UNITED
STATES SECURITIES AND EXCHANGE
COMMISSION
Washington,
DC 20549
FORM
10-K
BROADVISION,
INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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94-3184303
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(State
or other jurisdiction of
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(I.R.S.
Employer
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incorporation
or organization)
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Identification
Number)
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1600
Seaport Blvd, 5th Fl., North Bldg.
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Redwood
City, California
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94063
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(Address
of principal executive offices)
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(Zip
code)
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(650)
331-1000
(Registrant's
telephone number, including area code)
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Securities
registered pursuant to Section 12(b) of the Act:
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None
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Securities
registered pursuant to Section 12(g) of the Act:
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Common
Stock, $.0001 par value
(Title
of Class)
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act.
Yes
£
No
R
Indicate
by check mark if the registrant is not required to file reports pursuant
to
Section 13 or 15(d) of the Act.
Yes
£
No
R
Indicate
by check mark whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes
R
No
£
Indicate
by check mark if the disclosure of delinquent filers pursuant to Item 405
of
Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K.
Yes
R
No
£
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Exchange Act
Rule 12b-2.
Large
accelerated filer
£
Accelerated
filer
£
Non-accelerated
filer
R
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes
£
No
R
As
of
June 30, 2006, based on the closing sales price as quoted by the NASDAQ,
28,644,176 shares of Common Stock, having an aggregate market value of
approximately $14,322,088 were held by non-affiliates. For purposes of the
above
statement only, all directors and executive officers of the registrant are
assumed to be affiliates.
As
of
February 28, 2007, the registrant had 106,566,567 shares of common stock
outstanding.
BROADVISION, INC.
ANNUAL
REPORT ON FORM 10-K
YEAR
ENDED DECEMBER 31, 2006
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Business
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1
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Risk
Factors
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7
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Unresolved
Staff Comments
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14 | |
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Properties
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14
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Legal
Proceedings
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14
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Submission
of Matters to a Vote of Security Holders
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14
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Market
for Registrant's Common Equity, Related Stockholder Matters and
Issuer
Purchases of Equity Securities
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15
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Selected
Consolidated Financial Data
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16
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Management's
Discussion and Analysis of Financial Condition and Results of Operations
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18
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Quantitative
and Qualitative Disclosures About Market Risk
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31
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Financial
Statements and Supplementary Data
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32
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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66
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Controls
and Procedures
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66
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Other
Information
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67
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Directors,
Executive Officers and Corporate Governance
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68
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Executive
Compensation
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69
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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77
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Certain
Relationships and Related Transactions, and Director
Independence
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78
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Principal
Accountant Fees and Services
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79
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Exhibits
and Financial Statement Schedules
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80
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| SIGNATURES | 81 | |
| EXHIBIT 4.6 | ||
| EXHIBIT 23.1 | ||
| EXHIBIT 23.2 | ||
| EXHIBIT 23.3 | ||
| EXHIBIT 31.1 | ||
| EXHIBIT 32.1 | ||
References
in this prospectus to "we", "us" and "our" refer to BroadVision, Inc. and
its
subsidiaries. BroadVision, BroadVision One-To-One, iGuide, Interleaf and
Interleaf Xtreme are our U.S. registered trademarks. Our common law
trademarks (designated by
tm
)
in the
United States and other countries include BroadVision Commerce, BroadVision
Content, BroadVision Deployment, BroadVision eMarketing, BroadVision
Multi-Touchpoint, BroadVision Portal, BroadVision Process, BroadVision
QuickSilver, BroadVision Search, Energizing e-Business, Click-to-Create,
BroadVision Command Center, BroadVision Publishing Center, BroadVision Instant
Publisher, and any of the registered marks that are not registered in the
particular country where the mark is being used. Trademarks, service marks
and
trade names of other companies appearing in this prospectus are the property
of
their respective holders.
CAUTIONARY
STATEMENT PURSUANT TO THE PRIVATE SECURITIES
LITIGATION
REFORM ACT OF 1995
Certain
statements set forth or incorporated by reference in this Form 10-K, as
well as in our Annual Report to Stockholders for the year ended
December 31, 2006, constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. In some
cases,
you can identify forward-looking statements by words such as "may", "will",
"should", "expect", "intend", "plan", "anticipate", "believe", "estimate",
"predict", "potential" or similar terms. These statements relate to future
events or our future financial performance and involve known and unknown
risks,
uncertainties and other factors that may cause our actual results, levels
of
activity, performance or achievements to differ materially from any future
results, levels of activity, performance or achievements expressed or implied
by
these forward-looking statements. These risks and other factors include those
listed under "Risk Factors" and elsewhere in this document. These statements
are
only predictions based on our current expectations and projections about
future
events, and we cannot guarantee future results, levels of activity, performance
or achievements.
We
expressly disclaim any obligation to update or publicly release any revision
to
these forward-looking statements after the date of this Form 10-K.
Information
regarding market and industry statistics contained in the "Business" section
of
this report is included based on information available to us that we believe
is
accurate. It is generally based on academic and other publications that are
not
produced for purposes of securities offerings or economic
analysis.
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7
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ITEM
1
.
BUSINESS
Our
Business
Since
1993, BroadVision has been a pioneer and consistent innovator of e-business
solutions. We deliver a combination of technologies and services into the
global
market that enable customers of all sizes to power mission-critical web
initiatives that ultimately deliver high-value to their bottom line. Our
offering consists of a robust framework for personalization and self-service,
modular applications and agile toolsets that customers use to create e-commerce
and portal solutions. As of December 31, 2006, we had licensed our products
to
more than 500 customers - including Audible.com, Baker Hughes, Cardinal Health,
Citibank, Hilti, Japan Airlines, Renault, Sears, Sony, Standard Chartered
Bank,
Vodafone, U.S. Air Force, Yomiuri Shinbun and Xerox.
Corporate
Information
We
were
incorporated in Delaware in 1993 and have been a publicly traded corporation
since 1996. From 2001 to date, our annual revenue has declined and as of
December 31, 2006, we had
an
accumulated deficit of approximately $1.2 billion
.
The
majority of our accumulated deficit to date has resulted from non-cash charges
associated with our 2000 acquisition of Interleaf, Inc. and restructuring
charges related to excess real estate lease obligations.
During
2004, we entered into a series of termination agreements to settle nearly
all of
our excess lease obligations. In November 2004, we issued $16 million in
aggregate principal amount of senior subordinated secured convertible notes
(the
"Notes"). In November 2005, Honu Holdings, LLC, a Delaware limited liability
company controlled by Dr. Pehong Chen, our Chairman, Chief Executive
Officer, President and largest stockholder ("Honu"), acquired all Notes then
outstanding. In December 2005, Dr. Chen agreed to cancel all amounts owed
under the Notes in exchange for 34,500,000 shares of BroadVision common
stock at an effective price per share of $0.45, a 25% discount to the
December 20, 2005 closing price of BroadVision common stock, and $180,000
in cash that represented the portion of the accrued interest on the Notes
that
was not paid in stock. That exchange was completed in March 2006. The common
shares issued to Honu, representing approximately 50% of the post-conversion
shares outstanding, increased Dr. Chen's beneficial ownership interest in
BroadVision to 59% of the total shares outstanding. Dr. Chen's ownership
decreased to approximately 39% following the issuance of shares in the rights
offering in the fourth quarter of 2006.
In
February 2006, we announced a subscription rights offering to existing
stockholders to sell a total of 178 million shares, or 5.9 shares for each
share
of BroadVision common stock held as of the record date of December 20, 2005,
at
an effective price per share of $0.45. The primary purpose of the rights
offering is to allow the holders of BroadVision common stock an opportunity
to
further invest in BroadVision in order to maintain their proportionate interest
in BroadVision common stock, at the same price per share as the price afforded
to Dr. Chen in connection with the Notes cancellation transaction.
The
rights offering expired on November 28, 2006. Eligible participants exercised
rights to purchase 36.4 million shares, resulting in $15.8 million in net
proceeds for the Company.
In
order
to complete the issuance of shares to Dr. Chen without violating applicable
listing standards, we delivered to NASDAQ a notification of voluntary delisting
of BroadVision common stock from the NASDAQ National Market effective prior
to
the opening of trading on March 8, 2006. We had previously received a notice
from NASDAQ stating that we were not in compliance with the minimum bid price
rules applicable to stocks traded on NASDAQ, and that we had until March
6, 2006
to regain compliance. Quotations for BroadVision common stock are currently
available through the "Pink Sheets" (www.pinksheets.com) under the trading
symbol "BVSN", and we anticipate that such quotations will continue to be
available. BroadVision common stock may also be quoted in the future on the
OTC
Bulletin Board operated by NASDAQ, provided that a market maker files the
necessary application with the National Association of Securities Dealers
and
such application is cleared.
Our principal executive offices are located at 1600 Seaport Blvd, 5 th Fl., North Bldg., Redwood City, California 94063. Our telephone number is (650) 331-1000. Our website address is www.broadvision.com. We make available free of charge through our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to these reports as soon as reasonably practicable after filing, by providing a hyperlink to the SEC's website directly to our reports. The contents of our website are not incorporated by reference into this report.
Industry
Background
e-business
has become an integral part of work life and organizations are looking for
ways
to reduce costs, improve productivity and increase revenues by moving their
business online. More and more households and organizations worldwide have
adopted a web paradigm and expect websites to be easy to use and available
for
their convenience.
By
providing a way for enterprises to quickly assemble and deploy web-based
solutions that tap into their resources, organizations can dramatically reduce
the cost and improve the quality of interactions between employees, customers
and business partners.
A
significant
number of industry analysts have highlighted the ways in which organizations
can
reduce costs and improve customer satisfaction by implementing a self-service
model, including online shopping and call center operations. In addition
to
accelerating the response time for the consumer, e-business applications
also
enable organizations to collect valuable market research data about their
customers.
BroadVision
excels in offering e-business solutions that tightly integrate portal and
commerce on a single, secure, high performance framework that also enables
advanced personalization and seamless integration to enterprise systems.
BroadVision's
software offers
advantages over competitive offerings in the following key
respects:
Lasting
business value extended to everyone:
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Low
total cost of ownership (TCO) philosophy: support for both commercial
and
open source platforms as well as mixed commercial-open source deployment
environments
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Agility
and extensibility: integrated tools for both business and IT to
rapidly
create unique e-business applications with the combination of
out-of-the-box capabilities and custom
development
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Built-in
best practices: proven technology and methodologies that take the
guesswork out of building reliable, available and scalable web
applications
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Configurability:
modular application services that can be assembled to meet customer's
exact business requirements
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Focus
on e-business: mature applications and proven methodologies developed
from
over 1,000 implementations and 14 years of experience
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Scalability -- Advanced
load balancing and multi-layered caching allow BroadVision applications
to
support large numbers of concurrent customers and transactions
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Personalization -- Our
advanced personalization technology, including session and event-based
observations and transaction information, provide a better understanding
of site visitors and allow our customers to dynamically tailor
content to
them
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Ease
of use -- Our applications and tools are designed with graphical
user interfaces that allow non-technical business managers to modify
business rules and content in real time
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Secure
transaction processing -- Our applications provide secure
handling of a wide range of commercial and financial services transactions
including order pricing and discount/incentive handling, tax computation,
shipping and handling charges, payment authorization, credit card
processing, order tracking, news and stock feeds through a combination
of
built-in functionality and integration with third-party products
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Multi-platform
availability -- Our applications are optimized for a variety of
hardware and software platforms including IBM AIX, Sun Solaris,
Microsoft
Windows NT and Hewlett-Packard's HP-UX. Supported databases include
Oracle, Sybase, Informix, IBM and Microsoft SQL Server. Supported
application servers include WebLogic, WebSphere and SunOne. We
also
support Open Source platforms, such as Linux with Jboss and Hypersonic
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Multilingual/multicurrency -- Our
applications are global ready and designed to support multiple
languages
(including Arabic, Chinese, Hebrew, Japanese, Korean, Slovakian,
Turkish
and most Western European languages) and a wide range of currencies,
including the euro
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BroadVision
Brief Product Descriptions
Our
offerings consist of modular applications and agile toolsets that are built
on a
robust framework for personalization and self-service:
Solutions
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e-Commerce
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Create
an
environment in which customers can transact more business throughout the
entire
sales process from lead generation to sales execution to customer support.
Allow
customers' businesses to manage Business-to-Business ("B2B") and
Business-to-Consumer ("B2C") channels through a single solution. Deliver
advanced merchandising and personalization capabilities and easy-to-use
catalog
management tools for business users.
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e-Tailing
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Drive
higher conversion rates from any e-Commerce site, regardless of whether that
site leverages BroadVision e-Commerce solutions. Create, manage and implement
unique discounting structures that differentiate customer's business and
connect
online and offline shopping experiences. Maintain proper oversight over all
discounts to ensure site profitability.
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Portal
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Interact
with visitors through personalized views of information, resources, and business
processes stored in diverse internal and external legacy information systems.
Support collaboration both inside and outside the enterprise. Empower business
owners to manage more of the website, from content to personalization to
collaboration.
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Content
Management
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Take
control of the quality of information as customers create, manage and publish
content to customer's e-business applications. Establish "one voice" with
consistent branding and reuse valuable content assets more effectively.
Bring
all of the right people into the content development process with Web-based
content creation, versioning and flexible content workflow.
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QuickSilver™
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Provides
powerful features for creation and publishing of lengthy, complex documents
supporting multiple output formats (including HTML, PDF and Postscript) and
automatic publishing of personalized content to BroadVision Portal. Assemble
publications from a variety of text, graphic and database sources, including
Microsoft Word, AutoCad, Microsoft Excel, and Oracle. Includes a complete
XML
authoring environment.
e-business
Framework Components
Methodology
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BroadVision
e-business Methodology
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Apply
the
best practices developed during BroadVision's 14+ years of experience with
some
of the world's largest e-business websites. Ensure application performance,
reliability, availability and scalability. Accelerate productivity for new
developers. Promote reuse of custom developed components.
Developer
Toolkit
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Kukini
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Utilize
teams of business and IT to create a distinctive user experience with a
flexible
toolkit. Provide both sets of users with a visual environment where they
can
work together to design and deploy complex e-business applications and
websites
quickly and efficiently. Creates a structure for dividing tasks among people
with different skill levels while enforcing best practices. Run with customers'
J2EE application environment of choice or leverage the rich and scalable
BroadVision Kona services.
Framework
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Kona
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Build
differentiated e-business applications quickly and efficiently using a set
of
open, flexible and configurable services. Use out-of-the box functionality,
data
schemas and tools to have an e-business application up and running in days
or
weeks, not months. Empower business users to take control of day-to-day site
management tasks. Leverage commercial operating systems, databases and
application servers or a mix of commercial and open source components to
drive
the highest level of performance with the lowest total cost of
ownership.
Application
Services Library
Accelerate
application development with a modular set of flexible, out-of-the-box web
services build on the functionality of Kona, expanding the capabilities of
the
core framework.
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Commerce
Services
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Display
product offerings and transact business on customers' websites. Includes
configurable catalog management, pricing, shopping cart, checkout and order
management capabilities. Enables business users to maintain control over
day-to-day activities on the site.
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Portal
Services
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Provide
end users with a personalized and intuitive navigation experience as they
interact with customer's business. Incorporates a navigation hierarchy, content
categorization and familiar portlet structure into any e-business
application.
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Process
Services™
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Extends
web capabilities and transforms costly, people-intensive processes and
collaborations into web-based self-service applications. Allows business
and IT
to design, test and deploy solutions in days, not months, significantly reducing
costs and accelerating time-to-implementation.
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Content
Services™
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Manages
web content throughout its lifecycle: from creation and management through
deployment and distribution. As part of a BroadVision solution, it creates
a
review, approval and publishing cycle that replace a cumbersome email trail,
provides for version control, creates an audit trail, and helps organizations
deliver personalized, timely and up-to-date content.
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Staging
Services™
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Simplifies
the process of moving content from multiple systems to the production
environment. Reduces the cost of managing BroadVision application assets
and
improves process standardization for enterprise staging
initiatives.
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eMerchandising
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Drive
higher conversion rates, differentiate e-commerce sites and connect online
and
offline experiences with innovative, patent-pending discounting capabilities.
Create, manage and implement complex sales discounts while maintaining oversight
over profitability. Deploys discounts to BroadVision and non-BroadVision
e-commerce sites.
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Search™
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Provides
full-text and field searching of online content and any referenced external
files and returns results with relevance-ranked scores. Supports query searches
using a broad spectrum of search operators. Connects people to the information
they seek regardless of medium. Developed in partnership with FAST, a global
leader in real-time search and filter technology.
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On-Demand
and Collaborative Human Resource Management ™
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Our
BroadVision On - Demand (BVOD) ™ business unit, headquartered in Beijing, China.
BVOD's on--demand solutions - easy to setup and operate via personalized
self-service without costly upfront investments and lingering maintenance
overhead - deliver compelling value to our customers immediately and
continuously. CHRM™ (Collaborative Human Resource Management), developed using
Kona--Kukini in record time and with tremendous cost savings as BVOD's first
offering, has proven to be an impressive showcase for the
K
2
Methodology.
This
on-demand solution provides superb visibility and agility for all members
of our
customers' organizations to collaborate more productively in each phase of
the
HR management lifecycle, creating a strategic competitive advantage through
the
efficient management of human assets.
Open
Standards-Based Architecture
BroadVision
e-business solutions are built on object-oriented application code written
in
J2EE programming environments, including Java and JavaScript, and where
appropriate C++, which allows developers and system integrators to use,
integrate, modify, adapt or extend the applications with minimal impact on
other
areas to create a rapidly customized product that meets specific business
requirements. BroadVision Process leverages a proven open source stack at
the
platform layers to reduce total cost of ownership and optimize performance.
Support
for the J2EE and CORBA standards for object-oriented computing enables
high-volume performance, flexible application deployment and easy integration
with third-party or legacy applications. Our applications fully support XML,
which is the emerging standard for managing and exchanging data between
e-business systems as well as for re-purposing and sending information to
wireless devices.
In
addition, we use other widely accepted standards in developing our products,
including Web Services, Structured Query Language (SQL) for accessing relational
database management systems; Common Gateway Interface (CGI) and Hypertext
Transfer Protocol (HTTP) for web access; Netscape Application Programming
Interface (NAPI) for access to Netscape's web servers; Secure Socket Layer
(SSL)
for secure transmissions over networks; and the RC2 and MD5 encryption
algorithms supplied by RSA Security.
Our
applications can be operated in conjunction with relational database management
systems provided by IBM Corporation, Informix, Microsoft, Oracle and Sybase.
Supported application servers include WebLogic, WebSphere, SunOne and JBoss.
Support
for Open Source
BroadVision
Process and BroadVision Portal give organizations the option of running on
a
commercially available technology stack described above or on an open source
stack. While our commitment to commercial platforms has not changed, we
recognize that our customers are adopting Open Source as a platform because
of
its total cost of ownership and runtime benefits.
BroadVision
provides a full spectrum of global services to contribute to the success
of our
customers, including business consulting services, implementation services
related to our software and related software, migration and performance tuning
services and ongoing training and technical support.
Education
Services
Coursework
is available for Content Managers, Technical Developers and System
Administrators through BroadVision Education Services. Customers and partners
can arrange for on-site programs, which keep employees at the office, or
take
advantage of public courses at BroadVision locations.
Support
and Maintenance Services
BroadVision
offers a tiered support and maintenance program to better serve the needs
of our
global customer base. Standard Support provides technical assistance during
regular business hours; Enterprise Support is designed for customers with
mission-critical environments, providing customers with access to support
experts 24 hours a day, 7 days a week; and Personalized Support
assigns a specific individual to a customer along with other customer specified
support services, including on-site support engineers. We have technical
support
centers in North America, Europe and Asia. Under our standard maintenance
agreement, we provide telephone support and upgrade rights to new releases,
including patch releases (as necessary) and product enhancements (when and
if
available).
As
of
December 31, 2006, we had licensed our products to over 500 end-user
customers and partners. During each of the years ended December 31, 2006,
2005 and 2004, no customer accounted for more than 10% of our total revenues.
As
of December 31, 2006 and 2005, one customer accounted for 13 % and 16 % of
our
accounts receivable balance, respectively. We do not believe that the loss
of
any single customer would have a material adverse effect on our business
or
results of operations.
BroadVision's
software is deployed in all major industry groups, including financial services,
government, healthcare, manufacturing, retail and telecommunications. Customers
include Audible.com, Baker Hughes, Ferrari, Cardinal Health, Citibank, Hilti,
Japan Airlines, Renault, Sears, Sony, Standard Chartered Bank, Vodafone,
U.S.
Air Force, Yomiuri Shinbun and Xerox.
We
market
our products primarily through a direct sales organization with operations
in
North America, Europe and Asia/Pacific. On December 31, 2006, our direct
sales organization included 20 sales representatives, managers and sales
support
personnel.
We
have
sales offices located throughout the world to support the sales and marketing
of
our products. In support of the Americas organizations, offices located in
the
United States are in California and Massachusetts.
Offices
for our Europe region are located in France, Germany, Italy, Spain, Switzerland
and the United Kingdom.
Our
sales
and marketing offices in the Asia Pacific/Japan/India/Middle East region
are
located in India and Japan.
We
derive
a significant portion of our revenue from our operations outside North America.
In the twelve months ended December 31, 2005, approximately 43% of our
revenues were derived from international sales. In the twelve months ended
December 31, 2006, approximately 40% of our revenue was derived from
international sales. If we are unable to manage or grow our existing
international operations, we may not generate sufficient revenue required
to
establish and maintain these operations, which could slow our overall growth
and
impair our operating margins.
Initial
sales activities typically involve discussion and review of the potential
business value associated with the implementation of a BroadVision solution,
a
demonstration of our e-business applications capabilities at the prospect's
site, followed by one or more detailed technical reviews. The sales process
usually involves collaboration with the prospective customer in order to
specify
the scope of the solution. Our global services organization helps customers
to
design, develop and deploy their e-business solutions.
As
of
December 31, 2006, 4 employees were engaged in a variety of marketing
activities, including product planning, marketing material development, public
relations, identifying potential customers, establishing and maintaining
close
relationships with recognized industry analysts and maintaining our website.
We
recognize that today's organizations require an open, partner-based approach
to
e-business. Accordingly, we have assembled a global team of best-of-breed
partners with the skills, services and value-added products necessary to
develop, market, sell and deliver the most competitive e-business solutions
available.
Consulting
Partners
Our
systems integration and consulting services partners deliver strategic business
solutions to our global customers. These partners offer deployment experience,
strong vertical market expertise, and process-based solutions. Our contractual
agreements with these consulting partners motivate them to build a development
expertise in our technology and sell our products and services to potential
customers, thus enabling us to extend the reach of our products and services.
Revenue generated from consulting partners in recent years has not been
significant.
Technology/OEM
Partners
Our
technology partners include Value-Added Resellers (VAR) and Independent Software
Vendors (ISV) who build and deploy BroadVision-based vertical and horizontal
software solutions. Our goal is to create value-added solutions that address
a
customer's specific business and IT goals. In addition, technology partners
include distributors who are authorized representatives that market, distribute,
resell and support our products and services or application service providers
who develop, host and support value-added application solutions based on
our
technology. The contracts that govern our relationships with these partners
are
generally terminable by either party upon 30 to 90 days notice. In most
cases, technology/OEM partners license our products to users under the terms
of
a reseller or distribution agreement. Revenue generated from technology/OEM
partners in recent years has not been significant.
If
we
fail to compete successfully with current or future competitors, we may lose
market share. The market for e-business is intensely competitive. Our customers'
requirements and the technology available to satisfy those requirements will
continually change. We expect competition in this market to persist. Our
primary
competition currently includes:
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in-house
development efforts by prospective customers or partners;
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other
vendors of application software or application development platforms
and
tools directed at interactive commerce and portal applications,
such as
Art Technology Group, BEA Systems, IBM Corporation, Microsoft,
Oracle and
SAP.
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web
content developers that develop custom software or integrate
other
application software into custom solutions.
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The
principal competitive factors affecting the market for our products are:
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depth
and breadth of functionality offered;
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availability
of knowledgeable developers;
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time
required for application deployment;
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reliance
on industry standards;
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product
reliability;
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proven
track record;
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scalability;
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maintainability;
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product
quality;
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price; and
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technical
support.
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Compared
to us, many of these competitors and other current and future competitors
have
longer operating histories and significantly greater financial, technical,
sales, marketing and other resources. As a result, they may be able to respond
more quickly to new or changing opportunities, technologies and customer
requirements. Many of these companies can use their greater name recognition
and
more extensive customer base to gain market share. Competitors may be able
to
undertake more extensive promotional activities, adopt more aggressive pricing
policies and offer more attractive terms to purchasers. Current and potential
competitors may bundle their products to discourage users from purchasing
our
products. In addition, competitors have established or may establish cooperative
relationships among themselves or with third parties to enhance their products.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. Competitive pressures
may make it difficult for us to acquire and retain customers.
Our
success and ability to compete are dependent to a significant degree on our
proprietary technology. We hold a U.S. patent, issued in January 1998 and
expiring in August 2015, on elements of the BroadVision One-To-One Enterprise
product, which covers e-commerce operations common in today's web business.
We
also hold a U.S. patent, issued in November 1996 and expiring in February
2014, acquired as part of the Interleaf acquisition, on the elements of the
extensible electronic document processing system for creating new classes
of
active documents. The patent on active documents (associating procedures
to
elements of an electronic document) is fundamental and hard to avoid by some
modern document processing systems. Although we hold these patents, they
may not
provide an adequate level of intellectual property protection. In addition,
litigation may be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets, to determine the validity and scope
of the
proprietary rights of others, or to defend against claims of infringement
or
invalidity. We cannot guarantee that infringement or other claims will not
be
asserted or prosecuted against us in the future, whether resulting from our
intellectual property or licenses from third parties. Claims or litigation,
whether successful or unsuccessful, could result in substantial costs and
diversions of resources, either of which could harm our business.
We
also
rely on copyright, trademark, service mark, trade secret laws and contractual
restrictions to protect our proprietary rights in products and services.
We have
registered "BroadVision", "BroadVision One-To-One", "iGuide" and "Interleaf"
as
trademarks in the United States and in other countries. It is possible that
our
competitors or other companies will adopt product names similar to these
trademarks, impeding our ability to build brand identity and possibly confusing
customers.
As
a
matter of company policy, we enter into confidentiality and assignment
agreements with our employees, consultants and vendors. We also control access
to and distribution of our software, documents and other proprietary
information. Notwithstanding these precautions, it may be possible for an
unauthorized third party to copy or otherwise obtain and use our software
or
other proprietary information or to develop similar software independently.
Policing unauthorized use of our products will be difficult, particularly
because the global nature of the Internet makes it difficult to control the
ultimate destination or security of software and other transmitted data.
The
laws of other countries may afford us little or no effective protection of
our
intellectual property.
As
of
December 31, 2006, we employed a total of 159 full-time employees, of
whom 100 are based in North America, 32 in Europe and 27 in Asia. Of these
full-time employees, 41 are in sales and marketing, 45 are in product
development, 47 are in global services and client support, and 26 are in
finance, administration and operations.
We
believe that our future success depends on attracting and retaining highly
skilled personnel. We may be unable to attract and retain high-caliber
employees. Our employees are not represented by any collective bargaining
unit.
We have never experienced a work stoppage and consider our employee relations
to
be good.
Our
executive officer and his age as of December 31, 2006 are as follows:
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Name
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Age
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Position
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Pehong
Chen
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49
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Chairman,
President, Chief Executive Officer and Interim Chief Financial
Officer
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Pehong
Chen
has
served as our Chairman of the Board, Chief Executive Officer and President
since
our incorporation in May 1993. From 1992 to 1993, Dr. Chen served as the
Vice President of Multimedia Technology at Sybase, a supplier of client-server
software products. Dr. Chen founded and, from 1989 to 1992, served as
President of Gain Technology, a provider of multimedia applications development
systems, which was acquired by Sybase. He received a B.S. in Computer Science
from National Taiwan University, an M.S. in Computer Science from Indiana
University and a Ph.D. in Computer Science from the University of California
at
Berkeley.
William
E. Meyer
served
as
our Executive Vice President and Chief Financial Officer from April 2003
until
his resignation in June 2006. Prior to joining BroadVision, Mr. Meyer was
Chief Financial Officer of Mainsoft Corporation, a leading global publisher
of
cross-platform development software. Before Mainsoft, he held several senior
finance positions with Phoenix Technologies, a multi-national system software
company, including Chief Financial Officer and Executive Vice President of
inSilicon Corporation, a leading developer of semiconductor intellectual
property that was spun-off from Phoenix. Prior to his tenure at Phoenix,
Meyer
held senior finance positions at Spectrum HoloByte/Microprose, SBT Accounting
Systems and Arthur Andersen & Co.
ITEM
1
A.
RISK
FACTORS
The
risks and uncertainties described below are not the only ones facing us.
Additional risks and uncertainties not presently known to us or that we
currently deem immaterial also may impair our business operations. If any
of the
following risks actually occur, our business could be harmed. In that event,
the
trading price of our common stock could decline.
We
have a history of losses and our future profitability on a quarterly or annual
basis is uncertain, which could have a harmful effect on our business and
the
value of BroadVision common stock.
While
we
generated positive operating income and cash flow in the twelve months ended
December 31, 2006, we have incurred substantial cumulative net operating
losses
and negative cash flows from operations from 2000 to 2005. As of December
31,
2006, we had an accumulated deficit of approximately $1.2 billion.
Given
our
planned operating and capital expenditures, for the foreseeable future we
expect
our results of operations to fluctuate, and during this period we may incur
losses and/or negative cash flows. If our revenue does not increase or if
we
fail to maintain our expenses at an amount less than our projected revenue,
we
will not be able to achieve or sustain operating profitability on a consistent
basis. We are continuing our efforts to reduce and control our expense
structure. We believe strict cost containment and expense reductions are
essential to achieving positive cash flow and profitability. A number of
factors
could preclude us from successfully bringing costs and expenses in line with
our
revenues, including unplanned uses of cash, the inability to accurately forecast
business activities and further deterioration of our revenues. If we are
not
able to effectively reduce our costs and achieve an expense structure
commensurate with our business activities and revenues, we may have inadequate
levels of cash for operations or for capital requirements, which could
significantly harm our ability to operate our business.
Our
failure to operate profitably or control negative cash flows on a quarterly
or
annual basis could harm our business and the value of BroadVision common
stock.
If the negative cash flow continues, our liquidity and ability to operate
our
business would be severely and adversely impacted. Additionally, our ability
to
raise financial capital may be hindered due to our operational losses and
negative cash flows, reducing our operating flexibility.
Because
our quarterly operating results are volatile and difficult to predict, our
quarterly operating results in one or future periods are likely to fluctuate
significantly, which could cause our stock price to decline if we fail to
meet
the expectations of securities analysts or investors.
Our
quarterly operating results have varied significantly in the past and are
likely
to continue to vary significantly in the future. For example, in the quarters
ended March 31, 2005, June 30, 2005, September 30, 2005, December
31, 2005, and March 31, 2006, our revenues declined 22%, 23%, 18%, 1%, and
13%
respectively, as compared to the previous quarters. In the quarters ended
June
30, 2006, and September 30, 2006, our revenue increased 1%, and 7% respectively,
as compared to the previous quarters. In the quarter ended December 31, 2006,
our revenue declined 4% as compared to the previous quarter. If our revenues,
operating results, earnings or future projections are below the levels expected
by securities analysts or investors, our stock price is likely to decline.
We
expect
to continue to experience significant fluctuations in our results of operations
due to a variety of factors, some of which are outside of our control,
including:
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introduction
of products and services and enhancements by us and our competitors;
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competitive
factors that affect our pricing;
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market
acceptance of new products;
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the
mix of products sold by us;
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changes
in our pricing policies or our competitors;
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changes
in our sales incentive plans;
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the
budgeting cycles of our customers;
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customer
order deferrals in anticipation of new products or enhancements
by our
competitors or us or because of macro-economic conditions;
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nonrenewal
of our maintenance agreements, which generally automatically renew
for
one-year terms unless earlier terminated by either party upon 90-days
notice;
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product
life cycles;
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changes
in strategy;
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seasonal
trends;
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the
mix of distribution channels through which our products are sold;
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the
mix of international and domestic sales;
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the
rate at which new sales people become productive;
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changes
in the level of operating expenses to support projected growth;
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increase
in the amount of third party products and services that we use
in our
products or resell with royalties attached;
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fluctuations
in the recorded value of outstanding common stock warrants that
will be
based upon changes to the underlying market value of BroadVision
common
stock;
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the
timing of receipt and fulfillment of significant orders; and
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costs
associated with litigation, regulatory compliance and other corporate
events such as operational reorganizations.
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As
a
result of these factors, we believe that quarter-to-quarter comparisons of
our
revenue and operating results are not necessarily meaningful, and that these
comparisons are not accurate indicators of future performance. Because our
staffing and operating expenses are based on anticipated revenue levels,
and
because a high percentage of our costs are fixed, small variations in the
timing
of the recognition of specific revenue could cause significant variations
in
operating results from quarter to quarter. If we were unable to adjust spending
in a timely manner to compensate for any revenue shortfall, any significant
revenue shortfall would likely have an immediate negative effect on our
operating results. If our operating results in one or more future quarters
fail
to meet the expectations of securities analysts or investors, we would expect
to
experience an immediate and significant decline in the trading price of our
stock.
Our
business currently depends on revenue related to BroadVision e-business
solutions, and if the market does not increasingly accept these products
and
related products and services, our revenue may continue to
decline.
We
generate our revenue from licenses of BroadVision e-business solutions,
including process, commerce, portal and content management and related products
and services. We expect that these products, and future upgraded versions,
will
continue to account for a large portion of our revenue in the foreseeable
future. Our future financial performance will depend on increasing acceptance
of
our current product and on the successful development, introduction and customer
acceptance of new and enhanced versions of our products. If new and future
versions and updates of our products and services do not gain market acceptance
when released commercially, or if we fail to deliver the product enhancements
and complementary third party products that customers want, demand for our
products and services, and our revenue, may decline.
We
have recently introduced new products, services and technologies and our
business will be harmed if we are not successful in selling these offerings
to
our existing customers and new customers.
We
have
recently introduced a product roadmap for 2007 that includes new products,
services and technologies, to complement and replace certain of our existing
products, services and technologies. We have spent significant resources
in developing these offerings and training our employees to implement and
support the offerings, and we plan to add sales and marketing resources.
We do not yet know whether any of these new offerings will be appealing
to
existing and potential new customers, and if so, whether sales of these
new
offerings will be sufficient for us to offset the costs of development,
implementation, support and marketing. Our existing customers may
determine that our products and services they currently use are sufficient
for
their purposes, or that the added benefit from these new offerings is not
sufficient to merit the additional cost. As a result we may need to
decrease our prices or develop modifications. And while we have performed
extensive testing of our new products and technologies, their broad-based
implementation may require more support than we anticipate, which would
further
increase our expenses. If sales of our new products, services and
technologies are lower than we expect, or if we must lower our prices or
delay
implementation to fix unforeseen problems and develop modifications, our
operating margins are likely to decrease and we may not be able to operate
profitably. A failure to operate profitably would significantly harm our
business.
Our
management identified a material weakness in the effectiveness of our internal
control over financial reporting as of December 31, 2005 and as of December
31, 2006. The 2005 material weakness caused restatement of our historical
operating results. Additional material weaknesses may be discovered and
additional restatements may be required in the future.
We
previously reported that as of December 31, 2005, we did not have a sufficient
number of experienced personnel in our accounting and finance organization
to
facilitate an efficient financial statement close process and permit
the
preparation of our financial statements in accordance with Generally
Accepted
Accounting Principles (GAAP). For example, there were a significant number
of
adjustments to our financial statements during the course of the 2005
audit, at
least one of which was individually material and required us to restate
several
prior quarters. Our personnel also lacked certain required skills and
competencies to oversee the accounting operations and perform certain
important
control functions, such as the review, periodic inspection and investigation
of
transactions of our foreign locations. We consider this to be a deficiency
that
was also a material weakness in the operation of entity-level controls.
In
2006
we hired several new full-time employees, and we believe that as of December
31,
2006 we have retained a sufficient number of experienced personnel in
our
accounting and finance organization to enable us to address the material
weakness that existed as of December 31, 2005. These new hires have augmented
the capabilities of our organization, but in many cases they replaced
employees
or part-time contactors who had left us for various reasons. This turnover
has
caused a reduction in our institutional knowledge regarding historical
events.
While we believe that the recent additions to our accounting and finance
organization continue to gain familiarity with the complex issues relating
mainly to our historical operations, as of December 31, 2006 the full
organization had not yet been in place for a sufficient amount of time
to allow
us to conclude that no material weakness existed as of December 31, 2006.
If we
are not successful in retaining experienced personnel in our accounting
and
finance organization in order to sufficiently address the reduction in
institutional knowledge referenced above, there is more than a remote
likelihood
that our quarterly or annual financial statements could be materially
misstated,
which could require a restatement.
Maintaining
sufficient expertise and historical institutional knowledge in our accounting
and finance organization is dependent upon retaining existing employees
and
filling any open positions with experienced personnel in a timely fashion.
The
market for skilled accounting and finance personnel is competitive and
we may
have continued difficulty in retaining our staff because (1) in the region
in which we compete there are many established companies that can offer
more
lucrative compensation packages and (2) some professionals are reluctant to
deal with our complex accounting issues relating to our historical operations.
One Senior Accountant who joined us in the third quarter of 2006 left
in January
2007. Our inability to staff the department with competent personnel
with
sufficient training will affect our internal controls over financial
reporting
to the extent that we may not be able to prevent or detect material
misstatements. Inferior internal controls could also cause investors
to lose
confidence in our reported financial information, which could have a
negative
effect on the trading price of our common stock.
If
we are unable to keep pace with the rapid technological changes in online
commerce and communication, our products and services may fail to be
competitive.
Our
products and services may fail to be competitive if we do not maintain or
exceed
the pace of technological developments in Internet commerce and communication.
Failure to be competitive could cause our revenue to decline. The information
services, software and communications industries are characterized by rapid
technological change, changes in customer requirements, frequent new product
and
service introductions and enhancements and evolving industry standards and
practices. The introduction of products and services embodying new technologies
and the emergence of new industry standards and practices can render existing
products and services obsolete. Our future success will depend, in part,
on our
ability to:
l
develop
leading technologies;
l
enhance
our existing products and services;
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develop
new products and services that address the increasingly sophisticated and
varied
needs of our prospective customers; and
l
respond
to technological advances and emerging industry standards and practices on
a
timely and cost-effective basis.
Our
sales and product implementation cycles are lengthy and subject to delay,
which
make it difficult to predict our quarterly results.
Our
sales
and product implementation cycles generally span months. Delays in customer
orders or product implementations, which are difficult to predict, can affect
the timing of revenue recognition and adversely affect our quarterly operating
results. Licensing our products is often an enterprise-wide decision by
prospective customers. The importance of this decision requires that we engage
in a lengthy sales cycle with prospective customers. A successful sales cycle
may last up to nine months or longer. Our sales cycle is also affected by
a
number of other factors, some of which we have little or no control over,
including the volatility of the overall software market, the business condition
and purchasing cycle of each prospective customer, and the performance of
our
technology partners, systems integrators and resellers. The implementation
of
our products can also be time and resource intensive, and subject to unexpected
delays. Delays in either product sales or implementations could cause our
operating results to vary significantly from quarter to quarter.
Current
and potential competitors could make it difficult for us to acquire and retain
customers now and in the future.
The
market for our products is intensely competitive. We expect competition in
this
market to persist and increase in the future. If we fail to compete successfully
with current or future competitors, we may be unable to attract and retain
customers. Increased competition could also result in price reductions for
our
products and lower profit margins and reduced market share, any of which
could
harm our business, results of operations and financial condition.
Many
of
our competitors have significantly greater financial, technical, marketing
and
other resources, greater name recognition, a broader range of products
and a
larger installed customer base, any of which could provide them with a
significant competitive advantage. In addition, new competitors, or alliances
among existing and future competitors, may emerge and rapidly gain significant
market share. Some of our competitors, particularly established software
vendors, may also be able to provide customers with products and services
comparable to ours at lower or at aggressively reduced prices in an effort
to
increase market share or as part of a broader software package they are
selling
to a customer. We may be unable to match competitor's prices or price
reductions, and we may fail to win customers that choose to purchase an
information technology solution as part of a broader software and services
package. As a result, we may be unable to compete successfully with current
or
new competitors.
Because a significant portion of our sales activity occurs at the end of each fiscal quarter, delays in a relatively small number of license transactions could adversely affect our quarterly operating results.
A
significant proportion of our sales are concentrated in the last month of
each
fiscal quarter. Gross margins are high for our license transactions. Customers
and prospective customers may use these conditions in an attempt to obtain
more
favorable terms. While we endeavor to avoid making concessions that could
result
in lower margins, the negotiations often result in delays in closing license
transactions. Small delays in a relatively small number of license transactions
could have a significant impact on our reported operating results for that
quarter.
We
have substantially modified our business and operations and will need to
manage
and support these changes effectively in order for our business plan to
succeed.
We
have
substantially expanded then contracted our business and operations since
our
inception in 1993. We grew from 652 employees at the end of 1999 to 2,412
employees at the end of 2000 and then reduced our numbers to 1,102 at the
end of
2001, 449 at the end of 2002, 367 at the end of 2003, 337 at the end of 2004
and
181 at the end of 2005. On December 31, 2006, we had approximately 159
employees. As a consequence of our employee base growing and then contracting
so
rapidly, we entered into significant contracts for facilities space for which
we
ultimately determined we did not have a future use. We announced during the
third and fourth quarters of 2004 that we had agreed with the landlords of
various facilities to renegotiate future lease commitments, extinguishing
a
total of approximately $155 million of future obligations. The management
of the expansion and later reduction of our operations has taken a considerable
amount of our management's attention during the past several years. As we
manage
our business to introduce and support new products, we will need to continue
to
monitor our workforce and make appropriate changes as necessary. If we are
unable to support past changes and implement future changes effectively,
we may
have to divert additional resources away from executing our business plan
and
toward internal administration. If our expenses significantly outpace our
revenues, we may have to make additional changes to our management systems
and
our business plan may not succeed.
We
may face liquidity challenges and need additional financing in the
future.
We
currently expect to be able to fund our working capital requirements from
our
existing cash and cash equivalents and our anticipated cash flows from
operations and subleases through at least December 31, 2007. However, we
could
experience unforeseen circumstances, such as an economic downturn, difficulties
in retaining customers and/or key employees, or other factors that could
increase our use of available cash and require us to seek additional financing.
We may find it necessary to obtain additional equity or debt financing due
to
the factors listed above or in order to support a more rapid expansion, develop
new or enhanced products or services, respond to competitive pressures, acquire
complementary businesses or technologies or respond to unanticipated
requirements.
We
may
seek to raise additional funds through private or public sales of securities,
strategic relationships, bank debt, financing under leasing arrangements
or
otherwise. If additional funds are raised through the issuance of equity
securities, the percentage ownership of our stockholders will be reduced,
stockholders may experience additional dilution or any equity securities
we sell
may have rights, preferences or privileges senior to those of the holders
of our
common stock. We expect that obtaining additional financing on acceptable
terms
would be difficult, at best. If adequate funds are not available or are not
available on acceptable terms, we may be unable to pay our debts as they
become
due, develop our products, take advantage of future opportunities or respond
to
competitive pressures or unanticipated requirements, which could have a material
adverse effect on our business, financial condition and future operating
results.
We
are dependent on direct sales personnel and third-party distribution channels
to
achieve revenue growth.
To
date,
we have sold our products primarily through our direct sales force. Our ability
to achieve significant revenue growth in the future largely will depend on
our
success in recruiting, training and retaining sufficient direct sales personnel
and establishing and maintaining relationships with distributors, resellers
and
systems integrators. Our products and services require a sophisticated sales
effort targeted at the senior management of our prospective customers. New
hires
as well as employees of our distributors, resellers and systems integrators
require training and take time to achieve full productivity. Our recent hires
may not become as productive as necessary, and we may be unable to hire and
retain sufficient numbers of qualified individuals in the future. We have
entered into strategic alliance agreements with partners, under which partners
have agreed to resell and support our current BroadVision product suite.
These
contracts are generally terminable by either party upon 30 days' notice of
an uncured material breach or for convenience upon 90 days' notice prior to
the end of any annual term. Termination of any of these alliances could harm
our
expected revenues. We may be unable to expand our other distribution channels,
and any expansion may not result in revenue increases. If we fail to maintain
and expand our direct sales force or other distribution channels, our revenues
may not grow or they may decline. Revenue generated from third-party
distributors in recent years has not been significant.
Failure
to maintain relationships with third-party systems integrators could harm
our
ability to achieve our business plan.
Our
relationships with third-party systems integrators who deploy our products
have
been a key factor in our overall business strategy, particularly because
many of
our current and prospective customers rely on integrators to develop, deploy
and
manage their online marketplaces. Our efforts to manage our relationships
with
systems integrators may not succeed, which could harm our ability to achieve
our
business plan due to a variety of factors, including:
l
Systems
integrators may not view their relationships with us as valuable to their
own
businesses. The related arrangements typically may be terminated by either
party
with limited notice and in some cases are not covered by a formal agreement.
l
Under
our
business model, we often rely on our system integrators' employees to perform
implementations. If we fail to work together effectively, or if these parties
perform poorly, our reputation may be harmed and deployment of our products
may
be delayed or inadequate.
l
Systems
integrators may attempt to market their own products and services rather
than
ours.
l
Our
competitors may have stronger relationships with our systems integrators
than us
and, as a result, these integrators may recommend a competitor's products
and
services over ours.
l
If
we
lose our relationships with our systems integrators, we will not have the
personnel necessary to deploy our products effectively, and we will need
to
commit significant additional sales and marketing resources in an effort
to
reach the markets and customers served by these parties.
We
may be unable to manage or grow our international operations and assets,
which
could impair our overall growth or financial position.
We
derive
a significant portion of our revenue from our operations outside North America.
In the twelve months ended December 31, 2005, approximately 43% of our
revenues were derived from international sales. In the twelve months ended
December 31, 2006, approximately 40% of our revenue was derived from
international sales . If we are unable to manage or grow our existing
international operations, we may not generate sufficient revenue required
to
establish and maintain these operations, which could slow our overall growth
and
impair our operating margins.
As
we
rely materially on our operations outside of North America, we are subject
to
significant risks of doing business internationally, including:
l
difficulties
in staffing and managing foreign operations and safeguarding foreign
assets;
l
unexpected
changes in regulatory requirements;
l
export
controls relating to encryption technology and other export
restrictions;
l
tariffs
and other trade barriers;
l
difficulties
in staffing and managing foreign operations;
l
political
and economic instability;
l
fluctuations
in currency exchange rates;
l
reduced
protection for intellectual property rights in some countries;
l
cultural
barriers;
l
seasonal
reductions in business activity during the summer months in Europe and certain
other parts of the world; and
l
potentially
adverse tax consequences.
Management
of international operations presents special challenges, particularly at
our
reduced staffing levels. For example, in December 2005, an inappropriate
transfer of approximately $60,000 was made from our bank account in Japan
to a
consulting services provider affiliated with two officers of our Japan
subsidiary without the approvals required under our internal control policies.
Although this transfer was later detected, the funds were recaptured and
the
services of the Japan subsidiary officers involved were terminated, we face
the
risk that other similar misappropriations of assets may occur in the
future.
In
addition, our international sales growth will be limited if we are unable
to
establish additional foreign operations, expand international sales channel
management and support, hire additional personnel, customize products for
local
markets and develop relationships with international service providers,
distributors and system integrators. Even if we are able to successfully
expand
our international operations, we may not succeed in maintaining or expanding
international market demand for our products.
Our
success and competitive position will depend on our ability to protect our
proprietary technology.
Our
success and ability to compete are dependent to a significant degree on our
proprietary technology. We hold a U.S. patent, issued in January 1998, on
elements of the BroadVision platform, which covers electronic commerce
operations common in today's web business. We also hold a U.S. patent,
issued in November 1996, acquired as part of the Interleaf acquisition on
the
elements of the extensible electronic document processing system for creating
new classes of active documents. Although we hold these patents, they may
not
provide an adequate level of intellectual property protection. In addition,
litigation may be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets, or to determine the validity and scope
of
the proprietary rights of others. It is also possible that third parties
may
claim we have infringed their patent, trademark, copyright or other proprietary
rights. Claims may be made for indemnification resulting from allegations
of
infringement. Intellectual property infringement claims may be asserted against
us as a result of the use by third parties of our products. Claims or
litigation, with or without merit, could result in substantial costs and
diversions of resources, either of which could harm our business.
We
also
rely on copyright, trademark, service mark, trade secret laws and contractual
restrictions to protect our proprietary rights in products and services.
We have
registered "BroadVision", "iGuide", "BroadVision Self-Service Suite",
"BroadVision Process", "BroadVision Commerce", "BroadVision Portal",
"BroadVision Content" and "Interleaf" as trademarks in the United States
and in
other countries. It is possible that our competitors or other companies will
adopt product names similar to these trademarks, impeding our ability to
build
brand identity and possibly confusing customers.
As
a
matter of company policy, we enter into confidentiality and assignment
agreements with our employees, consultants and vendors. We also control access
to and distribution of our software, documents and other proprietary
information. Notwithstanding these precautions, it may be possible for an
unauthorized third party to copy or otherwise obtain and use our software
or
other proprietary information or to develop similar software independently.
Policing unauthorized use of our products will be difficult, particularly
because the global nature of the Internet makes it difficult to control the
ultimate destination or security of software and other transmitted data.
The
laws of other countries may afford us little or no effective protection of
our
intellectual property.
A
breach of the encryption technology that we use could expose us to liability
and
harm our reputation, causing a loss of customers.
If
any
breach of the security technology embedded in our products were to occur,
we
would be exposed to liability and our reputation could be harmed, which could
cause us to lose customers. A significant barrier to online commerce and
communication is the secure exchange of valuable and confidential information
over public networks. We rely on encryption and authentication technology,
including Open SSL and public key cryptography technology featuring the major
encryption algorithms RC2 and MDS, to provide the security and authentication
necessary to effect the secure exchange of confidential information. Advances
in
computer capabilities, new discoveries in the field of cryptography or other
events or developments could cause a breach of the RSA or other algorithms
that
we use to protect customer transaction data.
The
loss or malfunction of technology licensed from third parties could delay
the
introduction of our products and services.
We
rely
in part on technology that we license from third parties, including relational
database management systems from Oracle and Sybase, Informix object request
broker software from IONA Technologies PLC, and database access technology
from
Rogue Wave Software. The loss or malfunction of any of these technology licenses
could harm our business. We integrate or sublicense this technology with
internally developed software to perform key functions. For example, our
products and services incorporate data encryption and authentication technology
licensed from Open SSL. Third-party technology licenses might not continue
to be
available to us on commercially reasonable terms, or at all. Moreover, the
licensed technology may contain defects that we cannot control. Problems
with
our technology licenses could cause delays in introducing our products or
services until equivalent technology, if available, is identified, licensed
and
integrated. Delays in introducing our products and services could adversely
affect our results of operations.
Our
officers, key employees and highly skilled technical and managerial personnel
are critical to our business, and they may not remain with us in the
future.
Our
performance substantially depends on the performance of our officers and
key
employees. We also rely on our ability to retain and motivate qualified
personnel, especially our management and highly skilled development teams.
The
loss of the services of any of our officers or key employees, particularly
our
founder, Chief Executive Officer and interim Chief Financial Officer,
Dr. Pehong Chen, could cause us to incur increased operating expenses and
divert senior management resources in searching for replacements. The loss
of
their services also could harm our reputation if our customers were to
become
concerned about our future operations. We do not carry "key person" life
insurance policies on any of our employees. Our future success also depends
on
our continuing ability to identify, hire, train and retain other highly
qualified technical and managerial personnel. Competition for these personnel
is
intense, especially in the Internet industry. We have in the past experienced,
and may continue to experience, difficulty in hiring and retaining sufficient
numbers of highly skilled employees. The significant downturn in our business
and the uncertainty created by the execution and subsequent termination
of our
merger agreement with an affiliate of Vector Capital Corporation has had
and may
continue to have a negative impact on our operations. We have restructured
our
operations by reducing our workforce and implementing other cost containment
activities. These actions could lead to disruptions in our business, reduced
employee morale and productivity, increased attrition, and problems with
retaining existing and recruiting future employees.
Limitations
on the online collection of profile information could impair the effectiveness
of our products.
Online
users' resistance to providing personal data, and laws and regulations
prohibiting use of personal data gathered online without express consent
or
requiring businesses to notify their web site visitors of the possible
dissemination of their personal data, could limit the effectiveness of our
products. This in turn could adversely affect our sales and results of
operations.
One
of
the principal features of our products is the ability to develop and maintain
profiles of online users to assist business managers in determining the nature
of the content to be provided to these online users. Typically, profile
information is captured when consumers, business customers and employees
visit a
web site and volunteer information in response to survey questions concerning
their backgrounds, interests and preferences. Profiles can be augmented over
time through the subsequent collection of usage data. Although our products
are
designed to enable the development of applications that permit web site visitors
to prevent the distribution of any of their personal data beyond that specific
web site, privacy concerns may nevertheless cause visitors to resist providing
the personal data necessary to support this profiling capability. The mere
perception by prospective customers that substantial security and privacy
concerns exist among online users, whether or not valid, may indirectly inhibit
market acceptance of our products.
In
addition, new laws and regulations could heighten privacy concerns by requiring
businesses to notify web site users that the data captured from them while
online may be used by marketing entities to direct product messages to them.
We
are subject to increasing regulation at the federal and state levels relating
to
online privacy and the use of personal user information. Several states have
proposed legislation that would limit the uses of personal user information
gathered online or require online services to establish privacy policies.
In
addition, the U.S. Federal Trade Commission, or FTC, has urged Congress to
adopt legislation regarding the collection and use of personal identifying
information obtained from individuals when accessing web sites. The FTC has
settled several proceedings resulting in consent decrees in which Internet
companies have been required to establish programs regarding the manner in
which
personal information is collected from users and provided to third parties.
We
could become a party to a similar enforcement proceeding. These regulatory
and
enforcement efforts could also harm our customers' ability to collect
demographic and personal information from users, which could impair the
effectiveness of our products.
We
may not have adequate back-up systems, and natural or manmade disasters could
damage our operations, reduce our revenue and lead to a loss of
customers.
We
do not
have fully redundant systems for service at an alternate site. A disaster
could
severely harm our business because our service could be interrupted for an
indeterminate length of time. Our operations depend upon our ability to maintain
and protect our computer systems at our facility in Redwood City, California,
which reside on or near known earthquake fault zones. Although these systems
are
designed to be fault tolerant, they are vulnerable to damage from fire, floods,
earthquakes, power loss, acts of terrorism, telecommunications failures and
similar events. In addition, our facilities in California could be subject
to
electrical blackouts if California faces another power shortage similar to
that
of 2001. Although we do have a backup generator that would maintain critical
operations, this generator could fail. We also have significantly reduced
our
workforce in a short period of time, which has placed different requirements
on
our systems and has caused us to lose personnel knowledgeable about our systems,
both of which could make it more difficult to quickly resolve system
disruptions. Disruptions in our internal business operations could harm our
business by resulting in delays, disruption of our customers' business, loss
of
data, and loss of customer confidence.
Risks
related to BroadVision common stock
One
stockholder beneficially owns a substantial portion of the outstanding
BroadVision common stock, and as a result exerts substantial control over
the
company.
As
of
March 23, 2007, Dr. Pehong Chen, our Chairman, CEO and interim CFO, beneficially
owned approximately 42.0 million shares of our common stock, which represents
approximately 39% of the outstanding common stock as of such date. As a
result,
Dr. Chen exerts substantial control over all matters coming to a vote of
our
stockholders, including with respect to:
l
the
composition of our board
of directors and, through it, any determination with respect to our business
direction and policies, including the appointment and removal of
officers;
l
any
determinations with
respect to mergers and other business combinations;
l
our acquisition or
disposition of assets;
l
our financing
activities; and
l
the payment of
dividends on our capital stock.
This
control by Dr. Chen could depress the market price of our common stock or
delay
or prevent a change in control of BroadVision.
Our
stock price has been highly volatile.
The
trading price of BroadVision common stock has been highly volatile. For example,
the trading price of BroadVision common stock has ranged from $0.32 per
share to $9.05 per share between January 1, 2004 and March 23, 2007.
On March 23, 2007 the closing price of BroadVision common stock was $3.25
per
share. Our stock price is subject to wide fluctuations in response to a variety
of factors, including:
l
quarterly
variations in operating results;
l
announcements
of technological innovations;
l
announcements
of new software or services by us or our competitors;
l
changes
in financial estimates by securities analysts;
l
general
economic conditions; or
l
other
events or factors that are beyond our control.
In
addition, the stock market has experienced significant price and volume
fluctuations that have particularly affected the trading prices of equity
securities of many technology companies. These fluctuations have often been
unrelated or disproportionate to the operating performance of these companies.
Any negative change in the public's perception of the prospects of Internet
or
electronic commerce companies could further depress our stock price regardless
of our results. Other broad market fluctuations may decrease the trading
price
of BroadVision common stock. In the past, following declines in the market
price
of a company's securities, securities class action litigation, such as the
class
action lawsuits filed against us and certain of our officers and directors
in
early 2001, has often been instituted against that company. Litigation could
result in substantial costs and a diversion of management's attention and
resources.
ITEM
1
B.
UNRESOLVED
STAFF COMMENTS
Not
Applicable.
ITEM
2
.
PROPERTIES
As
of
December 31, 2006, we leased approximately 87,000 square feet of office
space, of which approximately 80% was in the United States. We occupied or
subleased 100% of our leased office space as of December 31, 2006. In early
January 2007, we relocated our offices from 585 Broadway in Redwood City,
California to Pacific Shores Center also in Redwood City, California. We
are
currently attempting to sublease about 40,000 square feet of space that we
vacate from 585 Broadway.
In
September 2006, we decided not to exercise a $4.5 million buy-out option
for a
50,000 square foot lease for 66 months from January 1, 2007 through June
30,
2012 at Pacific Shores Center. We instead decided to occupy a portion of
the new
space and sub-lease the remaining excess space. As noted above, in January
2007,
we moved into our new worldwide headquarters at Pacific Shores Center, occupying
approximately 24,000 square feet of office facilities used for research and
development, technical support, sales, marketing, consulting, training and
administration. We subleased approximately 22,500 square feet effective on
January 8, 2007. As of March 23, 2007, we are actively listing and trying
to
sublease the remaining 3,300 square feet excess space in Pacific Shores Center
with term ending June 30, 2012 and 40,000 square feet excess space in our
former
headquarters at 585 Broadway in Redwood City, California with term ending
December 7, 2007.
Our
additional leased domestic facilities include offices located in New York,
NY
and Waltham, MA, which are primarily used for sales, marketing and customer
service activities. Leased facilities of significant size located outside
of the
United States and used primarily for sales, marketing, customer support and
administrative functions include facilities located in Paris, France; Ismaning,
Germany; Reading, UK; Madrid, Spain; Milan, Italy; Tokyo, Japan; and New
Delhi,
India.
We
believe our facilities are suitable for their respective uses and are adequate
to support our current and anticipated volume of business. We believe that
suitable additional space will be available to accommodate any necessary
or
currently anticipated expansion of our operations.
ITEM
3
.
LEGAL
PROCEEDINGS
We
are
subject from time to time to various legal actions and other claims arising
in
the ordinary course of business. We are not presently a party to any material
legal proceedings.
ITEM
4
.
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM
5
.
MARKET
FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
On
March
3, 2006, our Board of Directors approved the voluntary delisting of BroadVision
common stock from the NASDAQ National Market and we requested the delisting
of
BroadVision common stock. The delisting was effective prior to the opening
of
trading on Wednesday, March 8, 2006. Until our delisting on March 8, 2006,
our
common stock had been quoted on the NASDAQ National Market under the symbol
"BVSN." Since March 8, 2006, our common stock has been quoted on the Pink
Sheets®. The following table shows high and low sale prices per share of our
common stock as reported on the NASDAQ National Market and on the Pink Sheets:
|
|
High
|
Low
|
|||||
|
Fiscal
Year 2006
|
|
|
|||||
|
First
Quarter
|
$
|
0.71
|
|
$
|
0.41
|
|
|
|
Second
Quarter
|
|
|
0.52
|
|
|
0.44
|
|
|
Third
Quarter
|
|
|
0.74
|
|
|
0.45
|
|
|
Fourth
Quarter
|
|
|
0.88
|
|
|
0.58
|
|
|
Fiscal
Year 2005
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
2.84
|
|
|
1.62
|
|
|
Second
Quarter
|
|
|
1.94
|
|
|
1.06
|
|
|
Third
Quarter
|
|
|
1.42
|
|
|
0.81
|
|
|
Fourth
Quarter
|
|
|
0.83
|
|
|
0.32
|
|
|
|
|
|
|
|
|
||
As
of
February 28, 2007, there were 1,961 holders of record of BroadVision common
stock. On March 23, 2007, the last sale price reported on the Pink Sheets® for
BroadVision common stock was $3.25 per share.
We
have
never declared or paid cash dividends on our common stock.
PERFORMANCE
MEASUREMENT COMPARISON*
The
following graph shows the total stockholder return of an investment of $100
in
cash on December 31, 2001 for (a) our Common Stock, (b) the NASDAQ Stock
Market
(U.S.) Index (the "NASDAQ Index") and (c) the RDG Internet 100 Index. All
values
assume reinvestment of the full amount of all dividends and are calculated
as of
December 31 of each year:
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG
BROADVISION, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND
THE
RDG INTERNET COMPOSITE INDEX
ITEM
6
.
SELECTED
CONSOLIDATED FINANCIAL DATA
The
information below is derived from our consolidated financial statements and
should be read in conjunction with "Management's Discussion and Analysis
of
Financial Condition and Results of Operations", the Consolidated Financial
Statements of BroadVision and Notes thereto, and other financial information
included elsewhere in this Form 10-K. Historical results are not
necessarily indicative of results that may be expected for future periods.
|
|
Years
Ended December 31,
|
|||||||||||||||||||
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
2002
|
||||||||||||
|
|
(In
thousands, except per share amount)
|
|||||||||||||||||||
|
Consolidated
Statement of Operations Data:
|
|
|
|
|
|
|||||||||||||||
|
Revenues:
|
|
|
|
|
|
|||||||||||||||
|
Software
licenses
|
$
|
15,215
|
$
|
14,721
|
$
|
26,883
|
$
|
30,230
|
$
|
40,483
|
||||||||||
|
Services
|
|
36,769
|
|
|
45,400
|
|
|
51,121
|
|
|
57,851
|
|
|
75,415
|
||||||
|
Total revenues
|
51,984
|
60,121
|
78,004
|
88,081
|
115,898
|
|||||||||||||||
|
Cost
of revenues:
|
||||||||||||||||||||
|
Cost
of (credit for) software licenses
|
258
|
(38
|
)
|
1,303
|
2,561
|
8,144
|
||||||||||||||
|
Cost
of services
|
|
12,456
|
|
|
21,931
|
|
|
24,978
|
|
|
25,708
|
|
|
38,898
|
||||||
|
Total cost of revenues
|
|
12,714
|
|
|
21,893
|
|
|
26,281
|
|
|
28,269
|
|
|
47,042
|
||||||
|
|
||||||||||||||||||||
|
Gross
profit
|
39,270
|
38,228
|
51,723
|
59,812
|
68,856
|
|||||||||||||||
|
Operating
expenses:
|
||||||||||||||||||||
|
Research
and development
|
10,510
|
13,831
|
18,024
|
21,067
|
41,432
|
|||||||||||||||
|
Sales
and marketing
|
8,653
|
16,208
|
27,340
|
26,394
|
48,918
|
|||||||||||||||
|
General
and administrative
|
8,019
|
9,479
|
9,538
|
9,790
|
16,288
|
|||||||||||||||
|
Litigation
settlement costs
|
-
|
-
|
-
|
4,250
|
-
|
|||||||||||||||
|
Goodwill
and intangible amortization
|
-
|
-
|
-
|
886
|
3,548
|
|||||||||||||||
|
Asset
impairment
|
-
|
-
|
-
|
-
|
3,129
|
|||||||||||||||
|
Goodwill
impairment
|
-
|
31,368
|
-
|
-
|
-
|
|||||||||||||||
|
Restructuring
(credits), charges
|
(3,369
|
)
|
(462
|
)
|
(23,545
|
)
|
35,356
|
110,449
|
||||||||||||
|
Business
combination charges
|
|
-
|
|
|
2,817
|
|
|
-
|
|
|
-
|
|
|
-
|
||||||
|
Total operating expenses
|
|
23,813
|
|
|
73,241
|
|
|
31,357
|
|
|
97,743
|
|
|
223,764
|
||||||
|
|
||||||||||||||||||||
|
Operating
income (loss)
|
15,457
|
(35,013
|
)
|
20,366
|
(37,931
|
)
|
(154,908
|
)
|
||||||||||||
|
Other
income (expense), net
|
|
|
193
|
|
|
(6,564
|
)
|
|
(2,109
|
)
|
|
2,899
|
|
|
(8,011
|
)
|
||||
|
Income
(loss) before income taxes
|
15,650
|
(41,577
|
)
|
18,257
|
(35,032
|
)
|
(162,919
|
)
|
||||||||||||
|
Income
tax (expense) benefit
|
|
|
(634
|
)
|
|
2,611
|
|
|
309
|
|
|
(439
|
)
|
|
(7,603
|
)
|
||||
|
Net
income (loss)
|
|
$
|
15,016
|
|
$
|
(38,966
|
)
|
$
|
18,566
|
|
$
|
(35,471
|
)
|
$
|
(170,522
|
)
|
||||
|
Net
income (loss) per share:
|
||||||||||||||||||||
|
Basic
earnings (loss) per share
|
|
$
|
0.23
|
|
$
|
(1.14
|
)
|
$
|
0.55
|
|
$
|
(1.08
|
)
|
$
|
(5.32
|
)
|
||||
|
Shares
used in computation -- basic earnings (loss) per share
|
|
65,734
|
|
|
34,228
|
|
|
33,539
|
|
|
32,800
|
|
|
32,036
|
||||||
|
Diluted
earnings (loss) per share
|
|
$
|
0.23
|
|
$
|
(1.14
|
)
|
$
|
0.54
|
|
$
|
(1.08
|
)
|
|
$
|
(5.32
|
)
|
|||
|
Shares
used in computation -- diluted earnings (loss) per share
|
|
65,734
|
|
|
34,228
|
|
|
34,321
|
|
|
32,800
|
|
|
32,036
|
||||||
|
|
As
of December 31,
|
|||||||||||||||||||
|
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
||||||||||
|
|
(In
thousands)
|
|||||||||||||||||||
|
Consolidated
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
37,003
|
|
$
|
4,849
|
|
|
$
|
41,851
|
|
|
$
|
78,776
|
|
|
$
|
77,386
|
|
|
|
Working
capital (deficit)
|
|
|
18,955
|
|
|
(35,872
|
)
|
|
|
(20,273
|
)
|
|
|
748
|
|
|
|
5,616
|
|
|
|
Total
assets
|
|
|
76,942
|
|
|
49,942
|
|
|
|
144,653
|
|
|
|
195,082
|
|
|
|
240,136
|
|
|
|
Debt
and capital leases, less current portion
|
|
|
-
|
|
|
-
|
|
|
|
4,227
|
|
|
|
969
|
|
|
|
1,945
|
|
|
|
Accumulated
deficit
|
|
|
(1,210,059
|
)
|
|
|
(1,225,075
|
)
|
|
|
(1,186,109
|
)
|
|
|
(1,204,675
|
)
|
|
|
(1,169,204
|
)
|
|
Total
stockholders' equity (deficit)
|
|
|
43,254
|
|
|
(9,723
|
)
|
|
|
28,341
|
|
|
|
7,950
|
|
|
41,633
|
|||
ITEM
7
.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You
should read this discussion and analysis in conjunction with our consolidated
financial statements and the related notes appearing elsewhere in this report.
In addition to the historical consolidated information, the following discussion
contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, which are
subject to the "safe harbor" created by those sections. These forward-looking
statements are generally identified by words such as "expect", "anticipate",
"intend", "believe", "hope", "assume", "estimate", "plan", "will" and other
similar words and expressions. These forward-looking statements involve risks
and uncertainties that could cause our actual results to differ materially
from
those expressed or implied in the forward-looking statements as a result
of
certain factors. Factors that could cause or contribute to differences include
those discussed below and elsewhere in this Form 10-K, particularly in Item
1A, "Risk Factors." We undertake no obligation to publicly release any revisions
to the forward-looking statements or to reflect events and circumstances
after
the date of this document.
Overview
Since 1993, BroadVision has been a pioneer and consistent innovator of
e-business solutions. We deliver a combination of technologies and services
into
the global market that enable customers of all sizes to power mission-critical
web initiatives that ultimately deliver high-value to their bottom line.
Our
offering consists of a robust framework for personalization and self-service,
modular applications and agile toolsets that customers use to create e-commerce
and portal solutions. We have more than 500 customers - including Audible.com,
Baker Hughes, Cardinal Health, Citibank, Hilti, Japan Airlines, Renault,
Sears,
Sony, Standard Chartered Bank, Vodafone, U.S. Air Force, Yomiuri Shinbun
and
Xerox.
Our
objective is to further our position as a global supplier of web-based,
self-service applications. This will require us to continue to build new
functionality into our applications that offer our customers a compelling
value
proposition to license our products rather than design and build custom
solutions.
We
generate revenue from fees for licenses of our software products, and related
maintenance, consulting services and customer training. We generally charge
fees
for licenses of our software products either based on the number of persons
registered to use the product or based on the number of CPUs utilized by
the
machine on which the product is installed. Payment terms are generally 30
days
from the date the products are delivered, the maintenance contract is booked
or
the consulting services are provided.
From
2001
to 2005, we incurred significant losses and negative cash flows from operations.
In fiscal years 2004 and 2005, we incurred significant cash usage related
to the
termination of excess real estate obligations, certain reductions in workforce
and the execution and subsequent termination of an acquisition agreement.
Although we generated net income in year 2006 and believe that our future
cash
flows will benefit from these events, our ability to generate profits or
positive cash flows in future periods remains uncertain.
We
strive
to anticipate changes in the demand for our services and aggressively manage
our
labor force appropriately. As part of our budgeting process, cross-functional
management participates in the planning, reviewing and managing of our business
plans. This process is intended to allow us to adjust our cost structures
to
changing market needs, competitive landscapes and economic factors. Our emphasis
on cost control helps us manage our margins even if revenues generated fall
short of our expectations.
As
of
December 31, 2006, we are halfway through implementing a 24-month turnaround
plan. To date under this plan we have implemented cost-cutting measures
and we
have taken steps to stabilize our customer base. In 2007, our focus under
this
plan will be on delivering new products and technologies and generating
demand
among existing and potential new customers.
In
February 2006, we announced a subscription rights offering to existing
stockholders to sell a total of 178 million shares, or 5.9 shares for
each share
of BroadVision common stock held as of the record date of December 20,
2005, at
an effective price per share of $0.45. The primary purpose of the rights
offering was to allow the holders of BroadVision common stock on the
record date
an opportunity to further invest in BroadVision in order to maintain
their
proportionate interest in BroadVision common stock, at the same price
per share
as the per share price afforded to Dr. Chen in connection with his acquisition
of shares of common stock in exchange for the cancellation of the Notes.
The
rights offering expired on November 28, 2006. Eligible participants exercised
rights to purchase 36.4 million shares, resulting in $15.8 million in
net
proceeds. Dr. Chen's ownership was approximately 39% as a result of closing
the
rights offering in the fourth quarter of 2006.
In
order
to complete the issuance of shares to Dr. Chen without violating applicable
listing standards, we voluntarily delisted our common stock from the NASDAQ
National Market effective prior to the opening of trading on March 8, 2006.
We
had previously received a notice from NASDAQ stating that we were not in
compliance with the minimum bid price rules applicable to stocks traded on
NASDAQ, and that we had until March 6, 2006 to regain compliance. Quotations
for
BroadVision common stock are currently available through the "Pink Sheets"
(www.pinksheets.com) under the trading symbol "BVSN", and we anticipate that
such quotations will continue to be available.
In
June
2006, William Meyer resigned as our Chief Financial Officer, a position Mr.
Meyer had held since April 2003. Dr. Chen is currently serving as Chief
Financial Officer on an interim basis until a permanent replacement is hired.
Critical
Accounting Policies, Judgments and Estimates
This
management's discussion and analysis of our financial condition and results
of
operations is based upon our condensed consolidated financial statements,
which
have been prepared in accordance with U.S. generally accepted accounting
principles. In preparing these financial statements, we are required to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosures of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates, including those
related to doubtful accounts, stock-based compensation, investments, goodwill
and intangible assets, income taxes and restructuring, as well as contingencies
and litigation. We base our estimates on historical experience and on various
other assumptions that we believe are reasonable, the results of which form
the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ
from
these estimates using different assumptions or conditions. We believe the
following critical accounting policies reflect the more significant judgments
and estimates used in the preparation of our consolidated financial statements.
During
the previous years through December 31, 2005, we faced various liquidity
challenges. During the year ended December 31, 2006, the following significant
events occurred: approximately $20.5 million in convertible debt was exchanged
for 34.5 million shares of common stock; we generated cash flow from operations
of approximately $16 million; and we closed our rights offering and raised
net
proceeds of approximately $15.8 million. At December 31, 2006, our current
assets exceeded our current liabilities by approximately $19 million. Our
management believes that our cash resources at December 31, 2006 will be
sufficient to fund operations through at least December 31, 2007. If our
existing cash resources are not sufficient to meet our obligations, we will
seek
to raise additional capital through public or private equity financing or
from
other sources. If adequate funds are not available or are not available on
acceptable terms as needed, we may be unable to pay our debts as they become
due, develop our products, take advantage of future opportunities or respond
to
competitive pressures or unanticipated requirements.
Revenue
Recognition
Overview
--
Our
revenue consists of fees for licenses of our software products, maintenance,
consulting services and customer training. We generally charge fees for licenses
of our software products either based on the number of persons registered
to use
the product or based on the number of CPUs on which the product is installed.
Licenses for software whereby fees charged are based upon the number of persons
registered to use the product include licenses for development use and licenses
for use in deployment of the customer's website. Licenses for software whereby
fees charged are on a per-CPU basis differentiate between development and
deployment usage. Our revenue recognition policies comply with the provisions
of
Statement of Position ("SOP") No. 97-2,
Software
Revenue Recognition
("SOP
97-2"), as amended; SOP No. 98-9,
Software
Revenue Recognition, With Respect to Certain Transactions
("SOP
98-9") and Staff Accounting Bulletin ("SAB") 104,
Revenue
Recognition
("SAB
104")
.
We
apply
the separation criteria in Emerging Issues Task Force ("EITF") 00-21, "Revenue
Arrangements with Multiple Deliverables" ("EITF 00-21") to determine whether
our
arrangements with multiple deliverables should be treated as separate units
of
accounting. EITF 00-21 indicates that revenue recognized for any
multiple-element contract is to be allocated to each element of the arrangement
based on the relative fair value of each element. The determination of the
fair
value of each element is based on our analysis of objective evidence from
comparable sales of the individual element
.
Software
License Revenue
We license our products through our direct sales force and indirectly through
resellers and Application Service Providers ("ASP"). In general, software
license revenues are recognized when a non-cancelable license agreement has
been
signed and the customer acknowledges an unconditional obligation to pay,
the
software product has been delivered, there are no uncertainties surrounding
product acceptance, the fees are fixed and determinable and collection is
reasonably expected. Delivery is considered to have occurred when title and
risk
of loss have been transferred to the customer, which generally occurs when
media
containing the licensed programs is provided to a common carrier. In case
of
electronic delivery, delivery occurs when the customer is given access to
the
licensed programs. For products that cannot be used without a licensing key,
the
delivery requirement is met when the licensing key is made available to the
customer. If collectibility is not reasonably expected, revenue is recognized
when the fee is collected. Subscription-based license revenues are recognized
ratably over the subscription period. We enter into reseller arrangements
that
typically provide for sublicense fees payable to us based upon a percentage
of
list price. We do not grant resellers the right of return.
We
recognize revenue using the residual method pursuant to the requirements
of SOP
No. 97-2, as amended by SOP No. 98-9. Revenues recognized from multiple-element
software arrangements are allocated to each element of the arrangement based
on
the fair values of the elements, such as licenses for software products,
maintenance, consulting services or customer training. The determination
of fair
value is based on vendor-specific objective evidence, which is specific to
us.
We limit our assessment of objective evidence for each element to either
the
price charged when the same element is sold separately or the price established
by management having the relevant authority to do so, for an element not
yet
sold separately. If evidence of fair value of all undelivered elements exists
but evidence does not exist for one or more delivered elements, then revenue
is
recognized using the residual method. Under the residual method, the fair
value
of the undelivered elements is deferred and the remaining portion of the
arrangement fee is recognized as revenue.
We
record
unearned revenue for software license agreements when cash has been received
from the customer and the agreement does not qualify for revenue recognition
under our revenue recognition policy. We record accounts receivable for software
license agreements when the agreement qualifies for revenue recognition but
cash
or other consideration has not been received from the customer.
Services
Revenue
Consulting
services revenues and customer training revenues are recognized as such services
are performed.
Maintenance
revenues, which include revenues bundled with software license agreements
that
entitle the customers to technical support and future unspecified enhancements
to our products, are deferred and recognized ratably over the related agreement
period, generally twelve months.
Our
consulting
services, which consist of consulting, maintenance and training, are delivered
through the BroadVision Global Services ("BVGS") organization. Services that
we
provide are not essential to the functionality of the software. We record
reimbursement from our customers for out-of-pocket expenses as an increase
to
services revenues.
Receivable
Reserves
Occasionally,
our customers experience financial difficulty after we record the sale but
before payment has been received. We maintain receivable reserves for estimated
losses resulting from the inability of our customers to make required payments.
Our normal payment terms are generally 30 to 90 days from invoice date. If
the financial condition of our customers were to deteriorate, resulting in
an
impairment of their ability to make payments, additional reserves may be
required. Losses from customer receivables in the three-year period ended
December 31, 2006, have not been significant. If all efforts to collect a
receivable fail, and the receivable is considered uncollectible, we would
write
off against the receivable reserve.
Research
and Development and Software Development Costs
Statement
of Financial Accounting Standards ("SFAS") No. 86,
Accounting
for the Cost of Computer Software to be Sold, Leased or Otherwise
Marketed
,
requires capitalization of certain software development costs subsequent
to the
establishment of technological feasibility. Based on our product development
process, technological feasibility is established upon the completion of
a
working model. To date, costs incurred by us between the completion of the
working model and the point at which the product is ready for general release
have been insignificant. Accordingly, we have charged all such costs to research
and development expense in the period incurred.
Impairment
Assessments
In
the
quarter ended September 30, 2005, we recognized a goodwill impairment charge
of
$13.2 million as an estimated impairment in accordance with the requirements
of
SFAS 142. As of September 30, 2005, we performed Step 1 under the provisions
of
SFAS 142 by determining that we have a single reporting unit and then comparing
our net book value to the our market capitalization based upon the quoted
market
price of our stock. Based upon the results of Step 1 and as permitted under
SFAS
142, we estimated the impairment charge under Step 2 by estimating the fair
value of all other assets and liabilities of the reporting unit. Subsequent
to
the issuance of our third quarter financial statements, we obtained a
third-party valuation report, completed Step 2 and recorded an adjustment
to the
original estimate (recognized an additional impairment charge) of $18.2 million
in the quarter ended December 31, 2005. Further, as of December 31, 2006
and
2005, we performed a goodwill impairment analysis under Step 1. Because the
fair
value was determined to be greater than book value, Step 2 under SFAS 142
was
not required, and therefore no additional impairment was necessary at December
31, 2006 and 2005.
Income
Taxes and Deferred Tax Assets
Income
taxes are computed using an asset and liability approach in accordance with
SFAS
No. 109,
Accounting
for Income Taxes
,
which
requires the recognition of taxes payable or refundable for the current year
and
deferred tax assets and liabilities for the future tax consequences of events
that have been recognized in our consolidated financial statements or tax
returns. The measurement of current and deferred tax assets and liabilities
is
based on provisions of the enacted tax law; the effects of future changes
in tax
laws or rates are not anticipated. The measurement of deferred tax assets
is
reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, is not expected to be realized.
We
analyze our deferred tax assets with regard to potential realization. We
have
established a valuation allowance on our deferred tax assets to the extent
that
management has determined that it is more likely than not that some portion
or
all of the deferred tax asset will not be realized based upon the uncertainty
of
their realization. We have considered estimated future taxable income and
ongoing prudent and feasible tax planning strategies in assessing the amount
of
the valuation allowance.
Accounting
for Stock-Based Compensation
Effective January 1, 2006, we adopted the fair value recognition provisions
of
SFAS No. 123 (revised 2004), Share-Based Payment ("SFAS 123(R)"), using
the
modified-prospective transition method. Under the fair value recognition
provisions of SFAS 123(R), share-based compensation cost is estimated at
the
grant date based on the fair value of the award and is
recognized as expense, net of estimated
pre-vesting forfeitures, ratably over the
vesting period of the award.
~20~
In
addition,
the adoption of SFAS 123R requires additional accounting related to the
income
tax effects and disclosure regarding the cash flow effects resulting from
share-based payment arrangements. In January 2005, the SEC issued Staff
Accounting Bulletin ("SAB") No. 107, which provides supplemental
implementation guidance for SFAS 123R. We selected the Black-Scholes
option-pricing model as the most appropriate fair-value method for our
awards.
Calculating share-based compensation expense requires the input of highly
subjective assumptions, including the expected term of the share-based
awards,
stock price volatility, and pre-vesting forfeitures. The assumptions used
in
calculating the fair value of stock-based awards represent our best estimates,
but these estimates involve inherent uncertainties and the application
of
management judgment. As a result, if factors change and we use different
assumptions, our share-based compensation expense could be materially different
in the future. In addition, we are required to estimate the expected pre-vesting
forfeiture rate and only recognize expense for those shares expected to
vest. If
our actual forfeiture rate is materially different from our estimate, our
share-based compensation expense could be significantly different from
what we
have recorded in the current period. The total amount of stock-based
compensation expense recognized during the year ended December 31, 2006
was
$950,000, of which $178,000 has been recorded in general and administrative
expenses, $382,000 has been recorded in research and development expenses,
$160,000 has been recorded in cost of services and $230,000 was recorded
in
sales and marketing expense.
On
November 10, 2005, the FASB issued FASB Staff Position No. FAS 123(R)-3
"Transition
Election Related to Accounting for Tax Effects of Share-Based Payment
Awards
"
(FSP
123(R)-3). We adopted the alternative transition method provided in the FASB
Staff Position for calculating the tax effects of stock-based compensation
pursuant to SFAS 123R in the fourth quarter of fiscal 2006. The alternative
transition method includes simplified methods to establish the beginning
balance
of the additional paid-in capital pool (APIC pool) related to the tax effects
of
employee stock-based compensation, and to determine the subsequent impact
on the
APIC pool and Consolidated Statements of Cash Flows of the tax effects of
employee stock-based compensation awards that are outstanding upon adoption
of
SFAS 123R. The adoption did not have a material impact on our results of
operations and financial condition.
Prior
to
January 1, 2006, we accounted for share-based payments to our employees and
non-employee members of our board of directors under the recognition and
measurement provisions of Accounting Principles Board ("APB") Opinion No.
25,
Accounting
for
Stock
Issued to Employees,
and
related guidance, as permitted by SFAS No. 123,
Accounting
for Stock-Based Compensation
("SFAS
123"), and amended by SFAS No. 148,
Accounting
for Stock-Based Compensation-Transition
and
Disclosure
("SFAS
148")
.
We did
not recognize any significant share-based employee compensation costs
in our statements of operations prior to January 1, 2006, as options
granted to employees and non-employee members of the board of directors
generally had an exercise price equal to the fair value of the underlying
common
stock on the date of grant. As required by SFAS 148, prior to the adoption
of
SFAS 123(R), we provided pro forma disclosure of net income (loss) applicable
to
common shareholders as if the fair-value-based method defined in SFAS No.
123
had been applied. In the pro forma information for periods prior to 2006,
we
accounted for pre-vesting forfeitures as they occurred. Our operating results
for prior periods have not been restated.
Further
details related to our Stock Benefit Plans and our adoption of SFAS 123R
are
provided in Note 9 Stockholders' Equity (Deficit) to our consolidated financial
statements.
Restructuring
Charges
Through
December 31, 2006, we have approved restructuring plans to, among other things,
reduce our workforce and consolidate facilities. Restructuring and asset
impairment charges were taken to align our cost structure with changing market
conditions and to create a more efficient organization. Our restructuring
charges are comprised primarily of: (i) severance and benefits termination
costs related to the reduction of our workforce; (ii) lease termination
costs and/or costs associated with permanently vacating our facilities;
(iii) other incremental costs incurred as a direct result of the
restructuring plan; and (iv) impairment costs related to certain long-lived
assets abandoned. We account for each of these costs in accordance with SAB
100
.
Severance
and Termination Costs.
We
account for severance and benefits termination costs as follows:
l
For
exit
or disposal activities initiated on or prior to December 31, 2002, we
account for costs in accordance with EITF 94-3,
Liability
Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an
Activity (including Certain Costs Incurred in a Restructuring)
("EITF
94-3")
. Accordingly, we record the liability related to these termination
costs when the following conditions have been met: (i) management with the
appropriate level of authority approves a termination plan that commits us
to
such plan and establishes the benefits the employees will receive upon
termination; (ii) the benefit arrangement is communicated to the employees
in sufficient detail to enable the employees to determine the termination
benefits; (iii) the plan specifically identifies the number of employees to
be terminated, their locations and their job classifications; and (iv) the
period of time to implement the plan does not indicate changes to the plan
are
likely.
l
For
exit
or disposal activities initiated after December 31, 2002, we account for
costs in accordance with SFAS 146,
Accounting
for Costs Associated with Exit or Disposal Activities
("SFAS
146").
SFAS 146 requires that a liability for a cost associated with
an exit or disposal activity be recognized and measured initially at fair
value
only when the liability is incurred.
This
differed from EITF 94-3, which required that a liability for an exit cost
be
recognized at the date of an entity's commitment to an exit
plan.
Excess
Facilities Costs.
We
account for excess facilities costs as follows:
l
For
exit
or disposal activities initiated on or prior to December 31, 2002, we
account for lease termination and/or abandonment costs in accordance with
EITF
88-10,
Costs
Associated with Lease Modification or Termination
.
Accordingly, we recorded the costs associated with lease termination and/or
abandonment when the leased property had no substantive future use or benefit
to
us.
l
For
exit
or disposal activities initiated after December 31, 2002, we account for
lease termination and/or abandonment costs in accordance with SFAS 146, which
requires that a liability for such costs be recognized and measured initially
at
fair value on the cease use date of the facility.
Severance
and termination costs and excess facilities costs we record under these
provisions are not associated with nor do they benefit continuing activities.
Inherent
in the estimation of the costs related to our restructuring efforts are
assessments related to the most likely expected outcome of the significant
actions to accomplish the restructuring. In determining the charges related
to
the restructurings to date, the majority of estimates made by management
have
related to charges for excess facilities. In determining the charges for
excess
facilities, we were required to estimate future sublease income, future net
operating expenses of the facilities, and brokerage commissions, among other
expenses. The most significant of these estimates have related to the timing
and
extent of future sublease income in which to reduce our lease obligations.
We
based our estimates of sublease income, in part, on the opinions of independent
real estate experts, current market conditions and rental rates, an assessment
of the time period over which reasonable estimates could be made, the status
of
negotiations with potential subtenants, and the location of the respective
facility, among other factors. We have recorded the low-end of a range of
assumptions modeled for restructuring charges, in accordance with SFAS 5.
Adjustments to the facilities accrual will be required if actual lease exit
costs or sublease income differ from amounts currently expected. We will
review
the status of restructuring activities on a quarterly basis and, if appropriate,
record changes to our restructuring obligations in current operations based
on
management's most current estimates.
On
June 29, 2005, our Board of Directors approved a business restructuring
plan, primarily consisting of headcount reductions, designed to adjust expenses
to a level more consistent with anticipated revenues. The reduction included
approximately 63 employees, or 22% of our workforce. We recorded severance
charges of approximately $443,000 and $627,000 in the three-month periods
ended
September 30, 2005 and June 30, 2005, respectively.
During
2006 we recorded restructuring credit of $3.4 million primarily due to a
$4.5
million accrual reversal related to the buy-out option of a new space that
we
decided to occupy and have sub-leased out excess facility space.
Statements
of Operations as a Percent of Total Revenues
The
following table sets forth certain items reflected in our consolidated
statements of operations expressed as a percent of total revenues for the
periods indicated.
|
|
Year
Ended December 31,
|
|
||||||||||
|
|
2006
|
2005
|
|
2004
|
|
|||||||
|
Revenues:
|
|
|
|
|||||||||
|
Software
licenses
|
29
|
%
|
24
|
%
|
34
|
%
|
||||||
|
Services
|
|
71
|
|
76
|
|
|
66
|
|
||||
|
Total revenues
|
100
|
100
|
100
|
|||||||||
|
Cost
of revenues:
|
||||||||||||
|
Cost
of software licenses
|
-
|
-
|
2
|
|||||||||
|
Cost
of services
|
|
24
|
|
36
|
|
|
32
|
|
||||
|
Total cost of revenues
|
|
24
|
|
36
|
|
|
34
|
|
||||
|
|
||||||||||||
|
Gross
profit
|
76
|
64
|
66
|
|||||||||
|
Operating
expenses:
|
||||||||||||
|
Research
and development
|
20
|
23
|
23
|
|||||||||
|
Sales
and marketing
|
17
|
27
|
35
|
|||||||||
|
General
and administrative
|
15
|
16
|
12
|
|||||||||
|
Goodwill
impairment
|
-
|
52
|
-
|
|||||||||
|
Restructuring
(credits), charges
|
(6
|
)
|
(1
|
)
|
(30
|
)
|
||||||
|
Business
combination charges
|
|
-
|
|
5
|
|
|
-
|
|
||||
|
Total operating expenses
|
|
46
|
|
122
|
|
|
40
|
|
||||
|
|
||||||||||||
|
Operating
income (loss)
|
30
|
(58
|
)
|
26
|
||||||||
|
Other
(expense) income, net
|
|
-
|
|
(11
|
)
|
|
(3
|
)
|
||||
|
Income
(loss) before income taxes
|
30
|
(69
|
)
|
23
|
||||||||
|
Income
taxes (expense) benefit
|
|
|
(1
|
)
|
|
4
|
|
|
1
|
|
||
|
Net
income (loss)
|
|
|
29
|
%
|
|
(65
|
)%
|
|
24
|
%
|
||
Results
of Operations
|
|
|
Software
Licenses
|
|
%
|
|
Services
|
|
%
|
|
Total
|
|
%
|
||||||||||||
|
|
|
(Dollars
in thousands)
|
||||||||||||||||||||||
|
Year
Ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
10,186
|
67
|
|
|
$
|
20,790
|
57
|
|
|
$
|
30,976
|
60
|
||||||||||
|
Europe
|
|
|
3,025
|
20
|
|
|
|
11,505
|
31
|
|
|
|
14,530
|
28
|
||||||||||
|
Asia/
Pacific
|
|
|
2,004
|
|
13
|
|
|
|
4,474
|
|
12
|
|
|
|
6,478
|
|
12
|
|||||||
|
Total
|
|
$
|
15,215
|
|
100
|
|
|
$
|
36,769
|
|
100
|
|
|
$
|
51,984
|
|
100
|
|
||||||
|
Year
Ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
7,615
|
|
|
|
52
|
|
|
$
|
26,713
|
|
|
|
59
|
|
|
$
|
34,328
|
|
|
|
57
|
|
|
Europe
|
|
|
4,918
|
|
|
|
33
|
|
|
|
15,310
|
|
|
|
34
|
|
|
|
20,228
|
|
|
|
34
|
|
|
Asia/
Pacific
|
|
|
2,188
|
|
|
|
15
|
|
|
|
3,377
|
|
|
|
7
|
|
|
|
5,565
|
|
|
|
9
|
|
|
Total
|
|
$
|
14,721
|
|
|
|
100
|
|
|
$
|
45,400
|
|
|
|
100
|
|
|
$
|
60,121
|
|
|
|
100
|
|
|
Year
Ended December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
9,545
|
|
|
|
36
|
|
|
$
|
27,733
|
|
|
|
54
|
|
|
$
|
37,278
|
|
|
|
48
|
|
|
Europe
|
|
|
13,894
|
|
|
|
52
|
|
|
|
19,427
|
|
|
|
38
|
|
|
|
33,321
|
|
|
|
43
|
|
|
Asia/
Pacific
|
|
|
3,444
|
|
|
|
12
|
|
|
|
3,961
|
|
|
|
8
|
|
|
|
7,405
|
|
|
|
9
|
|
|
Total
|
|
$
|
26,883
|
|
|
|
100
|
%
|
|
$
|
51,121
|
|
|
|
100
|
%
|
|
$
|
78,004
|
|
|
|
100
|
%
|
Revenues
Total
revenues for the year ended December 31, 2006 were $52.0 million, down $8.1
million, or 13.5%, from $60.1 million for the prior year. License revenue
from
the sales of software licenses increased from $14.7 million to $15.2 million.
The increases were mainly due to increased license sales to existing customers
in North America. License revenue in Europe declined due to our consolidation
of
operations and sales organizations in this region. Maintenance revenue, which
is
generally derived from maintenance contracts sold with initial customer licenses
and from subsequent contract renewals, declined from $26.3 million to $24.7
million due to certain customers choosing to not fully renew maintenance
contracts, together with the decline in new license revenue. Consulting revenue,
which is generally related to services in connection with our licensed software,
declined from $19.1 million to $12.0 million, primarily due to lower employee
and third-party contractor headcount,
and
the
resulting decline in capacity. This results from the lagging effect caused
by
declining license revenues in prior quarters; consulting projects tend to
trail
license revenues between six to twelve months.
Total
revenues for the year ended December 31, 2005 were $60.1 million, down $17.9
million, or 23%, from $78.0 million for the prior year. License revenue from
the
sales of software licenses declined from $26.9 million to $14.7 million due
to
fewer license transactions, in part due to uncertainty among current and
potential customers about our long-term financial viability. Maintenance
revenue, which is generally derived from maintenance contracts sold with
initial
customer licenses and from subsequent contract renewals, declined from $31.2
million to $26.3 million due to certain customers choosing to not fully renew
maintenance contracts, together with the decline in new license revenue.
Consulting revenue, which is generally related to services in connection
with
our licensed software, declined from $19.9 million to $19.1 million, primarily
due to lower employee and third-party contractor headcount and the resulting
decline in capacity.
Cost
of Revenues
Cost
of
(credit for) software licenses includes the net costs of product media,
duplication, packaging, and other manufacturing costs as well as royalties
payable to third parties for software that is either embedded in, or bundled
and
sold with, our products.
Cost
of
services consists primarily of employee-related costs, third-party consultant
fees incurred on consulting projects, post-contract customer support and
instructional training services.
|
|
Years
Ended December 31,
|
|||||||||||||||||||||||
|
|
|
2006
|
|
%
|
|
2005
|
|
%
|
|
2004
|
|
%
|
||||||||||||
|
|
(Dollars
in thousands)
|
|||||||||||||||||||||||
|
Cost
of (credit for) software licenses(1)
|
|
$
|
258
|
|
|
|
2
|
%
|
|
$
|
(38
|
)
|
|
|
-
|
%
|
|
$
|
1,303
|
|
|
|
5
|
%
|
|
Cost
of services(2)
|
|
|
12,456
|
|
|
|
34
|
|
|
|
21,931
|
|
|
|
48
|
|
|
|
24,978
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Total
cost of revenues(3)
|
|
$
|
12,714
|
|
|
|
24
|
%
|
|
$
|
21,893
|
|
|
|
36
|
%
|
|
$
|
26,281
|
|
|
|
34
|
%
|
(1)
Percentage is calculated based on total software license revenues for the
period
indicated.
(2)
Percentage is calculated based on total services revenues for the period
indicated.
(3)
Percentage is calculated based on total revenues for the period indicated.
Cost
of
software licenses for the year ended December 31, 2006, increased
$0.3 million, or over 100%, on a year-over-year basis. This increase is
primarily a result of increased license revenues.
Credit
for software licenses for the year ended December 31, 2005, decreased
$1.3 million, or over 100%, on a year-over-year basis. This decrease is
primarily a result of decreased license revenues, a decreased proportion
of
license revenues generated from royalty-bearing products and certain credits
related to accruals determined to no longer be necessary.
Cost
of
services for the year ended December 31, 2006 decreased $9.5 million,
or 43%, on a year-over-year basis. This decrease was the result of the reduction
in consulting headcount, the consolidation of our facilities, and less services
revenue.
Cost
of
services for the year ended December 31, 2005 decreased $3.0 million,
or 12%, on a year-over-year basis. This decrease was the result of the reduction
in consulting headcount and third-party consultant costs that occurred during
the 2005 fiscal year. The decrease as a percent of services revenue is due
to
certain staffing efficiencies gained during the year.
The
number of total consulting employees was 27 as of December 31, 2006, 50 as
of
December 31, 2005, and 77 as of December 31, 2004.
Operating
Expenses
Operating
expenses consist of the following:
l
Research
and development expenses
consist
primarily of salaries, employee-related benefit costs and consulting fees
incurred in association with the development of our products. Costs incurred
for
the research and development of new software products are expensed as incurred
until such time that technological feasibility, in the form of a working
model,
is established at which time such costs are capitalized and recorded at the
lower of unamortized cost or net realizable value. The costs incurred subsequent
to the establishment of a working model but prior to general release of the
product have not been significant. To date, we have not capitalized any costs
related to the development of software for external use.
l
Sales
and marketing expenses
consist
primarily of salaries, employee-related benefit costs, commissions and other
incentive compensation, travel and entertainment and marketing program-related
expenditures such as collateral materials, trade shows, public relations,
advertising and creative services.
l
General
and administrative expenses
consist
primarily of salaries, employee-related benefit costs, provisions and credits
related to uncollectible accounts receivable and professional service fees.
l
Goodwill
and intangible write-offs and amortization
represents costs to write-off or amortize goodwill and other intangible assets.
As of January 1, 2002, we no longer amortize goodwill or the assembled
workforce as we have identified the assembled workforce as an intangible
asset
that does not meet the criteria of a recognizable intangible asset as defined
by
SFAS 142.
l
Restructuring
(reversals) charges
represent costs incurred to restructure our operations. These charges, including
charges for excess facilities, severance and certain non-cash items, were
recorded under the provisions of EITF 94-3, and SFAS 146.
l
Business
combination charges
represent costs incurred in connection with merger or acquisition activity.
A
summary
of operating expenses is set forth in the following table (dollars in thousands,
percentages are based on total revenues):
|
|
Years
Ended December 31,
|
|||||||||||||||||||||||||
|
|
|
2006
|
|
%
|
|
2005
|
|
%
|
|
2004
|
|
%
|
||||||||||||||
|
Research
and development
|
|
$
|
10,510
|
|
|
20
|
%
|
|
$
|
13,831
|
|
|
|
23
|
%
|
|
$
|
18,024
|
|
|
|
23
|
%
|
|||
|
Sales
and marketing
|
|
|
8,653
|
|
|
17
|
|
|
16,208
|
|
|
|
27
|
|
|
|
27,340
|
|
|
|
35
|
|
||||
|
General
and administrative
|
|
|
8,019
|
|
|
15
|
|
|
9,479
|
|
|
|
16
|
|
|
|
9,538
|
|
|
|
12
|
|
||||
|
Goodwill
impairment
|
|
|
-
|
|
|
-
|
|
|
31,368
|
|
|
|
52
|
|
|
|
-
|
|
|
|
-
|
|
||||
|
Restructuring
(credits), net
|
|
|
(3,369
|
)
|
|
(6
|
)
|
|
|
(462
|
)
|
|
|
(1
|
)
|
|
|
(23,545
|
)
|
|
|
(30
|
)
|
|||
|
Business
combination charges
|
|
|
-
|
|
|
-
|
|
|
2,817
|
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
||||
|
|
Total
operating expenses
|
|
$
|
23,813
|
|
|
46
|
%
|
|
$
|
73,241
|
|
|
|
122
|
%
|
|
$
|
31,357
|
|
|
|
40
|
%
|
||
Research
and development.
Research
and development expenses decreased $3.3 million, or 24% in 2006 compared
to 2005
and $4.2 million, or 23%, in 2005 compared to 2004. Each decrease was
primarily attributable to reductions in staffing levels resulting in decreased
salary and salary related costs, as well as other cost-cutting efforts taken
as
part of our restructuring plan, such as the consolidation of facilities.
Sales
and marketing.
Sales
and marketing expenses decreased $7.6 million, or 47% in 2006 compared to
2005
and decreased $11.1 million, or 41% in 2005 compared to 2004. These decreases
are primarily due to decreased salary expense as a result of reductions in
force, decreased variable compensation due to lower revenues, and decreased
facility, travel and marketing program costs as a result of various cost-cutting
actions.
General
and administrative.
General
and administrative expenses decreased $1.5 million, or 15% in 2006 compared
to
2005, due to a $1.5 million decrease in labor-related expenses and a receipt
of
a $700,000 (net of expense) property tax refund in 2006, offset by $860,000
in
additional accounting fees. Net general and administrative expenses decreased
less than 1% in 2005 as compared to 2004. Costs as a percentage of revenue
increased in 2005 due to continued Sarbanes-Oxley compliance costs and a
significant number of SEC filings. The decreases in 2005 was primarily
attributable to decreases in salary expenses as a result of reductions in
force,
professional services expenses as a result of cost cutting measures, reserves
of
accounts receivable due to better than expected collection efforts and declining
accounts receivable balances, and continued facilities consolidations.
Goodwill
impairment and amortization.
On
April 14, 2000, we acquired all of the outstanding common stock of
Interleaf, Inc. in a transaction accounted for as a purchase business
combination. As a result of this transaction, we recorded goodwill and other
intangible assets of $794.7 million. Amortization of recognizable
intangible assets related to the Interleaf transaction was $3.5 million in
2002. In the third quarter of 2005, we determined that an impairment of the
goodwill had occurred, and therefore we recorded a write-off of $13.2 million
as
an estimated impairment amount. In the fourth quarter of 2005, we recorded
an
additional charge of $18.2 million related to a revision of that estimate.
Since
the fair value of these assets as of December 31, 2006 was determined to
be
greater than book value, we determined that no additional impairment or
amortization was necessary in 2006.
Restructuring
credit, net
During
2006 we recorded a restructuring credit of $3.4 million primarily due to
a $4.5
million accrual reversal related to the buy-out option of a new space that
we
decided not to exercise. In addition, we have sub-leased out excess facility
space. In fiscal 2005, we recorded a restructuring credit of $462,000, primarily
due to an additional sublease entered into for a portion of our headquarters
facility. In fiscal 2004, we reached agreement with several landlords to
extinguish approximately $155.0 million of obligations related to excess
facility leases, which contributed to a pre-tax net restructuring credit
during
the year of $23.5 million. During each period, we recorded an amount in the
low-end of a range of assumptions modeled for the restructuring charges,
in
accordance with SFAS No. 5,
Accounting
for Contingencies.
Adjustments to the restructuring reserves will be made in future periods,
if
necessary, based upon the then current actual events and circumstances.
The
following table summarizes the restructuring accrual activity recorded during
the three-years ended December 31, 2006 (in thousands):
|
|
Severance
|
|
|
|
|
|||||||
|
|
|
and
|
Facilities/Excess
|
|
|
|||||||
|
|
|
Benefits
|
|
Assets
|
|
Total
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|||
|
Accrual
balances, December 31, 2003
|
|
$
|
671
|
|
|
$
|
104,709
|
|
|
$
|
105,380
|
|
|
Restructuring
charges (credits)
|
|
|
1,114
|
|
|
|
(24,659
|
)
|
|
|
(23,545
|
)
|
|
Cash
payments
|
|
|
(961
|
)
|
|
|
(46,711
|
)
|
|
|
(47,672
|
)
|
|
Accrual
balances, December 31, 2004
|
|
|
824
|
|
|
33,339
|
|
|
34,163
|
|||
|
Restructuring
charges (credits)
|
|
|
1,006
|
|
|
(1,468
|
)
|
|
|
(462
|
)
|
|
|
Cash
payments
|
|
|
(1,414
|
)
|
|
|
(25,032
|
)
|
|
|
(26,446
|
)
|
|
Accrual
balances, December 31, 2005
|
|
416
|
|
6,839
|
|
|
7,255
|
|
||||
|
Restructuring
charges (credits)
|
|
|
348
|
(3,717
|
)
|
(3,369
|
)
|
|||||
|
Cash
payments
|
|
|
(417
|
)
|
|
(907
|
)
|
|
(1,324
|
)
|
||
|
Accrual
balances, December 31, 2006
|
|
$
|
347
|
|
|
$
|
2,215
|
|
$
|
2,562
|
|
|
|
|
||||||||||||
Business
combination charges
.
We
recorded business combination charges of $2.8 million in the year ended December
31, 2005, related to the termination of our merger agreement with a wholly
owned
subsidiary of Vector Capital Corporation.
Other
Income (Expense), net
Other
income (expense), net, consists of the following (dollars in thousands,
percentages are based upon total revenues) for the indicated periods:
|
|
|
Years
Ended December 31,
|
|
||||||||||||||||||
|
|
|
2006
|
|
%
|
|
2005
|
|
%
|
|
2004
|
|
%
|
|
||||||||
|
Interest
income (expense), net
|
$
|
638
|
1
|
%
|
$
|
(10,094
|
)
|
(17
|
)%
|
$
|
(629
|
)
|
(1
|
)%
|
|||||||
|
Income
(expense) from derivatives
|
(1,333
|
) |
(3
|
) |
11,346
|
19
|
(2,421
|
)
|
(3
|
)
|
|||||||||||
|
Loss
on debt extinguishment
|
-
|
-
|
(6,967
|
)
|
(12
|
)
|
-
|
-
|
|||||||||||||
|
Other
(expense) income, net
|
888
|
|
2 |
|
(849
|
)
|
(1
|
)
|
941
|
1
|
|||||||||||
| Total other income (expense), net | $ |
193
|
$ |
(6,564
|
) | $ |
(2,109
|
) | |||||||||||||
Net
interest income (expense) includes interest income on invested funds, less
interest on the face amount of the Notes and on bank debt and the amortization
of the discount on the Notes. In 2006, we generated $638,000 net interest
income
due to positive cash from operating activities and cash received from the
rights
offering. Net interest expense decreased by $10.7 million in 2006 as compared
to
2005 due to the pay-off the convertible debt. Net (expense) interest increased
by $9.5 million in 2005 as compared to 2004 due to the following factors:
1) we
issued the Notes in November 2004 that were outstanding for the majority
of
fiscal year 2005, significantly increasing the amount of interest expense
for
the year, and 2) we recorded a $2.6 million charge related to the 20% premium
agreed to during the fourth quarter and the resulting revaluation of the
Notes.
Expense
from derivatives in 2006 was from the revaluation of the warrants issued
in
connection with the Notes and the real estate buyout. Income from derivatives
in
2005 included $4.6 million from the revaluation of the warrants issued
in
connection with the Notes and the real estate buyout and $6.7 million from
the
revaluation of the embedded derivatives related to the Notes. Expense from
derivatives in 2004 included $0.7 million from the revaluation of the warrants
issued in connection with the Notes and the real estate buyout and $1.7
million
from the revaluation of the embedded derivatives related to the
Notes.
Loss
on
debt extinguishment of $7.0 million in 2005 was recorded upon the agreement
to
exchange the Notes for common stock and the presumed cancellation and reissuance
of the Notes at the fair value of the underlying shares to be exchanged.
On the
agreement date, the carrying value included Note face value of $15.4 million
less discount of $1.9 million. The value of the underlying shares was $20.7
million less accrued interest of $165,000.
Net
other
(expense) income increased from expense of $849,000 in 2005 to income
of
$888,000 in 2006. The change is mainly due to reversal of $850,000 accrued
liabilities that we are no longer subject to.
Income
Taxes
We
recorded income tax provisions (benefits) of $634,000, ($2.6 million),
and
($309,000) for the years ended December 31, 2006, 2005 and 2004,
respectively. For the year ended December 31, 2006, the tax provision
mainly relates to foreign and federal income taxes. The tax benefit from
fiscal
2005 was primarily due to tax accruals determined to be no longer required.
For
the year ended December 31, 2004, the tax benefit relates primarily to the
income tax accruals decreasing during the fiscal year. Partially offsetting
the
reduction in accruals were tax provisions related to foreign withholding
taxes
and state income taxes.
Liquidity
and Capital Resources
Background
and Overview
During
the previous years through December 31, 2005, we faced various liquidity
challenges. During the year ended December 31, 2006, the following significant
events occurred: approximately $20.5 million in convertible debt was exchanged
for 34.5 million shares of common stock; we generated cash flow from operations
of approximately $16.0 million; and we closed our rights offering and raised
net
proceeds of approximately $15.8 million. At December 31, 2006, our current
assets exceeded our current liabilities by approximately $19 million. Our
management believes that cash resources at December 31, 2006 will be
sufficient to fund operations through at least December 31, 2007. If our
existing cash resources are not sufficient to meet its obligations, we will
seek
to raise additional capital through public or private equity financing or
from
other sources. If adequate funds are not available or are not available on
acceptable terms as needed, we may be unable to pay our debts as they become
due, develop our products, take advantage of future opportunities or respond
to
competitive pressures or unanticipated requirements.
Our
consolidated balance sheet strengthened considerably throughout 2006. As
of
December 31, 2006, we had $37.0 million of cash, with no long-term debt
borrowings. This represents a 671% increase from the prior year's starting
cash
position of $4.8 million. Positive cash flow from business operations and
rights
offering each contributed approximately half of the $32.2 million cash
generated
during 2006.
2006
full-year revenues of $52.0 million were down 13% from 2005 revenues of
$60.1
million, due primarily to declines in consulting revenues mentioned above,
which
were down 37%. Maintenance revenues were down 6%; license revenues up a
modest
4%. The most significant change was the year-over-year decline in consulting
revenues, which can be attributable to a lagging effect caused by declining
license revenues in prior quarters. Since consulting projects tend to trail
licenses by 6 to 12 months, as our licenses went down during the turbulent
2005,
its lagging effect finally caught up with us in the second half of 2006.
However, on a more positive note, this decline was more than offset by
corresponding cost savings in both direct headcount and contractor expenses.
As
a result, consulting services actually generated fairly decent positive
margins
compared to many prior higher-revenue quarters.
We
were
vigilant about our expense control throughout 2006, with a sharp focus
on
achieving strong operating results and profit margins. 2006 full-year expenses
were $37.0 million, as compared to 2005 equivalents of $99.1 million. As
a
result, 2006 net income were $15.0 million, or $0.23 per share. This compares
to
2005 net losses of $39.0 million, or $(1.14) per share.
|
|
|
December 31,
|
||||||
|
|
|
2006
|
|
2005
|
||||
|
Cash
and cash equivalents
|
|
$
|
37,003
|
|
|
$
|
4,849
|
|
|
Restricted
cash, current portion
|
|
$
|
997
|
|
|
$
|
-
|
|
|
Restricted
cash, net of current portion
|
|
$
|
1,000
|
|
|
$
|
1,997
|
|
|
Working
capital (deficit)
|
|
$
|
18,955
|
|
$
|
(35,872
|
)
|
|
|
Working
capital ratio
|
|
|
1.63
|
|
|
|
(0.35
|
)
|
Cash Provided By (Used For) Operating Activities
Cash
flow
from operating activities was $16.0 million for fiscal 2006. Cash used for
operating activities was $37.9 million and $41.9 million for fiscal years
2005, and 2004, respectively. Net cash provided by operating activities in
2006
was primarily due to the $12.3 million profit (excluding restructuring credit)
generated from sales margin improvement and our company-wide cost reduction
efforts. In addition, we recognized a $3.4 million restructuring credit
resulting from our effort of subleasing the excess facilities. Also impacting
cash flows from operations in fiscal 2006 was an additional $5.3 million
in
collection of accounts receivable and unearned revenue and deferred
maintenance, partially offset by a decrease in accounts payable and accrued
expenses of $4.3 million.
Net
cash
used in operating activities in 2005 was primarily due to $25.0 million of
lease
and buyout payments associated with long-term lease obligations from agreements
signed during fiscal 2004. Also impacting cash flows from operations in fiscal
2005 was a $2.0 million reversal of income tax accruals, a decrease in accounts
payable and accrued expenses of $7.0 million, a decrease in the restructuring
accrual of $26.9 million (mostly related to the settlement of long-term lease
obligations), a decrease in unearned revenue and deferred maintenance of
$3.9
million and a gain of $11.3 million on revaluation of embedded derivatives
related to the Notes and the related warrants, partially offset by $9.4 million
of amortization of discount and revaluation of the Notes, a loss on debt
extinguishment of $7.0 million and a decrease in accounts receivable of $2.4
million.
Net
cash
used for operating activities of $41.9 million in 2004 was largely due to
buyout
payments to settle long-term lease obligations. As a result of the settlement
of
future lease obligations during the third and fourth quarters of fiscal 2004,
we
paid $20.7 million in cash to extinguish future lease obligations. Also
impacting cash flows from operations in fiscal 2004 was a net loss of
$6.3 million (before restructuring credits related to real estate
transactions), a $1.5 million release of doubtful accounts and reserves and
a $7.0 million decline in unearned revenue and deferred maintenance. There
were also several non-cash items, including non-cash depreciation and
amortization expense of $3.7 million, a non-cash restructuring reversal of
$24.9 million, non-cash losses of $2.4 million from the revaluation of the
conversion feature of the Notes and the related warrants, non-cash discount
amortization related to the Notes of $401,000 and changes to balance sheet
accounts, including a decrease in accounts receivable, prepaid expenses and
other current assets of $5.0 million and a decrease in accounts payable and
accrued expenses of $2.2 million.
Cash
Provided By (Used For) Investing Activities
Cash
provided
by investing activities in fiscal 2006 was $180,000, primarily as a result
of
sales of cost method investment of $426,000 and offset by capital expenditures
of $246,000. Cash provided by investing activities in fiscal 2005 was $23.8
million, primarily as a result of transfers from restricted cash and proceeds
from dividends received related to equity investments. Cash used for investing
activities in fiscal 2004 was $3.8 million, primarily as a result of
transfers to restricted cash.
Capital
expenditures were $246,000 for fiscal 2006, $142,000 for fiscal 2005, and
$730,000 for fiscal 2004. Our capital expenditures have consisted of purchases
of operating resources to manage our operations and included computer hardware
and software, office furniture and fixtures and leasehold
improvements.
Cash
Provided By (Used For) Financing Activities
Cash
provided by financing activities was $15.9 million in fiscal 2006. In
November 2006, we closed the rights offering, which provided $15.8 million
in
net proceeds after issuance costs. Cash used for financing activities in fiscal
2005 was $23.2 million, primarily due to the repayment of borrowings under
our
bank line of credit and Notes payments. Cash provided by financing activities
was $8.9 million in fiscal 2004. In November 2004, we issued the Notes
and a related warrant to five institutional investors, which provided
$14.9 million in net proceeds after issuance costs. Offsetting this in
fiscal 2004 was a $7.0 million reduction in bank borrowings and bank term
debt principal payments of $900,000.
Leases
and Other Contractual Obligations
We
lease
our headquarters and other facilities under non-cancelable operating lease
agreements expiring 2012. Under the terms of the agreements, we are required
to
pay lease costs, property taxes, insurance, and normal maintenance
costs.
We
expect to
incur significant operating expenses for the foreseeable future in order to
execute our business plan. A summary of total future minimum lease payments
as
of December 31, 2006, under non-cancelable operating lease agreements is as
follows (in millions):
|
|
|
Operating
|
|||
|
|
|
Leases
|
|||
|
Years
Ending December 31,
|
|
|
|
|
|
|
2007
|
|
$
|
2.7
|
|
|
|
2008
|
|
|
1.7
|
|
|
|
2009
|
|
|
1.7
|
|
|
|
2010
|
|
|
1.2
|
|
|
|
2011
and thereafter
|
|
|
1.7
|
|
|
|
|
|
|
|
||
|
|
Total
minimum lease payments
|
|
$
|
9.0
|
|
As
of
December 31, 2006, we have accrued $2.2 million of estimated future
facilities costs as a restructuring accrual. This accrual includes the above
minimum lease payments that are related to excess and abandoned space under
lease and certain lease related allowances, fees and expenses, partially
offset
by estimated future sublease income (See Note 8 in the Notes to
Consolidated Financial Statements).
Factors
That May Affect Future Liquidity
The
following table summarizes our contractual obligations as of December 31, 2006
and the effect such obligations are expected to have on our liquidity and cash
flows in future years. Restricted cash represents the collateral for our letters
of credit.
|
|
|
|
|
Less
Than
|
|
1-3
|
|
4-5
|
|
Over
|
||||||||||
|
|
|
Total
|
|
1 Year
|
|
Years
|
|
Years
|
|
5 Years
|
||||||||||
|
|
|
(In
millions)
|
||||||||||||||||||
|
Letters
of credit
|
|
$
|
2.0
|
|
|
$
|
1.0
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1.0
|
|
|
Non-cancelable
operating leases
|
|
|
2.2
|
|
|
|
0.9
|
|
|
|
1.1
|
|
|
|
0.2
|
|
|
|
-
|
|
|
|
|
$
|
4.2
|
|
|
$
|
1.9
|
|
|
$
|
1.1
|
|
|
$
|
0.2
|
|
|
$
|
1.0
|
|
|
|
||||||||||||||||||||
We
anticipate that future operating expenses and cash payments under operating
leases will constitute a material use of our existing cash resources. As a
result, our net cash flows will depend heavily on the level of future revenues,
and our ability to manage infrastructure costs.
Quarterly
Results of Operations
The
following tables set forth certain unaudited condensed consolidated statement
of
operations data for the eight quarters ended December 31, 2006, as well as
that data expressed as a percentage of our total revenues for the periods
indicated.
This
data
has been derived from unaudited condensed consolidated financial statements
that, in the opinion of management, include all adjustments consisting only
of
normal recurring adjustments, necessary for a fair presentation of such
information when read in conjunction with the Consolidated Financial Statements
and Notes thereto.
The
unaudited quarterly information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included in this
Form 10-K. We believe that period-to-period comparisons of our
financial results are not necessarily meaningful and should not be relied upon
as an indication of future performance.
|
|
|
Three
Months Ended
|
||||||||||||||||||||||||||||||
|
|
|
Dec 31,
|
|
Sep 30,
|
|
Jun 30,
|
|
Mar 31,
|
|
Dec 31,
|
|
Sep 30,
|
|
Jun 30,
|
|
Mar 31,
|
||||||||||||||||
|
|
|
2006
|
|
2006
|
|
2006
|
|
2006
|
|
2005
|
|
2005
|
|
2005
|
|
2005
|
||||||||||||||||
|
|
|
(In
thousands)
|
||||||||||||||||||||||||||||||
|
|
|
(Unaudited)
|
||||||||||||||||||||||||||||||
|
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
licenses
|
|
$
|
3,956
|
|
|
$
|
4,750
|
|
|
$
|
3,627
|
|
|
$
|
2,882
|
|
|
$
|
3,780
|
|
|
$
|
3,134
|
|
|
$
|
3,391
|
|
|
$
|
4,416
|
|
|
Services
|
|
|
9,090
|
|
8,835
|
|
9,102
|
|
|
|
9,742
|
|
10,383
|
|
|
|
10,943
|
|
|
|
12,123
|
|
|
|
11,951
|
|
||||||
|
Total
revenues
|
|
13,046
|
13,585
|
12,729
|
12,624
|
|
14,163
|
|
|
|
14,077
|
|
|
|
15,514
|
|
|
|
16,367
|
|
||||||||||||
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Cost
of (credit for) software licenses
|
|
32
|
22
|
142
|
62
|
|
99
|
|
|
|
106
|
|
|
|
(186
|
)
|
|
|
(57
|
)
|
||||||||||||
|
Cost
of services
|
|
|
2,173
|
|
2,729
|
|
3,496
|
|
4,058
|
|
4,696
|
|
|
|
5,641
|
|
|
|
5,614
|
|
|
5,980
|
||||||||||
|
Total
cost of revenues
|
|
|
2,205
|
|
2,751
|
|
3,638
|
|
4,120
|
|
4,795
|
|
|
|
5,747
|
|
|
|
5,428
|
|
|
5,923
|
||||||||||
|
Gross
profit
|
|
10,841
|
10,834
|
9,091
|
8,504
|
|
9,368
|
|
|
|
8,330
|
|
|
|
10,086
|
|
|
10,444
|
||||||||||||||
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
Research
and development
|
|
2,708
|
2,766
|
2,405
|
2,631
|
|
2,494
|
|
|
|
3,095
|
|
|
|
3,955
|
|
|
4,287
|
||||||||||||||
|
Sales
and marketing
|
|
2,529
|
1,761
|
1,982
|
2,381
|
|
2,389
|
|
|
|
2,948
|
|
5,060
|
|
|
5,811
|
||||||||||||||||
|
General
and administrative
|
|
613
|
2,429
|
3,239
|
1,738
|
|
1,953
|
|
|
|
2,162
|
|
2,829
|
|
|
2,535
|
||||||||||||||||
|
Goodwill
impairment
|
|
-
|
-
|
-
|
-
|
|
18,170
|
|
|
|
13,198
|
|
-
|
|
|
-
|
||||||||||||||||
|
Restructuring
(credits), charges
|
|
(1,966
|
)
|
(1,878
|
)
|
(15
|
)
|
490
|
|
(312
|
)
|
|
|
245
|
|
309
|
|
|
(704
|
)
|
||||||||||||
|
Business
combination charges
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,840
|
|
|
|
977
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
operating expenses
|
|
|
3,884
|
|
5,078
|
|
7,611
|
|
7,240
|
|
|
26,534
|
|
|
22,625
|
|
12,153
|
|
|
11,929
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Operating
income (loss)
|
|
6,957
|
5,756
|
1,480
|
1,264
|
|
|
(17,166
|
)
|
|
|
(14,295
|
)
|
|
(2,067
|
)
|
|
|
(1,485
|
)
|
||||||||||||
|
Other
income (expense), net
|
|
248
|
(163
|
)
|
335
|
(227
|
)
|
|
|
(10,714
|
)
|
|
|
(1,757
|
)
|
|
(959
|
)
|
|
|
6,866
|
|||||||||||
|
Income
taxes (expense) benefit
|
|
|
(185
|
)
|
|
(228
|
)
|
|
(65
|
)
|
|
(156
|
)
|
|
|
109
|
|
|
540
|
|
(70
|
)
|
|
|
2,032
|
|||||||
|
Net
income (loss)
|
|
$
|
7,020
|
|
|
$
|
5,365
|
|
|
$
|
1,750
|
|
|
$
|
881
|
|
|
$
|
(27,771
|
)
|
|
$
|
(15,512
|
)
|
|
$
|
(3,096
|
)
|
|
$
|
7,413
|
|
|
Basic
net income (loss) per share
|
|
$
|
0.09
|
|
|
$
|
0.08
|
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
|
$
|
(0.81
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.22
|
|
|
Diluted
net income (loss) per share
|
|
$
|
0.09
|
|
|
$
|
0.08
|
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
|
$
|
(0.81
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.19
|
|
|
Shares
used in computing basic net income (loss) per share
|
|
|
80,878
|
|
69,489
|
|
69,151
|
|
42,958
|
|
|
|
34,430
|
|
|
|
34,320
|
|
|
|
34,181
|
|
|
|
33,971
|
|
||||||
|
Shares
used in computing diluted net income (loss) per share
|
|
|
80,878
|
|
69,489
|
|
69,151
|
|
43,068
|
|
|
|
34,430
|
|
|
|
34,320
|
|
|
|
34,181
|
|
|
|
39,968
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
As
a Percent of Revenue
|
|
|
Three
Months Ended
|
|
||||||||||||||||||||||
|
|
|
Dec
31,
|
|
Sep
30,
|
|
Jun
30,
|
|
Mar
31,
|
|
Dec
31,
|
|
Sep
30,
|
|
Jun
30,
|
|
Mar
31,
|
|
||||||||
|
|
|
2006
|
|
2006
|
|
2006
|
|
2006
|
|
2005
|
|
2005
|
|
2005
|
|
2005
|
|
||||||||
|
|
|
(In
thousands)
|
|
||||||||||||||||||||||
|
|
|
(Umaudited)
|
|
||||||||||||||||||||||
|
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Software
licenses
|
|
|
30
|
%
|
|
35
|
%
|
|
28
|
%
|
|
23
|
%
|
|
27
|
%
|
|
22
|
%
|
|
22
|
%
|
|
27
|
%
|
|
Services
|
|
|
70
|
|
|
65
|
|
|
72
|
|
|
77
|
|
|
73
|
|
|
78
|
|
|
78
|
|
|
73
|
|
|
Total
revenues
|
|
|
100
|
|
|
100
|
|
|
100
|
|
|
100
|
|
|
100
|
|
|
100
|
|
|
100
|
|
|
100
|
|
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of (credit for) software licenses
|
|
|
-
|
|
|
-
|
|
|
1
|
|
|
-
|
|
|
1
|
|
|
1
|
|
|
(1
|
)
|
|
(1
|
)
|
|
Cost
of services
|
|
|
17
|
|
|
20
|
|
|
27
|
|
|
32
|
|
|
33
|
|
|
40
|
|
|
36
|
|
|
37
|
|
|
Total
cost of revenues
|
|
|
17
|
|
|
20
|
|
|
28
|
|
|
32
|
|
|
34
|
|
|
41
|
|
|
35
|
|
|
36
|
|
|
Gross
profit
|
|
|
83
|
|
|
80
|
|
|
72
|
|
|
68
|
|
|
66
|
|
|
59
|
|
|
65
|
|
|
64
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
21
|
|
|
20
|
|
|
19
|
|
|
21
|
|
|
18
|
|
|
22
|
|
|
25
|
|
|
26
|
|
|
Sales
and marketing
|
|
|
19
|
|
|
13
|
|
|
16
|
|
|
19
|
|
|
17
|
|
|
21
|
|
|
33
|
|
|
36
|
|
|
General
and administrative
|
|
|
5
|
|
|
18
|
|
|
25
|
|
|
14
|
|
|
14
|
|
|
15
|
|
|
18
|
|
|
15
|
|
|
Goodwill
impairment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
128
|
|
|
94
|
|
|
-
|
|
|
-
|
|
|
Restructuring
(credits), charges
|
|
|
(15
|
)
|
|
(14
|
)
|
|
-
|
|
|
4
|
|
|
(2
|
)
|
|
2
|
|
|
2
|
|
|
(4
|
)
|
|
Business
combination charges
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13
|
|
|
7
|
|
|
-
|
|
|
-
|
|
|
Total
operating expenses
|
|
|
30
|
|
|
37
|
|
|
60
|
|
|
58
|
|
|
188
|
|
|
161
|
|
|
78
|
|
|
73
|
|
|
Operating
income (loss)
|
|
|
53
|
|
|
43
|
|
|
12
|
|
|
10
|
|
|
(122
|
)
|
|
(102
|
)
|
|
(13
|
)
|
|
(9
|
)
|
|
Other
income (expense), net
|
|
|
-
|
|
|
(3
|
)
|
|
2
|
|
|
(3
|
)
|
|
(75
|
)
|
|
(8
|
)
|
|
(7
|
)
|
|
54
|
|
|
Net
income (loss)
|
|
|
53
|
%
|
|
40
|
%
|
|
14
|
%
|
|
7
|
%
|
|
(197
|
)%
|
|
(110
|
)%
|
|
(20
|
)%
|
|
45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our
quarterly operating results have fluctuated in the past and may fluctuate
significantly in the future as a result of a variety of factors, many of which
are outside of our control. It is likely that our operating results in one
or
more future quarters may be below the expectations of securities analysts and
investors. In that event, the trading price of our common stock almost certainly
would decline.
RECENT
ACCOUNTING PRONOUNCEMENTS
In
June
2006, the EITF reached a consensus on Issue No. 06-3,
How
Taxes Collected from Customers and Remitted to Governmental Authorities Should
Be Presented in the Income Statement".
The
scope
of EITF 06-3 includes sales, use, value added and some excise taxes that are
assessed by a governmental authority on specific revenue-producing transactions
between a seller and customer. EITF 06-3 states that a company should disclose
its accounting policy (i.e., gross or net presentation) regarding the
presentation of taxes within its scope, and if significant, these disclosures
should be applied retrospectively to the financial statements for all periods
presented. EITF 06-3 is effective for interim and annual reporting periods
beginning after December 15, 2006. The adoption of EITF 06-3 is not expected
to
have a material effect on the Company's financial position, results of
operations or cash flows.
In
July
2006, the FASB issued FASB Interpretation No. 48
Accounting
for Uncertainty in Income Taxes
("FIN
No.48"), which prescribes a recognition threshold and measurement process for
recording in the financial statements uncertain tax positions taken or expected
to be taken in a tax return. Additionally, FIN No. 48 provides guidance on
the
derecognition, classification, accounting in interim periods and disclosure
requirements for uncertain tax positions. The accounting provisions of FIN
No.
48 will be effective for fiscal years beginning after December 15, 2006. The
Company is in the process of determining the effect, if any, that the adoption
of FIN No. 48 will have on its financial statements.
In
September 2006, the SEC issued SAB No. 108,
Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements.
SAB No. 108 provides guidance on how prior year misstatements should
be taken into consideration when quantifying misstatements in current year
financial statements for purposes of determining whether the current year's
financial statements are materially misstated. SAB No. 108 is
effective for fiscal years ending on or after November 15, 2006.
The
Company is
currently in the process of evaluating the impact of SAB No. 108 on
our financial position and results of operations.
In
September 2006, the FASB issued SFAS No. 157,
Fair
Value Measurements.
SFAS No. 157 establishes a framework for measuring the fair value of
assets and liabilities. This framework is intended to provide increased
consistency in how fair value determinations are made under various existing
accounting standards which permit, or in some cases require, estimates of fair
market value. SFAS No. 157 is effective for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years.
Earlier application is encouraged, provided that the reporting entity has not
yet issued financial statements for that fiscal year, including any financial
statements for an interim period within that fiscal year.
The
Company is
currently in the process of evaluating the impact of SFAS No. 157 on
our financial position and results of operations.
On
December 21, 2006, the FASB issued FASB Staff Position ("FSP") EITF 00-19-2,
Accounting
for Registration Payment Arrangements
.
This
FSP
addresses
how to account for registration payment arrangements and clarifies that a
financial instrument subject to a registration payment arrangement
should
be
accounted for in accordance with other generally accepted accounting principles
("GAAP") without regard to the contingent obligation to
transfer
consideration pursuant to the registration payment arrangement. This accounting
pronouncement further clarifies that a liability for liquidated
damages
resulting from registration statement obligations should be recorded in
accordance with SFAS No. 5,
Accounting
for Contingencies
,
when
the payment of liquidated damages becomes probable and can be reasonably
estimated. This FSP is effective for companies with fiscal years ending on
or
after December 15, 2006. The Company is currently assessing the impact that
this
FSP may have in its financial statements.
ITEM
7
A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Our
exposure to market risk for changes in interest rates relates primarily to
our
investment portfolio. We had no derivative financial instruments as of
December 31, 2006 and 2005. We place our investments in instruments that
meet high credit quality standards and the amount of credit exposure to any
one
issue, issuer and type of instrument is limited.
Cash
and Cash Equivalents, and Restricted Cash
We
consider all debt and equity securities with remaining maturities of three
months or less at the date of purchase to be cash equivalents. Short-term cash
investments consist of debt and equity securities that have a remaining maturity
of less than one year as of the date of the balance sheet. Cash and cash
equivalents that serve as collateral for financial instruments such as letters
of credit are classified as restricted cash. Restricted cash in which the
underlying instrument has a term of greater than twelve months from the balance
sheet date are classified as non-current.
Management
determines the appropriate classification of cash investments at the time of
purchase and evaluates such designation as of each balance sheet date. All
cash
investments to date have been classified as available-for-sale and carried
at
fair value with related unrealized gains or losses reported as other
comprehensive income (loss), net of tax. Total realized gains during fiscal
years 2006 and 2005 were $426,000 and $1.4 million, respectively. Our cash
and
cash equivalents, and restricted cash consisted of the following as of
December 31, 2006 and 2005 (in thousands):
Concentrations
of Credit Risk
Financial
instruments that potentially subject us to concentrations of credit risk consist
primarily of cash and cash equivalents and accounts receivable. We place our
cash and cash equivalents with high-quality institutions. Our management
performs ongoing credit evaluations of our customers and requires certain of
these customers to provide security deposits or letters of credit.
Cash
deposits in foreign countries of approximately $9.0 million are subject
to local
banking laws and may bear higher or lower risk than cash deposited in the
United
States. As part of our cash and investment management processes, we perform
periodic evaluations of the credit standing of the financial institutions
we use
and we have not sustained any credit losses from instruments held at these
financial institutions. From time to time, our financial instruments maintained
in our foreign subsidiaries may be subject to political risks or instability
that may arise in foreign countries where we operate.
At
December 31, 2006 and 2005, one customer accounted for 13 % and 16 % of our
accounts receivable balance, respectively. For the years ended December 31,
2006, 2005, and 2004, no customer accounted for 10% or more of our total
revenues.
Fair
Value of Financial Instruments
Our
financial instruments consist of cash equivalents, accounts receivable, accounts
payable and debt. We do not have any derivative financial instruments. We
believe the reported carrying amounts of its financial instruments approximates
fair value, based upon the short maturity of cash equivalents, accounts
receivable and payable, and based on the current rates available to it on
similar debt issues.
Foreign
Currency
We
license our products and maintain significant operations in foreign countries.
Fluctuations in the value of foreign currencies, principally the Euro and
British Pound, relative to the United States dollar have impacted our operating
results in the past and may do so in the future. We expect that international
licenses, maintenance and consulting revenues will continue to account for
a
significant portion of our total revenues in the future. We pay the expenses
of
our international operations in local currencies and do not currently engage
in
hedging transactions with respect to such obligations.
Equity
Investments
Our
equity investments consist of equity investments in public and non-public
companies that are accounted for under either the cost method of accounting
or
the equity method of accounting. Equity investments are accounted for under
the
cost method of accounting when we have a minority interest and do not have
the
ability to exercise significant influence. These investments are classified
as
available for sale and are carried at fair value when readily determinable
market values exist or at cost when such market values do not exist. Adjustments
to fair value are recorded as a component of other comprehensive income unless
the investments are considered permanently impaired in which case the adjustment
is recorded as a component of other income (expense), net in the consolidated
statement of operations. Equity investments are accounted for under the equity
method of accounting when we have a minority interest and have the ability
to
exercise significant influence. These investments are classified as available
for sale and are carried at cost with periodic adjustments to carrying value
for
equity in net income (loss) of the equity investee. Such adjustments are
recorded as a component of other income, net. Any decline in value of our
investments, which is other than a temporary decline, is charged to earnings
during the period in which the impairment occurs. The total fair value of our
cost-method, long-term equity investments in public and non-public companies
as
of December 31, 2004 was $574,000. These investments were liquidated in
2005 and a net gain of $17,000 was recorded. In 2006, we received approximately
$426,000 cash related to the investments we made in the past. Those investments
were accounted for under the lower of cost or market method and were written
off
in prior years. The gain is reported under "Other Income (Expense), net" in
the
accompanying Consolidated Statements of Operations.
ITEM
8
. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
following consolidated financial statements and the related notes thereto of
BroadVision, Inc. and the Reports of Independent Registered Public
Accounting Firms are filed as a part of this Form 10-K.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and Stockholders of
BroadVision, Inc.
We
have
audited the accompanying consolidated balance sheet of BroadVision, Inc. and
its
subsidiaries as of December 31, 2006 and the related consolidated statements
of
operations, stockholders' equity (deficit) and cash flows for the year then
ended. Our audit also included the 2006 financial data in the financial
statement schedule listed in the Index at Item 15(a)2. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform
an
audit of the Company's internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express
no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements audited by us present fairly,
in
all material respects, the consolidated financial position of
BroadVision, Inc. and its subsidiaries at December 31, 2006, and the
consolidated results of their operations and their cash flows for the year
then
ended, in conformity with U.S. generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule for the year ended
December 31, 2006, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As
also
discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for share based compensation when it adopted
SFAS No. 123 (revised 2004), "Share-Based Payments" in accounting for its
employee stock-based compensation, applying the modified prospective method
effective January 1, 2006.
/s/
Odenberg, Ullakko, Muranishi & Co. LLP
San
Francisco, California
March
26,
2007
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
The
Board of Directors and Stockholders of BroadVision, Inc.:
We
have audited the accompanying consolidated balance sheet of BroadVision, Inc.
(the "Company") and its subsidiaries as of December 31, 2005 and the related
consolidated statements of operations, stockholders' equity (deficit) and
comprehensive income (loss), and cash flows for the year then ended. We have
also audited the financial statement schedule as of and for the year ended
December 31,2005 listed in the accompanying index at item 15(a) 2. These
financial statements and financial statement schedule are the responsibility
of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform
an
audit of the Company's internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purposes of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express
no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
as
well as evaluating the overall financial statement presentation.
We
believe that our audit provides a reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
BroadVision, Inc. at December 31, 2005 and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, the financial statement schedule, when considered in relation
to
the basic consolidated financial statements taken as a whole, presents fairly
in
all material respects the information set forth therein as of and for the year
ended December 31, 2005.
/s/
STONEFIELD JOSEPHSON, INC.
Irvine,
California
May
26,
2006
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
The
Board of Directors and Stockholders
BroadVision, Inc.
We
have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit) and comprehensive income (loss), and cash
flows
of BroadVision, Inc. (the "Company") for the year ended December 31,
2004. We have also audited the financial statement schedule as of and for
the
year ended December 31, 2004 listed in the accompanying index at Item 15(a)
2.
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and schedule are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements and schedule. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well
as evaluating the overall presentation of the financial statements and schedule.
We believe that our audit provides a reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows
of
BroadVision, Inc. for the year ended December 31, 2004, in conformity
with accounting principles generally accepted in the United States.
Also,
in our opinion, the financial statement schedule as of and for the year ended
December 31, 2004, presents fairly, in all material respects, the information
set forth therein.
/s/
BDO
SEIDMAN, LLP
San
Jose,
California
March
11,
2005, except for the matters affecting the 2004 consolidated financial
statements
described
in the Restatement discussion in Note 1 to the consolidated financial statements
and
the
Convertible Debentures discussion in Note 5 to the consolidated financial
statements included
in
the
Annual Report on Form 10-K for the year ended December 31, 2005 (not presented
herein),
as
to
which the date is May 26, 2006
BROADVISION, INC.
AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(in
thousands, except par value amounts)
|
|
|
December 31,
|
|
|||||
|
|
|
2006
|
|
|
2005
|
|
||
|
ASSETS
|
|
|||||||
|
Current
assets:
|
|
|
|
|
|
|
||
|
Cash
and cash equivalents
|
|
$
|
37,003
|
|
|
$
|
4,849
|
|
|
Accounts
receivable, less receivable reserves of $1,141 and $731 as of
December 31, 2006 and 2005, respectively
|
|
|
10,106
|
|
|
|
12,640
|
|
|
Restricted
cash
|
|
|
997
|
|
|
|
-
|
|
|
Prepaids
and other
|
|
|
1,108
|
|
|
|
1,914
|
|
|
Total current assets
|
|
|
49,214
|
|
|
|
19,403
|
|
|
Property
and equipment, net
|
|
|
1,144
|
|
|
|
2,334
|
|
|
Restricted
cash, net of current portion
|
|
|
1,000
|
|
|
|
1,997
|
|
|
Goodwill
|
|
|
25,066
|
|
|
|
25,066
|
|
|
Other
assets
|
|
|
518
|
|
|
|
1,142
|
|
|
Total
assets
|
|
$
|
76,942
|
|
|
$
|
49,942
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,249
|
|
|
$
|
4,396
|
|
|
Accrued
expenses
|
|
|
10,538
|
|
|
|
16,090
|
|
|
Warrant
liability
|
|
|
1,610
|
|
|
|
277
|
|
|
Unearned
revenue
|
|
|
6,278
|
|
|
|
2,678
|
|
|
Deferred
maintenance
|
|
|
10,584
|
|
|
|
10,910
|
|
|
Current
portion of bank borrowings
|
|
|
-
|
|
|
|
389
|
|
|
Current
portion of convertible debentures due to related party
|
|
|
-
|
|
|
|
20,535
|
|
|
Total current liabilities
|
|
|
30,259
|
|
|
|
55,275
|
|
|
Other
non-current liabilities
|
|
|
3,429
|
|
|
|
4,390
|
|
|
Total liabilities
|
|
|
33,688
|
|
|
|
59,665
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
-
|
|
|
|
-
|
|
|
Stockholders'
equity (deficit):
|
|
|
|
|
|
|
|
|
|
Convertible
preferred stock, $0.0001 par value; 10,000 shares authorized;
none issued
and outstanding
|
- | - | ||||||
|
Common
stock, $0.0001 par value; 2,000,000 shares authorized; 106,523
and 34,522 shares issued and outstanding as of December 31, 2006
and 2005, respectively
|
|
|
10
|
|
|
|
3
|
|
|
Additional
paid-in capital
|
|
|
1,253,135
|
|
|
|
1,215,256
|
|
|
Accumulated
other comprehensive income
|
|
|
168
|
|
|
|
93
|
|
|
Accumulated
deficit
|
|
|
(1,210,059
|
)
|
|
|
(1,225,075
|
)
|
|
Total stockholders' equity (deficit)
|
|
|
43,254
|
|
|
|
(9,723
|
)
|
|
Total
liabilities and stockholders' equity (deficit)
|
|
$
|
76,942
|
|
|
$
|
49,942
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
BROADVISION, INC.
AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
thousands, except per share amounts)
|
|
|
Years
Ended December 31,
|
|
|||||||||
|
|
|
2006
|
|
2005
|
|
2004
|
|
|||||
|
Revenues:
|
|
|
|
|||||||||
|
Software
licenses
|
$
|
15,215
|
$
|
14,721
|
$
|
26,883
|
||||||
|
Services
|
|
|
36,769
|
|
|
45,400
|
|
|
51,121
|
|
||
|
Total revenues
|
51,984
|
60,121
|
78,004
|
|||||||||
|
Cost
of revenues:
|
||||||||||||
|
Cost
of (credit for) software licenses
|
258
|
(38
|
)
|
1,303
|
||||||||
|
Cost
of services
|
|
|
12,456
|
|
|
21,931
|
|
|
24,978
|
|
||
|
Total cost of revenues
|
|
|
12,714
|
|
|
21,893
|
|
|
26,281
|
|
||
|
|
||||||||||||
|
Gross
profit
|
39,270
|
38,228
|
51,723
|
|||||||||
|
Operating
expenses:
|
||||||||||||
|
Research
and development
|
10,510
|
13,831
|
18,024
|
|||||||||
|
Sales
and marketing
|
8,653
|
16,208
|
27,340
|
|||||||||
|
General
and administrative
|
8,019
|
9,479
|
9,538
|
|||||||||
|
Goodwill
impairment
|
-
|
31,368
|
-
|
|||||||||
|
Restructuring
(credits), net
|
(3,369
|
)
|
(462
|
)
|
(23,545
|
)
|
||||||
|
Business
combination charges
|
|
|
-
|
|
|
2,817
|
|
|
-
|
|
||
|
Total operating expenses
|
|
|
23,813
|
|
|
73,241
|
|
|
31,357
|
|
||
|
|
||||||||||||
|
Operating
income (loss)
|
15,457
|
(35,013
|
)
|
20,366
|
||||||||
| Other income (expense): | ||||||||||||
|
Interest
income (expense), net
|
638
|
(10,094
|
)
|
(629
|
)
|
|||||||
|
(Expense)
income from derivatives
|
(1,333
|
) |
11,346
|
(2,421
|
)
|
|||||||
|
Loss
on debt extinguishment
|
-
|
(6,967
|
)
|
-
|
||||||||
|
Other
income (expense), net
|
|
|
888
|
|
|
(849
|
)
|
|
941
|
|
||
|
Total
other income (expense)
|
193 | (6,564 | ) | (2,109 | ) | |||||||
|
Income
(loss) before income taxes
|
15,650
|
(41,577
|
)
|
18,257
|
||||||||
|
Income
taxes (expense) benefit
|
|
|
(634
|
)
|
|
2,611
|
|
|
309
|
|
||
|
Net
income (loss)
|
|
$
|
15,016
|
|
$
|
(38,966
|
)
|
$
|
18,566
|
|
||
|
Basic
net income (loss) per share
|
|
$
|
0.23
|
|
$
|
(1.14
|
)
|
$
|
0.55
|
|
||
|
Diluted
net income (loss) per share
|
|
$
|
0.23
|
|
$
|
(1.14
|
)
|
$
|
0.54
|
|
||
|
Shares
used in computing basic net income (loss) per share
|
|
|
65,734
|
|
|
34,228
|
|
|
33,539
|
|
||
|
Shares
used in computing diluted net income (loss) per share
|
|
|
65,734
|
|
|
34,228
|
|
|
34,321
|
|
||
The
accompanying notes are an integral part of these consolidated financial
statements
BROADVISION, INC.
AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
AND
COMPREHENSIVE INCOME (LOSS)
(in
thousands)
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
|
|
Accumulated
|
|
|
Total
|
|||||||||||||||||||||||
|
|
|
Additional
|
Other
|
|
|
Stockholders'
|
||||||||||||||||||||||
|
|
|
Paid-in
|
Comprehensive
|
Accumulated
|
Comprehensive
|
Equity
|
||||||||||||||||||||||
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Income
(Loss)
|
|
Deficit
|
|
Income
(Loss)
|
|
(Deficit)
|
|
|||||||||||||
|
Balances
as of December 31, 2003
|
33,198
|
$
|
3
|
$
|
1,212,671
|
$
|
(49
|
)
|
$
|
(1,204,675
|
)
|
$
|
7,950
|
|||||||||||||||
|
Comprehensive
income:
|
||||||||||||||||||||||||||||
|
Net
income
|
-
|
-
|
-
|
-
|
18,566
|
$
|
18,566
|
18,566
|
||||||||||||||||||||
|
Foreign
currency translations
|
-
|
-
|
-
|
(116
|
)
|
-
|
(116
|
)
|
(116
|
)
|
||||||||||||||||||
|
Unrealized
investment gain, less reclassification adjustment for gains (losses)
included in net income
|
-
|
-
|
-
|
49
|
-
|
49
|
49
|
|||||||||||||||||||||
|
Reclassification
adjustment
|
|
|
-
|
|
|
-
|
|
|
56
|
|
|
(56
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
||||||
|
Total
comprehensive income
|
$
|
18,499
|
||||||||||||||||||||||||||
|
Issuance
of common stock under employee stock purchase plan
|
443
|
-
|
1,296
|
-
|
-
|
1,296
|
||||||||||||||||||||||
|
Issuance
of common stock from exercise of options
|
304
|
-
|
615
|
-
|
-
|
615
|
|
|||||||||||||||||||||
|
Stock-based
compensation charge (reversal)
|
|
|
6
|
|
|
-
|
|
|
(19
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
(19
|
)
|
||||||
|
Balances
as of December 31, 2004
|
33,951
|
3
|
1,214,619
|
(172
|
)
|
(1,186,109
|
)
|
28,341
|
||||||||||||||||||||
|
Comprehensive
loss:
|
||||||||||||||||||||||||||||
|
Net
loss
|
-
|
-
|
-
|
-
|
(38,966
|
)
|
$
|
(38,966
|
)
|
(38,966
|
)
|
|||||||||||||||||
|
Foreign
currency translations
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
265
|
|
|
-
|
|
|
265
|
|
|
265
|
|
||||||
|
Total
comprehensive loss
|
$
|
(38,701
|
)
|
|||||||||||||||||||||||||
|
Issuance
of common stock under employee stock purchase plan
|
516
|
-
|
512
|
-
|
-
|
512
|
||||||||||||||||||||||
|
Issuance
of common stock from exercise of options
|
|
|
55
|
|
|
-
|
|
|
125
|
|
|
-
|
|
|
-
|
|
|
|
|
|
125
|
|
||||||
|
Balances
as of December 31, 2005
|
34,522
|
|
3
|
|
1,215,256
|
93
|
|
(1,225,075
|
)
|
|
(9,723
|
)
|
||||||||||||||||
|
Comprehensive
income:
|
||||||||||||||||||||||||||||
|
Net
income
|
-
|
-
|
-
|
-
|
15,016
|
$
|
15,016
|
15,016
|
||||||||||||||||||||
|
Foreign
currency translations
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
75
|
|
|
-
|
|
|
75
|
|
|
75
|
|
||||||
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,091
|
|
|
|
|
|
|||||
|
Exchange
of debt to common stock
|
34,500
|
3
|
20,698
|
- | - |
20,701
|
||||||||||||||||||||||
|
Stock-based
compensation
|
-
|
-
|
950
|
- | - |
950
|
||||||||||||||||||||||
|
Issuance
of common stock under employee stock purchase plan
|
931
|
-
|
383
|
- | - |
383
|
||||||||||||||||||||||
|
Issuance
of common stock from rights offering, net of issuance
costs
|
36,380
|
4
|
15,822
|
- | - |
15,826
|
||||||||||||||||||||||
|
Issuance
of common stock from exercise of options
|
|
|
190
|
|
|
-
|
|
|
26
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
26
|
|
|||||
|
Balances
as of December 31, 2006
|
|
|
106,523
|
|
$
|
10
|
|
$
|
1,253,135
|
|
$
|
168
|
|
$
|
(1,210,059
|
)
|
|
|
|
$
|
43,254
|
|
||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
BROADVISION, INC.
AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
|
|
|
Years
Ended December 31,
|
|
|||||||||
|
|
|
2006
|
|
2005
|
|
2004
|
|
|||||
| Cash flows from operating activities: | ||||||||||||
|
Net
income (loss)
|
$
|
15,016
|
$
|
(38,966
|
)
|
$
|
18,566
|
|||||
|
Adjustments
to reconcile net income (loss) to net cash provided by (used for)
operating activities:
|
||||||||||||
|
Depreciation
and amortization
|
1,385
|
1,231
|
3,672
|
|||||||||
|
Stock-based
compensation charge (reversal)
|
950
|
-
|
(19
|
)
|
||||||||
|
Provision
for (reversal of) receivable reserves
|
487
|
(678
|
)
|
(1,466
|
)
|
|||||||
|
Amortization
of prepaid royalties
|
36
|
70
|
613
|
|||||||||
|
(Gain)
loss on cost method investments
|
(426
|
)
|
(1,117
|
)
|
517
|
|||||||
|
Loss
on sale or abandonment of fixed assets
|
51
|
117
|
-
|
|||||||||
|
Impairment
of assets
|
-
|
-
|
(96
|
)
|
||||||||
|
Goodwill
impairment
|
-
|
31,368
|
-
|
|||||||||
|
Loss
on debt extinguishment
|
-
|
6,967
|
-
|
|||||||||
|
Restructuring
(credit)/charge
|
(3,369
|
)
|
-
|
(24,855
|
) | |||||||
|
Loss
(gain) on revaluation of embedded derivatives and warrants
|
1,333
|
(11,346
|
)
|
2,422
|
||||||||
|
Amortization
of discount and revaluation of convertible notes
|
-
|
9,422
|
401
|
|||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Accounts
receivable
|
2,047
|
2,408
|
2,476
|
|||||||||
|
Prepaids
and other
|
787
|
248
|
2,501
|
|||||||||
|
Other
non-current assets
|
607
|
228
|
600
|
|||||||||
|
Accounts
payable and accrued expenses
|
(4,272
|
)
|
(6,970
|
)
|
(2,237
|
)
|
||||||
|
Restructuring
accrual
|
(1,323
|
)
|
(26,908
|
)
|
(37,788
|
)
|
||||||
|
Unearned
revenue and deferred maintenance
|
3,274
|
(3,921
|
)
|
(6,989
|
)
|
|||||||
|
Other
non-current liabilities
|
|
|
(530
|
)
|
|
(54
|
)
|
|
(168
|
)
|
||
|
Net cash provided by (used for) operating activities
|
|
16,053
|
|
(37,901
|
)
|
|
(41,850
|
)
|
||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Purchase
of property and equipment
|
(246
|
)
|
(142
|
)
|
(730
|
)
|
||||||
|
Proceeds
from sale of assets
|
-
|
26
|
-
|
|||||||||
|
Purchase
of long-term investments
|
-
|
-
|
(100
|
)
|
||||||||
|
Sales/maturity
of long-term investments
|
-
|
-
|
624
|
|||||||||
|
Proceeds
from sale of cost method investments
|
426
|
590
|
-
|
|||||||||
|
Transfer
(to) from restricted cash/investments
|
-
|
22,259
|
(4,428
|
)
|
||||||||
|
Proceeds
from dividends on equity investments
|
|
|
-
|
|
|
1,101
|
|
|
795
|
|
||
|
Net cash provided by (used for) investing activities
|
|
180
|
|
23,834
|
|
(3,839
|
)
|
|||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Proceeds
from bank line of credit and term debt borrowings
|
-
|
35,000
|
89,076
|
|||||||||
|
Repayments
of bank line of credit and term debt borrowings
|
(389
|
)
|
(55,638
|
)
|
(96,994
|
)
|
||||||
|
Proceeds
from issuance of convertible debt, net
|
-
|
-
|
14,887
|
|||||||||
|
Repayment
of convertible debt
|
-
|
(3,199
|
)
|
-
|
||||||||
|
Proceeds
from rights offering, net
|
15,826
|
-
|
-
|
|||||||||
|
Proceeds
from issuance of common stock, net
|
|
|
409
|
|
|
637
|
|
|
1,911
|
|
||
|
Net cash provided by (used for) financing activities
|
|
15,846
|
|
(23,200
|
)
|
|
8,880
|
|||||
|
Effect
of exchange rates on cash and cash equivalents
|
|
|
75
|
|
|
265
|
|
|
(116
|
)
|
||
|
Net
increase (decrease) in cash and cash equivalents
|
32,154
|
(37,002
|
)
|
(36,925
|
)
|
|||||||
|
Cash
and cash equivalents, beginning of year
|
|
|
4,849
|
|
|
41,851
|
|
|
78,776
|
|
||
|
Cash
and cash equivalents, end of year
|
|
$
|
37,003
|
|
$
|
4,849
|
|
$
|
41,851
|
|
||
|
Supplemental
cash flows disclosures:
|
||||||||||||
|
Cash
paid for interest
|
|
$
|
364
|
|
$
|
873
|
|
$
|
99
|
|
||
|
Cash
paid (refunded) for income taxes
|
|
$
|
502
|
|
$
|
(445
|
)
|
$
|
426
|
|
||
|
Supplemental
information of noncash financing and investing
activities:
|
||||||||||||
|
Exchange
of convertible debt to common stock
|
|
$
|
20,535
|
|
$
|
-
|
|
$
|
-
|
|
||
|
Conversion
of accrued interest to common stock
|
|
$
|
166
|
|
$
|
-
|
|
$
|
-
|
|
||
The
accompanying notes are an integral part of these consolidated financial
statements
BROADVISION, INC.
AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note 1---Organization
and Summary of Significant Accounting Policies
Nature
of Business
BroadVision, Inc.
(collectively with its subsidiaries, "BroadVision" or the "Company") was
incorporated in the state of Delaware on May 13, 1993 and has been a
publicly traded corporation since 1996. BroadVision develops, markets, and
supports enterprise portal applications that enable companies to unify their
e-business infrastructure and conduct both interactions and transactions with
employees, partners, and customers through a personalized self-service model
that increases revenues, reduces costs, and improves productivity.
During
the previous years through December 31, 2005, the Company faced various
liquidity challenges. During the year ended December 31, 2006, the following
significant events occurred: approximately $20.5 million in convertible debt
was
exchanged for 34.5 million shares of common stock; the Company generated
cash
flows from operations of approximately $16 million; and the Company closed
its
rights offering and raised net proceeds of approximately $15.8 million. At
December 31, 2006, the Company's current assets exceeded its current liabilities
by approximately $19 million. Management believes that cash resources at
December 31, 2006 will be sufficient to fund operations through at least
December 31, 2007. If the Company's existing cash resources are not
sufficient to meet its obligations, it will seek to raise additional capital
through public or private equity financing or from other sources. If adequate
funds are not available or are not available on acceptable terms as needed,
we
may be unable to pay our debts as they become due, develop our products,
take
advantage of future opportunities or respond to competitive pressures or
unanticipated requirements.
In
June
2006, William Meyer resigned as the Company's Chief Financial Officer, a
position Mr. Meyer had held since April 2003. Dr.Pehong Chen, the Company's
Chief Executive Officer has also served as Chief Financial Officer since
Mr.
Meyer's resignation and will continue to serve in that capacity until a
permanent replacement is hired.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with U.S.
generally accepted accounting principles requires management to make certain
assumptions and estimates that affect reported amounts of assets and liabilities
as of the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. On an ongoing basis, the Company
evaluates its estimates, including those related to doubtful accounts,
stock-based compensation, investments, goodwill and intangible assets, income
taxes and restructuring, as well as contingencies and litigation. The Company
bases its estimates on historical experience and on various other assumptions
that the Company believes are reasonable, the results of which form the basis
for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from
these estimates using different assumptions or conditions. The Company believes
the following critical accounting policies reflect the more significant
judgments and estimates used in the preparation of its consolidated financial
statements.
Revenue
Recognition
Overview
The
Company's revenue consists of fees for licenses of its software products,
maintenance, consulting services and customer training. The Company generally
charges fees for licenses of its software products either based on the number
of
persons registered to use the product or based on the number of CPUs on which
the product is installed. Licenses for software whereby fees charged are based
upon the number of persons registered to use the product include licenses for
development use and licenses for use in deployment of the customer's website.
Licenses for software whereby fees charged are on a per-CPU basis differentiate
between development and deployment usage. The Company's revenue recognition
policies comply with the provisions of Statement of Position ("SOP")
No. 97-2,
Software
Revenue Recognition
("SOP
97-2"), as amended; SOP No. 98-9,
Software
Revenue Recognition, With Respect to Certain Transactions
("SOP
98-9") and Staff Accounting Bulletin ("SAB") 104,
Revenue
Recognition
("SAB
104")
.
The
Company applies the separation criteria in Emerging Issues Task Force ("EITF")
00-21, "
Revenue
Arrangements with Multiple Deliverables
" ("EITF 00-21") to determine
whether its arrangements with multiple deliverables should be treated as
separate units of accounting. EITF 00-21 indicates that revenue recognized
for
any multiple-element contract is to be allocated to each element of the
arrangement based on the relative fair value of each element. The determination
of the fair value of each element is based on the Company's analysis of
objective evidence from comparable sales of the individual element.
Software
License Revenue
The
Company licenses its products through the Company's direct sales force and
indirectly through resellers and Application Service Providers ("ASP"). In
general, software license revenues are recognized when a non-cancelable license
agreement has been signed and the customer acknowledges an unconditional
obligation to pay, the software product has been delivered, there are no
uncertainties surrounding product acceptance, the fees are fixed and
determinable and collection is reasonably expected. Delivery is considered
to
have occurred when title and risk of loss have been transferred to the customer,
which generally occurs when media containing the licensed programs is provided
to a common carrier. In case of electronic delivery, delivery occurs when the
customer is given access to the licensed programs. For products that cannot
be
used without a licensing key, the delivery requirement is met when the licensing
key is made available to the customer. If collectibility is not reasonably
expected, revenue is recognized when the fee is collected. Subscription-based
license revenues are recognized ratably over the subscription period. The
Company enters into reseller arrangements that typically provide for sublicense
fees payable to us based upon a percentage of list price. The Company does
not
grant resellers the right of return.
The
Company
recognizes revenue using the residual method pursuant to the requirements of
SOP
No. 97-2, as amended by SOP No. 98-9. Revenues recognized from multiple-element
software arrangements are allocated to each element of the arrangement based
on
the fair values of the elements, such as licenses for software products,
maintenance, consulting services or customer training. The determination of
fair
value is based on vendor-specific objective evidence, which is specific to
us.
The Company limits its assessment of objective evidence for each element to
either the price charged when the same element is sold separately or the price
established by management having the relevant authority to do so, for an element
not yet sold separately. If evidence of fair value of all undelivered elements
exists but evidence does not exist for one or more delivered elements, then
revenue is recognized using the residual method. Under the residual method,
the
fair value of the undelivered elements is deferred and the remaining portion
of
the arrangement fee is recognized as revenue.
The
Company records unearned revenue for software license agreements when cash
has
been received from the customer and the agreement does not qualify for revenue
recognition under the Company's revenue recognition policy. The Company records
accounts receivable for software license agreements when the agreement qualifies
for revenue recognition but cash or other consideration has not been received
from the customer.
Services
Revenue
Consulting
services revenues and customer training revenues are recognized as such services
are performed.
Maintenance
revenues, which include revenues bundled with software license agreements that
entitle the customers to technical support and future unspecified enhancements
to the Company's products, are deferred and recognized ratably over the related
agreement period, generally twelve months.
The
Company's consulting services, which consist of consulting, maintenance and
training, are delivered through the BroadVision Global Services ("BVGS")
organization. Services that the Company provides are not essential to the
functionality of the software. The Company records reimbursement from the
Company's customers for out-of-pocket expenses as an increase to services
revenues.
Cash,
Cash Equivalents and
Restricted
Cash
The
Company considers all debt and equity securities with remaining maturities
of
three months or less at the date of purchase to be cash equivalents. Short-term
cash investments consist of debt and equity securities that have a remaining
maturity of less than one year as of the date of the balance sheet. Cash and
cash equivalents that serve as collateral for financial instruments such as
letters of credit are classified as restricted cash. Restricted cash in which
the underlying instrument has a term of greater than twelve months from the
balance sheet date are classified as non-current. Letters of credit of $2.0
million secured by an equal amount of restricted cash is available to the
landlord securing certain facilities leases as more fully described in Note
7.
Management
determines the appropriate classification of cash investments at the time of
purchase and evaluates such designation as of each balance sheet date. All
cash
investments to date have been classified as available-for-sale and carried
at
fair value with related unrealized gains or losses reported as other
comprehensive income (loss), net of tax. Total realized gains during fiscal
years 2006 and 2005 were $426,000 and $1.4 million, respectively, and are
included in other income in the accompanying Consolidated Statements of
Operations.
The
Company's cash and cash equivalents, and restricted cash consisted of the
following as of December 31, 2006 and 2005 (in thousands):
Research
and Development and Software Development Costs
Statement
of Financial Accounting Standards ("SFAS") No. 86,
Accounting
for the Cost of Computer Software to be Sold, Leased or Otherwise
Marketed
,
requires capitalization of certain software development costs subsequent to
the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon the
completion of a working model. To date, costs incurred by the Company from
the
completion of the working model to the point at which the product is ready
for
general release have been insignificant. Accordingly, the Company has charged
all such costs to research and development expense in the period
incurred.
Adveritising Costs
Advertising
costs are expensed as incurred. Advertising expense, which is included in
sales
and marketing expense, amounted to $33,000, $68,000, and $82,000 in 2006,
2005,
and 2004, respectively.
Prepaid
Royalties
Prepaid
royalties relating to purchased software to be incorporated and sold with the
Company's software products are amortized as a cost of software licenses either
on a straight-line basis over the remaining term of the royalty agreement or
on
the basis of projected product revenues, whichever results in greater
amortization.
Receivable
Reserves
Occasionally,
the Company's customers experience financial difficulty after the Company
records the revenue but before payment has been received. The Company maintains
receivable reserves for estimated losses resulting from the inability of its
customers to make required payments. The Company's normal payment terms are
generally 30 to 90 days from invoice date. If the financial condition of
the Company's customers were to deteriorate, resulting in an impairment of
their
ability to make payments, additional reserves may be required. Losses from
customer receivables in the three-year period ended December 31, 2006, have
not
been significant. If all efforts to collect a receivable fail, and the
receivable is considered uncollectible, the receivable would be written off
against the receivable reserve.
Concentrations
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents and accounts receivable.
The
Company places its cash and cash equivalents with high-quality institutions.
The
Company's management performs ongoing credit evaluations of the Company's
customers and requires certain of these customers to provide security deposits
or letters of credit.
Cash
deposits in foreign countries of approximately $9.0 million are subject to
local
banking laws and may bear higher or lower risk than cash deposited in the United
States. As part of its cash and investment management processes, the Company
performs periodic evaluations of the credit standing of the financial
institutions and the Company has not sustained any credit losses from
instruments held at these financial institutions. From time to time, the
Company's financial instruments maintained in its foreign subsidiaries may
be
subject to political risks or instability that may arise in foreign countries
where the Company operates.
As
of
December 31, 2006 and 2005, one customer accounted for 13 % and 16 % of the
Company's accounts receivable balance, respectively. For the years ended
December 31, 2006, 2005, and 2004, no customer accounted for 10% or more of
the Company's total revenues.
Restructuring
Through
December 31, 2006, the Company has approved certain restructuring plans to,
among other things, reduce its workforce and consolidate facilities.
Restructuring and asset impairment charges were taken to align its cost
structure with changing market conditions and to create a more efficient
organization. The Company's restructuring charges are comprised primarily of:
(1) lease termination costs and/or costs associated with permanently
vacating and sub-leasing its facilities; (2) other incremental costs
incurred as a direct result of the restructuring plan; (3) impairment costs
related to certain long-lived assets abandoned, and (4) severance and
benefits termination costs related to the reduction of its workforce. The
Company accounts for each of these costs in accordance with SAB 100,
Restructuring
and Impairment Charges.
The
Company accounts for severance and benefits termination costs in accordance
with
EITF 94-3,
Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an
Activity (Including Certain Costs Incurred in a Restructuring)
("EITF
94-3"), for exit or disposal activities initiated on or prior to December 31,
2002. Accordingly, the Company records the liability related to these
termination costs when the following conditions have been met:
(i) management with the appropriate level of authority approves a
termination plan that commits the Company to such plan and establishes the
benefits the employees will receive upon termination; (ii) the benefit
arrangement is communicated to the employees in sufficient detail to enable
the
employees to determine the termination benefits; (iii) the plan
specifically identifies the number of employees to be terminated, their
locations and their job classifications; and (iv) the period of time to
implement the plan does not indicate changes to the plan are likely. The
termination costs recorded by the Company are not associated with nor do they
benefit continuing activities. The Company accounts for severance and benefits
termination costs for exit or disposal activities initiated after December
31,
2002 in accordance with SFAS 146,
Accounting
For Costs Associated with Exit Activities
("SFAS 146").
SFAS 146 requires that a liability for a cost associated with an exit or
disposal activity be recognized and measured initially at fair value only when
the liability is incurred. This differs from EITF 94-3, which required that
a
liability for an exit cost be recognized at the date of an entity's commitment
to an exit plan.
Prior
to
the adoption on January 1, 2003 of SFAS 146, the Company accounted for
the costs associated with lease termination and/or abandonment in accordance
with EITF 88-10,
Costs Associated with Lease Modification or
Termination
("EITF 88-10"). Accordingly, the Company recorded the costs
associated with lease termination and/or abandonment when the leased property
has no substantive future use or benefit to the Company. Under EITF 88-10,
the
Company records the liability associated with lease termination and/or
abandonment as the sum of the total remaining lease costs and related exit
costs, less probable sublease income. Under SFAS 146, the Company records a
liability for lease termination and/or abandonment cost initially at fair value
on the cease-use date of that facility. The Company accounts for costs related
to long-lived assets abandoned in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets
, and,
accordingly, charges to expense the net carrying value of the long-lived assets
when the Company ceases to use the assets.
Inherent
in the estimation of the costs related to the Company's restructuring efforts
are assessments related to the most likely expected outcome of the significant
actions to accomplish the restructuring. In determining the charge related
to
the restructuring, the majority of estimates made by management related to
the
charge for excess facilities. In determining the charge for excess facilities,
the Company was required to estimate future sublease income, future net
operating expenses of the facilities, and brokerage commissions, among other
expenses. The most significant of these estimates related to the timing and
extent of future sublease income in which to reduce the Company's lease
obligations. The Company based its estimates of sublease income, in part, on
the
opinions of independent real estate experts, current market conditions and
rental rates, an assessment of the time period over which reasonable estimates
could be made, the status of negotiations with potential subtenants, and the
location of the respective facility, among other factors.
The
Company has recorded restructuring charges at the low-end of a range assumptions
modeled for restructuring charges in accordance with SFAS No.5,
Accounting
for Contingencies ("SFAS 5")
.
Adjustments to the facilities accrual will be required if actual lease exit
costs or sublease income differ from amounts currently expected. The Company
will review the status of restructuring activities on a quarterly basis and,
if
appropriate, record changes to the Company's restructuring obligations in
current operations based on management's most current estimates.
Property
and Equipment
Property
and equipment are stated at cost and depreciated on a straight-line basis over
their estimated useful lives (generally two years for software, three years
for
computer equipment and four years for furniture and fixtures). Leasehold
improvements are amortized over the lesser of the remaining life of the lease
term or their estimated useful lives.
Maintenance
and repairs are charged to operations as incurred. When assets are retired
or
otherwise disposed of, the cost and accumulated depreciation and amortization
are removed from the accounts and any resulting gain or loss is reflected in
operations in the period realized.
Valuation
of Long-Lived Assets
The
Company adopted SFAS No. 142,
Goodwill
and Other Intangible Assets
("SFAS
142"), on January 1, 2002. Pursuant to SFAS 142, the Company is
required to test its goodwill for impairment upon adoption and annually or
more
often if events or changes in circumstances indicate that the asset might be
impaired. SFAS No. 142 provides for a two-step approach to determining
whether and by how much goodwill has been impaired. The first step requires
a
comparison of the fair value of the Company to its net book value. If the fair
value is greater, then no impairment is deemed to have occurred. If the fair
value is less, then the second step must be completed to determine the amount,
if any, of actual impairment (Note 3).
Fair
Value of Financial Instruments
The
fair
value of cash and cash equivalents, investments, accounts receivable and
accounts payable for all periods presented approximates their respective
carrying amounts due to the short-term nature of these balances.
Employee
Stock Benefit Plans
2006
Equity Incentive Plan:
At
the
Company's 2006 annual meeting on August 8, 2006, the stockholders of the Company
approved the adoption of the Company's 2006 Equity Incentive Plan (the "Equity
Plan"), under which 3,500,000 shares of common stock are reserved for issuance.
The Company's 1996 Equity Incentive Plan (the Prior Equity Plan) was terminated
and replaced by the Equity Plan. Under the Equity Plan, the Board of Directors
may grant incentive or nonqualified stock options at prices not less than 100%
of the fair market value of the Company's common stock, as determined by the
Board of Directors, at the date of grant. The vesting of individual options
may
vary but in each case at least 25% of the total number of shares subject to
options will become exercisable per year. These options generally expire ten
years after the grant date. When an employee option is exercised prior to
vesting, any unvested shares so purchased are subject to repurchase by the
Company at the original purchase price of the stock upon termination of
employment. The Company's right to repurchase lapses at a minimum rate of 20%
per year over five years from the date the option was granted or, for new
employees, the date of hire. Such right is exercisable only within 90 days
following termination of employment. During the years ended December 31, 2006,
2005, and 2004, no shares were repurchased since no options were exercised
prior
to vesting. Under the Equity Plan, the Company may grant options from the plans
not approved by security holders. Those plans are the "2000 Non-Officer Plan"
and non-plan grants.
2000
Non-Officer Plan and Non-plan Grants:
In
February 2000, the Company adopted its 2000 Non-Officer Plan under which
6,000,000 shares of common stock were reserved for issuance to selected
employees, consultants, and its affiliates who are not Officers or Directors.
As
of December 31, 2006, the Company had 1,497,239 shares available for issuance
under the 2000 Non-Officer Plan. Under the 2000 Non-Officer Plan, the Company
may grant non-statutory stock options at prices not less than 85% of the fair
market value of the Company's common stock at the date of grant. Options granted
under the 2000 Non-Officer Plan generally vest over two years and are
exercisable for not more than ten years.
Employee
Stock Purchase Plan:
The
Company also has a compensatory Employee Stock Purchase Plan (the "Purchase
Plan") that enables employees to purchase, through payroll deductions, shares
of
the Company's common stock at a discount from the market price of the stock
at
the time of purchase. The Board of Directors has authorized sequential one-year
offerings beginning on July 1 of each year and extending until June 30 of the
following year.
As
of
December 31, 2006 the Company had 215,093 shares available
for
issuance under the "Purchase Plan". The Purchase Plan permits eligible employees
to purchase common stock with a value equivalent to a percentage of the
employee's earnings, not to exceed the lesser of 15% of the employee's earnings
or $25,000, at a price equal to the lesser of 85% of the fair market value
of
the common stock on the date of the offering or the date of purchase.
Upon
adoption of SFAS No. 123 (revised 2004),
Share-Based
Payment
("SFAS
123R") (effective January 1, 2006), the Company began recording stock-based
compensation expense related to the fair value of the employee purchase
rights.
Stock-Based
Compensation
Effective
January 1, 2006, the Company adopted the fair value recognition provisions
of
SFAS 123R, using the modified-prospective transition method.
Under
the
fair value recognition provisions of SFAS 123R, share-based compensation
cost is
estimated at the grant date based on the fair value of the award and is
recognized as expense, net of estimated pre-vesting forfeitures, ratably
over
the vesting period of the award. In addition, the adoption of SFAS 123R requires
additional accounting related to the income tax effects and disclosure regarding
the cash flow effects resulting from share-based payment arrangements. In
January 2005, the SEC issued SAB No. 107, which provides supplemental
implementation guidance for SFAS 123R. Calculating share-based compensation
expense requires the input of highly subjective assumptions, including the
expected term of the share-based awards, stock price volatility, dividend
yield,
risk free interest rates, and pre-vesting forfeitures. The assumptions used
in
calculating the fair value of stock-based awards represent the Company's
best
estimates, but these estimates involve inherent uncertainties and the
application of management judgment. As a result, if factors change and the
Company uses different assumptions, its share-based compensation expense
could
be materially different in the future. In addition, the Company is required
to
estimate the expected pre-vesting forfeiture rate and only recognize expense
for
those shares expected to vest. If the Company's actual forfeiture rate is
materially different from its estimate, the Company's share-based compensation
expense could be significantly different from what the Company has recorded
in
the current period. The total amount of stock-based compensation expense
recognized during the year ended December 31, 2006 totaled $950,000, and
was
allocated as follows: $178,000 in general and administrative expenses; $382,000
in research and development expenses; $160,000 in cost of services and $230,000
in sales and marketing expense. As of December 31, 2006, the total unrecorded
stock based compensation balance for unvested shares, net of expected
forfeitures was $936,000, which is expected to be amortized as follows: $704,000
for year 2007, $179,000 for year 2008, and $53,000 for year
2009.
On
November 10, 2005, the FASB issued FASB Staff Position No. FAS 123(R)-3
"Transition
Election Related to Accounting for Tax Effects of Share-Based Payment
Awards
"
(FSP
123(R)-3). The Company adopted the alternative transition method provided in
the
FASB Staff Position for calculating the tax effects of stock-based compensation
pursuant to SFAS 123R in the fourth quarter of fiscal 2006. The alternative
transition method includes simplified methods to establish the beginning balance
of the additional paid-in capital pool (APIC pool) related to the tax effects
of
employee stock-based compensation, and to determine the subsequent impact on
the
APIC pool and Consolidated Statements of Cash Flows of the tax effects of
employee stock-based compensation awards that are outstanding upon adoption
of
SFAS 123R. The adoption did not have a material impact on the Company's results
of operations and financial condition.
The
fair
value of each option award is estimated on the date of grant using the
Black-Scholes option valuation model based on the assumptions noted in the
following table. The expected term of options represents the period that the
Company's stock-based awards are expected to be outstanding based on the
simplified method provided in SAB 107. The risk-free interest rate for periods
related to the expected life of the options is based on the U.S. Treasury yield
curve in effect at the time of grant. The expected volatility is based on
historical volatilities of the Company's stock over the expected life of the
option. The expected dividend yield is zero, as the Company does not
anticipate paying dividends in the near future. During the year ended
December 31, 2006, the Company used a forfeiture rate of 11% based on an
analysis of historical data as it reasonably approximates the currently
anticipated rate of forfeiture for granted and outstanding options that have
not
vested. The following assumptions were used to determine stock-based
compensation during the year ended December 31, 2006:
|
|
|
December
31, 2006
|
|
|
|
|
|
For
the Year Ended
|
|
|
|
Weighted
average volatility
|
84.00
|
%
|
||
|
Expected
dividends
|
|
|
0.00
|
%
|
|
Expected
term (in years)
|
|
|
6.00
|
|
|
Risk
free interest rate
|
|
|
4.79
|
%
|
|
Forfeiture
rate
|
|
|
11.00
|
%
|
In
anticipation of the reporting requirements under SFAS 123R, the Company's Board
of Directors on November 29, 2005 unanimously approved accelerating the
vesting of the following out-of-the-money, unvested stock options held by
current employees, including executive officers, and members of the Board of
Directors. The acceleration applied only to those options with an exercise
price
of $1.13 per share or higher. The closing market price of the Company's common
stock on November 28, 2005, the last full trading day before the date of
the acceleration, was $0.72 per share.
|
|
|
Aggregate
|
|
|
||||
|
|
|
Number
of
|
|
|
||||
|
|
|
Common
Shares
|
|
|
||||
|
|
|
Issuable
Under
|
|
Weighted
Average
|
||||
|
|
|
Accelerated
Stock
|
|
Exercise
Price
|
||||
|
|
|
Options
|
|
per
Share
|
||||
|
Total
Non-Employee Directors
|
|
122,181
|
|
|
$
|
2.98
|
||
|
Total
Named Executive Officers
|
|
|
391,886
|
|
|
|
2.87
|
|
|
Total
Directors and Named Executive Officers
|
|
514,067
|
|
|
2.89
|
|
||
|
Total
All Other Employees
|
|
|
610,707
|
|
|
2.97
|
|
|
|
Total
|
|
|
1,124,774
|
|
|
2.94
|
|
|
The
decision to accelerate vesting of these options was made to avoid recognizing
compensation cost in the Company's statements of operations as required under
the provisions of SFAS 123 R, which was effective as of January 1, 2006.
Further
details related to the Company's Employee Stock Benefit Plans and its adoption
of SFAS 123R are provided in Note 9 Stockholders' Equity (Deficit).
Prior
to
January 1, 2006, the Company accounted for share-based payments to its employees
and non-employee members of its Board of Directors under the recognition and
measurement provisions of Accounting Principles Board Opinion No. 25,
Accounting
for
Stock
Issued to Employees,
and
related guidance, as permitted by SFAS 123,
Accounting
for Stock-Based Compensation
("SFAS
123"), and amended by SFAS 148,
Accounting
for Stock-Based Compensation-Transition
and
Disclosure
("SFAS
148")
.
The
Company did not recognize any significant share-based employee compensation
costs in its statements of operations prior to January 1, 2006, as options
granted to employees and non-employee members of the board of directors
generally had an exercise price equal to the fair value of the underlying common
stock on the date of grant. As required by SFAS 148, prior to the adoption
of
SFAS 123R, the Company provided pro forma disclosure of net income (loss)
applicable to common stockholders as if the fair-value-based method defined
in
SFAS 123 had been applied to employee stock options and purchase rights. In
the
pro forma information for periods prior to 2006, the Company accounted for
pre-vesting forfeitures as they occurred. The Company's operating results for
prior periods have not been restated. The following table illustrates the effect
on net income (loss) per share applicable to common shareholders as if the
Company had applied the fair value recognition provisions of SFAS 123 to
share-based compensation for the years ended December 31, 2005 and 2004 (in
thousands, except per share amounts):
|
|
Years
Ended December 31,
|
|||||||
|
|
|
2005
|
|
2004
|
|
|||
|
Net
income (loss), as reported
|
$
|
(38,966
|
)
|
$
|
18,566
|
|||
|
Add:
Stock-based compensation (income) expense included in reported
net income
(loss), net of related tax effects
|
-
|
(19
|
)
|
|||||
|
Deduct:
Total stock-based employee compensation expense determined under
fair
value based method for all awards, net of related tax effects
|
|
|
(2,666
|
)
|
|
(4,545
|
)
|
|
|
Pro
forma net income (loss)
|
|
$
|
(41,632
|
)
|
$
|
14,002
|
|
|
|
Net
income (loss) per share:
|
||||||||
|
Basic --as
reported
|
|
$
|
(1.14
|
)
|
$
|
0.55
|
|
|
|
Basic --pro
forma
|
|
$
|
(1.22
|
)
|
$
|
0.42
|
|
|
|
Diluted --as
reported
|
|
$
|
(1.14
|
)
|
$
|
0.54
|
|
|
|
Diluted --pro
forma
|
|
$
|
(1.22
|
)
|
$
|
0.41
|
|
|
The
Company accounts for equity instruments issued to non-employees in accordance
with the provisions of SFAS 123 and EITF 96-18,
Accounting for Equity
Instruments that are Issued to Other than Employees for Acquiring, or in
Conjunction with Selling Goods or Services.
For the year ended
December 31, 2004, the Company recorded compensation income of $19,000 as a
result of a vesting modification of a grant to a third-party consultant of
the
company's common stock.
For
the
years ended at December 31, 2005 and 2004, the fair value of each option grant
was estimated on the date of grant using the Black-Scholes option-pricing model
with no expected dividends and the following weighted-average assumptions:
|
|
Years
Ended December 31,
|
|||||||
|
|
2005
|
|
2004
|
|||||
|
Expected
life
|
|
7.40
|
years
|
|
|
3.50
|
years
|
|
|
Risk-free
interest rate
|
|
4.12
|
%
|
|
|
3.61
|
%
|
|
|
Volatility
|
|
84.00
|
%
|
|
|
108.00
|
%
|
|
Earnings
Per Share Information
Basic
income (loss) per share is computed using the weighted-average number of shares
of common stock outstanding, less shares subject to repurchase. Diluted income
(loss) per share is computed using the weighted-average number of shares of
common stock outstanding and, when dilutive, common equivalent shares from
outstanding stock options and warrants using the treasury stock method. The
following table sets forth the basic and diluted net income (loss) per share
computational data for the periods presented (in thousands, except per share
amounts):
|
|
|
Years
Ended December 31,
|
|
|||||||||
|
|
|
2006
|
|
2005
|
|
2004
|
|
|||||
|
Net
income (loss)
|
|
$
|
15,016
|
|
$
|
(38,966
|
)
|
$
|
18,566
|
|
||
|
Weighted-average
common shares outstanding used to compute basic income (loss) per
share
|
65,734
|
34,228
|
33,539
|
|||||||||
|
Weighted-average
common equivalent shares from outstanding common stock options
and
warrants
|
|
|
-
|
|
|
-
|
|
|
782
|
|
||
|
Total
weighted-average common and common equivalent shares outstanding
used to
compute diluted loss per share
|
|
|
65,734
|
|
|
34,228
|
|
|
34,321
|
|
||
|
Basic
income (loss) per share
|
|
$
|
0.23
|
|
$
|
(1.14
|
)
|
$
|
0.55
|
|
||
|
Diluted
income (loss) per share
|
|
$
|
0.23
|
|
$
|
(1.14
|
)
|
$
|
0.54
|
|
||
|
|
|
|
|
|
|
|||||||
In
the
years ended December 31, 2006 and 2005, 11,916,000
and
6,802,000 common shares, respectively, issuable upon the exercise of stock
options and warrants were excluded from the above earnings per share
calculations as their effect was anti-dilutive. In addition, in the year ended
December 31, 2005, approximately 5.6 million common shares issuable upon
conversion of the Notes were excluded from the above earnings per share
calculation, as their effect was anti-dilutive.
Foreign
Currency Transactions
During
fiscal 2004, the Company changed the functional currencies of all foreign
subsidiaries from the U.S. dollar to the local currency of the respective
countries. Assets and liabilities of these subsidiaries are translated into
U.S.
dollars at the balance sheet date. Income and expense items are translated
at
average exchange rates for the period. Foreign exchange gains and losses
resulting from the remeasurement of foreign currency assets and liabilities
are
included as other income (expense) in the Consolidated Statements of Operations.
For the years ended December 31, 2006, 2005, and 2004, translation gain (loss)
was $75,000, $265,000, and ($116,000), respectively, and is included in the
comprehensive income (loss) account in the consolidated statement of
stockholder's equity (deficit).
Comprehensive Income (Loss)
Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss),
which consists of unrealized gains and losses on available-for-sale securities
and cumulative translation adjustments. Total comprehensive income (loss) is
presented in the accompanying Consolidated Statement of Stockholders' Equity
(Deficit). Total accumulated other comprehensive income (loss) is displayed
as a
separate component of stockholder's equity (deficit) in the accompanying
Consolidated Balance Sheets. The accumulated balances for each classification
of
other comprehensive income (loss) consist of the following, net of taxes (in
thousands):
|
|
Unrealized
|
Foreign
|
Accumulated
|
|||||||||
|
|
Gain
(Loss) in
|
Currency
|
Other
|
|||||||||
|
|
Available-for-Sale
|
Translation
|
Comprehensive
|
|||||||||
|
|
|
Securities
|
|
and
Other
|
|
Income
(Loss)
|
|
|||||
|
Balance,
December 31, 2003
|
$
|
(49
|
)
|
$
|
-
|
$
|
(49
|
)
|
||||
|
Net
change during the year
|
|
|
49
|
|
|
(172
|
)
|
|
(123
|
)
|
||
|
Balance,
December 31, 2004
|
-
|
(172
|
)
|
(172
|
)
|
|||||||
|
Net
change during the year
|
|
|
-
|
|
|
265
|
|
|
265
|
|
||
|
Balance,
December 31, 2005
|
-
|
|
93
|
|
93
|
|||||||
|
Net
change during the year
|
|
|
-
|
|
|
75
|
|
|
75
|
|
||
|
Balance,
December 31, 2006
|
|
$
|
-
|
|
$
|
168
|
|
$
|
168
|
|
||
Income
Taxes
Income
taxes are computed using an asset and liability approach in accordance with
SFAS
No. 109,
Accounting
for Income Taxes
,
which
requires the recognition of taxes payable or refundable for the current year
and
deferred tax assets and liabilities for the future tax consequences of events
that have been recognized in the Company's consolidated financial statements
or
tax returns. The measurement of current and deferred tax assets and liabilities
is based on provisions of the enacted tax law; the effects of future changes
in
tax laws or rates are not anticipated. The measurement of deferred tax assets
is
reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, is not expected to be realized.
The
Company analyzes its deferred tax assets with regard to potential realization.
The Company has established a valuation allowance on its deferred tax assets
to
the extent that management has determined that it is more likely than not that
some portion or all of the deferred tax asset will not be realized based upon
the uncertainty of their realization. The Company has considered estimated
future taxable income and ongoing prudent and feasible tax planning strategies
in assessing the amount of the valuation allowance.
Segment
and Geographic Information
The
Company operates in one segment, electronic commerce business solutions. The
Company's chief operating decision maker is considered to be the Company's
CEO.
The CEO reviews financial information presented on a consolidated basis
accompanied by disaggregated information about revenues by geographic region
and
by product for purposes of making operating decisions and assessing financial
performance.
Reclassifications
Certain
prior period balances have been reclassified to conform to the current period
presentation.
Recent
Accounting Pronouncements
In
June
2006, the EITF reached a consensus on Issue No. 06-3,
How
Taxes Collected from Customers and Remitted to Governmental Authorities Should
Be Presented in the Income Statement"
("EITF
06-3")
.
The
scope
of EITF 06-3 includes sales, use, value added and some excise taxes that are
assessed by a governmental authority on specific revenue-producing transactions
between a seller and customer. EITF 06-3 states that a company should disclose
its accounting policy (i.e., gross or net presentation) regarding the
presentation of taxes within its scope, and if significant, these disclosures
should be applied retrospectively to the financial statements for all periods
presented. EITF 06-3 is effective for interim and annual reporting periods
beginning after December 15, 2006. The adoption of EITF 06-3 is not expected
to
have a material effect on the Company's financial position, results of
operations or cash flows.
In
July
2006, the FASB issued FASB Interpretation No. 48
Accounting
for Uncertainty in Income Taxes
("FIN
No.48"), which prescribes a recognition threshold and measurement process for
recording in the financial statements uncertain tax positions taken or expected
to be taken in a tax return. Additionally, FIN No. 48 provides guidance on
the
derecognition, classification, accounting in interim periods and disclosure
requirements for uncertain tax positions. The accounting provisions of FIN
No.
48 will be effective for fiscal years beginning after December 15, 2006. The
Company is in the process of determining the effect, if any, that the adoption
of FIN No. 48 will have on its financial statements.
In
September 2006, the SEC issued SAB No. 108,
Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements.
SAB No. 108 provides guidance on how prior year misstatements should
be taken into consideration when quantifying misstatements in current year
financial statements for purposes of determining whether the current year's
financial statements are materially misstated. SAB No. 108 is
effective for fiscal years ending on or after November 15, 2006.
The
Company is
currently in the process of evaluating the impact of SAB No. 108 on
its financial position and results of operations.
In
September 2006, the FASB issued SFAS No. 157,
Fair
Value Measurements.
SFAS No. 157 establishes a framework for measuring the fair value of
assets and liabilities. This framework is intended to provide increased
consistency in how fair value determinations are made under various existing
accounting standards which permit, or in some cases require, estimates of fair
market value. SFAS No. 157 is effective for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years.
Earlier application is encouraged, provided that the reporting entity has not
yet issued financial statements for that fiscal year, including any financial
statements for an interim period within that fiscal year.
The
Company is
currently in the process of evaluating the impact of SFAS No. 157 on
its financial position and results of operations.
On
December 21, 2006, the FASB issued FASB Staff Position ("FSP") EITF 00-19-2,
Accounting
for Registration Payment Arrangements
.
This
FSP
addresses
how to account for registration payment arrangements and clarifies that a
financial instrument subject to a registration payment arrangement
should
be
accounted for in accordance with other generally accepted accounting principles
("GAAP") without regard to the contingent obligation to
transfer
consideration pursuant to the registration payment arrangement. This accounting
pronouncement further clarifies that a liability for liquidated
damages
resulting from registration statement obligations should be recorded in
accordance with SFAS No. 5,
Accounting
for Contingencies
,
when
the payment of liquidated damages becomes probable and can be reasonably
estimated. This FSP is effective for companies with fiscal years ending on
or
after December 15, 2006. The Company is currently assessing the impact that
this
FSP may have in its financial statements.
Note 2---Property
and Equipment
Property
and equipment consisted of the following (in thousands):
|
|
|
December 31,
|
|
|||||
|
|
|
2006
|
|
2005
|
|
|||
|
Furniture
and fixtures
|
$
|
795
|
$
|
2,791
|
||||
|
Computer
and software
|
14,547
|
32,705
|
||||||
|
Leasehold
improvements
|
|
|
5,007
|
|
|
6,219
|
|
|
| 20,349 | 41,715 | |||||||
|
Less
accumulated depreciation and amortization
|
|
|
(19,205
|
)
|
|
(39,381
|
)
|
|
|
Total
property and equipment, net
|
|
$
|
1,144
|
|
$
|
2,334
|
|
|
Depreciation
and amortization expense for the years ended December 31, 2006, 2005 and
2004 was $1.4 million, $1.2 million, and $3.7 million, respectively. In
2006, the Company retired $21.6 million in Property and Equipment and wrote
off $21.5 million in accumulated depreciation. In 2005, the Company
recorded a loss on sale or abandonment of fixed assets of $117,000. In 2004,
the
Company recorded asset impairments in connection with the settlements reached
with several landlords for termination of leases, including transferring
ownership of certain furniture, fixtures, and leasehold improvements with a
net
book value of $8.5 million to the previous landlords.
Note 3---Goodwill
In
the
quarter ended September 30, 2005, the Company recognized a goodwill impairment
charge of $13.2 million as an estimated impairment in accordance with the
requirements of SFAS 142. As of September 30, 2005, the Company performed Step
1
under the provisions of SFAS 142 by determining that the Company has a single
reporting unit and then comparing our net book value to the Company's market
capitalization based upon the quoted market price of our stock. Based upon
the
results of Step 1 and as permitted under SFAS 142, the Company estimated the
impairment charge under Step 2 by estimating the fair value of all other assets
and liabilities of the reporting unit. Subsequent to the issuance of its third
quarter financial statements, the Company obtained a third-party valuation
report, completed Step 2 and recorded an adjustment to the original estimate
(recognized an additional impairment charge) of $18.2 million in the quarter
ended December 31, 2005. Further, as of December 31, 2006 and 2005, the Company
performed a goodwill impairment analysis under Step 1. Because the fair value
was determined to be greater than book value, Step 2 under SFAS 142 was not
required, and therefore no additional impairment was necessary at December
31,
2006 and 2005.
The
process of evaluating the potential impairment of goodwill is highly subjective
and requires significant judgment. In estimating the fair value of the Company,
the Company made estimates and judgments about future revenues and cash flows.
The Company's forecasts were based on assumptions that are consistent with
the
plans and estimates the Company is using to manage the business. Changes in
these estimates could change the Company's conclusion regarding impairment
of
goodwill and potentially result in a non-cash goodwill impairment charge in
future periods.
From
2000
through 2006, the Company has amortized and written off $742.0 million of the
$767.0 million goodwill incurred as a result of a statutory merger involving
a
stock-for-stock exchange with another company.
Note 4---Accrued
Expenses
Accrued
expenses consisted of the following (in thousands):
|
|
December 31,
|
|||||||
|
|
2006
|
|
2005
|
|||||
|
Employee
benefits
|
$
|
961
|
|
|
$
|
1,048
|
|
|
|
Commissions
and bonuses
|
|
885
|
|
|
|
533
|
|
|
|
Sales
and other taxes
|
|
2,000
|
|
|
|
2,595
|
|
|
|
Income
tax and tax contingency reserves
|
1,378
|
1,290
|
||||||
|
Restructuring
|
|
1,272
|
|
|
|
5,533
|
|
|
|
Customer
advances
|
654
|
216
|
||||||
|
Other
|
|
|
3,388
|
|
|
|
4,875
|
|
|
Total
accrued expenses
|
$
|
10,538
|
|
|
$
|
16,090
|
|
|
|
|
|
|
|
|
|
|||
Note 5---Bank
Borrowings, Convertible Debentures and Other Non-Current Liabilities
Bank
Borrowings
Bank
borrowings consist of the following
(In thousands)
:
|
|
|
December 31,
|
|
|||||
|
|
|
2006
|
|
2005
|
|
|||
|
Revolving
line of credit borrowings
|
$
|
-
|
$
|
-
|
||||
|
Term
debt
|
|
|
-
|
|
|
389
|
|
|
|
Total
bank borrowings
|
-
|
389
|
||||||
|
Less:
Current portion of bank borrowings
|
|
|
-
|
|
|
(389
|
)
|
|
|
Bank
borrowings, net of current portion
|
|
$
|
-
|
|
$
|
-
|
|
|
The
Company has maintained various credit facilities with a commercial
lender:
| l |
At
December 31, 2005, the Company maintained a revolving line of credit
in
the form of a loan and security agreement with a commercial lender,
which
expired in February 2006. As of December 31, 2006, the Company did
not
have any outstanding borrowings under this credit
facility.
|
| l |
The
Company has entered into term debt in the form of notes payable with
the
same lender. The term debt requires monthly payments of approximately
$38,000 plus interest through October 2006, and monthly payments
of
approximately $2,000 for the five months ending March 2007. A portion
of
the term debt was utilized for an equipment line of credit. The note
bears
annual interest equal to the Prime Rate plus one and one-quarter
percentage points (1.25%) and principal and interest are due in monthly
payments through maturity based on the terms of the facilities. As
of
December 31, 2005, the entire balance of $389,000 was classified
as
currently due. The Company paid off the entire balance in the third
quarter of 2006.
|
Convertible
Debentures Due to Related Party
Convertible
debentures consisted of the following (in thousands):
|
|
|
December 31,
|
|
|||||
|
|
|
2006
|
|
2005
|
|
|||
|
Convertible
debentures, 6% coupon
|
$
|
-
|
$
|
20,535
|
||||
|
Less:
Current portion of convertible debentures
|
|
|
-
|
|
|
(20,535
|
)
|
|
|
Convertible
debentures, net of current portion
|
|
$
|
-
|
|
$
|
-
|
|
|
In
November 2004, the Company entered into a definitive agreement for the private
placement of up to $20.0 million of senior secured convertible notes (the
"Notes") to five institutional investors. Under the terms of the definitive
agreement, the Company issued an initial $16.0 million of Notes that were
convertible, at the holders' option, into common stock at a conversion price
of
$2.76 per share, subject to adjustment in certain defined circumstances,
including dilutive equity issuances. The Notes bear interest at a rate of six
percent per annum, and the Company was originally obligated to repay the
principal amount of the initial $16.0 million of notes in 15 equal monthly
installments of $1.1 million beginning in June 2005. Payments of future
principal and interest could have been made in either cash or, upon satisfaction
of various conditions set forth in the Notes, shares of BroadVision common
stock
based upon a price of 92% of the trading price of BroadVision common stock
immediately prior to issuance. However, because the Company did not satisfy
the
conditions required to make payments in stock, the Company was required to
use
cash to satisfy our payment obligations under the Notes. In connection with
the
Notes, the Company also issued rights to purchase an additional $4 million
of
convertible notes with the same terms as the Notes (the "Additional Investment
Rights") through July 10, 2005. Certain principal payments that were due in
the
year ended December 31, 2005, were deferred at the election of the investors
for
a period of eighteen months under the terms of the Notes.
The
Company concluded that the Notes were non-conventional debt under the provisions
of EITF 00-19, "
Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in,
a
Company's Own Stock
",
and
therefore the embedded derivatives required valuation under SFAS 133,
"
Accounting
for Derivative Instruments and Hedging Activities
".
The
Company's determination was based upon certain provisions of the Notes under
which the number of common shares into which the Notes were convertible was
subject to adjustment, and therefore the number of issuable shares was not
fixed. Further, although the settlement of the conversion option does not
require physical settlement by delivery of registered shares, the Company is
required to pay an effectiveness penalty of one percent (1%) per month upon
failure to deliver registered shares. Because this penalty has no cap and
therefore may exceed the difference in value between registered and unregistered
shares as outlined under EITF 00-19, the Company concluded that the Conversion
Feature and the Additional Investment Rights should be bifurcated as derivatives
under SFAS 133 and recorded as liabilities on the date of issuance. Further,
the
Company subsequently determined that the Additional Investment Rights represent
an additional derivative, which should be accounted for under SFAS 133.
In
conjunction with the issuance of the Notes, the Company issued warrants to
purchase 1,739,130 shares of common stock. The warrants were exercisable
beginning in May 2005, have a strike price of $3.58 per share (subject to
adjustment in certain defined circumstances), and have a five-year life.
Pursuant to the terms of the warrants, as a result of certain stock issuances
by
the Company in March 2006 and November 2006, the number of shares of common
stock underlying the warrants and the exercise price of the warrants were
adjusted. As of December 31, 2006, the warrants were exercisable for 4.2 million
shares of common stock at a strike price of $1.48 per share. The warrants have
also been accounted for as a derivative under SFAS 133. (See Note
9).
The
warrants, Conversion Feature and Additional Investment Rights were valued at
the
date of issuance using the Black-Scholes model. The $16.0 million proceeds
from
the issuance of the Notes were allocated as follows (in
thousands).:
|
Convertible
debentures, at face value
|
$
|
16,000
|
||
|
Less:
Discount
|
|
|
(9,629
|
)
|
|
Convertible
debentures, net of discount
|
6,371
|
|||
|
Embedded
derivatives:
|
||||
|
Conversion
Feature
|
4,518
|
|||
|
Additional
Investment Rights
|
670
|
|||
|
Warrants
|
2,906
|
|||
|
Issuance
costs
|
|
|
1,535
|
|
|
Total
proceeds
|
|
$
|
16,000
|
|
The
Company recorded the difference between the face value and discounted amount
as
additional interest expense over the estimated life of the debentures using
the
effective interest method. The warrants, the Conversion Feature and the
Additional Investment Rights were revalued each reporting period under SFAS
133,
with the resulting gains and losses recorded in the accompanying Consolidated
Statements of Operations. In December 2005, the Notes were deemed to be
extinguished and reissued. See further discussion below. Gains (losses) on
the
revaluation of the warrants (including the warrants from the real estate buyout
discussed in Note 9) and the conversion feature were recorded as follows (in
thousands):
|
|
|
Years
Ended December 31,
|
|
|||||||||
|
|
|
2006
|
|
2005
|
|
2004
|
|
|||||
|
Warrants
related to the Notes
|
$
|
(1,306
|
)
|
$
|
3,337
|
$
|
(97
|
)
|
||||
|
Warrants
related to real estate buyout
|
(27
|
)
|
1,285
|
(656
|
)
|
|||||||
|
Conversion
Feature
|
-
|
5,857
|
(1,471
|
)
|
||||||||
|
Additional
Investment Rights
|
|
|
-
|
|
|
867
|
|
|
(197
|
)
|
||
|
(Expense)
income from derivatives
|
|
$
|
(1,333
|
)
|
$
|
11,346
|
|
$
|
(2,421
|
)
|
||
The
following table includes the assumptions used to value the Conversion Feature
and the Additional Investment Rights at issuance and at December 31,
2004:
|
|
|
Conversion
|
|
Additional
|
||||||||||||
|
|
|
Feature
|
|
Investment
Rights
|
||||||||||||
|
|
|
At
|
|
|
|
At
|
|
|
||||||||
|
|
|
December 31,
|
|
At
|
|
December 31,
|
|
At
|
||||||||
|
|
|
2004
|
|
Issuance
|
|
2004
|
|
Issuance
|
||||||||
|
Exercise
price (per share)
|
|
$
|
2.76
|
|
|
$
|
2.76
|
|
|
$
|
2.76
|
|
|
$
|
2.76
|
|
|
Contractual
term (years)
|
|
|
1.58
|
|
|
|
1.72
|
|
|
|
0.66
|
|
|
|
0.52
|
|
|
Volatility
|
|
|
0.75
|
|
|
|
0.73
|
|
|
|
0.75
|
|
|
|
0.73
|
|
|
Risk-free
interest rate
|
|
|
3.08
|
%
|
|
|
2.82
|
%
|
|
|
3.08
|
%
|
|
|
2.82
|
%
|
The
following table includes the assumptions used to value the warrants at issuance
to a landlord in connection with a real estate buyout transaction in August
2004
and at December 31, 2006, 2005 and 2004:
|
At
Deccember 31,
|
|
|
|||||||||||||
|
|
|
|
|
At
|
|||||||||||
|
|
2006
|
2005
|
|
2004
|
|
Issuance
|
|||||||||
|
|
|
|
|
|
|
||||||||||
|
Exercise
price (per share)
|
$
|
5.00
|
$
|
5.00
|
|
|
$
|
5.00
|
|
|
$
|
5.00
|
|
||
|
Contractual
term (years)
|
|
2.58
|
|
3.60
|
|
|
|
4.58
|
|
|
|
5.00
|
|
||
|
Volatility
|
|
0.87
|
|
0.84
|
|
|
|
1.08
|
|
|
|
1.12
|
|
||
|
Risk-free
interest rate
|
|
4.70
|
%
|
|
4.28
|
%
|
|
|
3.62
|
%
|
|
|
3.79
|
%
|
|
|
Number
of warrants
|
700,000
|
700,000
|
700,000
|
700,000
|
|||||||||||
The
following table includes the assumptions used to value the warrants at issuance
to the convertible debenture investors in November 2004 and at December 31,
2006, 2005, and 2004:
|
At
December 31,
|
|
|
|||||||||||||
|
|
|
|
|
At
|
|||||||||||
|
|
2006
|
2005
|
|
2004
|
|
Issuance
|
|||||||||
|
Exercise
price (per share)
|
$
|
1.48
|
$
|
3.58
|
|
|
$
|
3.58
|
|
|
$
|
3.58
|
|
||
|
Contractual
term (years)
|
|
3.33
|
|
3.60
|
|
|
|
4.60
|
|
|
|
5.00
|
|
||
|
Volatility
|
|
0.87
|
|
0.84
|
|
|
|
1.08
|
|
|
|
1.12
|
|
||
|
Risk-free
interest rate
|
|
4.70
|
%
|
|
4.28
|
%
|
|
|
3.62
|
%
|
|
|
3.79
|
%
|
|
|
Number
of warrants
|
4,206,811
|
1,739,130
|
1,739,130
|
1,739,130
|
|||||||||||
In
October 2005, the Company inadvertently did not make timely payment of the
third
quarter interest payment due under the Notes of approximately $201,000 that
was
due on October 1, 2005. Lack of timely payment became an event of default
on October 8, 2005 after non-payment continued for a period of over five
business days. The Company made the third quarter interest payment promptly
after discovery of the nonpayment, on October 14, 2005. The event of
default permitted each noteholder to require the Company to redeem 120% of
all
or any portion of the amounts outstanding under the applicable Note by
delivering to the Company notice of such redemption, which redemption is
required under the Notes to be paid within five business days after receipt
of
such redemption notice. If all of the noteholders had elected such redemption,
the Company would have been obligated to pay within five business days after
receipt of such election approximately $15.5 million in unpaid principal
and interest. The accelerated repayment of all or any significant portion of
such amount would have left the Company with insufficient working capital to
conduct its business, and the Company did not have sufficient cash to meet
such
an accelerated repayment obligation. During the quarter ended December 31,
2005,
the Company recorded a charge of $2.6 million in its Consolidated Statement
of
Operations, which represented the 20% increase in the redeemable debt
premium.
On
October 25, 2005, the Company entered into an agreement with the
noteholders under which the noteholders agreed not to require redemption of
the
Notes, including the 20% premium payable thereunder, prior to November 16,
2005.
In
November 2005, the Notes were purchased by Vector III, an entity affiliated
with
Vector Capital Corporation, and subsequently on November 18, 2005, the Notes
were in turn purchased by Honu Holdings, LLC, a Delaware limited liability
company controlled by Dr. Pehong Chen, the Company's President and Chief
Executive Officer. On December 20, 2005, in order to relieve BroadVision from
the liquidity challenges presented by the Notes, Dr. Chen agreed to cancel
all amounts owed under the Notes in exchange for 34,500,000 shares of
BroadVision common stock at an effective price per share of $0.45, representing
a 25% discount to the December 20, 2005 closing price of BroadVision common
stock of $0.60 per share. Because of the significant difference between the
$0.45 per share exchange price and the $2.76 per share conversion price included
in the Notes, the Company accounted for this transaction as a deemed
extinguishment and reissuance of the Notes. A loss of $7.0 million was recorded
in December 2005 under Accounting Principles Bulletin No. 26,
Extinguishment
of Debt
,
equal
to fair value of the reissued Notes (which was determined to be the fair value
of the underlying common shares into which the Notes were to be exchanged)
less
the carrying value of the extinguished Notes. The Notes were being carried
at
December 31, 2005, at fair value upon reissuance and were cancelled and the
related shares issued in March 2006. Upon conversion, the carrying value of
the
Notes was recorded as paid-in capital, and Dr. Chen's ownership of the Company's
common shares increased to approximately 59%. Dr. Chen's ownership subsequently
decreased to approximately 39% as a result of closing the rights offering in
the
fourth quarter of 2006 (See Note 9).
Other
Non-Current Liabilities
Other
non-current liabilities consist of the following (in thousands):
|
|
December 31,
|
|||||||
|
|
2006
|
|
2005
|
|||||
|
Restructuring
|
$
|
1,290
|
|
|
$
|
1,722
|
|
|
|
Deferred
maintenance and unearned revenue
|
|
1,739
|
|
|
|
2,334
|
|
|
|
Other
|
|
400
|
|
|
|
334
|
|
|
|
Total
other non-current liabilities
|
$
|
3,429
|
|
|
$
|
4,390
|
|
|
Note 6---Income
Taxes
The
components of (expense) benefit for income taxes are as follows (in thousands):
|
|
Years
Ended December 31,
|
|
||||||||||
|
|
2006
|
|
2005
|
|
2004
|
|
||||||
|
Current:
|
|
|
|
|||||||||
|
Federal
|
$
|
(350
|
)
|
$
|
660
|
$
|
-
|
|||||
|
State
|
(75
|
)
|
(10
|
)
|
(110
|
)
|
||||||
|
Foreign
|
|
(209
|
)
|
|
1,961
|
|
|
419
|
|
|||
|
Total
current
|
(634
|
)
|
2,611
|
309
|
||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
-
|
-
|
-
|
|||||||||
|
State
|
|
-
|
|
|
-
|
|
|
-
|
|
|||
|
Total
deferred
|
|
-
|
|
|
-
|
|
|
-
|
|
|||
|
Income
tax (expense) benefit
|
|
$
|
(634
|
)
|
$
|
2,611
|
|
$
|
309
|
|
||
The
differences between the (expense) benefit for income taxes computed at the
federal statutory rate of 35% and the Company's actual income tax (expense)
benefit for the periods presented are as follows (in thousands):
|
|
|
Years
Ended December 31,
|
|
|||||||||
|
|
|
2006
|
|
2005
|
|
2004
|
|
|||||
|
Expected
income tax (expense) benefit
|
$
|
(5,744
|
)
|
$
|
14,552
|
$
|
(6,390
|
)
|
||||
|
State
income tax (expense) benefit, net of federal tax (expense) benefit
|
(49
|
)
|
662
|
(1,103
|
)
|
|||||||
|
Foreign
taxes
|
(209
|
)
|
(264
|
)
|
(72
|
)
|
||||||
|
Utilization
of foreign net operating loss carryforwards
|
-
|
913
|
688
|
|||||||||
|
Valuation
allowance changes affecting provision
|
5,941
|
(575
|
)
|
7,521
|
||||||||
|
Stock
based compensation
|
(91
|
)
|
-
|
-
|
||||||||
|
Foreign
losses not benefited
|
(584
|
)
|
(952
|
)
|
(322
|
)
|
||||||
|
Non-deductible
goodwill impairment
|
-
|
(10,806
|
)
|
-
|
||||||||
|
Tax
credits and other permanent items
|
114
|
-
|
32
|
|||||||||
|
Other
|
|
|
(12
|
)
|
|
(919
|
)
|
|
(45
|
)
|
||
|
(Expense)
benefit for income taxes
|
|
$
|
(634
|
)
|
$
|
2,611
|
|
$
|
309
|
|
||
The
individual components of the Company's deferred tax assets and liabilities
are
as follows (in thousands):
|
|
|
December 31,
|
|
|||||
|
|
|
2006
|
|
2005
|
|
|||
|
Deferred
tax assets:
|
|
|
||||||
|
Depreciation
and amortization
|
$
|
3,602
|
$
|
5,716
|
||||
|
Accrued
liabilities
|
4,751
|
5,204
|
||||||
|
Capitalized
research and development
|
2,430
|
2,748
|
||||||
|
Net
operating losses
|
211,331
|
214,599
|
||||||
|
Tax
credits
|
13,946
|
13,148
|
||||||
|
Unrealized
loss on marketable securities
|
|
|
1,589
|
|
|
1,589
|
|
|
|
Total
deferred tax assets
|
237,649
|
243,005
|
||||||
|
Less:
valuation allowance
|
|
|
(237,649
|
)
|
|
(243,005
|
)
|
|
|
Net
deferred tax assets
|
|
$
|
-
|
|
$
|
-
|
|
|
The
Company has provided a valuation allowance for all of its deferred tax assets
as
of December 31, 2006 and 2005, due to the uncertainty regarding their
future realization. The total valuation allowance decreased $5.4 million
from December 31, 2005 to December 31, 2006 due primarily to
utilization of net operating loss carryovers. As of December 31, 2006, the
Company had federal and state operating loss (NOL) carryforwards of
approximately $563.2 million and $154.2 million, net of Section 382 of the
Internal Revenue Code ("IRC") limitations respectively, available to offset
future regular and alternative minimum taxable income. The NOL did not include
a
deduction from stock based compensation for which a benefit would be recorded
in
additional paid-in capital when realized which benefit was immaterial. In
addition, the Company had federal and state research and development credit
carryforwards of approximately $11.2 million and $3.3 million,
respectively, available to offset future tax liabilities. The Company's federal
net operating loss and tax credit carryforwards expire in the tax years 2007
through 2026, if not utilized. The state net operating loss carryforwards expire
in the tax years 2007 through 2016. The state research and development credits
can be carried forward indefinitely.
Federal
and state tax laws impose substantial restrictions on the utilization of net
operating loss and credit carryforwards in the event of an "ownership change"
for tax purposes, as defined in IRC Section 382. Based on an IRC Section 382
study completed in February 2007, the Company determined that there were
ownership changes during year 1998. Consequently, a portion of the Company's
tax
carryforwards will expire before they can be fully utilized. Therefore, in
2006,
the Company reduced its reported available federal NOL carryforwards by
approximately $5.3 million.
In
accordance with SFAS 5, the Company maintains reserves for estimated income
tax exposures for many jurisdictions when the exposure item becomes probable
and
estimable. Exposures are settled primarily through the settlement of audits
within each individual tax jurisdiction or the closing of a statute of
limitation. Exposures can also be affected by changes in applicable tax law
or
other factors, which may cause management to believe a revision of past
estimates is appropriate. Management believes that an appropriate liability
has
been established for income tax exposures; however, actual results may differ
materially from these estimates. As of December 31, 2006 and 2005, the
Company has recorded tax contingency reserves of approximately
$1.3 million, which is included as a component of Accrued Expenses in the
accompanying Consolidated Balance Sheet.
Earnings
from foreign subsidiaries are considered to be permanently reinvested and,
accordingly, no provision for U.S. federal and state taxes has been provided
thereon. Upon repatriation of those earnings in the form of dividends or
otherwise, the Company may be subject to U.S. income taxes or withholding taxes
payable to the foreign country or both. It is not practical to estimate the
amount of unrecognized deferred U.S. taxes on those undistributed
earnings.
Note 7---Commitments
and Contingencies
Warranties
and Indemnification
The
Company provides a warranty to its customers that its software will perform
substantially in accordance with documentation, typically for a period of
90
days following receipt of the software. Historically, costs related to these
warranties have been immaterial. Accordingly, the Company has not recorded
any
warranty liabilities as of December 31, 2006 and 2005.
The
Company's software license agreements typically provide for indemnification
of
customers for intellectual property infringement claims caused by use of
a
current release of the Company's software consistent with the terms of the
Agreement. The term of these indemnification clauses is generally perpetual.
The
potential future payments the Company could be required to make under these
indemnification clauses is generally limited to the amount the customer paid
for
the software. Historically, costs related to these indemnifications provisions
have been immaterial. The Company also maintains liability insurance that
limits
the Company's exposure. As a result, the Company believes the potential
liability resulting from these indemnification clauses is minimal.
Accordingly, the Company has not recorded any liabilities for these agreements
as of December 31, 2006 and 2005.
The
Company has agreements whereby it indemnifies its officers and directors for
certain events or occurrences while the officer is, or was, serving in such
capacity. The term of the indemnification period is for so long as such officer
or director is subject to an indemnifiable event by reason of the fact that
such
person was serving in such capacity. The maximum potential amount of future
payments the Company could be required to make under these indemnification
agreements is unlimited; however, the Company has a director and officer
insurance policy that limits its exposure and enables the Company to recover
a
portion of any future amounts paid. As a result of the Company's insurance
policy coverage, the Company believes the estimated fair value of these
indemnification agreements is insignificant. Accordingly, the Company has no
liabilities recorded for these agreements as of December 31, 2006 or 2005.
The Company assesses the need for an indemnification reserve on a quarterly
basis and there can be no guarantee that an indemnification reserve will not
become necessary in the future.
Leases
The
Company leases its headquarters facility and its other facilities under
noncancelable operating lease agreements expiring through the year 2012. Under
the terms of the agreements, the Company is required to pay property taxes,
insurance and normal maintenance costs.
A
summary
of total future minimum lease payments under noncancelable operating lease
agreements is as follows (in millions):
|
|
|
Total
Future
|
|||
|
|
|
Payments
|
|||
|
Years
ending December 31,
|
|
|
|
|
|
|
2007
|
|
$
|
2.7
|
|
|
|
2008
|
|
|
1.7
|
|
|
|
2009
|
|
|
1.7
|
|
|
|
2010
|
|
|
1.2
|
|
|
|
2011
and thereafter
|
|
|
1.7
|
|
|
|
|
Total
minimum facilities payments
|
|
$
|
9.0
|
|
These
future minimum lease payments exclude approximately $1.3 million of
sublease income to be received under non-cancelable sublease agreements. As
of
December 31, 2006, The Company has accrued $2.2 million of estimated future
facilities costs as a restructuring accrual.
Rent
expense for the years ended December 31, 2006, 2005 and 2004 was $2,315,000,
$3,187,000, and $4,162,000, respectively.
Standby
Letter of Credit Commitments
Commitments
totaling $2.0 million in the form of standby letters of credit were issued
on the Company's behalf from financial institutions as of December 31, 2006
and 2005, in favor of the Company's various landlords to secure obligations
under the Company's facility leases.
Legal
Proceedings
The
Company is subject from time to time to various legal actions and other claims
arising in the ordinary course of business. The Company is not presently a
party
to any material legal proceedings.
Note 8---Restructuring
The
following table summarizes the restructuring accrual activity recorded during
the three-years ended December 31, 2006 (in thousands):
|
|
|
Severance
|
|
|
|
|
||||||
|
|
|
and
|
|
Facilities/
|
|
|
||||||
|
|
|
Benefits
|
|
Excess
Assets
|
|
Total
|
||||||
|
Accrual
balances, December 31, 2003
|
|
$
|
671
|
|
|
$
|
104,709
|
|
|
$
|
105,380
|
|
|
Restructuring
charges (credits)
|
|
|
1,114
|
|
|
|
(24,659
|
)
|
|
|
(23,545
|
)
|
|
Cash
payments
|
|
|
(961
|
)
|
|
|
(46,711
|
)
|
|
|
(47,672
|
)
|
|
Accrual
balances, December 31, 2004
|
|
|
824
|
|
|
|
33,339
|
|
|
|
34,163
|
|
|
Restructuring
charges (credits)
|
|
|
1,006
|
|
|
|
(1,468
|
)
|
|
|
(462
|
)
|
|
Cash
payments
|
|
|
(1,414
|
)
|
|
|
(25,032
|
)
|
|
|
(26,446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Accrual
balances, December 31, 2005
|
|
|
416
|
|
|
|
6,839
|
|
|
7,255
|
|
|
|
Restructuring
charges (credits)
|
|
|
348
|
(3,717
|
)
|
(3,369
|
)
|
|||||
|
Cash
payments
|
|
|
(417
|
)
|
|
(907
|
)
|
|
(1,324
|
)
|
||
|
Accrual
balances, December 31, 2006
|
|
$
|
347
|
|
|
$
|
2,215
|
|
|
$
|
2,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
The
severance and benefits accrual for each period includes severance, payroll
taxes
and COBRA benefits related to restructuring plans implemented prior to the
balance sheet date. The facilities/excess assets accrual for each period
included future minimum lease payments, fees and expenses, net of estimated
sublease income and planned company occupancy, and related leasehold improvement
amounts payable subsequent to the balance sheet date for which the provisions
of
EITF 94-3 or SFAS 146, as applicable, were satisfied. See further
discussion below. In determining estimated future sublease income, the following
factors were considered, among others: opinions of independent real estate
experts, current market conditions and rental rates, an assessment of the time
period over which reasonable estimates could be made, the status of negotiations
with potential subtenants, and the location of the respective facilities.
The
nature of the charges and credits in 2006 were as follows:
|
l
|
Severance
and benefits
--
During the year ended December 31, 2006, the Company recorded $348,000
severance charges related to the approved Work Reduction Plan. Due
to the
strict European labor law the Company was not able to recognize severance
charges to 3 employees until 2006. The Company estimates that the
accrual
as of December 31, 2006 of $347,000 will be paid in full by
December 31, 2007.
|
|
l
|
Facilities/excess
assets
--
During the year ended December 31, 2006, the Company recorded a
facilities-related restructuring credit of $3.7 million. In the third
quarter of 2006, the Company did not exercise a $4.5 million option
to buy
out the residual lease obligation entered in 2004 and the buyout
option
expired. Therefore, the Company reversed the 2004 accrual in the
third
quarter of 2006. In the fourth quarter of 2006, the Company subleased
22,500 square feet of excess space and adjusted the restructuring
accrual
accordingly. The Company made cash payments of $0.9 million during
the year ended December 31, 2006 related to these agreements.
|
The
nature of the charges and credits in 2005 were as follows:
|
l
|
Severance
and benefits ---
On
June 29, 2005, the Company's Board of Directors approved a business
restructuring plan, primarily consisting of headcount reductions,
designed
to adjust expenses to a level more consistent with anticipated revenues.
The reduction included approximately 63 employees, or 22% of the
Company's
workforce. The Company recorded severance charges of approximately
$1.1
million in the year ended December 31, 2005, related to workforce
reductions as a component of the Company's restructuring plans executed
during the year.
|
|
l
|
Facilities/excess
assets
---
During the year ended December 31, 2005, the Company recorded a
facilities-related restructuring credit of $1.5 million. During the
third
and fourth quarters of 2004 and the first quarter of 2005, the Company
reached agreements with certain landlords to extinguish future real
estate
obligations. In addition, the Company entered into subleases in 2005
in
excess of those anticipated. The Company made cash payments of $25.0
million during the twelve months ended December 31, 2005 related
to buyout
agreements. The Company has a letter of credit of $2.0 million secured
by
equal amount of restricted cash to the landlord securing facilities
leases
as more fully described in Note 8.
|
The
nature of the charges and credits in 2004 were as follows:
|
l
|
Severance
and benefits---
The
Company recorded a related charge of $1.1 million during the year
ended December 31, 2004, related to workforce reductions as a
component of the Company's restructuring plans executed during the
year.
The accrual as of December 31, 2004, was paid in full by
December 31, 2005.
|
|
l
|
Facilities/excess
assets---
During
the year ended December 31, 2004, the Company recorded a
facilities-related restructuring credit of $24.7 million. During the
third and fourth quarters of 2004, the Company reached agreements
with
certain landlords to extinguish approximately $155 million of future
real estate obligations. The Company made cash payments of
$19.0 million during the third quarter of fiscal 2004,
$1.7 million during the fourth quarter of fiscal 2004 and
$21.9 million in fiscal 2005.
|
As
a
component of the settlement of one of the previous leases, the Company has
a
residual lease obligation beginning in 2007 of approximately $9.0 million.
The Company would have made an additional cash payment of $4.5 million had
it exercised an option to terminate this residual real estate obligation prior
to the commencement of the lease term (January 2007). This option to
terminate the residual lease obligation is accounted for in accordance with
SFAS 146 and is a part of the restructuring credit of $24.6 million
recorded in fiscal 2004.
As
discussed above, in the third
quarter
of 2006, the Company did not exercise the $4.5 million option to buy out the
residual lease obligation, and the buy-out option expired.
In connection
with one of the buyout transactions, the Company issued to the landlord a
five-year warrant to purchase approximately 700,000 shares of its common stock
at an exercise price of $5.00 per share, exercisable beginning in
August 2005. See Note 9.
As
of
December 31, 2006, the total restructuring accrual of $2.6 million
consisted of the following (in millions):
|
|
|
|
|
Non-
|
|
|
||||||
|
|
|
Current
|
|
Current
|
|
Total
|
||||||
|
Severance
and termination
|
|
$
|
0.4
|
|
|
$
|
-
|
|
|
$
|
0.4
|
|
|
Excess
facilities
|
|
|
0.9
|
|
|
|
1.3
|
|
|
|
2.2
|
|
|
Total
|
|
$
|
1.3
|
|
|
$
|
1.3
|
|
|
$
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
The
Company estimates that the $400,000 severance and termination accrual will
be
paid in full by December 31, 2007. It expects to pay the excess facilities
amounts related to restructured or abandoned leased space as follows (in
millions):
|
|
|
Total
Future
|
||
|
|
|
Payments
|
||
|
Years
Ending December 31,
|
|
|
|
|
|
2007
|
|
$
|
0.9
|
|
|
2008
|
|
|
0.4
|
|
|
2009
|
|
|
0.5
|
|
|
2010
|
|
|
0.2
|
|
|
2011
|
|
|
0.2
|
|
|
Total
minimum facilities payments
|
|
$
|
2.2
|
|
|
|
||||
The
following table summarizes the activity related to the restructuring plans
initiated after January 1, 2003, and accounted for in accordance with
FAS 146 (in thousands):
|
|
|
Amounts
|
Amounts
|
|
|
|||||||||||||||
|
|
|
Charged
to
|
Reversed
to
|
|
|
|||||||||||||||
|
|
Accrued
|
Restructuring
|
Restructuring
|
Amounts
|
Accrued
|
|||||||||||||||
|
|
Restructuring
|
Costs
and
|
Costs
and
|
Paid
or
|
Restructuring
|
|||||||||||||||
|
|
|
Costs,
Beginning
|
|
Other
|
|
Other
|
|
Written
Off
|
|
Costs,
Ending
|
|
|||||||||
|
Year
Ended December 31, 2006:
|
|
|
|
|
|
|||||||||||||||
|
Lease
cancellations and commitments
|
$
|
4,188
|
$
|
389
|
$
|
(4,500
|
)
|
$
|
-
|
$
|
77
|
|||||||||
|
Termination
payments to employees and related costs
|
105
|
348
|
-
|
(453
|
)
|
-
|
||||||||||||||
|
|
$
|
4,293
|
$
|
737
|
$
|
(4,500
|
)
|
$
|
(453
|
)
|
$
|
77
|
||||||||
|
Year
Ended December 31, 2005:
|
||||||||||||||||||||
|
Lease
cancellations and commitments
|
$
|
21,824
|
$
|
(821
|
)
|
$
|
- |
|
$
|
(16,815
|
)
|
$
|
4,188
|
|||||||
|
Termination
payments to employees and related costs
|
365
|
1,006
|
- |
(1,266
|
)
|
105
|
||||||||||||||
|
|
$
|
22,189
|
$
|
185
|
$
|
-
|
|
$
|
(18,081
|
)
|
$
|
4,293
|
||||||||
| Year Ended December 31, 2004: | ||||||||||||||||||||
| Lease cancellations and commitments | $ |
21,683
|
$ |
9,594
|
$ |
-
|
$ |
(9,453
|
) | $ |
21,824
|
|||||||||
| Termination payments to employees and related costs |
242
|
1,114
|
-
|
(991
|
) |
365
|
||||||||||||||
| Write-off on disposal of assets and related costs |
-
|
(1,193
|
) |
-
|
1,193
|
-
|
||||||||||||||
| $ |
21,925
|
$ |
9,515
|
$ |
-
|
$ |
(9,251
|
) | $ |
22,189
|
||||||||||
The
following table summarizes the activity related to the restructuring plans
initiated prior to January 1, 2003, and accounted for in accordance with
EITF 94-3 (in thousands):
|
|
|
Amounts
|
Amounts
|
|
|
|||||||||||||||
|
|
Accrued
|
Charged
to
|
Reversed
to
|
Amounts
|
|
|||||||||||||||
|
|
Restructuring
|
Restructuring
|
Restructuring
|
Paid
or
|
Accrued
|
|||||||||||||||
|
|
Costs,
|
Costs
and
|
Costs
and
|
Written
|
Restructuring
|
|||||||||||||||
|
|
|
Beginning
|
|
Other
|
|
Other
|
|
Off
|
|
Costs,
Ending
|
|
|||||||||
|
Year
Ended December 31, 2006:
|
|
|
|
|
|
|||||||||||||||
|
Lease
cancellations and commitments
|
$
|
2,651
|
$
|
394
|
$
|
-
|
$
|
(907
|
)
|
$
|
2,138
|
|||||||||
|
Termination
payments to employees and related costs
|
311
|
- | - |
36
|
347
|
|||||||||||||||
|
|
|
$
|
2,962
|
|
$
|
394
|
|
$
|
-
|
|
$
|
(871
|
)
|
$
|
2,485
|
|
||||
|
Year
Ended December 31, 2005:
|
||||||||||||||||||||
|
Lease
cancellations and commitments
|
$
|
11,515
|
$
|
-
|
$
|
(647
|
)
|
$
|
(8,217
|
)
|
$
|
2,651
|
||||||||
|
Termination
payments to employees and related costs
|
459
|
-
|
-
|
(148
|
)
|
311
|
||||||||||||||
|
|
|
$
|
11,974
|
|
$
|
-
|
|
$
|
(647
|
)
|
$
|
(8,365
|
)
|
$
|
2,962
|
|
||||
|
Year
Ended December 31, 2004:
|
||||||||||||||||||||
|
Lease
cancellations and commitments
|
$
|
83,026
|
$
|
(32,584
|
)
|
$
|
-
|
$
|
(38,927
|
)
|
$
|
11,515
|
||||||||
|
Termination
payments to employees and related costs
|
429
|
-
|
-
|
30
|
459
|
|||||||||||||||
|
Write-off
on disposal of assets and related costs
|
|
|
-
|
|
|
(477
|
)
|
|
-
|
|
|
477
|
|
|
-
|
|
||||
|
|
|
$
|
83,455
|
|
$
|
(33,061
|
)
|
$
|
-
|
|
$
|
(38,420
|
)
|
$
|
11,974
|
|
||||
Note 9---Stockholders'
Equity (Deficit)
Convertible
Preferred Stock
As
of
December 31, 2006, there were no outstanding shares of convertible
preferred stock. The Board of Directors and the stockholders have authorized
10,000,000 shares of convertible preferred stock that is available for issuance.
Warrants
As
of
December 31, 2006, the following warrants to purchase the Company's common
stock were outstanding (dollars in thousands, except share and per share data):
|
|
|
|
|
|
Fair
Value at
|
||||||||||
|
|
|
|
|
|
December 31,
|
||||||||||
|
|
|
|
|
Price
per
|
|
|
|||||||||
|
Description
|
|
Shares
|
|
Share
|
2006
|
|
2005
|
||||||||
|
Issued
to landlord in real estate buyout transaction in August 2004
|
|
|
700,000
|
|
|
$
|
5.00
|
$
|
79
|
|
|
$
|
51
|
|
|
|
Issued
to convertible debenture investors in November 2004
|
|
|
4,206,811
|
|
|
|
1.48
|
|
1,531
|
|
|
|
226
|
|
|
|
Others
issued in connection with revenue transactions in 1997 and 2000
|
|
|
4,798
|
|
|
|
Various
|
|
-
|
|
|
|
-
|
|
|
|
Total
shares and fair value and average price per share
|
|
|
4,911,609
|
|
|
|
2.04
|
$
|
1,610
|
|
|
$
|
277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
The
warrant issued in connection with the real estate transaction has a term of
five
years, and is exercisable beginning in August 2005. The warrant issued in
connection with the convertible debentures also has a term of five years and
is
exercisable beginning in May 2005. Under an anti-dilution provision of the
debt warrants and as triggered by the debt to equity exchange of the Notes
and
the rights offering, the warrant was reissued in March 2006 and November 2006,
respectively.
In
accordance with EITF 00-19, the warrants have been included as a short-term
liability and were originally valued at fair value on the date of issuance.
During year 2006, the Company recorded charges related to the change in fair
value of the warrants of approximately $1.3 million. During year 2005, the
Company recorded credits related to the change in fair value of the warrants
of
approximately $4.6 million (Note 5). These amounts are included as a component
of Other Income (Expense), net, in the accompanying Consolidated Statement
of
Operations. If the warrants are exercised prior to their termination, their
carrying value will be transferred to stockholders' equity.
Common
Stock
In
November 2004, the Company entered into a definitive agreement for the private
placement of the Notes that were convertible, at the holders' option, into
common stock at a conversion price of $2.76 per share. The Notes bore interest
at a rate of six percent per annum, and the Company was originally obligated
to
repay the principal amount of the initial $16.0 million of notes in 15 equal
monthly installments of $1.1 million beginning in June 2005. In November 2005,
Honu Holdings, LLC, a Delaware limited liability company controlled by Dr.
Pehong Chen, the Company's Chief Executive Officer and largest stockholder,
acquired all Notes then outstanding. Including interest, the Notes represented
$15.5 million in debt obligations as of December 15, 2005. In order to relieve
the Company from the liquidity challenges presented by the Notes, Dr. Chen
agreed to cancel all amounts owed under the Notes in exchange for 34,500,000
shares of BroadVision common stock, at an effective price per share of $0.45,
a
25% discount to the December 20, 2005 closing price of BroadVision common stock,
and $180,000 in cash that represented the portion of the accrued interest on
the
Notes that was not paid in stock. That exchange was completed in March 2006
and
was reported as an increase in additional paid-in capital of approximately
$20.7
million.
In
February 2006, the Company announced a subscription rights offering to existing
stockholders to sell a total of 178 million shares, or 5.9 shares for each
share
of BroadVision common stock held as of the record date of December 20, 2005,
at
effective price per share of $0.45. The primary purpose of the rights offering
was to allow the holders of BroadVision common stock an opportunity to further
invest in BroadVision in order to maintain their proportionate interest in
BroadVision common stock, at the same price per share as the conversion price
afforded to Dr. Chen in the Notes conversion. Dr. Chen waived any right to
participate in the rights offering. The rights offering will be made only by
means of a prospectus, a preliminary copy of which was filed with the Securities
and Exchange Commission as part of a registration statement on February 3,
2006.
The
Company's rights offering expired on November 28, 2006. Eligible participants
exercised rights to purchase approximately 36.4 million shares, resulting in
$15.8 million in net proceeds for the Company.
In
September 2005, the Company received a notice from the Listing Qualifications
Department of The NASDAQ Stock Market stating that for a period of 30
consecutive business days, the bid price of the Company's common stock closed
below the minimum $1.00 per share requirement for continued inclusion under
Marketplace Rule 4450(a)(5) (the "Minimum Bid Price Rule"). The notice further
stated that pursuant to Marketplace Rule 4450(e)(2), the Company would be
provided 180 calendar days (or until March 6, 2006) to regain compliance. The
Company did not regain compliance, and therefore voluntarily delisted its stock
from the NASDAQ National Market effective March 8, 2006. The Company's common
stock currently trades on the Pink Sheets (www.pinksheets.com).
Stock
Based Compensation
The
fair
value of stock options awarded under the Equity Plan to employees and
non-employee members of the Company's Board of Directors included in the total
share-based compensation expense recorded by the Company for the year ended
December 31, 2006 and the total share-based compensation expense disclosed
in
Note 1 on a pro forma basis for the years ended December 31, 2005 and 2004
was
estimated using the Black-Scholes option valuation model. Expected volatility
is
based on the historical volatility of the Company's common stock. The expected
term for the year ended December 31, 2006 was estimated using the simplified
method described in SAB 107. The expected term for the years ended December
31,
2005 and 2004 was estimated using factors that included historical exercise
patterns and expected terms used by comparable companies. The expected term
represents the estimated period of time that stock options granted are expected
to be outstanding. The risk-free interest rate is based on the U.S. Treasury
yield.
Valuation
Assumptions
As
of
December 31, 2006, 2005, and 2004, the fair value of stock based awards for
the
Equity Plan, the Prior Equity Plan, 2000 Non-Officer Plan and employee stock
purchases made under the Purchase Plan was estimated using the Black-Scholes
option pricing model. The following weighted-average assumptions were as
follows:
2006
Equity Incentive Plan and 2000 Non-Officer Plan
|
|
Years
Ended December 31,
|
|||||||||||
|
|
2006
|
|
2005
|
|
2004
|
|||||||
|
Expected
life (in years)
|
|
6.0
|
years
|
|
|
7.4
|
years
|
|
|
3.5
|
years
|
|
|
Risk-free
interest rate
|
|
|
4.79
|
%
|
|
|
4.12
|
%
|
|
|
3.61
|
%
|
|
Expected
volatility
|
|
|
84
|
%
|
|
|
84
|
%
|
|
|
108
|
%
|
|
Expected dividend
|
|
|
-
|
%
|
-
|
%
|
-
|
%
|
||||
|
Forfeiture
rate
|
11.00
|
%
|
NA
|
%
|
NA
|
%
|
||||||
Employee
Stock Purchase Plan
|
|
Years
Ended December 31,
|
|||||||||||
|
|
2006
|
|
2005
|
|
2004
|
|||||||
|
Expected
volatility
|
|
107
|
%
|
|
|
84
|
%
|
|
|
108
|
%
|
|
|
Weighted
average volatility
|
106
|
%
|
89
|
%
|
102
|
%
|
||||||
|
Risk-free
interest rate
|
|
5.08
|
%
|
|
|
3.84
|
%
|
|
|
3.61
|
%
|
|
|
Expected
life (in years)
|
1
|
year
|
1
|
year
|
1
|
year
|
||||||
|
Expected
dividend yield
|
-
|
%
|
-
|
%
|
-
|
%
|
||||||
The
weighted-average fair value of the purchase rights granted in the years ended
December 31, 2006, 2005, and 2004, was $0.22, $0.82, and $4.04,
respectively.
As
of
December 31, 2006, the Company had reserved 9,735,941 common shares for future
issuance upon the exercise of stock options and warrants.
The
Company's President and CEO has options to purchase 1,704,444 shares of common
stock at a weighted average exercise price of $38.60 per share. The table
below is a summary of shares granted through December 31, 2006:
|
|
|
|
|
|
|
|
|
Vesting
|
||||||||||
|
|
|
Options
|
|
Options
|
|
|
|
Period
|
||||||||||
|
Date
Granted
|
|
Granted
|
|
Price
|
|
Vested
|
|
(Months)
|
||||||||||
|
|
6/23/1999
|
|
|
|
500,000
|
|
|
$
|
60.00
|
|
|
|
500,000
|
|
|
|
60
|
|
|
|
5/25/2001
|
|
|
|
500,000
|
|
|
|
66.51
|
|
|
|
500,000
|
|
|
|
48
|
|
|
|
11/27/2001
|
|
|
|
4,444
|
|
|
|
35.01
|
|
|
|
4,444
|
|
|
|
24
|
|
|
|
2/19/2002
|
|
|
|
55,555
|
|
|
|
18.63
|
|
|
|
55,555
|
|
|
|
48
|
|
|
|
10/30/2002
|
|
|
|
644,445
|
|
|
|
2.16
|
|
|
|
644,445
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
Totals
|
|
|
|
1,704,444
|
|
|
|
|
|
|
|
1,704,444
|
|
|
|
|
|
Activity
in the Equity Plan is as follows:
|
Years
Ended December 31,
|
||||||||||||||||||||||||
|
|
2006
|
2005
|
2004
|
|||||||||||||||||||||
|
|
|
Weighted-
|
|
Weighted-
|
|
Weighted-
|
||||||||||||||||||
|
|
|
Average
|
|
Average
|
|
Average
|
||||||||||||||||||
|
|
Options
|
Exercise
|
Options
|
Exercise
|
Options
|
Exercise
|
||||||||||||||||||
|
(000's)
|
Price
|
(000's)
|
Price
|
(000's)
|
Price
|
|||||||||||||||||||
|
Outstanding
at beginning of period
|
3,765
|
$
|
23.48
|
4,876
|
$
|
21.93
|
4,128
|
$
|
27.32
|
|||||||||||||||
|
Granted
|
3,880
|
0.59
|
422
|
2.18
|
1,264
|
3.35
|
||||||||||||||||||
|
Exercised
|
(46
|
)
|
0.57
|
(26
|
)
|
1.5
|
(87
|
)
|
3.07
|
|||||||||||||||
|
Forfeited
|
(1,360
|
)
|
4.84
|
(1,507
|
)
|
13.24
|
(429
|
)
|
21.23
|
|||||||||||||||
|
Outstanding
at end of period
|
6,239
|
13.48
|
3,765
|
23.48
|
4,876
|
21.93
|
||||||||||||||||||
|
Options
exercisable at end of period
|
3,910
|
$
|
21.15
|
3,748
|
$
|
23.49
|
2,656
|
$
|
44.9
|
|||||||||||||||
|
Weighted-average
fair value of options granted during the period
|
$
|
0.34
|
$
|
0.70
|
$
|
2.33
|
||||||||||||||||||
|
Aggregate
Intrinsic Value:
|
||||||||||||||||||||||||
|
Options
exercised
|
$
|
9,855
|
|
|
|
|
||||||||||||||||||
|
Options
exercisable
|
$
|
249,438
|
|
|
|
|||||||||||||||||||
The
Company granted 144,000 shares of fully vested restricted stock to the
non-employee members of its Board of Directors in March 2006, and recorded
a
stock-based compensation expense of $82,060.
The
following table summarizes stock options outstanding under the Equity Plan
as of
December 31, 2006:
|
|
|
|
|
Outstanding
|
|
|
|
|
|
|
||||||||||||||
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
||||||||||||||
|
|
|
|
|
Average
|
|
|
|
|
|
|
||||||||||||||
|
|
|
|
|
Remaining
|
|
Weighted
|
|
Exercisable
|
|
Weighted
|
||||||||||||||
|
|
|
Options
|
|
Contractual
|
|
Exercise
|
|
Options
|
|
Exercise
|
||||||||||||||
|
Range
of Exercise Prices
|
|
(000's)
|
|
Life
in Years
|
|
Price
|
|
(000's)
|
|
Price
|
||||||||||||||
|
$
|
0.43
|
-
|
$
|
1.52
|
|
|
3,657
|
|
|
|
9.14
|
|
|
$
|
0.62
|
|
|
|
1,328
|
|
|
$
|
0.67
|
|
|
2.10
|
-
|
2.94
|
|
|
874
|
|
|
|
6.37
|
|
|
|
2.24
|
|
|
|
874
|
|
|
|
2.24
|
|
||
|
3.08
|
-
|
3.80
|
|
|
86
|
|
|
|
6.44
|
|
|
|
3.34
|
|
|
|
86
|
|
|
|
3.34
|
|
||
|
4.25
|
-
|
8.50
|
|
|
258
|
|
|
|
6.00
|
|
|
|
6.47
|
|
|
|
258
|
|
|
|
6.47
|
|
||
|
10.75
|
-
|
30.00
|
|
|
122
|
|
|
|
3.42
|
|
|
|
21.75
|
|
|
|
122
|
|
|
|
21.75
|
|
||
|
30.50
|
-
|
39.63
|
|
|
143
|
|
|
|
4.52
|
|
|
|
35.13
|
|
|
|
143
|
|
|
|
35.13
|
|
||
|
42.75
|
-
|
87.19
|
|
|
1,090
|
|
|
|
3.45
|
|
|
|
62.86
|
|
|
|
1,090
|
|
|
|
62.86
|
|
||
|
133.06
|
-
|
448.31
|
|
|
9
|
|
|
|
3.29
|
|
|
|
182.66
|
|
|
|
9
|
|
|
|
182.66
|
|
||
|
|
|
|
6,239
|
|
|
|
7.36
|
|
|
$
|
13.48
|
|
|
|
3,910
|
|
|
$
|
21.15
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
The
Company grants options outside of the Company's Equity Plan (2000 Non-Officer
Plan and non-plan grants). The terms of these options are generally identical
to
those granted under the Company's Equity Plan. A summary of options outside
of
the plan is presented below:
|
|
Years
Ended December 31,
|
|||||||||||||||||||||||
|
|
2006
|
|
2005
|
|
2004
|
|||||||||||||||||||
|
|
|
|
Weighted-
|
|
|
|
Weighted-
|
|
|
|
Weighted-
|
|||||||||||||
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Average
|
|||||||||||||
|
|
Options
|
|
Exercise
|
|
Options
|
|
Exercise
|
|
Options
|
|
Exercise
|
|||||||||||||
|
|
(000's)
|
|
|
Price
|
|
|
(000's)
|
|
|
Price
|
|
|
(000's)
|
|
|
Price
|
|
|||||||
|
Outstanding
at beginning of period
|
588
|
|
|
$
|
16.7
|
|
|
1,151
|
|
|
$
|
17.69
|
|
|
|
1,614
|
|
|
$
|
15.96
|
|
|||
|
Granted
|
432
|
|
|
0.53
|
|
|
3
|
|
|
|
2.10
|
|
|
|
71
|
|
|
|
7.07
|
|
||||
|
Exercised
|
-
|
|
|
-
|
|
|
(28
|
)
|
|
|
1.50
|
|
|
|
(210
|
)
|
|
|
1.70
|
|
||||
|
Forfeited
|
(255
|
) |
|
|
11.12
|
|
|
(538
|
)
|
|
|
19.48
|
|
|
|
(324
|
)
|
|
|
17.1
|
|
|||
|
Outstanding
at end of period
|
765
|
|
|
9.70
|
|
|
|
588
|
|
|
|
16.70
|
|
|
|
1,151
|
|
|
|
17.69
|
|
|||
|
Options
exercisable at end of period
|
495
|
|
|
$ |
14.72
|
|
|
|
588
|
|
|
$
|
16.70
|
|
|
|
647
|
|
|
$
|
28.77
|
|
||
|
Weighted-average
fair value of options granted during the period
|
|
|
|
|
$
|
0.30
|
|
|
|
|
|
|
$
|
0.42
|
|
|
|
|
|
|
$
|
7.07
|
|
|
|
Aggregate
Intrinsic Value:
|
||||||||||||||||||||||||
|
Options
exercised
|
$
|
-
|
|
|
|
|
||||||||||||||||||
|
Options
exercisable
|
$
|
14,175
|
|
|
|
|
||||||||||||||||||
The
following table summarizes stock options, granted outside the Equity Plan
(2000
Non-Officer Plan and non-plan grants), outstanding as of December 31, 2006:
|
|
|
|
|
Outstanding
|
|
|
|
|
|
|
||||||||||||||
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
||||||||||||||
|
|
|
|
|
Average
|
|
|
|
|
|
|
||||||||||||||
|
|
|
|
|
Remaining
|
|
Weighted
|
|
Exercisable
|
|
Weighted
|
||||||||||||||
|
|
|
Options
|
|
Contractual
|
|
Exercise
|
|
Options
|
|
Exercise
|
||||||||||||||
|
Range
of Exercise Prices
|
|
(000's)
|
|
Life
in Years
|
|
Price
|
|
(000's)
|
|
Price
|
||||||||||||||
|
$
|
0.43
|
-
|
$
|
1.52
|
|
|
649
|
|
|
|
7.63
|
|
|
$
|
0.99
|
|
|
|
379
|
|
|
$
|
1.33
|
|
|
2.10
|
-
|
2.94
|
|
|
3
|
|
|
|
8.21
|
|
|
|
2.10
|
|
|
|
3
|
|
|
|
2.10
|
|
||
|
3.08
|
-
|
3.80
|
|
|
1
|
|
|
|
6.13
|
|
|
|
3.92
|
|
|
|
1
|
|
|
|
3.92
|
|
||
|
4.25
|
-
|
8.50
|
|
|
58
|
|
|
|
6.14
|
|
|
|
6.67
|
|
|
|
58
|
|
|
|
6.67
|
|
||
|
10.75
|
-
|
30.00
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
||
|
30.50
|
-
|
39.63
|
|
|
19
|
|
|
|
4.91
|
|
|
|
35.01
|
|
|
|
19
|
|
|
|
35.01
|
|
||
|
42.75
|
-
|
87.19
|
|
|
9
|
|
|
|
2.50
|
|
|
|
61.18
|
|
|
|
9
|
|
|
|
61.18
|
|
||
|
133.06
|
-
|
448.31
|
|
|
26
|
|
|
|
3.09
|
|
|
|
198.89
|
|
|
|
26
|
|
|
|
198.89
|
|
||
|
|
|
|
765
|
|
|
|
7.23
|
|
|
$
|
9.70
|
|
|
|
495
|
|
|
$
|
14.72
|
|
||||
Note 10---Employee
Benefit Plan
The
Company provides for a defined contribution employee retirement plan in
accordance with section 401(k) of the Internal Revenue Code. Eligible
employees are entitled to contribute up to 50% of their annual compensation,
subject to certain limitations. The Plan allows for discretionary contributions
by the Company. The Company made no contributions during the three years ended
December 31, 2006.
Note 11---Geographic,
Segment and Significant Customer Information
The
Company operates in one segment, electronic business commerce solutions. The
Company's reportable segment includes the Company's facilities in North and
South America (Americas), Europe and Asia Pacific and the Middle East
(/Pacific). The Company's chief operating decision maker is considered to be
the
CEO. The CEO reviews financial information presented on a consolidated basis
accompanied by disaggregated information about revenues by geographic region
and
by product for purposes of making operating decisions and assessing financial
performance. The disaggregated revenue information reviewed by the CEO is as
follows (in thousands):
|
|
Years
Ended December 31,
|
|||||||||||
|
|
2006
|
|
2005
|
|
2004
|
|||||||
|
Software
licenses
|
$
|
15,215
|
|
|
$
|
14,720
|
|
|
$
|
26,883
|
|
|
|
Services
|
|
12,099
|
|
|
|
19,095
|
|
|
|
19,942
|
|
|
|
Maintenance
|
|
24,670
|
|
|
|
26,306
|
|
|
|
31,179
|
|
|
|
Total
revenues
|
$
|
51,984
|
|
|
$
|
60,121
|
|
|
$
|
78,004
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
The
Company sells its products and provides services worldwide through a direct
sales force and through a channel of independent distributors, value-added
resellers ("VARs") and ASPs. In addition, the sales of the Company's products
are promoted through independent professional consulting organizations known
as
systems integrators. The Company provides services worldwide through its
BroadVision Global Services Organization and indirectly through distributors,
VARs, ASPs, and systems integrators. The Company currently operates in three
primary geographical territories, Americas, Europe and Asia/Pacific.
Disaggregated
financial information regarding the Company's products and services and
geographic revenues is as follows (in thousands):
|
|
Years
Ended December 31,
|
||||||||||||
|
|
2006
|
|
2005
|
|
2004
|
||||||||
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
Americas
|
$
|
30,976
|
|
|
$
|
34,328
|
|
|
$
|
37,278
|
|
|
|
|
Europe
|
|
14,530
|
|
|
|
20,228
|
|
|
|
33,321
|
|
|
|
|
Asia/
Pacific
|
|
6,479
|
|
|
|
5,565
|
|
|
|
7,405
|
|
|
|
|
Total
Company
|
$
|
51,984
|
|
|
$
|
60,121
|
|
|
$
|
78,004
|
|
|
During
the years ended December 31, 2006, 2005 and 2004, no customer accounted for
10% or more of the Company's revenues.
The
following represents long-lived assets by geographic region (in thousands):
|
December 31,
|
|||||||||
|
|
2006
|
|
2005
|
||||||
|
Long-Lived
Assets:
|
|
|
|
|
|
|
|
||
|
|
Americas
|
$
|
26,025
|
|
|
$
|
29,039
|
|
|
|
|
Europe
|
|
104
|
|
|
|
328
|
|
|
|
|
Asia/
Pacific
|
|
81
|
|
|
|
445
|
|
|
|
|
Total
Company
|
$
|
26,210
|
|
|
$
|
29,812
|
|
|
Note 12---Related
Party Transactions
In
2006,
the Company executed a consulting agreement with a third party in which the
CEO
is a passive owner and convertible note holder. The total contract value is
$365,000. For the year ended December 31, 2006, the Company recognized $365,000
as revenue. The Company received payment for the entire contract in the third
quarter of 2006. The Company
incurred
$99,000 in costs and expenses relating to this contract.
Note 13---Quarterly
Results of Operations (Unaudited)
The
following tables set forth certain unaudited condensed consolidated statement
of
operations data for the eight quarters ended December 31, 2006, as well as
that data expressed as a percentage of total revenues for the periods indicated.
This
data
has been derived from unaudited condensed consolidated financial statements
that, in the opinion of management, include all adjustments consisting only
of
normal recurring adjustments, necessary for a fair presentation of such
information when read in conjunction with the Consolidated Financial Statements
and Notes thereto.
The
Company believes that period-to-period comparisons of its financial results
are not necessarily meaningful and should not be relied upon as an indication
of
future performance.
|
|
|
Three
Months Ended
|
||||||||||||||||||||||||||||||
|
|
|
Dec 31,
|
|
Sep 30,
|
|
Jun 30,
|
|
Mar 31,
|
|
Dec 31,
|
|
Sep 30,
|
|
Jun 30,
|
|
Mar 31,
|
||||||||||||||||
|
|
|
2006
|
|
2006
|
|
2006
|
|
2006
|
|
2005
|
|
2005
|
|
2005
|
|
2005
|
||||||||||||||||
|
|
|
(In
thousands)
|
||||||||||||||||||||||||||||||
|
|
|
(Unaudited)
|
||||||||||||||||||||||||||||||
|
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
licenses
|
|
$
|
3,956
|
|
|
$
|
4,750
|
|
|
$
|
3,627
|
|
|
$
|
2,882
|
|
|
$
|
3,780
|
|
|
$
|
3,134
|
|
|
$
|
3,391
|
|
|
$
|
4,416
|
|
|
Services
|
|
|
9,090
|
|
8,835
|
|
9,102
|
|
|
|
9,742
|
|
10,383
|
|
|
|
10,943
|
|
|
|
12,123
|
|
|
|
11,951
|
|
||||||
|
Total
revenues
|
|
13,046
|
13,585
|
12,729
|
12,624
|
|
14,163
|
|
|
|
14,077
|
|
|
|
15,514
|
|
|
|
16,367
|
|
||||||||||||
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Cost
of (credit for) software licenses
|
|
32
|
22
|
142
|
62
|
|
99
|
|
|
|
106
|
|
|
|
(186
|
)
|
|
|
(57
|
)
|
||||||||||||
|
Cost
of services
|
|
|
2,173
|
|
2,729
|
|
3,496
|
|
4,058
|
|
4,696
|
|
|
|
5,641
|
|
|
|
5,614
|
|
|
5,980
|
||||||||||
|
Total
cost of revenues
|
|
|
2,205
|
|
2,751
|
|
3,638
|
|
4,120
|
|
4,795
|
|
|
|
5,747
|
|
|
|
5,428
|
|
|
5,923
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
Gross
profit
|
|
10,841
|
10,834
|
9,091
|
8,504
|
|
9,368
|
|
|
|
8,330
|
|
|
|
10,086
|
|
|
10,444
|
||||||||||||||
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
Research
and development
|
|
2,708
|
2,766
|
2,405
|
2,631
|
|
2,494
|
|
|
|
3,095
|
|
|
|
3,955
|
|
|
4,287
|
||||||||||||||
|
Sales
and marketing
|
|
2,529
|
1,761
|
1,982
|
2,381
|
|
2,389
|
|
|
|
2,948
|
|
5,060
|
|
|
5,811
|
||||||||||||||||
|
General
and administrative
|
|
613
|
2,429
|
3,239
|
1,738
|
|
1,953
|
|
|
|
2,162
|
|
2,829
|
|
|
2,535
|
||||||||||||||||
|
Goodwill
impairment
|
|
-
|
-
|
-
|
-
|
|
18,170
|
|
|
|
13,198
|
|
-
|
|
|
-
|
||||||||||||||||
|
Restructuring
(credits), charges
|
|
(1,966
|
)
|
(1,878
|
)
|
(15
|
)
|
490
|
|
(312
|
)
|
|
|
245
|
|
309
|
|
|
(704
|
)
|
||||||||||||
|
Business
combination charges
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,840
|
|
|
|
977
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
operating expenses
|
|
|
3,884
|
|
5,078
|
|
7,611
|
|
7,240
|
|
|
26,534
|
|
|
22,625
|
|
12,153
|
|
|
11,929
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Operating
income (loss)
|
|
6,957
|
5,756
|
1,480
|
1,264
|
|
|
(17,166
|
)
|
|
|
(14,295
|
)
|
|
(2,067
|
)
|
|
|
(1,485
|
)
|
||||||||||||
|
Other
income (expense), net
|
|
248
|
(163
|
)
|
335
|
(227
|
)
|
|
|
(10,714
|
)
|
|
|
(1,757
|
)
|
|
(959
|
)
|
|
|
6,866
|
|||||||||||
|
Income
taxes (expense) benefit
|
|
|
(185
|
)
|
|
(228
|
)
|
|
(65
|
)
|
|
(156
|
)
|
|
|
109
|
|
|
540
|
|
(70
|
)
|
|
|
2,032
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Net
income (loss)
|
|
$
|
7,020
|
|
|
$
|
5,365
|
|
|
$
|
1,750
|
|
|
$
|
881
|
|
|
$
|
(27,771
|
)
|
|
$
|
(15,512
|
)
|
|
$
|
(3,096
|
)
|
|
$
|
7,413
|
|
|
Basic
net income (loss) per share
|
|
$
|
0.09
|
|
|
$
|
0.08
|
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
|
$
|
(0.81
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.22
|
|
|
Diluted
net income (loss) per share
|
|
$
|
0.09
|
|
|
$
|
0.08
|
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
|
$
|
(0.81
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.19
|
|
|
Shares
used in computing basic net income (loss) per share
|
|
|
80,878
|
|
69,489
|
|
69,151
|
|
42,958
|
|
|
|
34,430
|
|
|
|
34,320
|
|
|
|
34,181
|
|
|
|
33,971
|
|
||||||
|
Shares
used in computing diluted net income (loss) per share
|
|
|
80,878
|
|
69,489
|
|
69,151
|
|
43,068
|
|
|
|
34,430
|
|
|
|
34,320
|
|
|
|
34,181
|
|
|
|
39,968
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
BroadVision's
quarterly operating results have fluctuated in the past and may fluctuate
significantly in the future as a result of a variety of factors, many of which
are outside of the Company's control. It is likely that the Company's operating
results in one or more future quarters may be below the expectations of
securities analysts and investors. In that event, the trading price of the
Company's common stock almost certainly would decline.
ITEM
9
. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On
November 29, 2005, BDO Seidman, LLP ("BDO") delivered to us a letter dated
November 28, 2005 stating that it had resigned as our independent
registered public accounting firm. On January 20, 2006, we engaged
Stonefield Josephson, Inc. ("Stonefield Josephson") as our independent
registered public accounting firm.
On
October 13, 2006, the Audit Committee of our Board of Directors approved the
replacement of Stonefield Josephson as our independent registered public
accounting firm, and we advised Stonefield Josephson of its dismissal on October
14, 2006. The report of Stonefield Josephson on our consolidated financial
statements for the year ended December 31, 2005 did not contain any adverse
opinion or a disclaimer of opinion, nor was it qualified or modified as to
uncertainty, audit scope or accounting principles.
During
the year ended December 31, 2005 and through October 14, 2006, there were no
disagreements with Stonefield Josephson on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of Stonefield
Josephson, would have caused it to make reference thereto in its report on
the
financial statements for such periods, except as follows. During the course
of
the preparation of our financial statements for the year ended December 31,
2005, there were two disagreements between Stonefield Josephson and our
management, both of which were resolved to Stonefield Josephson's satisfaction
prior to the issuance of the financial statements. These two matters concerned
the appropriate accounting for (i) the embedded derivatives related to the
convertible debt arrangements we entered into in November 2004 and (ii) the
transactions we effected pursuant to the Debt Conversion Agreement we entered
into in December 2005. The Audit Committee of our Board of Directors
subsequently discussed these matters with Stonefield Josephson and our
management and was satisfied with the resolution of the matters.
On
October 16, 2006, we engaged the independent registered public accounting firm
Odenberg, Ullakko, Muranishi & Co. LLP ("OUM") as our new independent
accountants. Prior to the engagement of OUM, including the two most recent
fiscal years through October 16, 2006, neither we nor anyone acting on our
behalf consulted with OUM regarding (i) either the application of accounting
principles to a specified transaction, either completed or proposed, or the
type
of audit opinion that might be rendered on our financial statements, and neither
a written report was provided to us or oral advice was provided that OUM
concluded was an important factor considered by us in reaching a decision as
to
the accounting, auditing or financial reporting issue or (ii) any matter that
was either the subject of a disagreement, as that term is defined in Item
304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of
Regulation S-K, or a reportable event, as that term is defined in Item
304(a)(1)(v) of Regulation S-K. The Audit Committee of our Board of Directors
approved the engagement of OUM as our independent registered public accounting
firm on October 13, 2006.
ITEM
9
A. CONTROLS AND PROCEDURES
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms and that such information is accumulated and communicated
to our management, including the individual who serves as our Chief Executive
Officer and interim Chief Financial Officer, as appropriate, to allow for
timely
decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognizes that any controls
and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
is required to apply its judgment in evaluating the cost-benefit relationship
of
possible controls and procedures. Our disclosure controls and procedures
were
designed to provide reasonable assurance that the controls and procedures
would
meet their objectives.
As
required by Rules 15(e) and 15d-15(e) under the Exchange Act, we carried
out an
evaluation, under the supervision and with the participation of our management,
including the individual who serves as both our Chief Executive Officer and
our
interim Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures as of the end of the
period
covered by this report. Based on the foregoing, our Chief Executive Officer
and
interim Chief Financial Officer concluded that our disclosure controls and
procedures were not effective at the reasonable assurance level. This conclusion
was based on the identification of one material weakness in internal control
over financial reporting as of December 31, 2006.
We
previously reported that as of December 31, 2005, we did not have a sufficient
number of experienced personnel in our accounting and finance organization
to
facilitate an efficient financial statement close process and permit the
preparation of our financial statements in accordance with Generally Accepted
Accounting Principles (GAAP). For example, there were a significant number
of
adjustments to our financial statements during the course of the 2005 audit,
at
least one of which was individually material and required us to restate several
prior quarters. Our personnel also lacked certain required skills and
competencies to oversee the accounting operations and perform certain important
control functions, such as the review, periodic inspection and investigation
of
transactions of our foreign locations. We consider this to be a deficiency
that
was also a material weakness in the operation of entity-level controls.
In
2006
we hired several new full-time employees, and we believe that as of December
31,
2006 we have retained a sufficient number of experienced personnel in our
accounting and finance organization to enable us to address the material
weakness that existed as of December 31, 2005. These new hires have augmented
the capabilities of our organization, but in many cases they replaced employees
or part-time contactors who had left the Company for various reasons. This
turnover has caused a reduction in our institutional knowledge regarding
historical events. While we believe that the recent additions to our accounting
and finance organization continue to gain familiarity with the complex issues
relating mainly to our historical operations, as of December 31, 2006 the
full
organization had not yet been in place for a sufficient amount of time to
allow
us to conclude that no material weakness existed as of December 31, 2006.
If we
are not successful in retaining experienced personnel in our accounting and
finance organization in order to sufficiently address the reduction in
institutional knowledge referenced above, there is more than a remote likelihood
that our quarterly or annual financial statements could be materially misstated,
which could require a restatement.
Maintaining
sufficient expertise and historical institutional knowledge in our accounting
and finance organization is dependent upon retaining existing employees and
filling any open positions with experienced personnel in a timely fashion.
The
market for skilled accounting and finance personnel is competitive and we
may
have continued difficulty in retaining our staff because (1) in the region
in which we compete there are many established companies that can offer more
lucrative compensation packages and (2) some professionals are reluctant to
deal with our complex accounting issues relating to our historical operations.
One Senior Accountant who joined the Company in the third quarter of 2006
left
in January 2007. Our inability to staff the department with competent personnel
with sufficient training will affect our internal controls over financial
reporting to the extent that we may not be able to prevent or detect material
misstatements.
Limitations
on the Effectiveness of Controls
Our
management, including our Chief Executive Officer and interim Chief Financial
Officer, does not expect that our disclosure controls and procedures or our
internal controls will prevent all error and fraud. A control system, no
matter
how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the
design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs.
Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and
that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion
of two
or more people, or by management override of the controls. The design of
any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design
will
succeed in achieving its stated goals under all potential future conditions;
over time, controls may become inadequate because of changes in conditions,
or
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected. Our
disclosure controls and procedures are designed to provide reasonable assurance
of achieving their objectives, and we are in the process of remediating the
material weakness that existed at December 31, 2006.
ITEM 9 B. OTHER INFORMATION
Not
applicable.
ITEM
1
0. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERANCE
Directors
The
names
of the current members of our board of directors and a brief biography for
each
of them are set forth below. Each director serves on our board for a one-year
term.
|
Name
|
|
Age
|
|
Principal
Occupation/Position Held with the Company
|
|||
|
Pehong
Chen
|
|
|
49
|
|
|
Chairman
, Chief Executive Officer and Chief Financial Officer
|
|
|
James
D. Dixon
|
|
|
63
|
|
|
Formerly
an executive with bankofamerica.com
|
|
|
Robert
Lee
|
|
|
58
|
|
|
Formerly
an executive with Pacific Bell
|
|
|
Francois
Stieger
|
|
|
57
|
|
|
Chief
Executive Officer, Intentional Software International
Sarl.
|
|
Pehong
Chen
has
served as Chairman of the Board, Chief Executive Officer and President of the
Company since its incorporation in May 1993. From 1992 to 1993, Dr. Chen served
as the Vice President of Multimedia Technology at Sybase, Inc., a supplier
of
client-server software products. Dr. Chen founded and, from 1989 to 1992, served
as President of, Gain Technology, Inc., a provider of multimedia applications
development systems, which was acquired by Sybase, Inc. Dr. Chen currently
serves on the board of directors of SINA.com. He received a B.S. in Computer
Science from National Taiwan University, an M.S. in Computer Science from
Indiana University and a Ph.D. in Computer Science from the University of
California at Berkeley.
James
D. Dixon
has
served as a director of the Company since January 2003. Prior to his retirement
from Bank of America in January 2002, Mr. Dixon served as an executive with
bankofamerica.com. From September 1998 to February 2000, Mr. Dixon was Group
Executive and Chief Information Officer of Bank of America Technology &
operations. From 1990 to 1998, before the merger of NationsBank Corporation
and
BankAmerica Corporation, Mr. Dixon was President of NationsBank Services, Inc.
From 1986 to 1990, he also served as Chief Financial Officer for Citizens and
Southern Bank/Sovran, a predecessor company to NationsBank. Mr. Dixon holds
a
B.A. from Florida State University, a J.D. from University of Florida School
of
Law, and he is a graduate of the executive M.B.A. program at Stanford
University. Mr. Dixon also serves on the board of directors of CheckFree
Corporation, a provider of financial electronic commerce services and products,
and Rare Hospitality International, Inc., a restaurant operator and
franchisor.
Robert
Lee
has
served as a director of the Company since August 2004. Mr. Lee was a corporate
Executive Vice President and President of Business Communications Services
at
Pacific Bell, where he established two new subsidiaries: Pacific Bell Internet
Services and Pacific Bell Network Integration. During his 26 year career at
Pacific Bell, Mr. Lee managed groups in operations, sales and marketing. Mr.
Lee
served as Executive Vice President of Marketing and Sales from 1987 to 1992.
Mr.
Lee serves on the board of directors of web.com (formerly Interland), which
provides web hosting for the small and medium business market, Blue Shield
of
California, which provides health insurance to members in California, and
Corinthian Colleges, which operates as a post-secondary education company in
North America. Mr. Lee holds a B.S. in Electrical Engineering from University
of
Southern California and an M.B.A. from University of California at
Berkeley.
Francois
Stieger
has
served as a director of the Company since August 2006. Mr. Stieger leads
Intentional Software's international group as CEO of Intentional Software
International Sarl. He is also the President and board member
of Security Tech SA. Immediately prior to joining Intentional Software
International, Mr. Stieger was senior vice president and general manager for
Europe, Middle East and Africa for Verisign, the leading provider of critical
infrastructure security services for the Internet and telecommunication markets.
He held this post since April 2003, and was responsible for Verisign's business
throughout that region. Prior to joining Verisign, Mr. Stieger was a partner
of
Amadeus Capital, a leading European venture capital firm based in London. In
1996, Mr. Stieger established BroadVision's European operations. Under his
management through mid 2001, these operations grew to more than 400 employees
and US$104 million annual revenues. He was also personally involved in
BroadVision's very successful initial public offering on NASDAQ in June 1996,
and its public offering on the Neuer Markt in Frankfurt in November 1999. On
a
larger scale from 1987-1992, as vice president Mr. Stieger established and
managed operations of Oracle Corporation for southern and central Europe. Mr.
Stieger is a graduate of the University of Strasbourg's Institute of
Technology.
Audit
Committee Financial Expert
Our
Audit
Committee is presently composed of three non-employee directors: Messrs. Dixon
(Chairman), Lee and Stieger. Our Board has determined that all members of the
Audit Committee are independent (as independence is currently defined in Rule
4350(d)(2)(A) of the NASDAQ listing standards). Our Board of Directors has
determined that Mr. Dixon qualifies as an "audit committee financial expert,"
as
defined in applicable SEC rules. Our Board made a qualitative assessment of
Mr.
Dixon's level of knowledge and experience based on a number of factors,
including his formal education and experience as a chief financial officer
for
Citizens and Southern Bank/Sovran, a predecessor company to
NationsBank.
Code
of Business Ethics and Conduct
We
have
adopted a Code of Business Ethics and Conduct (the "Code of Conduct") that
applies to all of its directors, officers and employees. The text of the Code
of
Conduct is posted on our website at www.broadvision.com. If we make any
substantive amendment to the Code of Conduct or grant any waiver from a
provision of the Code of Conduct to any executive officer or director, we will
promptly disclose the nature of the amendment or waiver on our
website.
Executive
Officers
The
information set forth in Item 1 of this Form 10-K under the Caption "Executive
Officers" is incorporated herein by reference.
Section
16(A) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires our directors and executive officers, and
persons who own more than ten percent of a registered class of our equity
securities, to file with the SEC initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities. Directors,
officers and greater than ten percent stockholders are required by SEC
regulations to furnish us with copies of all Section 16(a) forms they
file.
To
our
knowledge, based solely on a review of the copies of such reports furnished
to
us and written representations that no other reports were required, during
the
fiscal year ended December 31, 2006 and, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with, other than the late filing of one Form 4 for each
of
Messrs. Dixon, Lee and Nevens and a Form 3 and a Form 4 for Mr. Stieger.
ITEM
1
1. EXECUTIVE COMPENSATION
Compensation
Discussion And Analysis
Philosophy
Our
compensation policies are designed to attract and retain key employees,
motivating them to achieve and rewarding them for superior performance. In
allocating total compensation between cash compensation and equity compensation,
the committee focuses on creating incentives geared to both short and
longer-term performance with the goal of increasing stockholder value over
the
long term. Executive compensation programs impact all employees by setting
general levels of compensation and helping to create an environment of goals,
rewards and expectations. Because we believe the performance of every employee
is important to our success, we are mindful of the effect of executive
compensation and incentive programs on all of our employees.
We
believe that the compensation of our officers should reflect their success
as
individual and as a management team, in attaining key operating objectives,
such
as growth of revenues, growth of operating earnings and earnings per share
and
growth or maintenance of market share and long-term competitive advantage,
and
ultimately, in attaining an increased market price for our stock. We believe
that the performance of the officers in managing our company, considered in
light of general economic and specific company, industry and competitive
conditions, should be the basis for determining their overall compensation.
We
also believe that their compensation should not be based on the short-term
performance of our stock, whether favorable or unfavorable, but rather that
the
price of our stock will, in the long-term, reflect our operating performance,
and ultimately, the management of the company by our executives. We seek to
have
the long-term performance of our stock reflected in executive compensation
through our stock option and other equity incentive programs. In setting our
officers' compensation, we intend to be competitive with other similarly
situated companies in our industry.
Overview
of Compensation and Process
Elements
of compensation for our executives include: salary, incentive bonus, stock
option awards, health, disability and life insurance, and perquisites. Base
salaries are set for our officers annually by our compensation committee. At
the
same time, our compensation committee also approves and adopts an incentive
bonus plan for the new year and typically grants stock option awards to our
officers and certain other eligible employees.
As
part
of its annual review of officer compensation, our compensation committee takes
into account each officer's total compensation package from prior years, as
well
as information contained in market surveys. Typically, the chief executive
officer makes compensation recommendations to the compensation committee with
respect to the executive officers who report to him. Such executive officers
are
not present at the time of these deliberations. The chairman of the compensation
committee then makes compensation recommendations to the compensation committee
with respect to the chief executive officer, who is absent from that meeting.
The compensation committee may accept or adjust such recommendations and also
makes the sole determination of the chief executive officer's compensation.
We
choose
to pay each element of compensation in order to attract and retain the necessary
executive talent, reward annual performance and provide incentive for their
balanced focus on long-term strategic goals as well as short-term performance.
The amount of each element of compensation is determined by or under the
direction of our compensation committee. The following are factors that the
compensation committee may take into account in determining the various
components of our officers' total compensation package:
| l |
Performance
against corporate and individual objectives for the previous
year;
|
| l |
Difficulty
of achieving desired results in the coming
year;
|
| l |
Value
of their unique skills and capabilities to support the long-term
performance of the company;
|
| l |
Performance
of their management
responsibilities;
|
| l |
Responsibility
and authority of each position relative to other positions within
the
company; and
|
| l |
Contributions
as a member of the senior management
team.
|
These
elements fit into our overall compensation objectives by helping to secure
the
future potential of our operations, facilitating our entry into new markets,
providing proper compliance and regulatory guidance, and helping to create
a
cohesive team.
Our
policy for allocating between long-term and currently paid compensation is
to
ensure adequate base compensation to attract and retain the right personnel,
while providing incentives to maximize long-term value for our company and
our
stockholders. Likewise, we provide cash compensation in the form of base salary
to meet competitive salary norms and reward good performance on an annual basis
and in the form of profit-sharing compensation to reward superior performance
against specific short-term goals. We provide non-cash compensation to reward
superior performance against specific objectives and long-term strategic goals.
As our Company continues to focus on executing its turnaround plan in 2007
and
introduces new products and services to the marketplace, we want our executives
that are leading these initiatives to have strong incentives to see that these
initiatives succeed. At the same time, we want our executives to be
appropriately rewarded if these initiatives do succeed. As a result, we believe
that equity compensation will be a significant component of total compensation
for our key employees.
Compensation
Consultant
In
2006
we utilized the services of a compensation consulting company during the year.
We had a contract with the Radford Group of AON Consulting Inc. for the first
six months of 2006. The Radford Group provided us with their Radford Benchmark
Survey, the Radford Executive Survey, the Radford Sales Survey and the Radford
International Survey. All these surveys were used to ascertain the
reasonableness of amounts and types of compensation paid to our employees and
executives. The Radford Group was paid $14,700 for their services.
|
SUMMARY
COMPENSATION TABLE
|
|
|||||||||||||||||||||||||||
|
Name
and Principal Positi on
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards($)
|
|
Option
Awards ($)(2)
|
|
Non-Equity
Incentive Plan Compensation ($) (3)
|
|
Change
in Pension Value and Nonqualified Deferred Compensation Earnings
($)
|
|
All
Other Compensation ($) (4)
|
|
Total
($)
|
|
|||||||||
|
Pehong
Chen, CEO and CFO
|
2006
|
$
|
350,000
|
$ |
-
|
$
|
-
|
$
|
-
|
$
|
37,092
|
$
|
10,904
|
$
|
16,852
|
$
|
414,848
|
|||||||||||
|
William
E. Meyer, CFO (1)
|
2006
|
$
|
108,441
|
$ |
22,500
|
$
|
-
|
$
|
38,496
|
$
|
-
|
$
|
4,773
|
$
|
2,823
|
$
|
177,033
|
|||||||||||
(1)
Mr.
Meyer was our Chief Financial Officer until his resignation on June 6, 2006.
Upon Mr. Meyer's resignation, Dr. Chen as
sumed
the
duties of the Chief Financial Officer effective June 2, 2006. Total in Salary
column includes $15,826 that we paid to Mr. Meyer for accrued vacation time
upon
his termination.
(2)
Stock
option values calculated using the Black-Scholes model under the rules of SFAS
123R, as discussed in the Stock Compensation section of this
report.
(3)
Consists of payment under our Employee Profit Sharing Plan (EPSP). See table
below for details.
(4)
Consists of company contribution for health insurance coverage. See table
below for details.
|
Employee
Profit Sharing Plan (EPSP) - NON-EQUITY INCENTIVE
PLAN
|
|||||||||||
|
Year
|
Paid
in 2006
|
Deferred
|
TOTAL
|
||||||||
|
Pehong
Chen, CEO and CFO
|
2006
|
$
|
37,092
|
$
|
26,976
|
$
|
64,068
|
||||
|
William
E. Meyer, CFO
|
Not
with the company at time of payouts
|
||||||||||
|
|
|||||||||||
|
Total
|
$
|
37,092
|
$
|
26,976
|
$
|
64,068
|
|
||||
|
Company
Contributions for Health Coverage - ALL OTHER COMPENSATION
|
||||||||||||||||||||||||||
|
Year
|
Health
|
Dental
|
Vison
|
STD
|
LTD
|
Life
Ins
|
EE
Assist
|
TOTAL
|
||||||||||||||||||
|
Pehong
Chen, CEO and CFO
|
2006
|
$
|
13,352
|
$
|
1,831
|
$
|
302
|
$
|
359
|
$
|
450
|
$
|
540
|
$
|
19
|
$
|
16,852
|
|||||||||
|
William
E. Meyer, CFO
|
2006
|
$
|
1,863
|
$
|
248
|
$
|
57
|
$
|
180
|
$
|
225
|
|
$
|
242
|
$
|
9
|
$
|
2,823
|
||||||||
Base
Salary
It
is the
goal of our compensation committee to establish salary compensation for our
executive officers based on our company's operating performance relative to
comparable software and computer peer companies over a three to five year
period. In setting base salaries for fiscal 2006, we reviewed the Radford
studies and recommendations with respect to the salary compensation of officers
with comparable qualifications, experience and responsibilities at companies
in
their recommended peer group. It is not our policy to pay our CEO at the highest
level relative to his peers but rather to set his compensation on a basis
relative to the other members of our senior management team and CEO's of other
similar technology companies. We believe that this gives us the opportunity
to
attract and retain talented managerial employees both at the senior executive
level and below. Our committee does not presently intend to increase the
salaries of any of our officers in 2007.
Employee
Profit Sharing Plan
Our
2006
Employee Profit Sharing Plan (EPSP) is designed to reward both executives and
employees alike for the achievement of shorter-term financial goals, principally
achievement of certain levels of Earnings Before Interest Taxes Depreciation
and
Amortization, also known as EBITDA. It is our general philosophy that employees
be rewarded for their performance as a team in the attainment of these goals.
We
believe that this is important to aligning our executive and employees toward
promoting and rewarding teamwork among them. Although each executive officer
is
eligible to receive an award under the EPSP, the granting of the awards to
any
individual or the officers as a group is entirely at the discretion of our
compensation committee. The compensation committee may choose to award the
bonus
or not, and decide on the actual level of the award in light of all relevant
factors after completion of the year.
At
the
beginning of 2006, our compensation committee adopted the 2006 EPSP. Under
the
terms of the 2006 EPSP:
| l |
Payouts
are made quarterly, on the first regularly scheduled pay date after
the
announcement of quarterly earnings, or on such other date as deemed
appropriate by management;
|
| l |
Eligible
persons are active, full-time, or more than 50% part-time employees
who
maintain a satisfactory standing during the entirety of each quarter
and
who remain an employee at the time of each quarterly
payout;
|
| l |
Commission-based
employees (those with a sales commission plan) have a portion of
their
variable compensation tied to company performance, funded under this
EPSP
award pool, with payouts ahead of non-commissioned
employees;
|
| l |
Payouts
to non-commissioned employees are targeted at a certain percentage
of each
individual's base salary, set and/or adjusted with management
discretion;
|
| l |
All
amounts earned but not paid under the plan (reductions from any "merit
factor", resignations with positive profit-sharing accruals, etc.)
are
eliminated, going back into company
earnings;
|
| l |
The
award pool is allocated as follows:
|
EBITDA
< 10%
=
No
payouts are made (0%)
EBITDA
of
11-20%
=
Payouts
are 11-20% (percent for percent)
EBITDA
> 20%
=
20%
maximum
Profit-Sharing
Awards
In
its
discretion our compensation committee decided to award bonuses for fiscal 2006
based upon our achievement of EBITDA performance goals and management
discretion, because the actual 2006 results considerably exceeded expectations.
Stock
Option and Equity Incentive Programs
We
intend
for our stock option award program to be the primary vehicle for offering
long-term incentives and rewarding our officers and other key employees. We
regard this as a key retention tool. Because of the relationship between the
value of an option and the market price of our common stock, we have always
believed that granting stock options is the best method of motivating our
executive officers to manage our company in a manner that is consistent with
the
interests of our stockholders
.
Stock
Options Granted
We
grant
stock options under our 2006 Equity Incentive Plan to our officers and other
key
employees based upon prior performance, the importance of retaining their
services and the potential for their performance to help us attain our long-term
goals. However, there is no set formula for the granting of awards to individual
executives or employees. In 2006 we granted stock options to purchase 3,880,000
shares of stock representing approximately 11.3% of the outstanding shares
of
our common stock on December 31, 2005 on a fully diluted basis. Of this amount,
options to acquire an aggregate of 120,000 shares were issued to our named
executive officers. During year 2006, a total of 64 employees and 7 officers
received stock option awards.
Timing
of Grants
Stock
option awards to our executive officers and other key employees are typically
granted annually in conjunction with the review of the individual performance
of
our executive officers.
The
exercise price of all stock options is set at the last reported sale price
of
our common stock on the grant date.
Perquisites
We
limit
the perquisites that we make available to our executive officers, particularly
in light of recent developments with respect to corporate crime and abuse
involving perquisites. Our executives are entitled to few benefits that are
not
otherwise available to all of our employees. In this regard it should be noted
that we do not provide pension arrangements, post-retirement health coverage
other than COBRA, or similar benefits for our executives or employees.
The
perquisites we provided in fiscal 2006 are as follows: All employees are
eligible to participate in the 401(k) retirement plan if they so choose. The
Company does not match any funds contributed by employees. Our health and
insurance plans are the same for all employees. In general, and depending upon
the employee's choice, our employees pay 20% of the health premium due. The
Company does not provide other perquisites such as country club memberships,
jet
aircraft, limousine service, estate or financial planning services etc.
(1)
-
Future firm payouts under the 2006 Employee Profit Sharing Plan
(EPSP)
The
compensation committee granted stock options to the officers on the same date
on
which they granted stock awards to our other employees. In keeping with our
standard policy and practice, the exercise price of the stock options that
were
awarded was $0.57
per
share, the last sale price of our common stock on the date of grant, as quoted
on the Pink Sheets. The terms of the options provide for vesting in three equal
annual installments commencing one year from the date of grant and prorated
thereafter until fully vested. The options have a life of 10 years.
|
OUTSTANDING
EQUITY AWARDS AT YEAR-END
|
||||||||||||||||||||||||||||
|
Option
Awards
|
Stock
Awards
|
|||||||||||||||||||||||||||
|
Name
and Principal Position
|
Number
of Securities Underlying Unexercised Options (#) Exercisable
|
Number
of Securities Underlying Unexercised Options (#) Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#) (1)
|
Option
Exercise Price ($)
|
Option
Expiration Date
|
Number
of Shares or Units of Stock That Have Not Vested (#)
|
Market
Value of Shares or Units of Stock That Have Not Vested ($)
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other
Rights
That Have Not Vested (#)
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares,
Units or
Other Rights That Have Not Vested ($)
|
|||||||||||||||||||
|
Pehong
Chen
|
493,108
|
-
|
-
|
$
|
60.00
|
6/23/2009
|
|
-
|
$
|
-
|
|
-
|
$
|
-
|
||||||||||||||
|
6,892
|
-
|
-
|
$
|
60.00
|
6/23/2009
|
|
-
|
$
|
-
|
|
-
|
$
|
-
|
|||||||||||||||
|
500,000
|
-
|
-
|
$
|
66.51
|
5/25/2011
|
|
-
|
$
|
-
|
|
-
|
$
|
-
|
|||||||||||||||
|
4,444
|
-
|
-
|
$
|
35.01
|
11/27/2011
|
|
-
|
$
|
-
|
|
-
|
$
|
-
|
|||||||||||||||
|
55,555
|
-
|
-
|
$
|
18.63
|
2/19/2012
|
|
-
|
$
|
-
|
|
-
|
$
|
-
|
|||||||||||||||
|
644,445
|
-
|
-
|
$
|
2.16
|
10/30/2012
|
|
-
|
$
|
-
|
|
-
|
$
|
-
|
|||||||||||||||
|
William
E. Meyer
|
-
|
-
|
-
|
$
|
-
|
NA
|
|
-
|
$
|
-
|
|
-
|
$
|
-
|
||||||||||||||
(1)
- The
Company does not issue stock options in any direct formulaic performance
based
plan.
|
OPTION
EXERCISES AND STOCK VESTED
|
|||||||||||
|
Option
Awards
|
Stock
Awards
|
||||||||||
|
Name
and Principal Position
|
Number
of Shares Acquired on Exercise (#)
|
Value
Realized on Exercise ($)
|
Number
of Shares Acquired on Vesting (#)
|
Value
Realized on Vesting ($)
|
|||||||
|
Pehong
Chen
|
-
|
|
$
|
-
|
|
-
|
|
$
|
-
|
||
|
William
E. Meyer
|
10,000
|
$
|
1,030
|
|
-
|
|
$
|
-
|
|||
Post-Employment
Compensation
Pension
Benefits
We
do not
provide pension arrangements or post-retirement health coverage for our
executives or employees. All employees, including our executives, are eligible
to participate in our 401(k) contributory defined contribution plan. We do
not
make any contribution to or make any matching contribution to the 401(k).
|
PENSION
BENEFITS
|
|||||||||||
|
Name
and Principal Position
|
Plan
Name
|
Number
of Years Credited Service (#)
|
|
Present
Value of Accumulated Benefits ($)
|
|
Payment
During Last Year ($)
|
|||||
|
Pehong
Chen
|
N/A
|
-
|
$
|
-
|
$
|
-
|
|||||
|
William
E. Meyer
|
N/A
|
-
|
$
|
-
|
$
|
-
|
|||||
Nonqualified
Deferred Compensation
We
provide a 401(k) nonqualified defined contribution plan for all employees.
We do
not match any employee contributions. Amounts shown below are totally from
the
named executives.
|
NONQUALIFIED
DEFERRED COMPENSATION
|
||||||||||||||||
|
Name
and Principal Position
|
Executive
Contributions in Last Year ($)
|
Registrant
Contributions in Last Year ($)
|
Aggregate
Earnings in Last Year ($)
|
Aggregate
Withdrawls / Distributions ($)
|
Aggregate
Balance at Last Year-End ($)
|
|||||||||||
|
Pehong
Chen
|
$
|
-
|
$
|
-
|
$
|
10,904
|
$
|
-
|
$
|
88,791
|
||||||
|
William
E. Meyer
|
$
|
9,407
|
$
|
-
|
$
|
4,773
|
$
|
-
|
$
|
56,155
|
||||||
NOTE:
This is our 401(k) Plan administered by Fidelity Investments and brokered by
the
NWK Group
Other
Post-Employment Payments
All
of
our employees, including our officers, are employees-at-will and as such do
not
have employment contracts with us, except in the case of one officer of our
EMEA
foreign subsidiaries. We also do not provide post-employment health coverage
or
other benefits, except in connection with the severance plan which is described
below under "Retention Agreements".
Retention
Agreements
We
do not
have individual retention agreements with any employee. However we do have
a
Change of Control Severance Benefit Plan for Involuntary Severance from the
Company. This plan was approved by shareholders in July, 2006 and previously
disclosed on Form Schedule 14A. The Severance Benefit Plan generally provides
that the named executive officers will receive severance benefits if their
employment is involuntarily terminated within one month before or 24 months
following a change of control of the Company. There are four "Levels" with
all
participants in a certain Level being eligible for severance benefits. Our
CEO,
Pehong Chen, is the only member in Level 1, while two of the named officers
are
in Level 2, and one is in Level 3. Generally the Levels provide for cash
payments of 50-100% of Base Pay, plus continuation of benefits for 6-12 months,
outplacement services for 6-12 months, and acceleration of unvested stock
options depending upon the length of service with the company ranging from
12.5%
to 100% vesting. None of these benefits apply if the named officer retires
or
voluntarily resigns.
POTENTIAL
PAYMENTS UNDER RETENTION AGREEMENTS
The
table
below describes the amounts of current and future compensation benefits that
the
named executive officers would receive under various change of control or
termination scenarios. Under our 2006 benefit plan the benefits are the same
for
a voluntary termination, early retirement, or normal retirement on December
31,
2006. Our Change of Control Plan, in the context of an Involuntary For Good
Reason Termination, only provides for benefits intended to compensate management
for lost wages and longer term health and displacement benefits. There are
certain graduated levels of benefits for the executives depending upon their
responsibility levels and seniority with the company. Under the Involuntary
Not
For Cause Termination scenario the benefits are reduced, while a For Cause
Termination would result in little or no benefits beyond those earned up
to the
termination date, assumed for purposes of this table to be midnight December
31,
2006. This means the For Cause terminated employee would be entitled to only
shares and stock options vested, profit sharing and accrued vacation earned
through December 31, 2006 and no further compensation. In the case of disability
on December 31, 2006, the employee would be entitled to the additional benefits
of long-term disability insurance payouts for up to one year. In the case
of
death on December 31, 2006, the benefit additional to the employee would
include
the present value of all life insurance proceeds until normal retirement
age of
65.
|
TERMINATION
OR CHANGE OF CONTROL
|
||||||||||||||||||||||||||||||||||
|
Executive
Benefits and Payments Upon Separation
|
Voluntary
Termination on 12/31/06 ($)
|
Early
Retirement on 12/31/06 ($)
|
Normal
Retirement on 12/31/06 ($)
|
Involuntary
Not For Cause Termination on 12/31/06 ($)
|
For
Cause Termination on 12/31/06 ($)
|
Involuntary
For Good Reason Termination (Change in Control) on 12/31/06 ($)
|
Disability
on 12/31/06 ($)
|
Death
on 12/31/06 ($)
|
||||||||||||||||||||||||||
|
Pehong
Chen
|
||||||||||||||||||||||||||||||||||
|
Compensation:
|
||||||||||||||||||||||||||||||||||
|
Short-Term
Incentive Compensation
|
$
|
37,092
|
$
|
37,092
|
$
|
37,092
|
$
|
37,092
|
$
|
37,092
|
$
|
37,092
|
$
|
37,092
|
$
|
37,092
|
||||||||||||||||||
|
Stock
Options
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||||||||||
|
Benefits
& Perquisites:
|
||||||||||||||||||||||||||||||||||
|
Deferred
Compensation Program
|
$
|
88,791
|
$
|
88,791
|
$
|
88,791
|
$
|
88,791
|
$
|
88,791
|
$
|
88,791
|
$
|
88,791
|
$
|
88,791
|
||||||||||||||||||
|
Health
& Welfare Benefits
|
$
|
1,404
|
$
|
1,404
|
$
|
1,404
|
$
|
1,404
|
$
|
1,404
|
$
|
1,404
|
$
|
1,404
|
$
|
1,404
|
||||||||||||||||||
|
Disablilty
Income
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
1,198,244
|
$
|
-
|
||||||||||||||||||
|
Life
Insurance Benefits
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
500,000
|
||||||||||||||||||
|
Cash
Severance
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
343,419
|
$
|
-
|
$
|
415,943
|
$
|
-
|
$
|
-
|
||||||||||||||||||
|
Accrued
Vacation Pay
|
$
|
2,692
|
$
|
2,692
|
$
|
2,692
|
$
|
2,692
|
$
|
2,692
|
$
|
2,692
|
$
|
2,692
|
$
|
2,692
|
||||||||||||||||||
|
William
E. Meyer
|
||||||||||||||||||||||||||||||||||
|
Compensation:
|
||||||||||||||||||||||||||||||||||
|
Short-Term
Incentive Compensation
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||||||||||
|
Stock
Options
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||||||||||
|
Benefits
& Perquisites:
|
||||||||||||||||||||||||||||||||||
|
Deferred
Compensation Program
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||||||||||
|
Health
& Welfare Benefits
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||||||||||
|
Disablilty
Income
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||||||||||
|
Life
Insurance Benefits
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||||||||||
|
Cash
Severance
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||||||||||
|
Accrued
Vacation Pay
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||||||||||
Disability
Income:
|
Assumes
Present Value of all Future Benefits Until Normal Retirement
Age
|
||||||||||
|
Years
to Age
|
Discount
Rate
|
Present
Value
|
||||||||
|
Name
|
Age
on 12/31/06
|
65
|
6.5%
|
of
the Annuity
|
||||||
|
Pehong
Chen
|
49
|
16
|
6.5%
|
$
|
1,198,244
|
|||||
|
William
E. Meyer
|
$
|
-
|
||||||||
|
DIRECTOR
COMPENSATION
|
|||||||||||||||||||||||
|
Name
and Principal Position
|
Fees
Earned or Paid in Cash ($)
|
Stock
Awards ($)
|
Option
Awards ($)
|
Non-Equity
Incentive Plan Compensation ($)
|
Change
in Pension Value and Nonqualified Deferred Compensation Earnings
($)
|
All
Other Compensation ($)
|
Total
($)
|
||||||||||||||||
|
Pehong
Chen, CEO and CFO
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||||
|
Robert
Lee, Director and Chairman of Compensation Committee
|
$
|
-
|
$
|
13,680
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
13,680
|
|||||||||
|
James
Dixon, Director and Chairman of Audit Committee
|
$
|
-
|
$
|
13,680
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
13,680
|
|||||||||
|
David
Anderson, Director (1)
|
$
|
-
|
$
|
13,680
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
13,680
|
|||||||||
|
Roderick
McGeary, Director (1)
|
$
|
-
|
$
|
13,680
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
13,680
|
|||||||||
|
Michael
Thomas Nevens, Director (1)
|
$
|
-
|
$
|
27,360
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
27,360
|
|||||||||
|
Francois
Stieger, Director (2)
|
$
|
-
|
$
|
-
|
$
|
12,200
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
12,200
|
|||||||||
Note:
(1)
David Anderson, Roderick McGeary, Michael Tomas Nevens ceased serving on our
Board of Directors as of August 8, 2006.
(2) Francois Stieger joined our Board of Directors as of August 8, 2006
Overview
of Director Compensation and Procedures
We
review
the level of compensation of our non-employee directors on an annual basis.
To
determine how appropriate the current level of compensation for our non-employee
directors is, we have historically obtained data from a number of different
sources including the Radnor Surveys. Other data sources used in our analysis
included:
| l |
Publicly
available data describing director compensation in peer
companies;
|
| l |
Survey
data collected by our human resources department;
and
|
| l |
Information
obtained directly from other
companies.
|
We
compensate non-employee members of the board through stock options. We do not
pay our non-employee directors any cash remuneration other than reimbursement
of
travel expenses and deminimus items.
One
new
director joined our board in 2006 and was awarded an option exercisable for
20,000 shares, which vests quarterly in four equal installments. At December
31,
2006, 10,000 shares had vested. The exercise price of the option is equal to
the
fair market value of our common stock on the date of grant.
Our
CEO,
Dr. Chen, is the only employee director, and he does not receive cash or equity
compensation for service on the board in addition to compensation payable for
his service as an employee of the Company.
Compensation
Committee Interlocks and Insider Participation
No
member
of the Compensation Committee has served as one of our officers or employees
at
any time. None of our executive officers serve as a member of the compensation
committee of any other company that has an executive officer serving as a member
of our board. None of our executive officers serve as a member of the board
of
directors of any other company that has an executive officer serving as a member
of our Compensation Committee.
Compensation
Committee Report
The
Compensation Committee has reviewed the Compensation Discussion and Analysis
and
discussed that Analysis with management. Based on its review and discussions
with management, the committee recommended to our Board of Directors that the
Compensation Discussion and Analysis be included in the company's Annual Report
on Form 10-K for 2006. This report is provided by the following independent
directors, who comprise the committee:
James
Dixon, Compensation Committee Chair
Robert
Lee, Compensation Committee Member
ITEM
1
2. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
following table provides certain information with respect to all of our equity
compensation plans in effect as of December 31, 2006.
Equity
Compensation Plan Information
|
|
|
Number
of Securities
|
|||||||||||
|
|
|
Remaining
Available
|
|||||||||||
|
|
|
Number
of Securities
|
|
for
Issuance Under
|
|||||||||
|
|
|
to
be Issued Upon
|
Weighted-Average
|
|
Equity
Compensation
|
||||||||
|
|
|
Exercise
of
|
Exercise
Price of
|
|
Plans
(Excluding Securities
|
||||||||
|
|
|
Outstanding
Options
|
Outstanding
Options
|
|
Reflected
in Column (a))
|
||||||||
|
Plan
Category
|
|
(a)
|
(b)
|
|
(c)
|
||||||||
|
Equity
compensation plans approved by security holders(1)
|
|
6,944,144
|
$ |
12.66
|
|
3,327,093
|
|||||||
|
Equity
compensation plans not approved by security holders(2)
|
|
764,560
|
9.7
|
|
1,497,239
|
||||||||
|
|
|
|
|||||||||||
|
Total
|
|
7,708,704
|
$ |
12.36
|
|
4,824,332
|
|||||||
|
(1)
|
Includes
the following: Incentive Plan, Employee Stock Purchase Plan, 1993
Interleaf Stock Option Plan, 1994 Interleaf Employee Stock Option
Plan and
2006 Equity Incentive Plan.
|
|
(2)
|
Includes
the following: the 2000 Non-Officer Equity Incentive Plan (the "2000
Non-Officer Plan") and non-plan grants. For more information - see
Notes 1
and 9 of consolidated financial
statements.
|
Controlling
Stockholder
From
March 8, 2006 through November 28, 2006, Dr. Pehong Chen, directly and through
entities controlled by him, held a majority of the voting power of our
outstanding stock. As of March 23, 2007, Dr. Chen beneficially owned
approximately 39% our common stock. As a result, Dr. Chen has the
ability to exert significant control over the election of members of
the Board of Directors and all other matters submitted to a vote of our
stockholders.
Beneficial
Ownership of BroadVision Common Stock
The
following table sets forth certain information regarding the ownership of the
Company's common stock as of February 28, 2007 by: (a) each director;
(b) each of the executive officers named in the Summary Compensation Table;
(c) all current executive officers and directors of the Company as a group;
and (d) all those known by the Company to be beneficial owners of more than
five percent of its common stock.
|
|
|
Beneficial
Ownership(1)
|
|||||||
|
|
|
Number
of
|
|
Percent
of
|
|||||
|
Beneficial
Owner
|
|
Shares
(#)
|
|
Total
(%)
|
|||||
|
Pehong
Chen(2)
|
|
|
42,079,389
|
|
|
|
39.49
|
%
|
|
|
James
D. Dixon(3)
|
|
|
96,000
|
|
|
|
*
|
|
|
|
Robert
Lee(4)
|
|
|
85,039
|
|
|
|
*
|
|
|
|
Francois
Stieger (5)
|
|
|
20,000
|
|
|
|
*
|
|
|
|
Honu
Holdings, LLC(2)
|
|
|
34,500,000
|
|
|
|
32.37
|
%
|
|
|
|
1600
Seaport Blvd., 5
th
Floor, North Bldg., Redwood City,
|
|
|
|
|
|
|
|
|
|
|
CA
94063
|
|
|
|
|
|
|
|
|
|
Palo
Alto Investors LLC (6)
|
|
|
14,154,759
|
|
|
|
13.28
|
%
|
|
|
|
470
Univrsity Avenue Palo Alto, CA 94301
|
|
|
|
|
|
|
|
|
|
Palo
Alto Investors (6)
|
|
|
14,154,759
|
|
|
|
13.28
|
%
|
|
|
|
470
Univrsity Avenue Palo Alto, CA 94301
|
|
|
|
|
|
|
|
|
|
William
Leland Edwards
|
|
|
14,154,870
|
|
|
|
13.28
|
%
|
|
|
|
470
Univrsity Avenue Palo Alto, CA 94301
|
|
|
|
|
|
|
|
|
|
Palo
Alto Fund II, L.P.
|
|
|
6,834,659
|
|
|
|
6.41
|
%
|
|
|
|
470
Univrsity Avenue Palo Alto, CA 94301
|
|
|
|
|
|
|
|
|
|
Micro
Cap Partners, L. P.
|
|
|
6,355,600
|
|
|
|
5.96
|
%
|
|
|
|
470
Univrsity Avenue Palo Alto, CA 94301
|
|
|
|
|
|
|
|
|
|
All
Current Directors and Executive Officers as a group (4 persons)(7)
|
|
|
42,280,428 |
|
|
|
39.69 |
%
|
|
*
Less
than
one percent
|
(1)
|
This
table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the SEC.
Unless otherwise indicated in the footnotes to this table and subject
to
community property laws where applicable, the Company believes that
each
of the stockholders named in this table has sole voting and investment
power with respect to the shares indicated as beneficially owned.
Applicable percentages are based on 106,566,567 shares outstanding
on
February 28, 2007, adjusted as required by rules promulgated by the
SEC.
The Company's directors and executive officers can be reached at
BroadVision, Inc., 1600 Seaport Blvd., North Bldg., 5
th
Floor, Redwood City, California
94063.
|
|
(2)
|
Includes
5,874,985 shares held in trust by Dr. Chen and his wife for their
benefit and 1,704,444 shares of common stock issuable upon the exercise
of
stock options exercisable within 60 days of February 28, 2007. Also
includes 34,500,000 shares held by Honu Holdings, LLC, of which Dr.
Chen
is the sole member. Excludes 1,145,387 shares of common stock held
in
trust by independent trustees for the benefit of Dr. Chen's
children.
|
|
(3)
|
Includes
60,000 shares of common stock issuable upon the exercise of stock
options
exercisable within 60 days of February 28,
2007.
|
|
(4)
|
Includes
60,000 shares of common stock issuable upon the exercise of stock
options
exercisable within 60 days of February 28, 2007. Also includes 1,039
shares held in trust by Mr. Lee and his wife for their
benefit.
|
|
(5)
|
Includes
20,000 shares of common stock issuable upon the exercise of stock
options
exercisable within 60 days of February 28,
2007.
|
|
(6)
|
Based
on Amendment No. 1 to Schedule 13G filed with the SEC on February
14,
2007, Palo Alto Investors, LLC, Palo Alto Investors and William Leland
Edwards have shared voting and disposition power with respect to
14,159,759 shares of common stock (the "PAI Shares"), and Mr. Edwards
has
sole voting and disposition power with respect to an additional 111
shares
of common stock. Palo Alto Fund II, L.P. has shared voting and disposition
power with respect to 6,834,659 of the PAI Shares and Micro Cap Partners,
L.P. shared voting and disposition power with respect to 6,355,600
of the
PAI Shares.
|
|
(7)
|
Includes
the information contained in the notes above, as applicable, for
directors
and executive officers of the Company as of February 28,
2007.
|
ITEM
1
3. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
Since
January 1, 2001, there has not been, nor is there currently proposed, any
transaction or series of similar transactions to which we were or are a party
in
which the amount involved exceeds or exceeded $120,000 and in which any
director, executive officer or beneficial holder of more than 5% of any class
of
our voting securities or members of such person's immediate family had or will
have a direct or indirect material interest other than as described below and
elsewhere in Part III hereof. It is our policy that future transactions between
us and any of our directors, executive officers or related parties will be
subject to the review and approval of our Audit Committee or other committee
comprised of independent, disinterested directors.
On
November 18, 2005, Honu Holdings LLC, a company controlled by our Chief
Executive Officer and largest stockholder, Dr. Pehong Chen, acquired all of
our
outstanding Senior Subordinated Convertible Notes, including accrued interest.
The Notes represented approximately $15.5 million in debt obligations as of
December 20, 2005. In order to relieve BroadVision from the liquidity challenges
presented by the Notes, Dr. Chen agreed to cancel all amounts owed under the
Notes in exchange for 34,500,000 shares of BroadVision common stock at an
effective price per share of $0.45, representing a 25% discount to the December
20, 2005 closing price of BroadVision common stock of $0.60 per share. On March
8, 2006, we issued 34,500,000 new shares of common stock to Honu Holdings that,
as of January 31, 2007, represents approximately 32% of our total outstanding
common stock.
Dr.
Chen
has committed to provide, upon our request at any time through December 31,
2006, up to $5 million of working capital support through cash, debt guarantees
or a combination thereof on mutually satisfactory terms.
In
2006,
we executed a consulting agreement with Professional Poker League Inc. in which
Dr. Chen is a passive owner and convertible note holder. The total contract
value is $365,000. We received payment for the entire contract in the third
quarter of 2006. The contract was completed in the fourth quarter of 2006.
We
incurred $99,000 in costs and expenses relating to this contract.
Director
and Officer Indemnification
Our
revised and restated certificate of incorporation contains provisions limiting
the liability of directors. In addition, we have entered into agreements to
indemnify our directors and executive officers to the fullest extent permitted
under Delaware law.
We
have
entered into indemnity agreements with certain officers and directors that
provide, among other things, that we will indemnify such officer or director,
under the circumstances and to the extent provided for in such agreement, for
expenses, damages, judgments, fines and settlements he or she may be required
to
pay in actions or proceedings to which he or she is or may be made a party
be
reason of his or her position as a director, officer or other agent of
BroadVision, and otherwise to the full extent permitted under Delaware law
and
our Bylaws.
Independence
of Directors
Our
Board
of Directors has determined that Messrs. Dixon, Lee and Stieger are each
independent under the standards set forth in Nasdaq Marketplace Rule
4200(a)(15). We intend to maintain at least two directors on the board that
meet
these independence standards. Our board has also determined that each member
of
our Compensation Committee is independent under Nasdaq Marketplace Rule
4200(a)(15) and each member of our Audit Committee is independent under the
standards set forth in Nasdaq Marketplace Rules 4350(d)(2)(A)(i) and (ii).
ITEM
1
4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
following presents aggregate fees billed to us by Odenberg, Ullakko, Muranishi
& Co. LLP, our principal accountant for the year ended December 31, 2006,
Stonefield Josephson, Inc., our principal accountant for the year ended December
31, 2005, and by BDO Seidman, LLP, our principal accountant for the year ended
December 31, 2004. All fees described were approved by the Audit
Committee.
Audit
Fees.
Audit
fees billed were $1,304,000 and $801,000 for the years ended December 31, 2006
and 2005, respectively. The fees were for professional services rendered for
the
audits of our consolidated financial statements, reviews of the financial
statements included in our quarterly reports, consultations on matters that
arose during our audit and reviews of SEC registration statements.
Audit-Related
Fees.
No
audit-related fees were billed in the years ended December 31, 2006 and December
31, 2005.
Tax
Fees.
Tax fees
billed were $113,000 and $181,000 for the years ended December 31, 2006 and
2005, respectively. The tax fees were for professional services related to
tax
compliance, tax advice and tax planning.
All
Other Fees.
There
were no other fees billed in the years ended December 31, 2006 and 2005,
respectively.
The
Audit
Committee has determined that the rendering of certain services other than
audit
services by Odenberg, Ullakko, Muranishi & Co. LLP is compatible with
maintaining the principal accountant's independence.
Pre-Approval
Policies And Procedures
The
Audit
Committee has adopted a policy and procedures for the pre-approval of audit
and
non-audit services rendered by our independent auditor. The policy generally
pre-approves specified services in the defined categories of audit services
audit-related services, and tax services up to specified amounts. Pre-approval
may also be given as part of the Audit Committee's approval of the scope of
the
engagement of our independent auditor or on an individual explicit case-by-case
basis before the independent auditor is engaged to provide each service. The
pre-approval of services may be delegated to one or more of the Audit
Committee's members, but the decision must be reported to the full Audit
Committee at its next scheduled meeting.
ITEM
1
5. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
The
following documents are filed as a part of this Report.
1.
Consolidated
Financial Statements
.
The
following Consolidated Financial Statements of the Company are included at
Part II, Item 8, of this Annual Report on Form 10-K
Reports
of Independent Registered Public Accounting Firm
Consolidated
Balance Sheets as of December 31, 2006 and 2005
Consolidated
Statements of Operations for each of the three years in the period ended
December 31, 2006
Consolidated
Statements of Stockholders' Equity (Deficit) and Comprehensive Income (Loss)
for
each of the years in the three-year period ended December 31,
2006
Consolidated
Statements of Cash Flows for each of the three years in the period ended
December 31, 2006
Notes
to
Consolidated Financial Statements
2.
Financial
Statement Schedule
.
Attached to this Annual Report on Form 10-K.
Schedule II---Valuation
and Qualifying Accounts
3.
Exhibits
.
The
exhibits listed on the accompanying Index to Exhibits immediately following
the
consolidated financial statement schedule are filed as part of, or incorporated
by reference into, this Annual Report on Form 10-K.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in Redwood City, State of
California, on this 26
th
day of March 2007.
BROADVISION,
INC.
By:
/s/
PEHONG
CHEN
Pehong
Chen
Chairman
of the Board, President, Chief Executive Officer and Interim Chief Financial
Officer
POWER
OF ATTORNEY
KNOW
ALL
MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Pehong Chen to sign any amendments to this Annual
Report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that the said attorney-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/
Pehong
Chen
|
|
|
|
March
26, 2007
|
|
Pehong
Chen
|
|
Chairman
of the Board, President, Chief Executive Officer, and (Principal
Executive
Officer)
|
|
|
|
/s/
Pehong
Chen
|
||||
|
Pehong
Chen
|
Interim
Chief Financial Officer
(Principal
Accounting Officer)
|
March
26, 2007
|
||
|
|
|
|
|
|
|
/s/
Francois
Stieger
|
|
|
|
March
26, 2007
|
|
Francois
Stieger
|
|
Director
|
|
|
|
|
|
|
|
|
|
/s/ James
D. Dixon
|
|
|
|
March 26,
2007
|
|
James
D. Dixon
|
|
Director
|
|
|
|
|
|
|
|
|
|
/s/
Robert
Lee
|
|
|
|
March 26,
2007
|
|
Robert
Lee
|
|
Director
|
|
|
|
|
|
|
|
|
BROADVISION, INC.
AND SUBSIDIARIES
SCHEDULE
II---VALUATION AND QUALIFYING ACCOUNTS
(in
thousands)
|
|
|
|
|
Charged
|
|
|
|
|
|||||||||
|
|
|
Balance
at
|
|
(Credited)
to
|
|
|
|
Balance
at
|
|||||||||
|
|
|
Beginning
of
|
|
Costs
and
|
|
|
|
End
of
|
|||||||||
|
|
|
Period
|
|
Expenses
|
|
Deductions(1)
|
|
Period
|
|||||||||
|
Receivable
reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2006
|
|
$
|
731
|
|
|
$
|
487
|
|
$
|
(77
|
)
|
|
$
|
1,141
|
|
|
|
|
Year
Ended December 31, 2005
|
|
$ |
1,409
|
|
|
$ |
(598
|
)
|
|
$ |
(80
|
)
|
|
$ |
731
|
|
|
|
Year
Ended December 31, 2004
|
|
$
|
3,022
|
|
|
$
|
(1,466
|
)
|
|
$
|
(147
|
)
|
|
$
|
1,409
|
|
(1)
Represents
net charge-offs of specific receivables.
BROADVISION, INC.
ANNUAL REPORT ON FORM 10-K DECEMBER 31, 2006
INDEX
TO EXHIBITS
|
23.1
|
Consent
of BDO Seidman, LLP.
|
|
|
23.2
|
Consent
of Stonefield Josephson, Inc.
|
|
|
23.3
|
Consent
of Odenberg, Ullakko, Muranishi & Co. LLP, an independent registered
public accounting firm
|
|
|
24.1
|
Power
of Attorney, pursuant to which amendments to this Annual Report
on
Form 10-K may be filed, is included on the signature pages
hereto.
|
|
|
31.1
|
Certification
of the Chief Executive Officer and Chief Financial Officer of the
Company.
|
|
|
32.1
|
Certification
of the Chief Executive Officer and Chief Financial Officer of the
Company
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
(1)
Incorporated by reference to the Company's Registration Statement on
Form S-1 filed on April 19, 1996 as amended by Amendment No. 1
filed on May 9, 1996, Amendment No. 2 filed on May 29, 1996 and
Amendment No. 3 filed on June 17, 1996.
(2)
Incorporated by reference to the Company's Form 10-K for the fiscal
year ended December 31, 1996 filed on March 31, 1997 (SEC File
No. 000-28252).
(3)
Incorporated by reference to the Company's Registration Statement on
Form S-8 filed on October 15, 2003.
(4)
Incorporated by reference to the Company's Form 10-Q for the quarter ended
June 30, 2001 filed on August 14, 2001.
(5)
Incorporated by reference to the Company's Form 10-Q for the quarter
ended March 31, 2002 filed on May 16, 2002.
(6)
Incorporated by reference to the Company's Proxy Statement filed on May 14,
2002.
(7)
Incorporated by reference to the Company's Form 10-Q for the quarter ended
September 30, 2002 filed on November 14, 2002.
(8)
Incorporated by reference to the Company's Registration Statement on
Form S-8 filed on August 1, 2002.
(9)
Incorporated by reference to the Company's Form 10-Q for the quarter ended
March 31, 2003 filed on May 14, 2003.
(10)
Incorporated by reference to the Company's Form 10-Q for the quarter ended
June 30, 2003 filed on August 14, 2003.
(11)
Incorporated by reference to the Company's Form 10-K for the fiscal year
ended December 31, 2003 filed on March 15, 2004.
(13)
Incorporated by reference to the Company's Current Report on Form 8-K filed
on August 9, 2004.
(14)
Incorporated by reference to the Company's Current Report on Form 8-K filed
on October 25, 2004.
(15)
Incorporated by reference to the Company's Current Report on Form 8-K filed
on November 10, 2004.
(16)
Incorporated by reference to the Company's Current Report on Form 8-K filed
on November 17, 2004.
(17)
Incorporated by reference to the Company's Current Report on Form 8-K filed
on November 19, 2004.
(18)
Incorporated by reference to the Company's Current Report on Form 8-K filed
on December 23, 2004.
(19)
Incorporated by reference to the Company's Current Report on Form 8-K filed
on February 1, 2005.
(20)
Incorporated by reference to the Company's Current Report on Form 8-K filed
on February 16, 2005.
(21) Incorporated
by reference to the Company's Current Report on Form 8-K filed on December
22,
2005.
(22)
Incorporated by reference to the Company's Form 10-K for the fiscal year
ended December 31, 2005 filed on June 9, 2006.
(23)
Incorporated by reference to the Company's
Registration
Statement on Form S-8 filed on November 6, 2006.