels for each of the fiscal quarters of fiscal 2004 exceed the revenues we generated in the fourth quarter

of fiscal 2003 . Asa result, we will need to generate increased revenues from licenses of our products and sale of our services to achieve and maintain operating

profitability. Although we believe that our current cash balances and cash generated from operations will be sufficient to fund our operations for at least the next12 months, we may require additional financing within this time frame . We may seek financing at any time that we determine market conditions are favorable .

Additional funding, if needed, may cause dilution to our stockholders or the incurrence of debt and such funding may not be available on terms acceptable to us,or at all .

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Table of ContentsRISKS ASSOCIATED WITH OUR BUSINESS AND FUTURE OPERATING RESULT S

Our future operating results may vary substantially from period to period . The price of our common stock will fluctuate in the future and an investment in our

common stock is subject to a variety of risks, including but not limited to the specific risks identified below . Inevitably, some investors in our securities will

experience gains while others will experience losses depending on the prices at which they purchase and sell securities . Prospective and existing investors are

strongly urged to carefully consider the various cautionary statements and risks set forth in this report .

This report contains forward-looking statements that are not historical facts but rather are based on current expectations, estimates and projections about ourbusiness and industry, our beliefs and assumptions . Words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", "estimates" and variations of

these words and similar expressions are intended to identify forward-looking statements . These statements are not guarantees of future performance and aresubject to risks, uncertainties and other factors, many of which are beyond our control, and all of which are difficult to predict and could cause actual results to

differ materially from those expressed or forecasted in the forward-looking statements . These risks and uncertainties include those described in this sectionentitled "Risks Associated With Our Business and Future Operating Results" and elsewhere in this report . Forward-looking statements that were true at the time

made may ultimately prove to be incorrect or false . Readers are cautioned not to place undue reliance on forward-looking statements, which reflect our

management's view only as of the date of this report. We undertake no obligation to update these statements or publicly release the results of any revisions to theforward-looking statements that we may make to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events .

Our revenues will be adversely affected as a result of economic conditions affecting our target market s

We primarily market our products and services to providers of communications and content services . During the past few years, the telecommunications industry

has experienced a difficult economic environment . The substantial number of business failures and the decline in the market value of "dot-com" and other

technology companies in the past few years has made it more difficult for emerging communication and electronic content companies to obtain financing for

their operations . Moreover, the market value, financial results and prospects of many large and established companies, including many large telecommunicationscompanies, have also declined or degraded significantly . Many communications and content companies have significantly reduced their expenditures and have

reduced or deferred their purchases of software and related products and the introduction of many new communication services has been delayed or cancelled .Cancellations of existing or planned services also adversely impact potential professional service, maintenance and support revenues . Any general decrease byour customers and potential customers in their rate of software and network investments results in a significant decrease in our revenues and operating income .

These trends in technology and software spending dramatically adversely impacted our business in fiscal 2002 and 2003 and will continue to adversely affect ourbusiness until conditions improve.

Failure to collect accounts receivable in a timely manner has in the past and may in the future result in significant write-offs, higher accounts receivable reservesand lower cash balances that would adversely affect our financial results and available cash resources .

We expect to incur additional losses and cannot be certain that we will be profitable or generate positive cash flo w

In order to be profitable or generate positive cash flow, we must significantly increase our revenues or further reduce our expenses . We may not be able to

increase or even maintain our revenues and we may not achieve sufficient revenues to attain profitability in any future period . Moreover, we have already

significantly reduced our expenses through a series of restructurings and there may be a limit to our ability to further reduce expenses without significantlydamaging our operational capabilities . We incurred net losses of approximately $72 .2 million, $395 .5 million and $2 .3 million for fiscal 2003, 2002 and 2001,

respectively.

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If we do not generate increased revenues from sales of our products or reduce expenses, we will not be profitable or generate positive cash flow . The decrease in

capital expenditures by communications companies as well as the general economic slowdown has adversely affected our revenues and will make it difficult to

increase revenues until spending in our target markets increases . We also expect that we will face increased competition that may make it more difficult to

increase our revenues. Even if we are able to increase revenues, we have experienced and may continue to experience price competition that would lower our

gross margins and reduce our ability to become profitable . Furthermore, we may offer, in the future, some of our products and services for a "bundled" price,

such that a separate price would not be identified for the product and service components . Such a change may significantly delay the timing of our revenue

recognition . Another factor that would lower our gross margins is any increase in the percentage of our revenues that is derived from indirect channels and from

services, both of which have lower margins than our license revenues . Failure to achieve the desired reductions in our expenses will further increase our losses .

We cannot be certain that we will achieve operating or net profitability on a quarterly or annual basis . Additionally, failure to achieve a positive cash flow will

continue to result in reductions in our existing cash resources .

Our quarterly revenue is generated from a limited number of customers and our customer base is concentrated ; the loss of one or more of our

customers could cause our business to suffe r

A substantial portion of our license and services revenues in any given quarter has been, and is expected to continue to be, generated from a limited number of

customers with large financial commitments . For example, America Online accounted for more than 10% of our total revenues during each of the quarters of

fiscal 2002 . As a result, if a large contract is cancelled or deferred or an anticipated contract does not materialize, our business would be harmed . Our total

revenues could also be adversely affected if revenues from a significant customer in one period are not replaced with revenues from that customer or othercustomers in subsequent periods . The communication and content industries we have targeted are consolidating, which could reduce the number of potential

customers available to us . Moreover, many of our customers may have purchased sufficient quantities of our products to satisfy their current or anticipated

requirements . For all of these reasons our business could suffer in the future .

It is difficult to predict the timing of individual orders because Infranet has a long and variable sales cycles and implementation period s

The sales cycle for Intranet varies greatly, generally ranging between 3 to 18 months . Sales cycles have recently lengthened as the competitive environment has

become more intense, the financial position of our potential customers has weakened and price discounting has further delayed customer decision processes, as

there is less business available from telecommunications companies . Along with systems integrators and our other distribution partners, we spend significant

time educating and providing information to our prospective customers regarding the use and benefits of Infranet . Customers increasingly require vendors to

perform proof of concept projects and performance benchmarks as a part of the sales cycles . These tests can further lengthen sales cycles and increase our sales

costs . The long sales and implementation cycles for Infranet make it more difficult to predict our future financial results and may cause license revenues and

operating results to vary significantly from period to period .

Even after purchase, our customers tend to deploy Intranet slowly and deliberately, depending on the specific technical capabilities of the customer, the size ofthe deployment, the complexity of the customer's network environment and the quantity of hardware and the degree of hardware configuration necessary todeploy Intranet . The length of time to implement and deploy systems involving Infranet may have an impact on the timing and amount of revenues ultimately

received from customers, particularly if payments are tied to implementation or production milestones . As a result, the revenues derived from a sale may not be

recognized immediately and could be spread over an extended period. As a result, an increase in the period of time over which revenue is recognized may cause a

decline in the amount of revenues in the short term .

31

Table of Content s

The markets in which we sell our product are highly competitive and we may not be able to compete effectivel y

We compete in markets that are intensely competitive and rapidly changing . We face competition from providers of customer management and billing software,

such as Amdocs Ltd., Convergys Corporation, CSG Systems International, Inc . and we also compete with systems integrators and with internal information

technology departments of larger communications providers . Most of our current principal competitors have significantly more personnel and greater financial,

technical, marketing and other resources than we have . Many of our competitors also have more diversified businesses, established reputations in particular

market segments, larger customer bases and are not as dependent on customers in our target market .

Our competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements than we can . Intense competition

has recently been exemplified by deep price discounting by our competitors that has resulted in a lengthening of our sales cycles, price reductions and may

threaten our ability to close forecasted business . Additionally, our financial strength or that of a competitor is one factor considered by many potential customers

in their vendor selections . Because many of our competitors have greater financial resources than we do, this can adversely affect our ability to be selected by

potential customers . Increased competition can result in price reductions, fewer customer orders, reduced gross margins and loss of market share, any of which

could harm our business .

Our failure to develop and market products and services that compete successfully with those of other suppliers in the market would harm our business . We

anticipate that the market for our products and services will remain intensely competitive .

Our inability to sublease or reduce surplus office space would increase our use of cash and operating expenses and adversely effect operating resultsand our financial condition

We must periodically acquire and dispose of our office facilities in various locations as the number of existing and projected employees changes for those

locations or as existing leases expire . Securing and building out facilities takes significant lead-time . Historically, because of the need to satisfy projected future

expansion, the amount of space we have leased is generally more than the amount currently required . Our significant office leases have terms of between 5 and

20 years . As a result, we frequently attempt to sublease the portions of leased facilities that we have leased to meet our future expansion plans but do not

currently need . In addition, our reductions in our workforce undertaken over the past year have substantially reduced our facilities requirements in several

locations . As a result, we are attempting to sublease the facilities that we have previously leased but do not currently need or to negotiate reductions in our rent

obligations relating to those facilities or cancellations of the applicable leases . We have leased approximately 290,000 square feet and 40,000 square feet for our

regional headquarters facilities in Cupertino, California and our regional headquarters facilities in Slough, United Kingdom, respectively, through 2010 and 2022,

respectively. The amounts leased exceed our current requirements and we plan to sublease a majority of the facilities for a substantial portion, if not the entire

balance, of the lease term . There is currently a large amount of vacant commercial real estate in the San Francisco Bay Area and in other locations where we have

facilities . Moreover, currently prevailing rental rates in many locations are significantly lower than those that we are obligated to pay under the leases . We may

therefore continue to encounter significant difficulties or delays in subleasing our surplus space and may not be able to sublease it for rents equal to those that we

are obligated to pay . In connection with our restructuring plan adopted in fiscal 2003, we have vacated additional facilities in the United States and in other

locations .

To the extent that we are unable to renegotiate the terms or cancel the applicable leases or to sublease this and other surplus space at an amount equal to our rentobligations for that space or to the extent sublessees fail to perform their obligations to pay rent, we could incur greater operating expenses than we initiallyanticipated or included within accrued restructuring charges . Such increases in operating expenses in a period could cause us to exceed our planned expense

levels and adversely affect our financial results for that period . Cancellation of

32

Table of Content sleases will likely result in use of significant amounts of cash and additional restructuring charges . Furthermore, inability to sublease such space may adverselyaffect our planned uses of cash and our capital resources . Moreover, we have reduced the amount of the facilities restructuring charges we accrued in fiscal 2003and 2002 by the estimated amount of sublease income . The assumptions we have made were based on the then current market conditions in the various areas wehave vacant space . These market conditions can fluctuate greatly, thus causing our accrual to be inaccurate . If, in future periods, it is determined that we haveover accrued for restructuring charges as related to the consolidation of facilities, the reversal of such over-accrual would have a favorable impact on ourfinancial statements in the period this was determined . Conversely, if it is determined that our accrual is insufficient, an additional charge would have asignificant unfavorable impact on our financial statements in the period this was determined .

Our operating plans rely on our ability to successfully increase the size and scope of our operations in India and a failure to manage that process andorganization could affect our operations

In fiscal 2003 we opened an engineering center in Bangalore, India. In fiscal 2004 we plan to significantly increase the size of this organization and expand itsscope . The expansion of this organization is an important component of our strategy to address the business needs of our customers, increase our revenues andachieve profitability . A portion of the personnel in this organization is our employees and the balance are provided through an independent contractor . Thesuccess of this operation will depend on our ability to attract, train, assimilate or retain sufficient highly qualified personnel in the required periods . A disruptionof our relationship with the independent contractor would adversely impact the effectiveness of the India organization and could adversely affect our operationsand financial results . Failure to effectively manage and integrate these operations will harm our business and financial results .

Our quarterly operating results may fluctuate in future periods and we may fail to meet expectation s

Our revenues and operating results may vary significantly from quarter to quarter due to a number of factors . In future quarters, our operating results may bebelow the expectations of one or more public market analysts and investors and the price of our common stock may fall . Failure by technology companies tomeet or exceed analyst expectations or any resulting changes in analyst recommendations or ratings frequently results in substantial decreases in the market valueof the stock of such companies . Factors that could cause quarterly fluctuations include :

• variations in demand for our products and services, including decreases caused by reductions in technology spending within our target markets ;

• the timing and execution of individual contracts, particularly large contracts that would materially affect our operating results in a given quarter ;

• large contracts with extensive consulting services may require the use of contract accounting for revenue recognition purposes thereby extending theperiod of time over which revenue is recognized ;

• our ability to develop and attain market acceptance of enhancements to Infranet and new products and services ;

• market acceptance of new communications services that our products are intended to support ;


• new product introductions by our competitors ;


• announcements of new versions of our products that cause customers to postpone purchases of our current products ;

• the mix of products and services sold ;

33

Exhibit C

Table of Contents

SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q(Mark One )

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

For the quarterly period ended May 2, 200 3

0 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 193 4

For the transition period from to

Commission File number 000-25829

PORTAL SOFTWARE, INC .(Exact name of registrant as specified in its charter )

Delaware(State or other jurisdiction of

incorporation or organization)

77-0369737(I .R.S . Employer Identification No .)

10200 South De Anza BoulevardCupertino, California

(Address of principal executive offices)95014

(Zip code)

(408) 572-200 0(Registrant ' s telephone number , including area code)

Indicate by check mark whether the registrant : (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe 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 forthe past 90 days . Yes X N o

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

On May 30, 2003, 180,470, 060 shares of the Registrant' s Common Stock, $0 .001 par value, were outstanding .

Table of ContentsPORTAL SOFTWARE, INC.

FORM 10- Q

QUARTER ENDED May 2, 2003

INDEX

Part I : Financial Informatio nItem 1 : Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at Anril 30. 2003 and January 31 . 2003Condensed Consolidated Statements of Operations for the quarters ended April 30. 2003 and 2002Condensed Consolidated Statements of Cash Flows for the quarters ended April 30, 2003 and 2002Notes to Unaudited Condensed Consolidated Financial Statement sItem 2 : Manaeement's Discussion and Analysis of Financial Condition and Results of OperationsItem 3 : Ouantitative and Oualitative Disclosures About Market Ris kItem 4 : Controls and Procedure s

Part II : Other InformationItem 6 : Exhibits and Reports on Form 8-K

Si nature sCertifications

Pag e

2727

28

2930

Table of ContentsItem 1 . Financial Statements


CONDENSED CONSOLIDATED BALANCE SHEET S(in thousands , except par value)

April 30, January 31,

2003 2003

(unaudited)

Asset sCurrent assets :Cash and cash equivalents $ 22,531 $ 21,50 2Short-term investments 21,271 30,64 1Accounts receivable, net of allowance for doubtful accounts of $1,910 and $2,458 at April 30, 2003 and January 31, 2003 ,respectively 34,644 22,46 7Restricted short-term investments 1,968 1,60 9Prepaid expenses and other current assets 5,877 4,02 6

Total current assets 86,291 80,24 5Property and equipment, net 22,026 22,79 8Purchased developed technology, net 3,990 4,65 5Restricted long-term investments 12,033 13,41 2Other assets 2,606 2,624

$ 126,946 $ 123,734

Liabilities and Stockholders' EquityCurrent liabilities :Accounts payable $ 8,979 $ 4,699Accrued employee benefits 9,608 8,82 1Current portion accrued restructuring costs 12,588 13,41 8Other accrued liabilities 8,479 8,42 9Current portion of capital lease obligations - I 1Deferred revenue 28,064 23,95 5

Total current liabilities 67,718 59,33 3Long-term notes payable 1,674 1,679Long-term accrued restructuring costs 24,009 26,903Commitments and contingenciesStockholders' equity :Convertible preferred stock, $0 .001 par value, issuable in series :5,000 shares authorized, none issued and outstanding - -Common stock, $0 .001 par value ; 1,000,000 shares authorized ; 178,876 and 178,303 shares issued and outstanding at April 30 ,2003 and January 31, 2003, respectively 179 17 8Additional paid-in capital 548,422 540,99 4Accumulated other comprehensive income 353 29 4Notes receivable from stockholders (67) (69 )Accumulated deficit (515,342) (505,578 )

Stockholders' equity 33,545 35,81 9

$ 126,946 $ 123,734

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements .

3

Table of ContentsPORTAL SOFTWARE, INC .

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share amounts; unaudited)

Quarter Ended

April 30,

2003 2002

Revenues :License fees $ 13,570 $ 12,70 8Services 18,523 18,404

Total revenues 32,093 31,11 2

Costs and expenses :Cost of license fees 88 11 5

Cost of services 11,613 10,949Amortization of purchased developed technology 665 849

Research and development 7,167 11,43 4Sales and marketing 11,388 14,900

General and administrative 3,333 4,394Stock compensation charges (1) 7,090 11 0

Total costs and expenses 41,344 42,75 1

Loss from operations (9,251) (11,639)Interest and other income, net 123 69 8

Loss before income taxes (9,128) (10,941 )

Provision for income taxes (636) (1,068 )

Net loss $ (9,764) $ (12,009)

Basic and diluted net loss per share S (0 .05) $ (0 .07 )

Shares used in computing basic and diluted net loss per share 178,568 174,89 2

(1) Stock compensation charges relate to the following expense categories

Cost of services $ 1,534 $ 1 7

Research and development 2,616 38

Sales and marketing 1,979 3 1

General and administrative 961 24

Total $ 7,090 $ 110


4


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

Quarter Ended

April 30 ,

2003 2002

OPERATING ACTIVITIES :Net loss $ (9,764) $ ( 12,009)Adjustments to reconcile net loss to net cash provided by (used in) operating activities :Depreciation and amortization 1,938 3,495Stock compensation charges 7,090 11 0Amo rt ization of purchased intangibles 665 849Changes in operating assets and liabilities :Accounts receivable, net (11,857) 343Prepaid expenses and other current assets (1,822) (550)Other assets 18 89 0Accounts payable 4,280 99 3Accrued employee benefits 787 1,408Other accrued liabilities (3,674) (4,743 )Deferred revenue 4,109 (7,655 )

Net cash used in operating activities (8,230) (16,869 )

INVESTING ACTIVITIES :Purchases of short-term investments (22,415) (57,455 )Sales of short-term investments 18,502 45,663Maturity of short- term investments 12,805 12,59 1Sales and maturi ties of long-term investments 1,400 -Purchases of property and equipment (1,428) (2,322 )

Net cash provided by (used in) investing activities 8,864 (1,523 )

FINANCING ACTIVITIES :Payments received from stockholder notes receivableRepayments of notes payabl ePrincipal payments under capital lease obligationsProceeds fr om issuance of common stock , net of repurchase s

Net cash provided (used in) by financing activities

Effect of exchange rate on cash and cash equivalents

Net decrease in cash and cash equivalent sCash and cash equivalents at beginning of period .

2'` -

(5) (6)(11) (214)339 176

Cash and cash equivalents at end of period

325 (44)

70 40 3

1,029 (18,033)21,502 36,31 8

$ 22,531 $ 18,28 5


5


NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT S

Note 1 . Significant Accounting Policies :

Nature ofBusiness and Basis of Presentatio n

Portal Software, Inc ., or Portal, develops, markets, and supports product-based customer management and billing software solutions for communications and

content service providers . Portal's convergent platform enables service providers to deliver voice, data, video and content services with multiple networks,

payment models, pricing plans and value chains . Portal markets its products worldwide through a combination of a direct sales force and distribution partners .

Substantially all of Portal's license revenues are derived from sales of its Infranet product line .

The accompanying condensed consolidated financial statements include the accounts of Portal and its wholly owned subsidiaries . All significant intercompany

balances and transactions have been eliminated in consolidation . The condensed consolidated balance sheet at April 30, 2003 and the condensed consolidated

statements of operations and the condensed consolidated statements of cash flows for the quarters ended April 30, 2003 and 2002 are not audited . In the opinionof management, these financial statements reflect all adjustments (consisting of normal recurring items) that are necessary for a fair presentation of the results for

and as of the periods shown . The results of operations for such periods are not necessarily indicative of the results expected for the full fiscal year or for any

future period. The condensed consolidated financial statement information as of January 31, 2003 is derived from audited financial statements as of that date .

These financial statements should be read in conjunction with the financial statements and related notes included in Portal's Annual Report on Form 10-K for thefiscal year ended January 31, 2003 filed with the Securities and Exchange Commission .

Fiscal yea r

We have adopted a 4-4-5 week fiscal accounting year commencing with our 2004 fiscal year . Each quarter will consist of 13 weeks ending on a Friday . Our2004 fiscal year began on February 1, 2003, the day following the last day of our 2003 fiscal year, and will end on January 30, 2004 . Accordingly, all referencesas of and for the period ended April 30, 2003 reflect amounts as of and for the period ended May 2, 2003 . The quarter ended April 30, 2003 was comprised of 9ldays while the quarter ended April 30, 2002 was comprised of 89 days .

Foreign Currency

Portal considers the functional currency of its foreign subsidiaries to be the local currency. Assets and liabilities recorded in foreign currencies are translated atthe exchange rate on the balance sheet date and revenue, costs and expenses are translated at average rates of exchange in effect during the period . Translationgains and losses are reported within accumulated other comprehensive loss . Net gains and losses resulting from foreign exchange transactions were immaterial inall periods presented .

Use of Estimate s

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported

amounts of revenues and expenses during the reporting period . These estimates are based upon information available as of the date of the financial statements .Actual results could differ materially from those estimates .

Revenue Recognitio n

Portal recognizes revenue in accordance with current generally accepted accounting principles that have been prescribed for the software industry . Revenuerecognition requirements are very complex and are affected by interpretations of the rules and an understanding of industry practices, both of which are subject to

change . Portal's revenue recognition policy is significant because revenue is a key component of its results of operations . Portal follows very specific and

detailed guidelines in measuring revenue ; however, certain judgments affect the application of its revenue recognition policy .

Revenue from license fees is recognized when persuasive evidence of an arrangement exists, delivery of the product has occurred, the fee is fixed ordeterminable and collectibility is probable . Pursuant to the requirements of Statement of Position ("SOP") 97-2 "Software Revenue Recognition" and SOP 98-9

"Modification of SOP 97--2, Software Revenue Recognition, with Respect to Certain Transactions," Portal uses the residual method to recognize revenue when alicense agreement includes one or more elements to be delivered at a future date and vendor specific objective evidence of the fair value ("VSOE") of al lundelivered elements exists . VSOE for undelivered elements is based on normal pricing for those elements when sold separately

Table of Contentsand, for maintenance services, is additionally measured by the renewal rate . The software is considered to have been delivered when Portal has provided thecustomer with the access codes that allow for immediate possession of the software . Its revenue recognition policy takes into consideration the creditworthinessof the customer in determining the probability of collection as a criterion for revenue recognition . The determination of creditworthiness requires the exercise ofjudgment, which affects the Company's revenue recognition . If a customer is deemed to not be creditworthy, all revenue under arrangements with that customeris recognized upon receipt of cash . The creditworthiness of customers is re-assessed on a regular basis and revenue is deferred until cash receipt, if appropriate .Additionally, when the Company enters into contracts with industry-standard payment terms, it is Portal's policy to recognize such revenue when the customer isdeemed to be creditworthy and collection of the receivable is probable . Revenue from arrangements with customers who are not the ultimate users, such asresellers, is not recognized until evidence of an arrangement with an end user has been received. Should we enter into a transaction with a customer to purchasethe customer's products contemporaneously with the customer's purchase of software from Portal, the Company's policy is to recognize the amount of licensefees paid to Portal net of the fees paid for the customer's products .

Services revenues are primarily comprised of revenue from product deployment, follow-on enhancements and other consulting fees, maintenance agreementsand training. When licenses arrangements include services, the license fees are recognized upon delivery, provided that (1) the criteria set forth in the aboveparagraph have been met, (2) payment of the license fees is not dependent upon the performance of the services, and (3) the services are not essential to thefunctionality of the software. When software services are not considered essential, which has been the case in the majority of the Company's licens earrangements, the revenue related to the time and materials services is recognized as the services are performed . Portal recognizes consulting revenue as servicesare performed . If a services agreement includes milestones, Portal does not recognize revenue until customer acceptance has occurred . To date, the company hasbeen successful in estimating efforts required under its services contracts, including its fixed price contracts, and accordingly, has not incurred any losses on itsfixed priced contracts . In the event that cost estimates exceed revenues in the future, the Company will accrue for the estimated losses if and when the lossesbecome evident.

For arrangements that do not meet the above criteria, both the license revenues and services revenues are recognized under the percentage-of-completioncontract method in accordance with the provisions of SOP 81-1, "Accounting for Performance of Construction Type and Certain Production Type Contracts ."Portal follows the percentage-of-completion method since reasonably dependable estimates of progress toward completion of a contract can be made . TheCompany estimates the percentage-of-completion on contracts utilizing hours incurred to date as a percentage of the total estimated hours at project completion .Recognized revenues and profit are subject to revisions as the contract progresses to completion . Revisions in profit estimates are charged to income in the periodin which the facts that give rise to the revision become known .

Maintenance agreements provide technical support and include the right to unspecified upgrades on an if-and-when-available basis . Maintenance revenue isdeferred and recognized on a straight-line basis as services revenue over the life of the related agreement, which is typically one year . Customer advances andbilled amounts due from customers in excess of revenue recognized are generally recorded as deferred revenue .

Concentration of Credit Risk

Substantially all of Portal's software and services have been sold to North American, European and Asia-Pacific communication and content service providersincluding mobile wireless companies, broadband, electronic content and Internet access companies, as well as other Internet and c-commerce companies .Accordingly, adverse economic trends affecting the communications industry may increase our credit risk . Portal performs ongoing credit evaluations of itscustomers and does not require collateral.

One customer, Vodafone Omnitel, accounted for 22% of revenues during the qua rt er ended April 30, 2003 . No individual customer accounted for more than 10%of total revenues during the qua rt er ended April 30, 2002 .

Guarantees

Our license agreements include indemnification for infringements of third-party intellectual property rights and also include certain warranties . No amounts havebeen accrued relating to those indemnities and warranties, as we do not believe any losses are probable . We have also issued letters of credit totaling $9 .6 millionrelated to our leased facilities, $2 .0 million related to bank guarantees securing bank loans to the former shareholders of Solution42 and $0 .5 million of otherbank guarantees . In the event Portal or the former Solution42 shareholders default on the terms of the underlying lease or loan agreements, the beneficiaries maydraw on these letters of credit. The requirements to maintain the letters of credit correspond to the terms of the underlying agreements which expire at variousdates through 2021 . We do not have any other guarantees .

Table of ContentsSegment Information

Portal operates solely in one segment, the development and marketing of business infrastructure software . Portal's foreign operations consist of sales, marketingand support activities through its foreign subsidiaries and an overseas reseller network as well as an engineering and development center in India . Portal's chiefoperating decision maker reviews financial information presented on a consolidated basis, accompanied by disaggregated information about revenues and certaindirect expenses by geographic region for purposes of making operating decisions and assessing financial performance . Portal's assets are primarily located in its

corporate office in the United States and are not allocated to any specific region, therefore Portal does not produce reports for, or measure the performance of, itsgeographic regions based on any asset-based metrics . Therefore, geographic information is presented only for revenues .

Portal's revenue outside of North America represented 78% and 64% of total revenues for the quarters ended April 30, 2003 and April 30, 2002, respectively,and were derived from sales to Europe (which is defined by Portal as Europe, Middle East and Africa) and Intercontinental (which is defined by Portal as

Asia-Pacific, Japan and Latin America) . European revenues for these quarters were $20 .6 million and $12 .2 million and Intercontinental revenues were $4 .4

million and $7 .6 million, respectively . Revenues from Italy and the United Kingdom were $8 .3 and $5 .3 million, respectively, for the quarter ended April 30,

2003, and revenues from Japan were $3 .8 million in the quarter ended April 30, 2002 .

Cash, Cash Equivalents, Short-Term and Long-Term Investment s

Portal considers all highly liquid, low-risk debt instruments with an original maturity, at the date of purchase, of three months or less to be cash equivalents . AtApril 30, 2003 and January 31, 2003, cash equivalents and short-term investments consisted primarily of commercial paper, corporate notes, money marketfunds and government securities . All short-term investments mature within 24 months .

Portal classifies, at the date of acquisition, its cash equivalents and short-term investments as available-for-sale in accordance with the provisions of theFinancial Accounting Standards Board's ("FASB") Statement of Financial Accounting Standards Number 115, "Accounting for Certain Investments in Debt andEquity Securities" ("SFAS 115") . Securities are reported at fair market value, with the related unrealized gains and losses included within stockholders' equity .Debt and discount securities are adjusted for straight-line amortization of premiums and accretion of discounts to maturity, both of which are included in interest

income . Realized gains and losses are recorded using the specific identification method and are immaterial for all periods presented .

Table of Content sThe following table shows the amounts of stock compensation charges that would have been recorded under the following categories had stock compensationcharges not been separately stated on the statements of operations .

Quarter Ended

April 30,

2003 2002

(in thousands ;unaudited)

Cost of services $1,534 $ 1 7Research and development 2,616 3 8Sales and m arketing 1,979 3 1General and administrative 961 24

$7,090 $110

Pro vision, for Income Taxes

Our taxes totaled $0 .6 million and $1 .1 million for the quarters ended April 30, 2003 and 2002, respectively, primarily as a result of foreign withholding taxes onrevenue and tax on earnings generated from our foreign operations . Although we recorded net losses of $9 .8 million and $12 .0 million for the quarters endedApril 30, 2003 and 2002, respectively, our foreign operations were profitable for tax purposes primarily due to the intercompany charge back arrangementsnecessary under the local tax laws .

Liquidity and Capital Resources

Cash, cash equivalents and investments (including restricted investments of $14 .0 million) totaled $57 .8 million at April 30, 2003, compared with a balance of$67 .2 million at January 31, 2003 .

We used cash totaling $8 .2 million in operations in the quarter ended April 30, 2003, a decrease of $8 .7 million from the $16 .9 million used in the quarter endedApril 30, 2002 . Net cash used in operations for the quarter ended April 30, 2003 was primarily comprised of an increase in accounts receivable of $11 .9 millionand a decrease in other accrued liabilities of $3 .7 million, offset by an increase in accounts payable of $4 .3 million and an increase in deferred revenue of $4 .1million . Adjustments made for non-cash expenses, such as depreciation and amortization, stock compensation charges and amortization of purchased intangiblesamounted to $9 .7 million for the quarter ended April 30, 2003 .

The increases in accounts receivable and deferred revenue were primarily due to billings and associated revenue deferrals related to the signing of a significantcontract with Vodafone Omnitel at the end of the first quarter of fiscal 2004 . The increase in accounts payable was primarily related to the increased utilization ofthird party consultants for customer implementations and to the timing of certain facility related payments . The decrease in other accrued liabilities was primarilydue to lease payments for facilities included in accrued restructuring costs .

Net cash provided by investing activities was $8 .9 million for the quarter ended April 30, 2003, an increase of $10 .4 million from the $1 .5 million used in thequarter ended April 30, 2002 . Net cash provided by investing activities in the quarter ended April 30, 2003 primarily reflected net activity in short and long terminvestments . During the quarter ended April 30, 2003 and 2002, purchases of property and equipment amounted $1 .4 million and $2 .3 million, respectively .

The total future cash outlay for the restructuring plans enacted in fiscal 2003 and 2002 is currently estimated to be approximately $36 .6 million, which includesseverance related costs as well as lease liabilities related to the consolidation of facilities and is expected to be funded by available cash . Lease payments forimpacted facilities, net of expected sublease income, are expected to be $33 .9 million and will be paid out through 2006 .

Our capital requirements depend on numerous factors, including the timing of customer orders and engagements, and related obligations and payments, marketacceptance of our products, the resources we devote to developing, marketing, selling and supporting our products, the timing and extent of changes in the size ofour operations and other factors . We expect to incur significant operating expenses, particularly research and development and sales and marketing expenses, forthe foreseeable future in order to execute our business plan. We anticipate that such operating expenses will comprise a material expenditure of our cas hresources . As a result, our net cash flows will depend on the level of future revenues and our ability to effectively manage infrastructure costs . Although webelieve that our current cash, cash equivalents and investment balances and cash generated from operations will be sufficient to fund our operations for at leastthe next 12 months, we may require additional financing within this time frame or we may elect to raise additional capital through a public or private offering ofdebt or equity securities . We may seek financing at any time that we determine market conditions are favorable . Additional funding, if needed, may causedilution to our stockholders or the incurrence of debt and such funding may not be available on terms acceptable to us, or at all .

16

Table of ContentsRISKS ASSOCIATED WITH OUR BUSINESS AND FUTURE OPERATING RESULT S

Our future operating results may vary substantially from period to period . The price of our common stock will fluctuate in the future and an investment in ourcommon stock is subject to a variety of risks, including but not limited to the specific risks identified below . Inevitably, some investors in our securities willexperience gains while others will experience losses depending on the prices at which they purchase and sell securities . Prospective and existing investors arestrongly urged to carefully consider the various cautionary statements and risks set forth in this report .

This report contains forward-looking statements that are not historical facts but rather are based on current expectations, estimates and projections about ourbusiness and industry, our beliefs and assumptions . Words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", "estimates" and variations ofthese words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and aresubject to risks, uncertainties and other factors, many of which are beyond our control, and all of which are difficult to predict and could cause actual results todiffer materially from those expressed or forecasted in the forward-looking statements . These risks and uncertainties include those described in this sectionentitled "Risks Associated With Our Business and Future Operating Results" and elsewhere in this report . Forward-looking statements that were true at the timemade may ultimately prove to be incorrect or false . Readers are cautioned not to place undue reliance on forward-looking statements, which reflect ourmanagement's view only as of the date of this report . We undertake no obligation to update these statements or publicly release the results of any revisions to theforward-looking statements that we may make to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events .

OUR REVENUES WILL BE ADVERSELY AFFECTED AS A RESULT OF ECONOMIC AND POLITICAL CONDITIONS AFFECTING OUR TARGETMARKETS

We primarily market our products and services to providers of communications and content services . During the past few years, the telecommunications industryhas experienced a difficult economic environment . The substantial number of business failures and the decline in the market value of "dot-com" and othertechnology companies in the past few years has made it more difficult for emerging communication and electronic content companies to obtain financing fortheir operations . Moreover, the market value, financial results and prospects of many large and established companies, including many large telecommunicationscompanies, have also declined or degraded significantly . Many communications and content companies have significantly reduced their expenditures and havereduced or deferred their purchases of software and related products and the introduction of many new communication services has been delayed or cancelled .Cancellations of existing or planned services also adversely impact potential professional service, maintenance and support revenues . Any general decrease byour customers and potential customers in their rate of software and network investments results in a significant decrease in our revenues and operating income .These trends in technology and software spending dramatically adversely impacted our business in fiscal 2002 and 2003 and will continue to adversely affect ourbusiness until conditions improve .

In addition, political instability in various geographic areas has resulted in companies reducing spending for technology projects generally and the delay orreconsideration of potential purchases of our products and related services . The war on terrorism and in Iraq and the potential for war or other hostilities invarious parts of the world continues to contribute to a climate of economic and political uncertainty and decreasing consumer confidence that has and maycontinue to adversely affect our revenue growth and results of operations .


WE EXPECT TO INCUR ADDITIONAL LOSSES AND CANNOT BE CERTAIN THAT WE WILL BE PROFITABLE OR GENERATE POSITIVE CASHFLO W

In order to be pro fitable or generate positive cash flow , we must significantly increase our revenues or fu rther reduce our expenses . We may not be able toincrease or even maintain our revenues and we may not achieve sufficient revenues to a ttain profitabili ty in any future period . Moreover , we have alreadysignificantly reduced our expenses through a series of restructurings and there may be a limit to our ability to fu rther reduce expenses without signi fi cantlydamaging our operational capabilities . We incurred net losses of approximately $ 9 .8 million for the quarter ended April 30, 2003 and $ 72 .2 million, $395 .5million and $ 2 .3 million for fiscal 2003 , 2002 and 2001, respectively .

The decrease in capital expenditures by communications companies as well as the general economic slowdown has adversely affected our revenues and willmake it difficult to increase revenues until spending in our target markets increases . We also expect that we will face increased competition that may make itmore difficult to increase our revenues . Even if we are able to increase revenues, we have experienced and may continue to experience price competition thatwould lower our gross margins and reduce our abili ty to become profitable . Fu rt hermore , we may offer , in the future , some of our products and se rv ices for a

17

Table of Contents"bundled" price, such that a separate price would not be identified for the product and service components . Such a change may significantly delay the timing ofour revenue recognition . Another factor that would lower our gross margins is any increase in the percentage of our revenues that is derived from indirectchannels and from services, both of which have lower margins than our license revenues . Failure to achieve the desired reductions in our expenses will furtherincrease our losses. We cannot be certain that we will achieve operating or net profitability on a quarterly or annual basis . Additionally, failure to achieve apositive cash flow will continue to result in reductions in our existing cash resources .

OUR QUARTERLY REVENUE IS GENERA TED FROM A LIMITED NUMBER OF CUSTOMERS AND OUR CUSTOMER BASE I SCONCENTRA TED; THE LOSS OF ONE OR MORE OF OUR CUSTOMERS OR PROSPECTIVE CUSTOMERS COULD CA USE OUR BUSINESS TOSUFFER

A substantial portion of our license and services revenues in any given quarter has been, and is expected to continue to be, generated from a limited number ofcustomers with large financial commitments . For example, in the quarter ended April 30, 2003, one customer, Vodafone Omnitel, accounted for 22% of ourrevenues . As a result, if a large contract is cancelled or deferred or an anticipated contract does not materialize, our business would be harmed . Our total revenuescould also be adversely affected if revenues from a significant customer in one period are not replaced with revenues from that customer or other customers insubsequent periods . The communication and content industries we have targeted are consolidating, which could reduce the number of potential customersavailable to us . Moreover, many of our customers may have purchased sufficient quantities of our products to satisfy their current or anticipated requirements .For all of these reasons our business could suffer in the future .

DISRUPTION OF TRAVEL DUE TO DISEASE, TERRORISM OR CIVIL UNREST COULD CAUSE OUR BUSINESS TO SUFFER

Because a substantial portion of our revenues are generated from a limited number of customers each quarter, widespread disruption of travel to a region orcountry in which we have large customers, prospective customers or services engagements could disrupt our ability to win or perform contracts . Such disruptioncould occur as a result of terrorism, such as the decline in travel following the September 11, 2001 attacks, or of disease, such as the decline in travel to Chinaand Hong Kong due to the outbreak of SARS disease, or as a result of political unrest or war . Inability or unwillingness by our employees to travel to an affectedregion, could adversely affect our efforts to obtain or perform contracts, which could result in the loss of revenue and cause our business to suffer .

RAPID CHANGES IN DEMAND FOR OUR SERVICES CAN INCREASE OUR COSTS AND AD VERSEL Y A FFECT OUR MARGINS ANDPROFITABILITY

Services contracts can require that we rapidly provide qualified consulting personnel in particular locations . In addition, such personnel may be required to haveparticular language speaking abilities and technical skills . Recruitment and training of qualified personnel can take significant time and expense . To meet rapidlychanging requirements for personnel, we may need to relocate personnel from one geographic area to another that can result in increased costs . In some cases, wemay choose to satisfy resource requirements by retaining subcontractors that in some cases, the cost may exceed the cost of using our employees. All thesefactors may increase the costs of performing services and reduce margins for services . Failure to provide adequate consulting services to our customers couldresult in loss of revenue, damaged customer relationships or financial penalties . As a result, if we experience difficulties in managing the size, location andavailability of our services workforce, our revenues, profitability or business will suffer .

IT IS DIFFICULT TO PREDICT THE TIMING OF INDIVIDUAL ORDERS BECAUSE INFRANET HAS A LONG AND VARIABLE SALES CYCLESAND IMPLEMENTATION PERIODS

The sales cycle for Infranet varies greatly, generally ranging between 3 to 18 months . Sales cycles have recently lengthened as the competitive environment hasbecome more intense, the financial position of our potential customers has weakened and price discounting has further delayed customer decision processes .Along with systems integrators and our other distribution partners, we spend significant time educating and providing information to our prospective customersregarding the use and benefits of Infranet . Customers increasingly require vendors to perform proof of concept projects and performance benchmarks as a part ofthe sales cycles . These tests can further lengthen sales cycles and increase our sales costs . The long sales and implementation cycles for Infranet make it moredifficult to predict our future financial results and may cause license revenues and operating results to vary significantly from period to period .

Even after purchase, our customers tend to deploy Infranet slowly and deliberately, depending on the specific technical capabilities of the customer, the size ofthe deployment, the complexity of the customer's network environment and the quantity of hardware and the degree of hardware configuration necessary todeploy Infranet. The length of time to implement and deploy systems involving Intranet may have an impact on the timing and amount of revenues ultimatelyreceived from customers, particularly if payments are tied to implementation or production milestones . As a result, the revenues derived from a sale may

18

Table of Contentsnot be recognized immediately and could be spread over an extended period . As a result, an increase in the period of time over which revenue is recognized maycause a decline in the amount of revenues in the short term .

THE MARKETS IN WHICH WE SELL OUR PRODUCT ARE HIGHLY COMPETITIVE AND WE MA YNOTBE ABLE TO COMPETE EFFECTIVEL Y

We compete in markets that are intensely competitive and rapidly changing. We face competition from providers of customer management and billing software,such as Amdocs Ltd ., Convergys Corporation, and CSG Systems International, Inc . and we also compete with systems integrators and with internal informationtechnology departments of larger communications providers . Most of our current principal competitors have significantly more personnel and greater financial,technical, marketing and other resources than we have . Many of our competitors also have more diversified businesses, established reputations in particularmarket segments, larger customer bases and are not as dependent on customers in our target market.

Our competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements than we can . Intense competitionhas recently been exemplified by deep price discounting by our competitors that has resulted in a lengthening of our sales cycles, price reductions and maythreaten our ability to close forecasted business . Additionally, our financial strength or that of a competitor is a significant factor considered by many potentialcustomers in their vendor selections . Because many of our competitors have greater financial resources than we do, this can adversely affect our selection bypotential customers . Increased competition can result in price reductions, fewer customer orders, reduced gross margins and loss of market share, any of whichcould harm our business .

Our failure to develop and market products and services that compete successfully with those of other suppliers in the market would harm our business . Weanticipate that the market for our products and services will remain intensely competitive .

OUR INABILITY TO SUBLEASE OR REDUCE SURPLUS OFFICE SPACE WOULD INCREASE OUR USE OF CASH AND OPERATING EXPENSESAND ADVERSELYEFFECT OPERA TING RESULTS AND OUR FINANCIAL CONDITION

We must periodically acquire and dispose of our office facilities in various locations as the number of existing and projected employees changes for thoselocations or as existing leases expire . Securing and building out facilities takes significant lead-time . Historically, because of the need to satisfy projected futureexpansion, the amount of space we have leased is generally more than the amount currently required . Our significant office leases have terms of between 5 and20 years . As a result, we frequently attempt to sublease the portions of leased facilities that we have leased to meet our future expansion plans but do notcurrently need. In addition, our reductions in our workforce undertaken over the past year have substantially reduced our facilities requirements in severallocations . As a result, we are attempting to sublease the facilities that we have previously leased but do not currently need or to negotiate reductions in our rentobligations relating to those facilities or cancellations of the applicable leases . We have leased approximately 290,000 square feet and 40,000 square feet for ourheadquarters facilities in Cupertino, California and our regional headquarters facilities in Slough, United Kingdom, respectively, through 2010 and 2022,respectively . The amounts leased exceed our current requirements and we plan to sublease a majority of the facilities for a substantial portion, if not the entirebalance, of the lease term . There is currently a large amount of vacant commercial real estate in the San Francisco Bay Area and in other locations where we havefacilities . Moreover, currently prevailing rental rates in many locations are significantly lower than those that we are obligated to pay under the leases . We maytherefore continue to encounter significant difficulties or delays in subleasing our surplus space and may not be able to sublease it for rents equal to those that weare obligated to pay . In connection with our restructuring plan adopted in fiscal 2003, we have vacated additional facilities in the United States and in otherlocations .

To the extent that we are unable to renegotiate the terms or cancel the applicable leases or to sublease this and other surplus space at an amount equal to our rentobligations for that space or to the extent sublessees fail to perform their obligations to pay rent, we could incur greater operating expenses than we initiallyanticipated or included within accrued restructuring charges . Such increases in operating expenses in a period could cause us to exceed our planned expenselevels and significantly adversely affect our financial results for that period . Cancellation of leases will likely result in use of significant amounts of cash andadditional restructuring charges . Furthermore, inability to sublease such space may adversely affect our planned uses of cash and our capital resources . Moreover,we have reduced the amount of the facilities restructuring charges we accrued in fiscal 2003 and 2002 by the estimated amount of sublease income . Theassumptions we have made were based on the then current market conditions, as of each reporting period, in the various areas we have vacant space . Thesemarket conditions can fluctuate greatly, thus causing our accrual to be inaccurate. If, in future periods, it is determined that we have over accrued forrestructuring charges as related to the consolidation of facilities, the reversal of such over-accrual would have a favorable impact on our financial statements inthe period this was determined. Conversely, if it is determined that our accrual is insufficient, an additional charge would have a significant unfavorable impacton our financial statements in the period this was determined .

Table of Content sOUR OPERATING PLANS REL YON OUR ABILITY TO SUCCESSFULL Y INCREASE THE SIZE AND SCOPE OF OUR OPERATIONS IN INDIAAND A FAILURE TO MANAGE THAT PROCESS AND ORGANIZATION COULD ADVERSELYAFFECT OUR OPERATION S

In fiscal 2003 we opened an engineering center in Bangalore, India. In fiscal 2004 we plan to significantly increase the size of this organization and expand itsscope . The expansion of this organization is an important component of our strategy to address the business needs of our customers, increase our revenues andachieve profitability . A portion of the personnel in this organization is employees and the balance are provided through an independent contractor . The success ofthis operation will depend on our ability to attract, train, assimilate or retain sufficient highly qualified personnel in the required periods . A disruption of ourrelationship with the independent contractor would adversely impact the effectiveness of the India organization and could adversely affect our operations andfinancial results. Failure to effectively manage and integrate these operations will harm our business and financial results .

OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE IN FUTURE PERIODS AND WE MAY FAIL TO MEET EXPECTATIONS

Our revenues and operating results may vary significantly from quarter to quarter due to a number of factors . In future quarters, our operating results may bebelow the expectations of one or more public market analysts and investors and the price of our common stock may fall . Failure by technology companies tomeet or exceed analyst expectations or any resulting changes in analyst recommendations or ratings frequently results in substantial decreases in the market valueof the stock of such companies . Factors that could cause quarterly fluctuations include :


• the timing and execution of individual contracts, particularly large contracts that would materially affect our operating results in a given quarter ;

• large contracts with extensive consulting services may require the use of contract accounting for revenue recognition purposes thereby extending theperiod of time over which revenue is recognized ;

• our ability to develop and attain market acceptance of enhancements to Intranet and new products and services ;

• market acceptance of new communications services that our products are intended to support;


• new product introductions by our competitors ;


• announcements of new versions of our products that cause customers to postpone purchases of our current products ;

• the mix of products and services sold;

• our ability to sublease our excess real estate or renegotiate our leases ;

• the mix of sales channels through which our products and services are sold;

• the mix of domestic and international sales ;

• costs related to acquisitions of technologies or businesses ;

• the timing of releases of new versions of third-party software and hardware products that work with our products ;

• our ability to attract, integrate, train, retain and motivate a substantial number of sales and marketing, research and development, technical support andother management personnel with the needed competencies ;

• the variability of future stock-based compensation charges or credits as a result of our stock option repricing during fiscal year 2003 ; and

• global economic conditions generally, as well as those specific to providers of communications and content services .

We have difficulty predicting the volume and timing of orders for new license transactions . In any given quarter, our sales have involved, and we expect willcontinue to involve, large financial commitments from a relatively small number of customers . As a result, the cancellation or deferral of even a small number oflicenses of Infranet would reduce our revenues, which would adversely affect our quarterly financial performance . Also, we have often booked a large amount ofour sales in the last month of the quarter and often in the last week of that month . Accordingly, delays in the closing of sales near the end of a quarter could causequarterly revenue to fall substantially short of anticipated levels . Furthermore, delays in the closing of license transactions may result in a consequential delay orloss of services revenues relating to the projects for which the software would be licensed .

While a portion of our revenues each quarter is recognized from deferred revenue relating to previously signed contracts, our quarterly performance will dependprimarily upon entering into new contracts to generate revenues for that quarter . We may not be successful in entering into contracts with new or existingcustomers . New contracts that we enter into may not result in revenue in the quarter in which the contract is signed and we may not be able to predict accuratelywhen revenues from these contracts will be recognized .

20

Exhibit D

Prepared by R.R. Donnelley Financial -- Registration Statement Filed Pursuant to Rule 462(b) Page 1 of 6

S-3MEF 1 ds3mef.htm REGISTRATION STATEMENT FILED PURSUANT TO RULE 462(B)As filed with the Securities and Exchange Commission on September 11, 2003

Registration No . 333-

SECURITIES AND EXCHANGE COMMISSIONWashington, D .C. 20549

Form S-3REGISTRATION STATEMENT

UNDERTHE SECURITIES A CT OF 193 3

Portal Software, Inc .(Exact name of Registrant as specified in its charter )

Delaware 77-0369737

(State or Other Jurisdictionof (I.R .S . Employer

Incorporation or Organization ) Identi fi cation Number)

10200 South De Anza BoulevardCupertino, California 95014

(408) 572-200 0(Address, including zip code, and telephone number, including area code , of Registrant 's principal executive offices)

Mitchell L . GaynorVice President, General Counsel and Secretary

Portal Software, Inc .10200 South De Anza Boulevard


(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to :

Timothy R. Curry, Esq.O'Melveny & Myers LLP

2765 Sand Hill RoadMenlo Park, California 94025

(650) 473-2600Facsimile: (650) 473-260 1

Approximate date of commencement of proposed sale to the public : As soon as practicable after this Registration Statement becomes

effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under theSecurities Act of 1933, check the following box . ❑

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following boxand list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [] Registration No .333-85070

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list theSecurities Act registration statement number of the earlier effective registration statement for the same offering . ❑

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list theSecurities Act registration statement number of the earlier effective registration statement for the same offering . ❑

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box . ❑

http://www. sec.gov/Archives/edgar/data/ 1080306/000119312503048608/ds3mefhtm 12/5/2005


CALCULATION OF REGISTRATION FEE

ProposedMaximum

Title of Each Classof Aggregate Amount ofSecurities to be Registered Offering Amount Registration Fee(2)

Common Stock, par value $0 .001 per share (3) $ 10,000,000 $ 809.00

(1) Does not include $50,000,000 of common stock previously registered pursuant to the Registrant's Registration Statement on Form S-3 (File

No. 333-85070) declared effective September 13, 2002, for which the registration fee has previously been paid .

(2) Calculated pursuant to Rule 457(o) .(3) Includes rights to purchase Registrant's junior participating preferred stock associated with the common stock .

This Registration Statement shall become effective upon filing with the Commission in accordance with Rule 462 (b) under the

Securities Act of 1933, as amended.

http ://www.sec.gov/Archives/edgar/data/1080306/000119312503048608/ds3mef.htm 12/5/2005

Prepared by R .R. Donnelley Financial -- Registration Statement Filed Pursuant to Rule 462(b) Page 3 of 6

INCORPORATION OF CERTAIN INFORMATION BY REFERENC E

The Registration Statement is being filed with the Securities and Exchange Commission pursuant to Rule 462(b) under the Securities Act of1933, as amended, for the sole purpose of registering additional securities of the same class as were included in our Registration Statement onForm S-3 File No . 333-85070, as amended, declared effective September 13, 2002 . The contents of such Registration Statement, including theexhibits thereto, are hereby incorporated by reference .

http://www.sec.gov/Archives/edgar/data/1080306/000119312503048608/ds3mef.htm 12/5/2005

Prepared by R.R. Donnelley Financial -- Registration Statement Filed Pursuant to Rule 462(b )

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 the Registrant has duly caused this Registration Statement to be signed on itsbehalf by the undersigned, thereunto duly authorized, in the City of Cupertino, California on this 11th day of September, 2003 .


By: /s/ JOHN E. LITTLE

John E . Littl eChief Executive Officer and Chairman of the Board

KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints John E .

Little, Howard A. Bain III and Mitchell L. Gaynor, and each of them, his true and lawful attorneys-in-fact and agents, with full power ofsubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effectiveamendments) to this registration statement, and to sign any registration statement for the same offering covered by this registration statement thatis to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective amendments thereto, andto file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting untosaid attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in andabout the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof .

POWER OF ATTORNEY

Page 4 of 6

Pursuant to the requirements of the Securities Act of 1933 this Registration Statement on Form S-3 has been signed by the following personsin the capacities indicated on September 11, 2003 :

Name

/s/ JOHN E. LITTLE

John E . Little

Howard A . Bain III

Arthur C. Patterson

Robert P. Wayman

Edward J. Zande r

Is/ I. DAVID MARTIN

1. David Marti n

/s/ GEORGE J . GOLDSMITH

George J . Goldsmith

Richard A. Moran

Title

Chief Executive Officer and Chairman of the Board(Principal Executive Officer)

Senior Vice President and Chief Financial Officer(Principal Financial Officer and PrincipalAccounting Officer)

Director

Director

Director

Director

Director

Director

Date

September 11, 2003

September 11, 200 3

September 11, 200 3

September 11, 200 3

September 11, 200 3

September 11, 200 3

September 11, 200 3

September 11, 2003

/S/ JENNIFER TAYLOR Director

Jennifer Taylor

*By: /S/ JOHN E. LITTLE

September 11, 200 3

September 11, 200 3

http://www. sec .gov/Archives/edgar/data/ 1080306/000119312503048608/ds3mef htm 12/5/2005

Prepared by R.R. Donnelley Financial -- Registration Statement Filed Pursuant to Rule 462(b) Page 5 of6

John E . Little

Attorney- in-Fact

http://www.sec .gov/Archives/edgar/data/1080306/000119312503048608/ds3mef.htm 12/5/2005


EXHIBIT INDEX


5 .1 Opinion of O'Melveny & Myers LLP

23.1 Consent of Independent Auditors

23.2 Consent of O'Melveny & Myers LLP (included in Exhibit 5 .1)

*24.1 Power of Attorney ( included on signature page)

Previously filed with the Registrant 's registration statement on Form S-3 (File No . 333-85070) .

http :/Iwww.sec.gov/Archives/edgar/data/1080306/000119312503048608/ds3me£htm 12/5/2005

Exhibit E

Table of Contents

SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549


El QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 193 4

For the quarterly period ended August 1, 2003

❑ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 193 4


Commission File number 000-25829

PORTAL SOFTWARE, INC .(Exact name of registrant as specified in its cha rter)

Delaware 77-0369737(State or other jurisdiction of (I.R. S. Employerincorporation or organization ) Identification No .)

10200 South De Anza BoulevardCupertino, California 95014

(Address of principal executive offices) (Zip code)

(408)572-2000(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant : (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 duringthe 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 forthe past 90 days . Yes ❑E No ❑

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

On August 31, 2003 183,180,677 shares of the Registrant's Common Stock, $0 .001 par value, were outstanding .


FORM 10-Q

QUARTER ENDED AUGUST 1, 2003

INDE X

Part 1 : Financial InformationItem 1 : Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at July 31 . 2003 and January 31 . 2003Condensed Consolidated Statements of Operations for the three and six months ended July 31 . 2003 and 2002Condensed Consolidated Statements of Cash Flows for the six months ended July 31 . 2003 and 2002Notes to Unaudited Condensed Consolidated Financial StatementsItem 2 : Management's Discussion and Analysis of Financial Condition and Results of OperationsItem 3 : Quantitative and Qualitative Disclosures About Market RiskItem 4 : Controls and Procedure s

Part II : Other InformationItem 1 : Legal ProceedingsItem 6 : Exhibits and Reports on Form 8-K

Sitmatures

Pag e

323 2

33

Table of ContentsITEM 1 . FINANCIAL STATEMENTS


CONDENSED CONSOLIDATED BALANCE SHEET S(in thousands, except par value)

July 31, January 31,2003 2003

(unaudited)Assets

Current assets :Cash and cash equivalents $ 25,682 $ 21,502

Short- term investments 16,038 30,641

Accounts receivable; net of allowance for doubtful accounts of $1,760 and $2,458 at July 31, 2003 and January 31, 2003 ,

respectively 26,421 22,467

Restricted short-term investments 3,060 1,609

Prepaid expenses and other current assets 7,637 4,026

Total current assetsProperty and equipment, netPurchased developed technology, netRestricted long-term investments

Other assets

Current liabilities :Accounts payableAccrued employee benefitsCurrent portion accrued restructuring costsOther accrued liabilitie sCurrent portion of capital lease obligationsDeferred revenue

Liabilities and Stockholders' Equity

78,838 80,24 521,892 22,79 8

3,325 4,65 512,033 13,41 2

2,507 2,62 4

$ 118,595 $ 123,73 4

$ 6,793 $ 4,6998,492 8,82 1

11,985 13,41 810,252 8,429

1 124.796 23 .95 5

Total current liabilities 62,318 59,333

Long-term notes payable 1,669 1,679

Long-term accrued restructuring costs 21,615 26,903Commitments and contingencie sStockholders' equity :Convertible preferred stock, $0 .001 par value, issuable in series : 5,000 shares authorized, none issued and outstanding - -

Common stock, $0.001 par value ; 200,000 shares authorized ; 36,430 and 35,661 shares issued and outstanding at July 31, 200 3

and January 31, 2003, respectively 36 3 6Additional paid-in capital 574,922 541,13 6

Accumulated other comprehensive income 335 294

Notes receivable from stockholders (67) (69 )

Accumulated deficit (542,233) (505,578 )

Stockholders' equity 32,993 35,81 9

$ 118,595 $ 123,73 4


3


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share amounts ; unaudited)

Three Months Ended Six Months EndedJuly 31, July 31,

2003 2002 2003 2002

Revenues :License fees $ 11,321 $ 9,378 $ 24,891 $ 22,08 6

Services 21,880 19,384 40,403 37,78 8

Total revenues 33,201 28,762 65,294 59,87 4

Costs and expenses;Cost of license fees 22 54 109 169Cost of services 13,195 11,788 24,808 22,73 7Amortization of purchased developed technology 665 665 1,330 1,33 0

Research and development 6,981 10,130 14,148 21,748Sales and marketing 11,633 13,667 23,022 28,567

General and administrative 3,095 4,209 6,428 8,603Stock compensation charges (1) 23,749 99 30,839 209

Restructuring costs - 6,053 -- 6,053

Total costs and expenses 59,340 46,665 100,684 89,41 6

Loss from operations (26,139) (17,903) (35,390) (29,542 )Interest and other income, net (152) 270 (29) 96 8

Loss before income taxes (26,291) (17,633) (35,419) (28,574 )Provision for income taxes (600) (413) (1,236) (1,481 )

Net loss $(26,891) $(18,046) $ (36,655) $(30,055 )

Basic and diluted net loss per share $ (0 .74) $ (0 .51) $ (1 .02) $ (0 .86)

Shares used in computing basic and diluted net loss per share 36,102 35,205 35,908 35,09 1

Stock compensation charges relate to the following expense categories

Cost of services $ 5,161 $ 16 $ 6,701 $ 33

Research and development 8,745 33 11,356 71

Sales and marketing 6,633 28 8,614 59

General and administrative 3,210 22 4,168 46

Total S 23,749 $ 99 $ 30,839 $ 20 9


4



OPERATING ACTIVITIES

Six Months EndedJuly 31,

2003 2002

Net loss $ (36,655) $ (30,055 )

Adjustments to reconcile net loss to net cash used in operating activities :

Depreciation and amortization 3,845 8,15 9

Stock compensation charges 30,839 209

Noncash restructuring costs - 56 2

Amortization of purchased intangibles 1,330 1,33 0Gain on sale of investments - (285 )

Changes in operating assets and liabilities :Accounts receivable, net (3,630) (597)

Prepaid expenses and other current assets (3,532) (2 ;259)

Other assets 117 1,275Accounts payable 2,094 31 6

Accrued employee benefits (328) (416)

Other accrued liabilities (4,900) (8,546)

Deferred revenue 841 (10,976)

Net cash used in operating activities (9,979) (41,283 )

INVESTING ACTIVITIES :Purchases of short-term investments (50,025) (97,521 )

Sales of short-term investments 33,031 24,59 1

Maturity of short-term investments 29,860 97,15 8

Sales and maturities of long-term investments 1,400 -

Purchases of property and equipment (3,136) (3,764 )

Net cash provided by investing activities 11,130 20,46 4

FINANCING ACTIVITIES :Payments received from stockholder notes receivable 2 -

Repayments of notes payable (10) (10)Principal payments under capital lease obligations (11) (383)Proceeds from issuance of common stock, net of repurchases 2,947 1,41 6

Net cash provided by financing activities 2,928 1,023

Effect of exchange rate on cash and cash equivalents 101 1,452

Net increase (decrease) in cash and cash equivalentsCash and cash equivalents at beginning of period

Cash and cash equivalents at end of perio d


5

4,180 (18,344)21,502 36,31 8

$ 25,682 $ 17,974

Table of ContentsThe following table summarizes our contractual obligations, including related interest charges, as of July 31, 2003, and the effect such obligations are expected to

have on our liquidity and cash flows in future periods (In thousands) :

Non-cancelableLong-term notes operating leases,

Year ending January 31 , payable net of sublease Tota l

2004 (remaining six months) $ 48 $ 6,372 $ 6,4202005 96 10,824 10,92 0

2006 96 10,219 10,31 52007 96 9,809 9,90 5

2008 96 9,878 9,974

Thereafter 1,859 45,753 47,61 2

Total minimum payments 2,291 92,855 95,146

Less amount representing interest (622) - (622)

Present value of future payments 8 1,669 $ 92,855 $94,524

RISKS ASSOCIATED WITH OUR BUSINESS AND FUTURE OPERATING RESULTS

Our future operating results may vary substantially from period to period . The price of our common stock will fluctuate in the future and an investment in ourcommon stock is subject to a variety of risks, including but not limited to the specific risks identified below . Inevitably, some investors in our securities will

experience gains while others will experience losses depending on the prices at which they purchase and sell securities . Prospective and existing investors are

strongly urged to carefully consider the various cautionary statements and risks set forth in this report .

This report contains forward-looking statements that are not historical facts but rather are based on current expectations, estimates and projections about our

business and industry, our beliefs and assumptions . Words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", "estimates" and variations of

these words and similar expressions are intended to identify forward-looking statements . These statements are not guarantees of future performance and aresubject to risks, uncertainties and other factors, many of which are beyond our control, and all of which are difficult to predict and could cause actual results to

differ materially from those expressed or forecasted in the forward-looking statements . These risks and uncertainties include those described in this section

entitled "Risks Associated With Our Business and Future Operating Results" and elsewhere in this report . Forward-looking statements that were true at the time

made may ultimately prove to be incorrect or false . Readers are cautioned not to place undue reliance on forward-looking statements, which reflect our

management's view only as of the date of this report. We undertake no obligation to update these statements or publicly release the results of any revisions to theforward-looking statements that we may make to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events .

On September 3, 2003, the Company's Board of Directors approved a reverse stock split of the Company's common stock at a ratio of one-for-five, causingeach outstanding share of common stock to convert automatically into one-fifth of a share of common stock . The reverse split will become effective at the close

of business on September 26, 2003 . In lieu of fractional shares, stockholders will receive a cash payment based on an average trading price of the common stock

prior to the effectiveness of the reverse split . All references to common share and per common share amounts have been restated to reflect this reverse split .

OUR REVENUES WILL BE ADVERSELYAFFECTED AS A RESULT OF ECONOMIC AND POLITICAL CONDITIONS AFFECTING OUR TARGET

MARKETS

We primarily market our products and services to providers of communications and content services . During the past few years, the telecommunications industry

has experienced a difficult economic environment . The substantial number of business failures and the decline in the market value of "dot-com" and othertechnology companies in the past few years has made it more difficult for emerging communication and electronic content companies to obtain financing for

their operations . Moreover, the market value, financial results and prospects of many large and established companies, including many large telecommunications

companies, have also declined or degraded significantly . Many communications and content companies have significantly reduced their expenditures and havereduced or deferred their purchases of software and related products and the introduction of many new communication services has been delayed or cancelled .

Cancellations of existing or planned services also adversely impact potential professional service, maintenance and support revenues . Reductions in spending by

these companies has resulted in intense competition for their available spending and increased price competition and reductions for products and professional

services . Any general decrease by our customers and potential customers in their rate of software and network investments results in a significant decrease in our

revenues and operating income . These trends in technology and software spending dramatically adversely impacted our business in fiscal 2002 and 2003 and willcontinue to adversely affect our business until conditions improve .

20

Table of ContentsIn addition, political instability in various geographic areas has resulted in companies reducing spending for technology projects generally and the delay orreconsideration of potential purchases of our products and related services . The war on terrorism and in Iraq and the potential for war or other hostilities invarious parts of the world continues to contribute to a climate of economic and political uncertainty and decreasing consumer confidence that has and maycontinue to adversely affect our revenue growth and results of operations .


WE EXPECT TO INCUR ADDITIONAL LOSSES AND CANNOT BE CERTAIN THAT WE WILL BE PROFITABLE OR GENERATE POSITIVE CASHFLO W

In order to be profitable or generate positive cash flow, we must significantly increase our revenues or further reduce our expenses . We may not be able toincrease or even maintain our revenues and we may not achieve sufficient revenues to attain profitability in any future period . Moreover, we have alreadysignificantly reduced our expenses through a series of restructurings and there may be a limit to our ability to further reduce expenses without significantlydamaging our operational capabilities . We incurred net losses of approximately $36 .7 million for the six months ended July 31, 2003 and $72 .2 million, $395 .5million and $2 .3 million for fiscal years 2003, 2002 and 2001, respectively .

The decrease in capital expenditures by communications companies as well as the general economic slowdown has adversely affected our revenues and willmake it difficult to increase revenues until spending in our target markets increases . We also expect that we will face increased competition that may make itmore difficult to increase our revenues . Even if we are able to increase revenues, we have experienced and may continue to experience price competition thatwould lower our gross margins and reduce our ability to become profitable . Furthermore, we plan to structure more of our transactions to provide for payments

over a period of one year or more and to increase the number of arrangements where we offer some of our products and services for a "bundled" price, such thata separate price would not be identified for the product and service components . One of the impacts of this change in license structuring could be that licenserevenue would be recognized ratably over the term of the license arrangement or as payments from customers become due, or services are completed rather thanbeing recorded as revenue upon delivery . Such a change may significantly delay the timing of our revenue recognition and could decrease our revenues in theshort term . Another factor that would lower our gross margins is any increase in the percentage of our revenues that is derived from indirect channels and fromservices, both of which have lower margins than our license revenues . Failure to achieve the desired reductions in our expenses will further increase our losses .We cannot be certain that we will achieve operating or net profitability on a quarterly or annual basis . Additionally, failure to achieve a positive cash flow willcontinue to result in reductions in our existing cash resources .

OUR QUARTERLY REVENUE IS GENERA TED FROMA LIMITED NUMBER OF CUSTOMERS AND OUR CUSTOMER BASE ISCONCENTRATED; THE LOSS OF ONE OR MORE OF OUR CUSTOMERS OR PROSPECTIVE CUSTOMERS COULD CAUSE OUR BUSINESS TOSUFFE R

A substantial portion of our license and services revenues in any given quarter has been, and is expected to continue to be, generated from a limited number ofcustomers with large financial commitments . For example, in the six months ended July 31, 2003, one customer, Vodafone Omnitel, accounted for 13 .4% of ourrevenues . As a result, if a large contract is cancelled or deferred or an anticipated contract does not materialize, our business would be harmed . Our total revenuescould also be adversely affected if revenues from a significant customer in one period are not replaced with revenues from that customer or other customers insubsequent periods . The communication and content industries we have targeted are consolidating, which could reduce the number of potential customersavailable to us . Moreover, many of our customers may have purchased sufficient quantities of our products to satisfy their current or anticipated requirements .Because there are a limited number of customers and competition for them is intense, these customers have substantial bargaining power to negotiate terms andconditions favorable to the customer . For all of these reasons our business could suffer in the future .

IT IS DIFFICULT TO PREDICT THE TIMING OF INDIVIDUAL ORDERS BECA USE PORTAL INFRANET HAS A LONG AND VARIABLE SALESCYCLES AND IMPLEMENTATION PERIODS

The sales cycle for Portal Intranet varies greatly, generally ranging between 3 to 18 months . Sales cycles have recently lengthened as the competitiveenvironment has become more intense, the financial position of our potential customers has weakened and price discounting has further delayed customerdecision processes . Our sales cycles are also typically longer with larger customers such as national and international telecommunications companies . Along withsystems integrators and our other distribution partners, we spend significant time educating and providing information to our prospective customers regarding theuse and benefits of Portal Infranet . Customers increasingly require vendors to perform proof of concept projects and performance benchmarks as a part of thesales cycles . These tests can further lengthen sales cycles and increase our sales costs . The long sales and implementation cycles for Portal Intranet make it moredifficult to predict our future financial results and may cause license revenues and operating results to vary significantly from period to period .

Table of ContentsEven after purchase, our customers tend to deploy Portal Infranet slowly and deliberately, depending on the specific technical capabilities of the customer, thesize of the deployment, the complexity of the customer's network environment and the quantity of hardware and the degree of hardware configuration necessaryto deploy Portal Infranet . The length of time to implement and deploy systems involving Portal Intranet may have an impact on the timing and amount ofrevenues ultimately received from customers, particularly if payments are tied to implementation or production milestones . As a result, the revenues derived froma sale may not be recognized immediately and could be spread over an extended period . As a result, an increase in the period of time over which revenue isrecognized may cause a decline in the amount of revenues in the short term .

IF THE MARKET FOR OUR PRODUCTS DOES NOT IMPROVE, WE MAYBE FORCED TO INCUR ADDITIONAL RESTRUCTURING CHARGES

During the fiscal year ended January 31, 2002 and the quarters ended July 31, 2002 and October 31, 2002 we incurred charges of $71 .0 million, $6 .1 million and$30 .7 million, respectively, in connection with restructuring plans implemented to reduce our cost structure . These restructuring plans were implemented inresponse to the continued global deferral of capital expenditures by telecommunications companies, as well as the general downturn in the economy . If the poormarket environment for telecommunications and content service providers continues and capital expenditures continue to be deferred or our business otherwisecontinues to suffer, we may implement additional restructuring plans to further reduce our cost structure and incur additional restructuring charges . Theserestructuring plans may not achieve the desired benefits . Any additional restructuring charges could have a material adverse effect on our financial results .

THE MARKETS IN WHICH WE SELL OUR PRODUCT ARE HIGHLY COMPETITIVE AND WE MA Y NOT BE ABLE TO COMPETE EFFECTIVEL Y

We compete in markets that are intensely competitive and rapidly changing . We face competition from providers of customer management and billing software,such as Amdocs Ltd ., Convergys Corporation, and CSG Systems International, Inc . and we also compete with systems integrators and with internal informationtechnology departments of larger communications providers . Most of our current principal competitors have significantly more personnel and greater financial,technical, marketing and other resources than we have . Many of our competitors also have more diversified businesses, established reputations in particularmarket segments, larger customer bases and are not as dependent on customers in our target market .

Our competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements than we can . Intense competitionhas recently been exemplified by deep price discounting by our competitors that has resulted in a lengthening of our sales cycles, price reductions and maythreaten our ability to close forecasted business . Additionally, our financial strength or that of a competitor is a significant factor considered by many potentialcustomers in their vendor selections . Because many of our competitors have greater financial resources than we do, this can adversely affect our selection bypotential customers . Increased competition can result in price reductions, fewer customer orders, reduced gross margins and loss of market share, any of whichcould harm our business .

Our failure to develop and market products and services that compete successfully with those of other suppliers in the market would harm our business . Weanticipate that the market for our products and services will remain intensely competitive .

OUR INABILITY TO SUBLEASE OR REDUCE SURPLUS OFFICE SPA CE WOULD INCREASE OUR USE OF CASH AND OPERA TING EXPENSESAND AD VERSEL Y EFFECT OPERA TING RESULTS AND OUR FINANCIAL CONDITIO N

We must periodically acquire and dispose of our office facilities in various locations as the number of existing and projected employees changes for thoselocations or as existing leases expire. Securing and building out facilities takes significant lead-time . Historically, because of the need to satisfy projected futureexpansion, the amount of space we have leased is generally more than the amount currently required . Our significant office leases have terms of between 5 and20 years . As a result, we frequently attempt to sublease the portions of leased facilities that we have leased to meet our future expansion plans but do notcurrently need . In addition, our reductions in our workforce undertaken over the past year have substantially reduced our facilities requirements in severallocations . As a result, we are attempting to sublease the facilities that we have previously leased but do not currently need or to negotiate reductions in our rentobligations relating to those facilities or cancellations of the applicable leases . We have leased approximately 290,000 square feet for our headquarters facilitiesin Cupertino, California through 2010. The amounts leased exceed our current requirements and we intend to sublease a majority of the facilities for a substantialportion, if not the entire balance, of the lease term . There is currently a large amount of vacant commercial real estate in the San Francisco Bay Area and in otherlocations where we have facilities . Moreover, currently prevailing rental rates in many locations are significantly lower than those that we are obligated to payunder the leases . We may therefore continue to encounter significant difficulties or delays in subleasing our surplus space and may not be able to sublease it forrents equal to those that we are obligated to pay. In connection with our restructuring plan adopted in fiscal 2003, we have vacated additional facilities in theUnited States and in other locations .

22

Table of Content sTo the extent that we are unable to renegotiate the terms or cancel the applicable leases or to sublease this and other surplus space at an amount equal to our rentobligations for that space or to the extent sublessees fail to perform their obligations to pay rent, we could incur greater operating expenses than we initiallyanticipated or included within accrued restructuring charges . Such increases in operating expenses in a period could cause us to exceed our planned expenselevels and significantly adversely affect our financial results for that period . Cancellation of leases will likely result in use of significant amounts of cash andadditional restructuring charges . Furthermore, inability to sublease such space may adversely affect our planned uses of cash and our capital resources . Moreoverwe have reduced the amount of the facilities restructuring charges we accrued in fiscal 2003 and 2002 by the estimated amount of sublease income . Theassumptions we have made were based on the then current market conditions, as of each reporting period, in the various areas we have vacant space . Thesemarket conditions can fluctuate greatly, thus causing our accrual to be inaccurate . If, in future periods, it is determined that we have over-accrued forrestructuring charges related to the consolidation of facilities, the reversal of such over-accrual would have a favorable impact on our financial statements in theperiod this was determined . Conversely, if it is determined that our accrual is insufficient, an additional charge would have a significant unfavorable impact onour financial statements in the period this was determined .

RAPID CHANGES IN DEMAND FOR OUR SERVICES CAN INCREASE OUR COSTS AND AD VERSELYAFFECT OUR MARGINS ANDPROFITABILITY

Services contracts can require that we rapidly provide qualified consulting personnel in particular locations . In addition, such personnel may be required to haveparticular language speaking abilities and technical skills . Recruitment and training of qualified personnel can take significant time and expense . To meet rapidlychanging requirements for personnel, we may need to relocate personnel from one geographic area to another that can result in increased costs . In some cases, wemay choose to satisfy resource requirements by retaining subcontractors that in some cases, the cost may exceed the cost of using our employees . All thesefactors may increase the costs of performing services and reduce margins for services . Failure to provide adequate consulting services to our customers couldresult in loss of revenue, damaged customer relationships or financial penalties . As a result, if we experience difficulties in managing the size, location andavailability of our services workforce, our revenues, profitability or business will suffer .

FIXED PRICE SER VICES ENGA GEMENTS CAN IMPA CT OUR PROFITABILITY IF WE FAIL TO COMPLETE THEM WITHIN THE ESTIMA TEDBUDGE T

We perform some of our professional services engagements on a fixed price basis . If the project requires more labor or products than was estimated by us indetermining the fixed price agreed to with the customer, our margins and profitability could be adversely affected .

OUR OPERATING PLANS RELY ON OUR ABILITY TO SUCCESSFULLY INCREASE THE SIZE AND SCOPE OF OUR OPERATIONS IN INDIAAND A FAILURE TO MANAGE THAT PROCESS AND ORGANIZATION COULD AD VERSEL YAFFECT OUR OPERATIONS

In fiscal 2003 we opened an engineering center in Bangalore, India. In fiscal 2004 we plan to significantly increase the size of this organization and expand itsscope . The expansion of this organization is an important component of our strategy to address the business needs of our customers, increase our revenues andachieve profitability . A portion of the personnel in this organization are our employees and the substantial majority provided through an independent contractor .The success of this operation will depend on our ability and our independent contractor's ability to attract, train, assimilate and retain sufficient highly qualifiedpersonnel in the required periods . A disruption of our relationship with the independent contractor would adversely impact the effectiveness of the Indiaorganization and could adversely affect our operations and financial results . Failure to effectively manage and integrate these operations will harm our businessand financial results .

OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE IN FUTURE PERIODS AND WE MAY FAIL TO MEET EXPECTA TIONS

Our revenues and operating results may vary significantly from quart er to qua rter due to a number of factors . In future qua rters , our operating results may bebelow the expectations of one or more public market analysts and investors and the price of our common stock may fall . Failure by technology companies tomeet or exceed analyst expectations or any resulting changes in analyst recommendations or ratings frequently results in substantial decreases in the market valueof the stock of such companies . Factors that could cause qua rt erly fluctuations include :


23

Exhibit F

SECURITIES AND EXCHANGE COMMISSIONWashington , D .C . 20549


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

For the quarterly period ended October 31, 200 3

❑ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 193 4


Commission File number 000-2582 9

PORTAL SOFTWARE, INC.(Exact name of registrant as specified in its charter )

Delaware 77-0369737(State or other jurisdiction of (I .R .S . Employerincorporation or organization) Identi fication No .)

10200 South De Anza Boulevar dCupertino, California 95014

(Address of principal executiveoffices) (Zip code)

(408)572-2000(Registrant's telephone number , including area code)

Indicate by check mark whether the registrant : (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 duringthe 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 fo rthe past 90 days . Yes IXI No ❑

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

On November 30, 2003, 41,847,323 shares of the Registrant's Common Stock, $0 .001 par value, were outstanding.


FORM 10-Q

QUARTER ENDED OCTOBER 31, 2003

INDEX

Pag e

Part I : Financial Informatio n

Item 1 : Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets at October 31 . 2003 and January 31, 2003 3

Condensed Consolidated Statements of Operations for the three and nine months ended October 31 . 2003 and 2002 4

Condensed Consolidated Statements of Cash Flows for the nine months ended October 31 . 2003 and 2002 5

Notes to Unaudited Condensed Consolidated Financial Statements 6

Item 2 : Management's Discussion and Analysis of Financial Condition and Results of Operations 14

Item 3 : Quantitative and Oualitative Disclosures About Market Risk 32

Item 4 : Controls and Procedures 3 2

Part II : Other Information

Item 1 : Legal Proceedings

Item 6 : Exhibits and Reports on Form 8 K

Signatures

33

34

3 5

2

ITEM 1 . FINANCIAL STATEMENTS

PORTAL SOFTWARE, INC .CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands , except par value)

October 31, January 31,

2003 2003

tunaumtea )

AssetsCurrent assets:Cash and cash equivalents $ 39,925 $ 21,502Short-term investments 47,899 30.64 1

Accounts receivable, net of allowance for doubtful accounts of $1,806 and $2,458 at October 31, 2003 and January 31, 2003 ,

respectively 25,939 22,46 7Restricted short-term investments 3,060 1,60 9

Deferred contract costs 2,433 -

Prepaid expenses and other current assets 5,163 4,026

Total current assets 124,419 80,245

Property and equipment, net 21,287 22,79 8

Purchased developed technology, net 2,660 4,655

Restricted long-term investments 12,980 13,41 2

Other assets 2,509 2,624

Current liabilities :Accounts payableAccrued employee benefitsCurrent portion accrued restructuring costsOther accrued liabilitie sCurrent portion of capital lease obligationsDeferred revenue


Total current liabilitiesLong-term notes payableLong-term accrued restructuring costsCommitments and contingenciesStockholders' equity :Convertible preferred stock, $0.001 par value, issuable in series :5,000 shares authorized, none issued and outstandin gCommon stock, $0 .001 par value : 200,000 shares authorized;41,668 and 35,661 shares issued and outstanding at October 31, 2003 and January 31, 2003, respectively

Additional paid-in capitalAccumulated other comprehensive incomeNotes receivable from stockholdersAccumulated defici t

Stockholders' equity


$ 163,855 $ 123,73 4

$ 7,416 $ 4,6999,408 8,82 18,738 13,41 89,429 8,42 91 1

28,094 23,95 5

63,085 59,33 31,664 1,67 9

19,707 26,90 3

42 36636,459 541,13 6

383 294(67) (69)

(557,418) (505,578)

170 aoo tc Rt o

$ 163,855 $ 123,73 4

3

PORTAL SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share amounts ; unaudited )

Three Months Ended Nine Months Ended

October 31, October 31 ,

2003 2002 2003 2002

RevenuesLicense fees $ 5,687 $ 10,701 $ 30,578 $ 32,787Services 19,672 19,459 60,075 57,247

Total revenues 25,359 30,160 90,653 90,03 4

Costs and expenses:Cost of license fees 19 71 128 240Cost of services 14,078 10,295 38,887 33,03 2Amortization and impairment of purchased developed technology 665 2,232 1,995 3,93 0Research and development 8,273 8,094 22,422 29,474Sales and marketing 10,677 12,071 33,698 40,63 7General and administrative 3,926 4,372 10,354 12,975Stock compensation charges (1) 3,000 62 33,840 27 1Restructuring costs - 30,668 - 36,72 1Impairment of assets - 1,470 - 1,47 0

Total costs and expenses 40,638 69,335 141,324 158,75 0

Loss from operations (15,279) (39,175) (50,671) (68,716 )Interest and other income, net 860 397 831 1,36 5

Loss before income taxes (14,419) (38,778) (49,840) (67,351 )Provision for income taxes (765) (786) (2,000) (2,268 )

Net loss $(15,184) $(39,564) $ (51,840) $ (69,619 )

Basic and diluted net loss pei share $ (0 .39) $ (1 .12) $ (1.40) $ (1.98 )

Shares used in computing basic and diluted net loss per share 38,995 35,329 36,937 35,17 1

Stock compensation charges relate to the following expense categorie s

Cost of services $ 652 $ 10 $ 7,353 $ 43Research and development 1,105 20 12,461 91Sales and marketing 838 18 9,452 77General and administrative 405 14 4,574 60

Total $ 3,000 $ 62 $ 33,840 $ 271

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

4



Nine Months Ended

October 31 ,

OPERATING ACTIVITIES:Net loss $ (51,840) $ (69,619 )Adjustments to reconcile net loss to net cash used in operating activities :Depreciation and amortization 5,776 9,777Stock compensation charges 33,840 31 0Noncash restructuring costs 11,61 1Amortization and impairment of purchased intangibles 1,995 3,930Impairment of assets - 1,470Gain on sale of investments (404)Changes in operating assets and liabilities :Accounts receivable, net (3,329) 1,592Prepaid expenses and other current assets (3,325) (129)Other assets 116 1,173Accounts payable 2,717 1,03 0Accrued employee benefits 587 (1,917)Other accrued liabilities (10,877) 5,95 3Deferred revenue 4,139 (14,693 )

Net cash used in operating activities (20,201) (49,916)

INVESTING ACTIVITIES :Purchases of short-term investments (109,991) (140,629 )Sales of short-term investments 50,618 46,34 6Maturity of short-term investments 39,060 137,39 1Sales and maturities of long-term investments 1,505 -Purchases of property and equipment (4,186) (5,057 )

Net cash (used in) provided by investing activities (22,994) 38,05 1

FINANCING ACTIVITIES :Payments received from stockholder notes receivable 2 7Repayments of notes payable (15) (15 )Principal payments under capital lease obligations (11) (503 )Proceeds from issuance of common stock, net of repurchases 61,489 1,48 8

Net cash provided by financing activities 61,465 97 7

Effect of exchange rate on cash and cash equivalents 153 1,29 9

Net increase (decrease) in cash and cash equivalents 18,423 (9,589 )Cash and cash equivalents at beginning of period 21,502 36,31 8

Cash and cash equivalents at end of period $ 39,925 $ 26,729


5

Exhibit G

Table of Contents

SECURITIES AND EXCHANGE COMMISSIO NWashington , D .C . 2054 9

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TOSECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 193 4

For the fiscal year ended January 30, 2004

O R

❑ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 193 4

For the transition period from t o

Commission file number: 000-2582 9

PORTAL SOFTWARE, INC .(Exact name of registrant as specified in its Charter)

Delaware 77-0369737(State or Other Jurisdictionof (I.R.S . Employer

Incorporation or Organization ) Identification No.)

10200 South De Anza Boulevard, Cupertino, California 9501 4(Address of principal executive offices and Zip Code)

Registrant's telephone number, including area code : (408) 572-2000

Securities registered pursuant to Section 12(b) of the Act :

Non e

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 par valu e

Rights to Purchase Series A Junior Participating Preferred Stoc k

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 duringthe preceding 12 months (or for such sho rter period that the Registrant was required to file such reports), and (2 ) has been subject to such fi ling requirements forthe past 90 days . YES El NO ❑

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best ofRegistrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form10-K. ❑

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule I2b-2). YES ❑O NO ❑The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sale price of the common stock on August 1,2003 as reported on the Nasdaq National Market System, was approximately $88,032,000 . Shares of common stock held by each officer, director and holdersknown to the Registrant of 5% or more of the outstanding common stock have been excluded from this calculation in that such persons may be deemed to beaffiliates . This determination of affiliate status is not necessarily a conclusive determination for other purposes . As of March 15, 2004, Registrant had outstanding42,212,676 shares of common stock .


FORM 10-K

FISCAL YEAR 2004

INDEX

PART I

Item 1 : BusinessItem 2 : PropertiesItem 3 : Legal ProceedingsItem 4 : Submission of Matters to a Vote of Security Holders

PART II

Item 5 : Market for Registrant ' s Common Stock and Related Stockholder MattersItem 6 : Selected Consolidated Financial Dat aItem 7 : Management ' s Discussion and Analysis of Financial Condition and Results of OperationsItem 7A : Quantitative and Qualitative Disclosures About Market RiskItem 8 : Financial Statements and Supplementary DataItem 9 : Changes in and Disagreements with Accountants on Accounting and Financial Disclosur eItem 9A: Controls and Procedures

PART III

Item 10: Directors and Executive Officers of the Re i se tran tItem 11 : Executive CompensationItem 12 : Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Ma tt ersItem 13 : Certain Relationships and Related TransactionsItem 14 : Principal Accountant Fees and Services

PART IV

Item 15 : Exhibits . Financial Statement Schedules and Reports on Form 8- KSignaturesExhibit Index

Pag e

311121 3

1415164243757 5

758084868 7

889091

Table of ContentsPortal Maintenanc e

We believe that a high level of customer service and support is critical to the successful sale and usage of our products . We provide support to our customersthrough maintenance and support agreements . We generally provide our base level of customer support via an Internet-based customer management system andhigher levels of support via telephone and on-site technical assistance . Support includes assistance with technical problems related to the use of our software andsoftware maintenance and upgrade releases when-and-if made available during the applicable support term . We offer responsive analysis of a customer'sproblem and practical advice for issue resolution, whether those issues arise in installation, staging, or production . In addition to issue management, we provide aconduit into product development for technical product escalations and requests and access to a knowledge database where customers can do searches forpossible solutions to their issues . For those customers that have purchased maintenance, Portal offers timely access to new product versions and software updates,We provide customer technical support for our products primarily from our Cupertino, California headquarters and from our facilities in the United Kingdom andHong Kong, China and increasingly from our operations based in Bangalore, India .

Portal Education

Portal Education consists of a series of courses offered to customers that address specific requirements across the entire product lifecycle-from deployment toimplementation to operation and enhancement . We offer a broad and practical curriculum for each member of the product implementation and rollout team . Weuse role-based methods tailored to an individual's job role-including system administration, architecture and design, and pricing implementation .

Pricing

We have structured the pricing of our products to accommodate our target customer segments, including large telecommunications companies, next-generationcommunications companies and e-services providers . We generally price our software products on a per subscriber basis for a perpetual term, with customaryvolume discounts. However, products are also licensed based on other units of usage, such as the number or amount of revenue, call detail reports or transactionsprocessed using our products . Licenses may have a perpetual term or a fixed duration after which use of the software ceases or is renewed for a new term .Maintenance and support contracts are typically priced as a percentage of the associated license revenues . Professional services are provided on a time andmaterials basis or on a fixed price basis . Our initial sales of licenses and associated services, maintenance and support generally range from several hundredthousand dollars to several million dollars . We have offered some or all of these products and services in a "bundled" price, such that a separate price was notidentified for the individual product and services components .

Sales and Marketing

Sales

Our sales strategy is to pursue targeted accounts primarily through a direct sales force . We target our sales efforts at telecommunications and information serviceproviders ranging from emerging growth companies to the largest telecommunications companies .

As of March 1, 2004, we maintained direct sales personnel across the United States and internationally in Australia, Canada, China, France, Germany, India,Italy, Japan, Malaysia, Poland, Singapore, South Korea, Spain, Taiwan and the United Kingdom . This direct sales force is organized into individual accountteams, which include both account executives and solutions specialists . These direct sales teams operate in conjunction with professional services teams assignedto the accounts, as well as with applicable marketing, legal and finance personnel . We generate leads from contacts made through marketing partners, seminarsand conferences, its Web site, trade shows, customers and its ongoing public relations program .

Table of ContentsWe complement our direct sales force with a series of partnerships and alliances with systems integrators such as Accenture, Cap Gemini Ernst & Young,BearingPoint and Deloitte Consulting, and platform, software and services providers, such as Cisco, Hewlett-Packard, IBM, Microsoft, Nokia, Oracle, SAP,

Siebel, Sun Microsystems, and others . These partners provide a global extension of our direct sales force and are an additional source of leads and referrals .

We have derived, and anticipate continuing to derive, a significant portion of our revenues from customers that have significant relationships with our integrator

and platform partners . Many of these partners also work with competing software companies and our success is affected by their willingness and ability to devote

sufficient resources and efforts to marketing our products . Our agreements with these parties typically are in the form of non-exclusive agreements that may be

terminated by either party without cause or penalty and with limited notice . In a very limited number of cases, the agreements permit the partner to resell our

products or provide for the payment to the partner of a referral fee .

Marketing

Our marketing programs are focused on creating awareness of, and generating interest in, our products and services . We engage in a variety of marketing

activities, including :

• managing and maintaining our Web site ;

• conducting direct mailings and ongoing public relations campaigns ;

• conducting seminars ;

• participating in industry tradeshows ; and

• establishing and maintaining relationships with recognized industry analysts .

We are an active participant in technology--related conferences and demonstrate our products at trade shows targeted at communication and content serviceproviders . We also focus on a range of joint marketing strategies and programs with our partners in order to leverage our existing strategic relationships andresources .

Customers

Our customers range from emerging small companies offering an innovative service to a small number of subscribers to large telecommunications carriers withmillions of subscribers .

Affiliates majority-owned by Vodafone Group Plc ("Vodafone"), as publicly reported by Vodafone, accounted for 31%, 19% and 3% of total revenues duringfiscal 2004, 2003, and 2002, respectively . No individual Vodafone affiliate or other customer accounted for more than 10% of revenues during fiscal 2004 orfiscal 2003 . One individual customer, America Online, Inc ., accounted for 20% of total revenues during fiscal 2002 .

Research and Developmen t

We believe that strong product development capabilities are essential to our strategy of enhancing our core technology, developing additional applicationsincorporating that technology and maintaining the competitiveness of our product and service offerings . We have invested significant time and resources increating a structured process for undertaking all product development. This process involves several functional groups at all levels within Portal and is designedto provide a framework for defining and addressing the activities required to bring product concepts and development projects to market successfully . Inaddition, we have recruited key engineers and software developers with experience in the enterprise, database and operating system software markets and havecomplemented these individuals by hiring senior management with experience in software used by providers of communication services .

Table of ContentsIn fiscal August 2002, we opened a new development center in Bangalore, India . This center is staffed partially by direct Portal employees as well as personnelprovided through Ness Global Services, Inc . (formerly known as APAR Infotech Corporation) pursuant to an agreement with Portal . We significantly increasedthe number of personnel at the Bangalore center during fiscal 2004 and are expanding the scope of the operations conducted in India to include technical supportand customer solutions services.

Our research and development expenses totaled approximately $30.2 million, $35 .7 million, and $58 .8 million for fiscal 2004, 2003 and 2002, respectively . As ofFebruary 29, 2004, we had approximately 100 employees engaged in research and development activities . This excludes approximately 280 contractors providedby Ness Global Services, Inc .

Competition

We compete in markets that are intensely competitive and rapidly changing . We compete on the basis of performance, functionality, flexibility, scalability,extensibility, ease of integration and price . We believe we compete favorably with respect to those factors . Additionally, the relative financial strength of Portalor a competitor is an important factor considered by many potential customers in their vendor selections . We face competition from providers of customermanagement and billing software, such as Amdocs Ltd., Convergys Corporation, CSG Systems International, Inc . and ADC Telecommunications Inc. We alsocompete with systems integrators and with internal information technology departments of larger communications providers . Most of our current principalcompetitors have significantly more personnel and greater financial, technical, marketing and other resources than Portal . Many of our competitors also havemore diversified businesses, established reputations in particular market segments, larger customer bases and are not as dependent on customers in our targetmarket . Intense competition has recently resulted in deep price discounting by our competitors that has resulted in a lengthening of our sales cycles, pricereductions, decreased margins, and may threaten our ability to realize forecasted business . In spite of these factors, we have been successful to date in winningbusiness from a number of customers in direct competition with each of these competitors .

Intellectual Propert y

We rely upon a combination of patent, copyright, trade secret and trademark law to protect our intellectual property . We currently have four issued U .S . patentsrelating to our technology that expire in 2017 . While we rely on patent, copyright, trade secret and trademark law to protect our technology, we believe thatfactors such as the technological and creative skills of our personnel, new product developments, frequent product enhancements and reliable productmaintenance are more essential to establishing and maintaining a technology leadership position . There can be no assurance that others will not developtechnologies that are similar or superior to our technology, including our patented technology .

We generally enter into confidentiality or license agreements with our employees, consultants, customers and corporate partners and generally control access toand distribution of our software, documentation and other proprietary information . Despite our efforts to protect proprietary rights, unauthorized parties mayattempt to copy or otherwise obtain and use its products or technology or to develop its products with the same functionality as our products . Policingunauthorized use of our products is difficult and we cannot be certain that the steps we have taken will prevent misappropriation of our technology, particularlyin foreign countries where the laws may not protect proprietary rights as fully as in the United States . In addition, certain of our license agreements require us toplace the source code for the Portal solution into escrow . Such agreements generally provide that these parties will have a limited, non-exclusive right to use thiscode if. (i) there is a bankruptcy proceeding by or against us ; (ii) we cease to do business without a successor; or (iii) we discontinue providing maintenance andsupport .

Substantial litigation regarding intellectual property rights exists in the software industry . We expect that we may be increasingly subject to third-partyinfringement claims as the number of competitors in our industry

10

Table of ContentsPART I I

ITEM 5 . MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTER S

Portal Software, Inc . common stock, par value $0 .00 1, is traded on the Nasdaq National Market under the symbol "PRSF." Portal's common stock beganpublicly trading on May 6, 1999 . The price per share reflected in the table below represents the range of high and low sale prices for Portal common stock asreported in the Nasdaq National Market for the quarters indicated . All prices have been adjusted for stock splits and combinations effected to date . The closingsale price of Portal's common stock as reported in the Nasdaq National Market System on March 31, 2004 was $6 .74 . The number of stockholders of record ofPortal's common stock as of March 31, 2004 was 856 . Portal effected a one-for-five reverse split of its common stock on September 26, 2003 .

Fiscal 2003 :Quarter ended April 30, 2002Quarter ended July 31, 2002Quarter ended October 31, 2002Quarter ended January 31, 2003

Fiscal 2004 :Quarter ended May 2, 2003Quarter ended August 1, 2003Quarter ended October 31, 2003Quarter ended January 30, 2004

High Lo w

$11 .85 $6 .60$ 7 .55 $1 .90$ 2 .20 $1 .0 5$ 6.70 $2 .75

$ 7.65 $3 .3 0$16 .95 $6 .75$18 .40 $11 . 5$16 .49 $5 .2 9

Dividend Polic y

Portal has never paid cash dividends on its capital stock. Portal currently intends to retain any earnings for use in its business and does not anticipate paying anycash dividends in the foreseeable future .

14

Table of Content sITEM 6 . SELECTED CONSOLIDATED FINANCIAL DATA

The following table shows selected consolidated financial data for Portal Software, Inc . ("Portal") for the past five fiscal years . To better understand the data inthe table, investors should also read the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidatedfinancial statements of Portal and the Notes to Consolidated Financial Statements included elsewhere in this report . The basic and diluted net loss per share andthe pro forma basic and diluted net loss per share computations exclude outstanding stock options, potential shares of common stock (options and common stock)subject to repurchase rights held by Portal, preferred stock and warrants, since their effect would be antidilutive . See Note I of Notes to Consolidated FinancialStatements for a detailed explanation of the determination of the shares used to compute basic and diluted net loss per share . This table has been restated toreflect the impact of a two-for-one stock split, which became effective on January 20, 2000, and for a one-for-five reverse stock split, which became effectiveon September 26, 2003 (see Note 8 .) The historical results are not necessarily indicative of results to be expected for any future period .

Years Ended January 31 ,

2004 2003 2002 2001 200 0

(in thousands, except per share amounts )Consolidated Statements of Operations Data :Revenues :License fees (3) $ 39,566 $ 44,481 $ 70,598 $180,334 $ 67,04 9Services (3) 87,187 76,609 84,192 87,973 36,00 0

Total revenues (3) $126,753 $121,090 $ 154,790 $268,307 $103,04 9

Loss from operations (1) (3) $ (38 ;719) $ (72,460) $(394,900) $ (11,224) S(15,700)Net loss (1) (2) (3) $ (40,191) $ (72,212) $ (395,500) $ (2,307) $ (7,620)Basic and diluted net loss per share (3) $ (1.05) $ (2.05) $ (11 .50) $ (0,07) $ (0.31 )Shares used in computing basic and diluted net loss per share 38,163 35,278 34,398 31,973 24,963

January 31 ,

2004 2003 2002 2001 2000

Consolidated Balance Sheet Data: (in thousands)

Cash and cash equivalents $ 43,020 $ 21,502 $ 36,318 $ 69,323 $ 43,887Short- term investments 39,884 30,641 75,463 141,275 152,090Working capital (3) 53,969 20,920 59,808 181,355 178,717Restricted long-term investments 13,164 13.412 15,414 3,466 5,856Total assets 158,155 123,734 213 .206 630,054 265,529Long-term obligations, net of current portion 20,355 28,486 27,441 7,652 1,525Stockholders' equity (3) 72,531 35,819 101,935 486,389 208,370

(1) Includes restructuring costs of $36 .5 million and $71 .0 million, and reductions in intangibles due to impairment of $0 .5 million and $199 .2 million forfiscal 2003 and 2002, respectively .

(2) Includes write-down of impaired investments of $4 .0 million in fiscal 2002 .(3) Our fourth quarter and fiscal 2004 revenues exclude $0 .7 million that we originally reported as revenues in our earnings release and conference call dated

February 24, 2004 . This revenue was associated with a customer who was, subsequent to the Company's earning's release, unwilling to consent in writingthat the Company has fully met all of the customer's expectations under the agreement as of January 30, 2004 . The Company believes it has met and is insubstantial compliance with all contractual requirements . Although the cash associated with this revenue has been received by the Company and the

Company believes the customer has no right to a refund, the Company has decided to defer such revenue to reflect the disagreement with the customer .

15

Table of Contents

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION S

The following Management's Discussion and Analysis of Financial Condition and Results of Operations may contain forward-looking statements within themeaning of Section 21E of the Securities Exchange Act of 1934, as amended, including, but not limited to, statements relating to future revenue and productsales, gross margins, product development, operating expenses and the sufficiency of financial resources to support our future operations, and are subject to theSafe Harbor provisions created by that statute . Such statements are based on current expectations that involve inherent risks and uncertainties, including thosediscussed below and under the heading "Risks Associated with Our Business and Future Operating Results" that could cause actual results to differ materiallyfrom those expressed. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof . Weundertake no obligation to update any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence ofunanticipated events.

OVERVIEW

Busines s

Portal develops, markets, provisions, and supports customer management and billing ("CM&B") solutions for telecommunications and information serviceproviders . Our convergent platform enables service providers to deliver voice, data, video and content services with multiple networks, payment models, pricingplans and value chains .

Portal believes that the growth and rapid change in the telecommunications and information service provider market provide a unique opportunity for Portal'ssolutions which provide real-time, flexible and scalable solutions for these markets . To fully realize this opportunity, Portal must expand its penetration in thismarket enabling us to grow our revenues and to achieve profitability and positive cash flow .

While Portal currently provides solutions for some of the leading global telecommunications and information service providers, we face competitors withsubstantially more financial resources than Portal. As such, we must demonstrate to our customers our ability to successfully compete with larger solutionproviders and that we are able to provide an equal or greater ability to support our products today and in the future and our ability to continue to enhance ourproducts to support this rapidly changing market into the future .

Financia l

Beginning with fiscal 1997, substantially all of our revenues have come from the license of one product line, Infranet, and from related services . Revenuesconsist of Infranet licenses, professional services and maintenance fees . License revenues are comprised of perpetual or multi-year license fees, which areprimarily derived from contracts with telecommunications and information service providers . Professional services consist of a broad range of implementationservices, training, business consulting and operational support services . These services are provided throughout the customer lifecycle . We believe that futurerevenues will be generated primarily from the following sources :

services for the deployment of licenses and follow -on solutions related to our customers ' end-to-end billing needs ;

license fees from new customers ; for new products or new Infranet modules to existing customers ; and growth in the subscriber base of existingcustomers, which will lead to increased revenue from subscriber-based licenses; an d

annual maintenance fees for the support of existing deployments and rights to access when-and-if available upgrade enhancements to our platform .

Exhibit H

Post-Effective Amendment No. 2 to Form S-3 Page 1 of 4

POS AM 1 dposam.htm POST-EFFECTIVE AMENDMENT NO. 2 TO FORM S-3As filed with the Securities and Exchange Commission on July 13, 2005

Registration No . 333-49848

UNITED STATE SSECURITIES AND EXCHANGE COMMISSION

Washington, D.C . 20549

POST-EFFECTIVE AMENDMENT NO . 2ON FORM S-1 TO

Registration Statement on Form S-3REGISTRATION STATEMENT

UNDERTHE SECURITIES ACT OF 193 3

PORTAL SOFTWARE, INC .(Exact name of registrant as specified in its charter)

Delaware 77-0369737(State or other jurisdiction of (I.R . S . Employerincorporation or organization) Identification No .)

10200 South DeAnza Boulevar dCupertino, California 95014

(408) 572-200 0(Address, including zip code , and telephone number , including area code , of registrant ' s principal executive offices )

Larry BercovichSenior Vice President , General Counsel and Corporate Secretary

Portal Software, Inc.10200 South DeAnza Boulevard


(Name, address , including zip code , and telephone number, including area code , of agent for service)

Copy to:Timothy R. Curry, Esq .

O'Melveny & Myers LL P2765 Sand Hill Road

Menlo Park, California 94025Telephone : (650) 473-2600Facsimile : (650) 473-260 1

Approximate date of commencement of proposed sale to the public : This post-effective amendment deregisters all of the shares ofcommon stock that remain unsold under this Registration Statement as of the date hereof .

If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check thefollowing box . ❑

http://www.sec .gov/Archives/edgar/data/I080306/000119312505141674/dposam .htm 12/6/2005

Post-Effective Amendment No . 2 to Form S-3 Page 2 of 4

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under theSecurities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box . ❑

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check thefollowing box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering . ❑

If this Form is a post-effective amendment filed pursuant to Rule 462(b) under the Securities Act, check the following box and list theSecurities Act registration statement number of the earlier effective registration statement for the same offering . ❑

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box . ❑

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Post-Effective Amendment No . 2 to Form S-3 Page 3 of4

TERMINATION OF OFFERING UNDER REGISTRATION STATEMENT

Portal Software, Inc ., a Delaware corporation (the "Registrant"), registered the public offer and sale from time to time pursuant to Rule 415 of theSecurities Act of 1933, as amended, of 7,500,000 shares of the Registrant's common stock (the "Common Stock") pursuant to Registration

Statement No . 333-49848 originally filed with the Securities and Exchange Commission on November 13, 2000 (the "Registration Statement")(which was declared effective on November 22, 2000), as subsequently decreased to 1,500,000 by a five-for-one reverse stock split effective as of

September 26, 2003 .

Pursuant to an undertaking made in Item 17 of the Registration Statement, the Registrant hereby terminates the Registration Statement andremoves from registration all of the shares of Common Stock registered under the Registration Statement that remain unsold as of the date hereof .

The Registrant's contractual obligation to maintain the effectiveness of the Registration Statement has expired .

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Post-Effective Amendment No . 2 to Form S-3 Page 4 of4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Post-Effective Amendment No . 2 to theRegistration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cupertino, State of California, on

the 1311 day of July, 2005 .


By: /s/ David Labuda

Name: David LabudaTitle : President and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this Post-Effective Amendment No . 2 to the Registration Statement has

been signed by the following persons in the capacities and on the date indicated .

Signature Titl e

* Director, President and Chief Executive Officer July 13, 200 5

(Principal Executive Officer)

David Labud a

/s/ Maury Austin Chief Financial Officer (Principal Financial Officer) July 13, 200 5

Maury Austin

is/ Ronald Kisling Senior Vice President Finance and Accounting July 13, 200 5(Principal Accounting Officer)

Ronald Kislin g

* Chairman of the Board of Directors July 13, 200 5

Richard Moran

* Director July 13, 200 5

Jerome Beha r

* Director July 13, 2005

Robert Bond

* Director July 13, 2005

Robert Eulau

* Director July 13 2005

John E. Little


J . David Martin


Karen Rile y

* By: is/ Larry Bercovich

Larry BercovichAttorney-in-fact

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Exhibit I

Portal Software, Inc . Page 1 of 5

Portal Software Reports First Qua rter Results for Fiscal Year 2004 ; Third Consecutive Quarter of Revenue and

Business Growt h

CUPERTINO, Calif.--(BUSINESS WIRE)--May 20, 2003--Portal Software, Inc . (Nasdaq :PRSF), a leading provider of billing and

customer management software, today reported financial results for the first quarter of fiscal year 2004, period ended May 2,

2003 .

First Quarter Results

Revenues for the quarter totaled $32 .1 million, compared to revenues of $31 .1 million in the prior quarter, and $31 .1 million for

the same period last year . Pro forma net loss for the first quarter of fiscal 2004 was $2 .0 million, or $0 .01 per diluted share . This

compares to a pro forma net profit of $0 .5 million, or $0 .00 per diluted share in the prior quarter and a pro forma net loss of $11 .2

million, or $0 .06 per share in the first quarter of fiscal 2003 . Pro forma amounts in the first quarter of fiscal year 2004 exclude

amortization of acquisition-related costs of $0 .7 million and stock option compensation expense of approximately $7 .1 million . Net

loss for the quarter ended May 2, 2003 was $9 .8 million or $0 .05 per share, in accordance with generally accepted accounting

principles (GAAP) .

Strategic Business Momentu m

Key global customer and partner transactions in the quarter highlight Portal's continued momentum and validation as the leading

product platform billing company in the market .

-- Vodafone Omnite l

A leading Italian mobile operator and one of the largest organizations within the Vodafone Group, Vodafone Omnitel extended its

relationship with Portal to include billing for voice solutions for its 19 million subscriber customer base . This builds on Vodafone's

use of Infranet to support pre- and postpaid data and content billing, proving Infranet's ability to scale and deliver complete

converged solutions .

-- T-Mobile USA

Portal extended its technology leadership in the Wi-Fi market, announcing that T-Mobile USA is using Infranet to serve as thecharging and rating system for its Wi-Fi broadband wireless Internet service . T-Mobile operates the largest carrier-owned Wi-Fi

network in the country, available in more than 2,300 public access locations .

-- SA P

Portal announced it has entered into a strategic alliance with SAP to provide a pre-packaged integrated solution for revenue

management . This joint solution combines Portal's Infranet(R) with SAP's SAP for Telecom munications(R) .

Global service providers continue to embrace Portal's Infranet product-centric solutions because they deliver the business agilityneeded to better-serve end customers . The Portal platform is designed to accelerate time to revenue while providing lower tota lcost of ownership and improved margins .

"Our product business model is working, and we are executing effectively delivering product-based solutions," said John Little, chiefexecutive officer at Portal Software . "We are the only company in our market reporting increasing revenues and quarter-to-quarterproduct license growth . "

Business Outlook

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The following statements are based on current expectations and are forward-looking . They are subject to a number of uncertaintiesand risks, including those discussed below, and actual results may differ materially . We undertake no obligation to update theseforward-looking statements .

While Portal's business appears to be strengthening, communications service providers continue to be very deliberate in their

software purchasing decisions . There is a high probability that our customers will continue to constrain their capital spending for an

extended period of time due to continued softness in their markets .

Further, the significant transactions Portal has recently closed and expects to complete in the future are larger, multi-year deals,which may add to long-term predictability, but may dampen near-term growth . These larger transactions may also significantlyimpact the quarter in which they close, thereby adding to the volatility of license revenues .

While economic uncertainty and intense market competition

remain unchanged, we expect Q2 revenues to be about equivalent

with Q1 . We also expect to show total fiscal year 2004 revenue

10-12% higher than the $121 million seen in fiscal 2003 . While

we see good opportunities in Asia, there is some risk the

concerns around SARS and the war on terrorism could negatively

impact our revenue there during the fiscal year .

Second quarter gross margins are expected to be about flat

with Q1, but there is some risk of their being slightly lower

as we ramp up our consulting services capability to meet

higher demand .

We expect pro forma operating expenses for Q2 to be about the

same as Q1 .

Given the large increase in receivables at the end of Q1, we

expect collections and operating results to produce total cash

break-even or better results for Q2 .

Given our current outlook, we expect Portal to return to pro

forma profitability and positive cash flow operations within

the current fiscal year .

Pro forma operating expenses and net income in Q2 are expected

to exclude amortization and write-off of acquisition-related

costs and stock option compensation expense . Portal is unable

to provide guidance on a GAAP basis because information

relating to stock option compensation expense is currently not

quantifiable on a forward-looking basis as it depends on

various factors, including the future market price of our

common stock .

Information About Pro Forma Presentation

To supplement Portal's consolidated financial statements presented on a GAAP basis, Portal uses additional non-GAAP or "proforma" measures of operating results, net profit/loss and net profit/loss per diluted share adjusted to exclude certain costs,

expenses and losses Portal believes appropriate to enhance an overall understanding of its past financial performance and also its

prospects for the future . These adjustments to Portal's GAAP results are made with the intent of providing both management and

investors a more complete understanding of the underlying operational results and trends and Portal's marketplace performance .For example, the non-GAAP results are an indication of our baseline performance before losses or other charges that are

considered by management to be outside of Portal's core operational results . In addition, these adjusted non-GAAP results ar e

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among the primary indicators management uses as a basis for planning and forecasting of future periods . Because there are nogenerally accepted industry standards for presenting non-GAAP results, the methods used by Portal may differ from the methods

used by other companies . The presentation of this additional information is not meant to be considered in isolation or as asubstitute for measures prepared in accordance with GAAP .

In accordance with GAAP, net loss for the quarter ended May 2, 2003 was $9 .8 million or $0 .05 per share . This compares to a

GAAP net loss of $2 .6 million, or $0 .01 per share in the prior quarter and a GAAP net loss of $12 .0 million, or $0 .07 per share inthe first quarter of fiscal 2003 . Pro forma amounts in the fourth quarter of fiscal year 2003 exclude amortization of acquisition-related costs of $1 .2 million and stock option compensation expense of approximately $2 .0 million . Pro forma amounts in the firstquarter of fiscal year 2003 exclude amortization of acquisition-related costs of $0 .8 million .

Conference Call Informatio n

Portal will discuss its first quarter fiscal year 2004 results and other financial and business information in a conference call and anaudio web cast on May 20, 2003, beginning at 2 :00 p .m . Pacific time . The web cast is available-to all interested parties and can beaccessed at www .companyboardroom.com . For those unable to listen to the live web cast, a replay will be available .

This press release and full company balance sheet and consolidated operations details will be filed as an exhibit to a current report

on Form 8-K and will be posted on our web site prior to the conference call described above . For a copy of this press release andthe company balance sheet and consolidated operations details, please visit the Investor Relations site atwww.portal .com/about_portal/investor_relations .

About Portal Software, Inc .

Portal Software provides flexible billing and subscriber management solutions to enable organizations to monetize their voice anddigital transactions . Portal's convergent billing platform enables service providers to charge, bill and manage a wide range of

services via multiple networks, payment models, pricing plans, and value chains . Portal's flexible and scalable product-basedsolutions enable customers to introduce new value added services quickly, providing maximum business value and lower total costof ownership . Portal's customers include thirty-five of the top fifty wireless carriers as well as organizations such as Vodafone, AOL

Time Warner, Deutsche Telekom, TELUS, NTT, China Telecom, Reuters, Telstra, China Mobile, Telenor Mobil, and France Telecom .

Statements in this release concerning Portal Software, Inc .'s business outlook, future financial and operating results, futureexpense reductions, and Portal's overall future prospects are forward looking statements that involve a number of uncertaintiesand risks . Factors that could cause actual events or results to differ materially include the following : General business andeconomic conditions and changes in the amount of technology spending by our customers and prospects ; market acceptance ofPortal's products and services ; customer and industry analyst perceptions of Portal and its technology vision and future prospects ;fluctuations in the market price of Portal stock that can result in unpredictable compensation expense charges ; difficulties inimplementing or realizing the benefits of cost reduction efforts, such as our ability to sublease excess office facilities in a timely andcost effective manner and to effectively renegotiate or terminate real estate leases to reduce lease obligations ; sales force trainingand productivity ; challenges associated with recruiting, training, and retaining skilled management and other personnel ; ability toestablish, maintain, and effectively implement relationships with system integrators and other strategic resellers and vendors ;rapid technological changes ; competitive factors ; and unanticipated delays in scheduled product availability . These and otherfactors are described in detail in our Annual Report on Form 10-K for the fiscal year ended January 31, 2003 . All statements madein this press release are made only as of the date set forth at the beginning of this release . Portal undertakes no obligation toupdate the information in this release in the event facts or circumstances subsequently change after the date of this press release .

Infranet and the Portal logo are U .S . registered trademarks , and Po rtal and TelcoOne are trademarks of Po rtal Software, Inc .

Portal Software, Inc .

Condensed Consolidated Balance Sheet s

(In thousands)

May 2, Jan . 31,

2003 2003

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Assets

---------- -(Unaudited)

-------- -

Current assets

Cash and short-term investments $45,769 $53,75 2

Accounts receivable, net 34,645 22,46 7

Prepaid expenses and other current assets 5,877

-----------

4,02 6

-------- -

Total current assets 86,291 80,24 5

Property and equipment, net 22,026 22,798

Purchased developed technology, net 3,990 4,65 5

Restricted long-term investments 12,033 13,412

Other assets 2,606

-

2,62 4

------ -

Total assets

--------- -

$126,946

- -

$123,73 4

Liabilities and Stockholders' Equit y

Current liabilities

Accounts payable $8,979 $4,69 9

Accrued employee benefits 9,608 8,82 1

Current portion restructuring costs 12,588 13,418

Other accrued liabilities 8,460 8,42 1

Current portion of capital leas e

obligations - 11

Deferred revenue 28,065 23,95 5

Total current liabilities

---------- -

67,700

-------- -

59,32 5

Long-term accrued restructuring costs 24,009 26,90 3

Long-term notes payable and other liabilities 1,693

-----------

1,68 7

-------- -

Total liabilities 93,402 87,91 5

Stockholders' equit y

Common stock 179 178

Additional paid-in capital 548,422 540,994

Accumulated other comprehensive income (loss) 353 294

Notes receivable from stockholders (67) (69)

Accumulated deficit (515,343) (505,578 )

----------- ---------

Total stockholders' equity 33,544 35,819

----------- ---------

Total liabilities and stockholders' equity $126,946 $123,73 4


Pro Forma Statement of Operation s

(In thousands, except per share data, unaudited)

Three Months Ended

May 2, April 30 ,

2003 200 2

Revenues

License fees $13,570 $12,708

Services 18,523 18,404

-------- --------

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Portal Software , Inc. Page 5 of5

Total revenues 32,093 31,112

Costs and expense s

Cost of license fees 88 11 5

Cost of services 11,613 10,94 9

Research and development 7,167 11,43 4

Sales and marketing 11,388 14,90 0

General and administrative 3,333 4,39 4

Amortization of deferred stock compensation 1 11 0

Total costs and expenses

------- -

33,590

------- -

41,90 2

Pro forma loss from operations (1,497) (10,790 )

Interest and other income, net 12 3

--- ---

69 8

Pro forma loss before income taxes

- -

(1,374)

------- -

(10,092 )

Provision for income taxes (635) (1,068 )

Pro forma net loss $( 2,009 )$(11,160 )

Items excluded from pro forma net los s

Stock option compensation charges (7,089) -

Amortization and impairment of acquire d

intangibles(A) (665) (665)

Amortization and impairment of purchased licenses - (184 )

GAAP net loss $(9,763)$(12,009 )

Pro forma earnings per shar e

Pro forma net loss per share $(0 .01) $(0 .06)

Shares used in computing

pro forma net loss per share 178,568 174,89 2

GAAP earnings per shar e

Basic and diluted net loss per share $(0 .05) $(0 .07)


basic and diluted net loss per share 178,568 174,89 2

Notes :

(A) Acquired intangibles include amortization for goodwill and

other purchased intangibles .

CONTACT : Portal Software

Kathy Cotten, 408/572-2345 (INVESTOR)

investor-relations@portal .com

or

Amanda Klinger, 408/572-2985 (MEDIA)

aklinger@portal .com

SOURCE : Portal Software

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Exhibit J


Portal Software Reports Results for Second Quarter of Fiscal Year 2004 ; Fourth Consecutive Quarter of Revenue and

Business Growth

CUPERTINO, Calif .--(BUSINESS WIRE)--Aug . 19, 2003--Portal Software, Inc . (Nasdaq :PRSF), a leading provider of billing and

subscriber management solutions, today reported financial results for the second quarter of fiscal year 2004 .

Second Quarter Result s

Revenues for the quarter totaled $33 .2 million, compared to revenues of $32 .1 million in the prior quarter, and $28 .8 million for

the same period last year . Pro forma net loss for the second quarter of fiscal 2004 was $2 .5 million, or $0 .01 per share . This

compares to a pro forma net loss of $2 .0 million, or $0 .01 per share in the prior quarter and a pro forma net loss of $11 .1 million,

or $0.06 per share in the second quarter of fiscal 2003 . Pro forma amounts in the second quarter of fiscal year 2004 exclude

amortization of acquisition-related costs of $0 .7 million and stock option compensation expense of approximately $23 .7 million . Net

loss in accordance with generally accepted accounting principles (GAAP) for the second quarter fiscal 2004 was $26 .9 million or

$0 .15 per share .

Global Customer Momentu m

Portal continues to gain traction within Vodafone Group for a wide range of converged voice, data and content services . This

quarter saw the addition of ]-Phone Vodafone Ltd ., a leading mobile service provider in Japan with over 14 million subscribers . This

is the 15th Vodafone Group operating company to join the growing list of Portal customers, including Vodafone Australia, France,

Germany, Greece, Hungary, Italy, The Netherlands, New Zealand, Poland, Portugal, Spain, Sweden, Switzerland, and UK .

Portal's global customer momentum continued in the communications, media, broadband, cable, and WiFi sectors . Billing Plus

reported that Portal led all competitors in billing and customer care contract wins for the period from July 2002 to June 2003 .

Market Expansion with Partner Solution s

During the quarter, Portal continued to develop and deliver end-to-end solutions with leading enterprise software companies .

-- Microsoft/Portal - BillingAgilit y

Portal and Microsoft announced BillingAgility, integrating

Portal's enterprise class billing and subscriber management

solutions with Microsoft NET technologies . BillingAgility

will provide the communications industry with a NET-connected

solution that is designed to enable service providers to

quickly and successfully roll out new voice, data, and content

services, as well as offer superior support for legacy and

business-to-business integrations, minimizing time and cost .

-- Siebel/Portal - TelcoOne(TM )

Portal is now shipping TelcoOne, the integrated end-to-end

billing and customer relationship management solution based on

Portal Infranet(R) and Siebel Communications . TelcoOne is

designed to enable service providers to dramatically increase

operational efficiency and introduce new services at a

fraction of the cost of traditional custom-developed

applications . Market acceptance for the TelcoOne solution is

strong, having been embraced by Telecom Italia Mobile and


Portal Software, Inc. Page 2 of 6

multiple Vodafone Group companies .

"Global service providers need best- in-class solutions that deliver faster time to revenue at a lower total cost of ownership," said

John Little, founder and chief executive officer at Portal Software . "Our product-based approach , combined with Portal services and

strategic partnerships , has allowed Portal to increase solutions breadth and grow revenues for the fou rth consecutive qua rter . "

Business Outlook

The following statements are based on our current expectations and are forward-looking . They are subject to a number of

uncertainties and risks, including those discussed below, and actual results may differ materially . We undertake no obligation to

update these forward-looking statements .

While Portal's business appears to be strengthening and growing, indications are that communications service providers continue to

be very deliberate in their software purchasing decisions . We continue to be concerned that our customers will continue to

constrain their capital spending due to their on-going soft market outlook for an extended period of time . We continue to focus on

building Portal's capabilities to ensure long-term success .

While general economic conditions recently appear to be

improving, uncertainty and intense market competition remain

unchanged . As a result, we expect Q3 revenues to remain

consistent with Q2 while continuing to expect to show total

fiscal year 2004 revenue 10-12% higher than the $121 million

achieved in fiscal 2003 .

Third quarter gross margins are expected to be about flat with

Q2 .

We expect pro forma operating expenses for Q3 to be about the

same as Q2 .

Given our current outlook, we continue to expect Portal to

return to pro forma profitability and positive cash flow

operations within the current fiscal year .

Pro forma operating expenses and net income in Q3 are expected

to exclude amortization and write-off of acquisition-related

costs and stock option compensation expense . Portal is unable

to provide guidance on a GAAP basis because information

relating to stock option compensation expense is currently not

quantifiable on a forward-looking basis as it depends on

various factors, including the number of stock options

exercised or terminated during the period and the future

market price of our common stock .

Information About Pro Forma Presentation

To supplement Portal's consolidated financial statements presented on a GAAP basis, Portal uses additional non-GAAP or "pro

forma" measures of operating results, net profit/loss and net profit/loss per diluted share adjusted to exclude certain costs,expenses and losses Portal believes appropriate to enhance an overall understanding of its past financial performance and also its

prospects for the future . These adjustments to Portal's GAAP results are made with the intent of providing both management and

investors a more complete understanding of Portal's underlying operational results and trends and Portal's marketplace

performance . For example, the non-GAAP results are an indication of our baseline performance before losses or other charges that

are considered by management to be outside of Portal's core operational results . In addition, these adjusted non-GAAP results are

among the primary indicators management uses as a basis for planning and forecasting of future periods . Because there are n o

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generally accepted industry standards for presenting non-GAAP results, the methods used by Portal may differ from the methods

used by other companies . The presentation of this additional information is not meant to be considered in isolation or as a

substitute for measures prepared in accordance with GAAP .

In accordance with GAAP, net loss for the second quarter of fiscal year 2004 was $26 .9 or $0 .15 per share . This compares to a

GAAP net loss of $9 .8 million, or $0 .05 per share in the prior quarter and a GAAP net loss of $18 .0 million, or $0 .10 per share in

the second quarter of fiscal 2003 . Pro forma amounts in the first quarter of fiscal year 2004 exclude amortization of acquisition-

related costs of $0 .7 million and stock option compensation expense of approximately $7 .1 million . Pro forma amounts in the

second quarter of fiscal year 2003 exclude amortization of acquisition-related costs of $0 .8 million, and restructuring costs of

approximately $6 .1 million .

Conference Call Informatio n

Portal will discuss its second quarter fiscal year 2004 results and other financial and business information in a conference call and

an audio web cast on August 19, 2003, beginning at 2 :00 p .m . Pacific time . The web cast is available to all interested parties and

can be accessed at www .companyboardroom .com. For those unable to listen to the live web cast, a replay will be available .

This press release and full company balance sheet and consolidated operations details will be filed as an exhibit to a current report

on Form 8-K and will be posted on our web site prior to the conference call described above . For a copy of this press release and

the company balance sheet and consolidated operations details, please visit the Investor Relations site at

www .portal .com/about_portal/investor_relations .

About Portal Software, Inc .

Portal Software provides flexible billing and subscriber management solutions to enable organizations to monetize their voice and

digital transactions . Portal ' s convergent billing platform enables service providers to charge , bill, and manage a wide range of

services via multiple networks , payment models, pricing plans, and value chains . Portal ' s flexible and scalable product-based

solutions are designed to enable customers to introduce new value added services quickly, providing maximum business value and

lower total cost of ownership . Po rtal ' s customers include thirty - five of the top fifty wireless carriers as well as organizations such as

Vodafone , AOL Time Warner, Deutsche Telekom , TELUS , NTT, China Telecom, Reuters, Telstra , China Mobile, Telenor Mobil, and

France Telecom .

Statements in this release concerning Portal Software, Inc .'s business outlook, future financial and operating results, future

expenses and Portal's overall future prospects are forward looking statements that involve a number of uncertainties and risks .

Factors that could cause actual events or results to differ materially include the following : General business and economic

conditions and changes in the amount of technology spending by our customers and prospects ; market acceptance of Portal's

products and services ; customer and industry analyst perceptions of Portal and its technology vision and future prospects ;

fluctuations in the market price of Portal stock that can result in unpredictable compensation expense charges ; difficulties in

implementing or realizing the benefits of cost reduction efforts, such as our ability to sublease excess office facilities in a timely and

cost effective manner and to effectively renegotiate or terminate real estate leases to reduce lease obligations ; sales force training

and productivity ; challenges associated with recruiting, training, and retaining skilled management and other personnel ; ability to

establish, maintain, and effectively implement relationships with system integrators and other strategic resellers and vendors ;

rapid technological changes ; competitive factors ; and unanticipated delays in scheduled product availability . These and other

factors are described in detail in our Annual Report on Form 10-K for the fiscal year ended January 31, 2003 as well as in ourquarterly reports on Form 10Q . All statements made in this press release are made only as of the date set forth at the beginning ofthis release. Portal undertakes no obligation to update the information in this release in the event facts or circumstancessubsequently change after the date of this press release .

Copyright (C) 2003 Portal Software, Inc . All rights reserved . Infranet and the Po rtal logo are U .S . registered trademarks , and Portaland TelcoOne are trademarks of Portal Software, Inc .

Portal Software

Pro Forma Statement of Operation s

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Portal Software, Inc. Page 4 of6

(In thousands, except per share data, unaudited )

Three Months Ended Six Months Ended

August 1, July 31, August 1, July 31 ,

2003 2002 2003 2002

--------- --------- --------- ---------

Revenues

License fees $11,321 $9,378 $24,891 $22,086

Services 21,880 19,384 40,403 37,78 8

--------- --------- --------- ---------

Total revenues 33,201 28,762 65,294 59,87 4

Costs and expense s

Cost of license fees 22 54 109 16 9

Cost of services 13,195 11,788 24,808 22,73 7

Research and development 6,981 9,946 14,148 21,38 0

Sales and marketing 11,633 13,667 23,022 28,56 7

General and administrative 3,095 4,209 6,428 8,60 3

Amortization of deferred

stock compensation - 99 1 20 9

Total costs and expenses

-------- -

34,926

-------- -

39,763

-------- -

68,516

-------- -

81,66 5

Pro forma loss from operations (1,725) (11,001) (3,222) (21,791 )

Interest and other income

(expense), net (152) 270 (29 )

-

96 8

Pro forma loss before income

--------- --------- --- ----- -------- -

taxes (1,877) (10,731) (3,251) (20,823 )

Provision for income taxes (600) (413) (1,236) (1,481 )

Pro forma net loss

-------- -

$(2,477)

-------- -

$(11,144)

-------- -

$(4,487)

-------- -

$(22,304 )

Items excluded from pro forma

net los s

Stock option compensatio n

charges (23,749) - (30,838) -

Amortization of acquired

intangibles (A) (665) (665) (1,330) (1,330 )

Amortization of purchase d

licenses - (184) - (368 )

Restructuring costs -

---------

(6,053 )

---------

- (6,053 )

GAAP net loss $(26,891) $(18,046)

-------- -

$(36,655)

-------- -

$(30,055 )

Pro forma loss per share

Pro forma net loss per share $(0 .01) $(0 .06) $(0 .02) $(0 .13)


pro forma net loss per

share 180,512 176,023 179,540 175,45 7

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GAAP loss per share

Basic and diluted net loss

per share


basic and diluted net loss

per share

$(0 .15) $(0 .10) $(0 .20) $(0 .17 )

180,512 176,023 179,540 175,45 7

Notes :

A) Acquired intangibles include amortization for goodwil l

and other purchased intangibles .

Portal Software

Condensed Consolidated Balance Sheets

(In thousands )

Assets

Current assets

Cash and short-term investments

Accounts receivable, net

Prepaid expenses and othe r

current asset s

Total current assets

Property and equipment, net

Purchased developed technology, ne t

Restricted long-term investments

Other asset s

Total asset s


Current liabilitie s

Accounts payable

Accrued employee benefit s

Current portion restructuring costs

Other accrued liabilitie s

Current portion of capital lease

obligation s

Deferred revenue

Total current liabilities

Long-term accrued restructuring costs

Long-term notes payable and

other liabilitie s

Total liabilities

August 1, January 31,

2003 200 3

----------- ---------

(Unaudited )

$44,780 $53,752

26,421 22,46 7

7,63 7

---------

4,02 6

--------- -

78,838 80,24 5

21,892 22,79 8

3,325 4,65 5

12,033 13,412

2,507

---------

2,62 4

-------- -

$118,595 $123,734

$6,793 $4,69 9

8,492 8,82 1

11,985 13,41 8

10,224 8,42 1

1 1

24,79 6

---------

23,95 5

------- -

62,290

-

59,32 5

21,615 26,903

1,697 1,687

--------- ---------

85,602 87,915

Page 5 of 6



Stockholders' equity

Common stock

Additional paid-in capital

Accumulated other comprehensive

income (loss )

Notes receivable from stockholders

Accumulated defici t

Total stockholders' equity

182 178

574,776 540,99 4

335 294

(67) (69 )

(542,233 )

----------

(505,578 )

-------- -

32,993

----------

35,81 9

-------- -

Total liabilities and

stockholders' equity $118,595 $123,734

CONTACT : Portal Software

Kathy Cotten, 408-572-2345 (Investor Contact)

investor_relations@portal .com Scott Carter, 408-572-2435 (Media Contact)

scarter@portal .com

SOURCE : Portal Software

Page 6 of 6

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