BROADVISION INC (Form: 10-K, Received: 06/09/2006 16:47:25)

Position

Pehong Chen

Chairman of the Board, Chief Executive Officer and President

William E. Meyer

Executive Vice President and Chief Financial Officer

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934


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

		For the Year Ended December 31, 2005

OR

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

		For the transition period from to

Commission File Number 0-28252

BROADVISION, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware		94-3184303
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
585 Broadway, Redwood City, California (Address of principal executive offices)		94063 (Zip Code)

(650) 542-5100

(Registrant’s telephone number, including area code)

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

None

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

Common Stock, $.0001 par value

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No þ

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 þ No o

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 þ

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 o Accelerated filer o Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of June 30, 2005, based on the closing sales price as quoted by the Nasdaq, 27,434,559 shares of Common Stock, having an aggregate market value of approximately $33,470,162 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 March 15, 2006, the registrant had 69,024,991 shares of common stock outstanding.

BROADVISION, INC.

ANNUAL REPORT ON FORM 10-K

YEAR ENDED DECEMBER 31, 2005

TABLE OF CONTENTS


PART I
Item 1.	Business	1
Item 1A.	Risk Factors	9
Item 2.	Properties	18
Item 3.	Legal Proceedings	18
Item 4.	Submission of Matters to a Vote of Security Holders	19

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	20
Item 6.	Selected Consolidated Financial Data	22
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	53
Item 8.	Financial Statements and Supplementary Data	54
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	98
Item 9A.	Controls and Procedures	98
Item 9B.	Other Information	99

PART III
Item 10.	Directors and Executive Officers of the Registrant	99
Item 11.	Executive Compensation	102
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	107
Item 13.	Certain Relationships and Related Transactions	108
Item 14.	Principal Accountant Fees and Services	108

PART IV
Item 15.	Exhibits and Financial Statement Schedules	109
SIGNATURES		110
EXHIBIT 4.5
EXHIBIT 23.1
EXHIBIT 23.2
EXHIBIT 31.1
EXHIBIT 31.2
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, 2005, 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.


PART I, ITEM 1 TABLE OF CONTENTS (BUSINESS SECTION)

Overview and Industry Background			1
The BroadVision Solution			2
Products			3
BroadVision Self-Service Extensions			3
Product Bundles			4
Technology			4
Alliances			5
Services			5
Customers			6
Sales and Marketing			6
Competition			7
Intellectual Property and Other Proprietary Rights			8
Employees			8
Executive Officers			8

PART I


ITEM 1.	*BUSINESS*

Overview and Industry Background


	*Our Business*

We develop, market and support a suite of personalized self-service web applications that enable organizations to unify their e-business infrastructure and conduct both interactions and transactions with employees, partners and customers. Our commerce and portal solutions help organizations rapidly increase revenues and reduce costs. As of December 31, 2005, we had licensed our products to more than 1,000 customers.


	*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 we have incurred significant losses and had negative cash flows from operations. As of December 31, 2005, we had negative working capital and an accumulated deficit of approximately $1.2 billion. The majority of these accumulated losses to date have resulted from non-cash charges associated with our 2000 acquisition of Interleaf, Inc. and restructuring charges related to excess real estate.

During 2004, we entered into a series of termination agreements to buy out of 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 58.7% of the total shares outstanding.

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 585 Broadway, Redwood City, California 94063. Our telephone number is (650) 261-5100. Our website address is www.broadvision.com.

Overview

BroadVision solutions help enable customers to rapidly increase revenues and reduce costs by moving business interactions and transactions to personalized self-service via the web. Our portal and commerce suites offer rich functionality out of the box and are easily configured for each customer’s e-business environment.

Over 1,000 customers — including U.S. Air Force, Lockheed Martin, Netikos, Circuit City, Iberia L.A.E. and Vodafone — have licensed BroadVision solutions to power and personalize their mission-critical web initiatives.

Industry Background

E-Business has become an integral part of doing business and organizations are looking for ways to reduce costs, improve productivity and increase revenues by moving more business processes online. Achieving this goal is complicated by the proliferation of websites and rapid acquisition of e-business solutions that occurred during the Internet bubble years. This often resulted in systems that were poorly integrated into companies’ overall enterprise architecture, preventing companies from empowering end users to interact with back-end systems to accomplish their goals.

By providing a way for enterprises to quickly assemble and deploy web-based business processes 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. This trend is especially evident over the past few years at airport check-in and photo-processing kiosks. In addition to accelerating the response time for the consumer, web-based self-service applications also enable organizations to collect valuable market research data about their customers.

BroadVision Solution

BroadVision is unique in offering a self-service solution that tightly integrates portal and commerce on a single, secure, high performance framework that also enables advanced personalization and seamless integration to enterprise systems.

The following are key capabilities of the BroadVision self-service suite:


	•	Scalability — Advanced load balancing and multi-layered caching allow BroadVision applications to support large numbers of concurrent customers and transactions.

	•	Personalization — BroadVision’s 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.

	•	Ease of use — BroadVision applications and tools are designed with graphical user interfaces that allow non-technical business managers to modify business rules and content in real time.

	•	Unification — BroadVision’s robust self-service framework pre-integrates the technologies necessary to deploy content-rich, process-aware, user-centric portals, including data integration, business logic, process logic and user experience.

	•	All-in -one solution — BroadVision provides a significant portion of needed functionality out-of -the-box. This accelerates time to value and reduces Information Technology cost and complexity.

	•	Legacy integration — A comprehensive set of application programming interfaces (APIs) allows for rapid, seamless integration with a variety of legacy business systems such as Oracle, PeopleSoft, SAP and custom mainframe systems.

	•	Secure transaction processing — BroadVision 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.

• Multi-platform availability — BroadVision 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. BroadVision also supports Open Source platforms, such as Linux with Jboss and Hypersonic.

• Multilingual/multicurrency — BroadVision applications are global ready and designed to support multiple languages (Arabic, Chinese, Hebrew, Japanese, Korean, Slovakian, Turkish and most Western European languages) and a wide range of currencies, including the euro.

Products


	*BroadVision Portal* ^tm

Connects visitors to personalized views of information, resources and business processes stored in diverse internal and external legacy information systems. Easy to use and manage, it supports collaborative business processes through self-serviced microsites.


	*BroadVision Commerce* ^tm

Transacts the entire sales process from lead generation to sales execution to customer support and allows management of business-to -business and business-to -consumer channels through a single application. Delivers advanced personalization capabilities and easy-to -use catalog management tools.


	*BroadVision Process* ^tm

Transforms costly, people-intensive processes and collaborations into web-based self-service processes. Allows business analysts and technical staff to design and deploy solutions in days, not months, significantly reducing IT cost and accelerating time to implementation.

BroadVision Self-Service Extensions

The following extensions build on the core functionality of BroadVision’s self-service applications:


	*BroadVision eMarketing* ^tm

Complements BroadVision Commerce with closed-loop campaign management. Makes it easy to segment prospects and customers and deliver personalized, relevant and timely offers via web, e-mail or both. Integrated reporting automatically gathers and presents the information organizations need to discover the marketing approach that works best.


	*BroadVision Shopping Services* ^tm

Gives BroadVision Portal customers basic shopping cart and checkout capabilities to sell goods or services while still maintaining control and building value on one portal infrastructure. It is an extension of rather than a replacement for BroadVision Commerce.


	*BroadVision Content Services* ^tm

Provides a simple, direct way for non-technical users to manage content and helps organizations deliver accurate, targeted content in a scalable, cost-effective way. Content Services empowers business users with easy-to -use content creation tools, while providing secure access controls, role-based user interfaces and version controls.


	*BroadVision QuickSilver ^®* ^tm

Provides powerful features for creating and publishing 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.


	*BroadVision Staging Services* ^tm

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.


	Product Bundles

BroadVision also offers the following product bundles:


	•	TAS (Total Agility Suite) is a risk-free introduction to BroadVision Process. It includes a 60-day BroadVision Process software license (Designer, Developer and Server Editions) and the necessary training and specialized services to develop a mutually agreed upon web-based self-service business process. Customers purchase the bundle, or the license expires, after the 60-day trial.

	•	PAS (Portal Agility Suite) is a pre-integrated product bundle that includes BroadVision Portal, BroadVision Process and selected BroadVision Content Services; an all-in -one solution that makes it easier (through BroadVision Process) to keep pace with changing business requirements.

	•	CAS (Commerce Agility Suite) is a pre-integrated product bundle that includes BroadVision Commerce, BroadVision eMarketing, BroadVision Process and selected BroadVision content services; an all-in -one commerce solution that makes it easier (through BroadVision Process) to keep pace with changing business requirements.

Technology


	*Open Standards-Based Architecture*

BroadVision 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.

Alliances

We recognize that today’s organizations require an open, partner-based approach to e-business. Accordingly, we have assembled a team of best-of -breed partners with the skills, services and value-added products necessary to develop, market, sell and deliver the most competitive web-based self-service solutions available.


	*Consulting Partners*

BroadVision’s systems integration and consulting services partners deliver strategic business solutions to companies. These partners offer global 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 BroadVision’s technology and sell our products and services to potential customers, thus enabling us to extend the reach of our products and/or services. Revenue generated from consulting partners in recent years has not been significant.


	*Technology/ OEM Partners*

BroadVision’s 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 BroadVision’s 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.

Services

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 services and ongoing training and support.


	*Consulting Services*

BroadVision Global Services (BVGS) provides strategic services that help customers achieve maximum business value from their BroadVision applications and implementation services that ensure rapid deployment. BVGS leverages a global network of certified professionals to provide customers with high value at low cost. Our comprehensive migration services, including migration planning and optimization, provide a cost effective approach to migration and protect our customers’ investment in critical business applications.


	*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 regularly scheduled public courses at BroadVision locations.


	*Support and Maintenance Services*

BroadVision offers a tiered support and maintenance program to better serve the needs of our worldwide 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).

Customers

BroadVision customers have achieved significant business value by moving interactions and transactions to web-based self service.

As of December 31, 2005, we had licensed our products to over 1,000 end-user customers and partners. During each of the years ended December 31, 2005, 2004 and 2003, no customer accounted for more than 10% of our total revenues.

BroadVision’s software is deployed in all major industry groups, including financial services, government, healthcare, manufacturing, retail and telecommunications. Customers include U.S. Air Force, Lockheed Martin, Netikos, Circuit City, Iberia L.A.E., Vodafone, Xerox, CIBC, ENI, U.S. Postal Service, Infineon, Merck Medco, HP Shopping and KPN N.V.

Sales and Marketing

We market our products primarily through a direct sales organization with operations in North America, Europe and Asia/ Pacific. On December 31, 2005, our direct sales organization included 29 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 sales and marketing organizations, offices located in the United States are in California and Massachusetts.

Sales and marketing offices for our Europe region are located in France, Germany, Italy, the Netherlands, Spain, Sweden, 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.

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 self-service web 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, 2005, 8 employees were engaged in a variety of marketing activities, including product planning, marketing material development, managing press coverage and other public relations, identifying potential customers, attending trade shows, seminars and conferences, establishing and maintaining close relationships with recognized industry analysts and maintaining our website.

Our marketing efforts are targeted at:


	•	developing and supporting marketing programs to enhance customer loyalty;

	•	building market awareness through press and industry analyst relations;

	•	generating and developing marketing and sales leads;


	•	producing and maintaining marketing collateral and sales tools;

	•	developing and supporting marketing programs associated with various alliance partners; and

	•	developing materials associated with industry solutions.

Competition

If we fail to compete successfully with current or future competitors, we may lose market share. The market for self-service web applications is rapidly evolving and intensely competitive. Our customers’ requirements and the technology available to satisfy those requirements will continually change. We expect competition in this market to persist and increase in the future. Our primary competition currently includes:


	•	in-house development efforts by prospective customers or partners;

	•	other vendors of application software or application development platforms and tools directed at interactive commerce and portal applications, such as Art Technology Group, BEA, IBM Corporation, Microsoft, Oracle, SAP and Vignette; and

	•	web content developers that develop custom software or integrate other application software into custom solutions.

The principal competitive factors affecting the market for our products are:


	•	depth and breadth of functionality offered;

	•	personalization and other features;

	•	integration of portal applications and framework;

	•	availability of knowledgeable developers;

	•	time required for application deployment;

	•	reliance on industry standards;

	•	product reliability;

	•	proven track record;

	•	scalability;

	•	maintainability;

	•	product quality;

	•	price; and

	•	technical support.

Compared to us, many of these competitors and other current and future competitors have longer operating histories and significantly greater financial, technical, 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 and may require us to reduce the price of our products.

Intellectual Property and Other Proprietary Rights

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.

Employees

As of December 31, 2005, we employed a total of 181 full-time employees, of whom 114 are based in North America, 52 in Europe and 15 in Asia. Of these full-time employees, 37 are in sales and marketing, 51 are in product development, 71 are in global services and client support, and 22 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.

Executive Officers

Our executive officers and their ages as of December 31, 2005 are as follows:

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, which was effective as of June 2, 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 1A.	*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.*

Since 2000, we have incurred substantial net operating losses and have not achieved positive cash flows from operations. For the year ended December 31, 2005, we had a net loss of $39.0 million. As of December 31, 2005, 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, if at all. We are continuing 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.


	*We face liquidity challenges and may need additional near-term financing.*

We face liquidity challenges. 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. However, we could experience unforeseen circumstances, such as an economic downturn, difficulties in retaining customers and/or key employees due going concern issues, 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. No adjustments have been made to the carrying values

or classification of the assets and liabilities in the accompanying financial statements to take account of any uncertainty as to our ability to continue as a going concern. If unanticipated events or circumstances occur, the Company may be required to seek additional capital and/or further reduce spending, which could have a material adverse effect on the Company’s ability to achieve its business objectives and continue as a going concern. However, we currently do not have any bank loan agreement or other similar financing arrangement in place that would entitle us to borrow additional funds, and there can be no assurance that we will be able to generate sufficient cash from ongoing operations, the pending rights offering or from any other source in order to fund our future working capital 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.


	Our management identified a material weakness in the effectiveness of our internal control over financial reporting as of December 31, 2005 and restated our historical operating results, and we cannot assure you that additional material weaknesses will not be discovered or additional restatements will not be made in the future.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2005, and this assessment identified one material weakness. Further, we restated our operating results for the year ended December 31, 2004, due to the subsequent determination that an embedded derivative existed in our convertible notes that should have been separately accounted for as a liability.

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. 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 make the restatement described above. 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 is also a material weakness in the operation of entity-level controls. If we are not successful in remedying the deficiencies that caused this material weakness, there is more than a remote likelihood that our quarterly or annual financial statements could be materially misstated, which could require a restatement.

As our future staffing is dependent upon filling open positions and retaining existing employees, we are currently unable to determine when this material weakness will be fully remediated. In June 2006 William Meyer resigned as our Chief Financial Officer, a position Mr. Meyer had held since April 2003. Mr. Meyer’s departure compounds our staffing needs and will increase the time it will take to fully remediate this material weakness. The market for skilled accounting personnel is competitive and we may have difficulty in retaining our staff due to (1) our efforts to restructure our operations by reducing our workforce and other cost containment activities and (2) the uncertainty created by the recent execution and subsequent termination of our merger agreement with an affiliate of Vector Capital Corporation. Our inability to staff the department with competent personnel with sufficient training may affect our internal controls over financial reporting to the extent that we may not be able to prevent or detect material misstatements. Inferior internal control 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.


	Our business currently depends on revenue related to our BroadVision Self-Service Suite, and if the market does not increasingly accept this product and related products and services, our revenue may continue to decline.

We generate our revenue from licenses of the BroadVision Self-Service Suite, 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.


	*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:


	•	develop leading technologies;

	•	enhance our existing products and services;

	•	develop new products and services that address the increasingly sophisticated and varied needs of our prospective customers; and

	•	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.


	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 and September 30, 2005, our revenues declined 22%, 23% and 18%, respectively, as compared to the previous fiscal year quarters. In the quarters ended June 30, 2004, September 30, 2004 and December 31, 2004, our revenues declined 8%, 7% and 15%, respectively, as compared to the same quarterly periods in the prior fiscal year. If

our revenues, operating results, earnings or future projections are below the levels expected of 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:


	•	introduction of products and services and enhancements by us and our competitors;

	•	competitive factors that affect our pricing;

	•	market acceptance of new products;

	•	the mix of products sold by us;

	•	changes in our pricing policies or our competitors;

	•	changes in our sales incentive plans;

	•	the budgeting cycles of our customers;

	•	customer order deferrals in anticipation of new products or enhancements by us or our competitors or because of macro-economic conditions;

	•	nonrenewal of our maintenance agreements, which generally automatically renew for one-year terms unless earlier terminated by either party upon 90-days notice;

	•	product life cycles;

	•	changes in strategy;

	•	seasonal trends;

	•	the mix of distribution channels through which our products are sold;

	•	the mix of international and domestic sales;

	•	the rate at which new sales people become productive;

	•	changes in the level of operating expenses to support projected growth;

	•	increase in the amount of third party products and services that we use in our products or resell with royalties attached;

	•	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;

	•	the timing of receipt and fulfillment of significant orders; and

	•	costs associated with litigation, regulatory compliance and other corporate events such as operational reorganizations.

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 are 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.


	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, generally over 40%, 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 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 and 337 at the end of 2004. On June 29, 2005, our Board of Directors approved a business restructuring plan, which included a reduction in headcount by an additional 63 employees. On December 31, 2005, we had 181 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 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.


	*Modifications to our business and operations may not result in a reduced cost structure as anticipated and may otherwise adversely impact our productivity.*

Since 2000, we have substantially modified our business and operations in order to reduce our cost structure. These modifications included closing facilities, reducing liability for idle lease space and reducing our employee headcount, while maintaining sales efforts and providing continuing customer support by reallocating the workload among continuing employees. We may not realize anticipated reductions in our cost structure, which will delay or prevent us from achieving sustained profitability. In addition, these modifications may result in lower revenues as a result of the decreased headcount in our sales and marketing and professional services groups, or other adverse impacts on productivity that we did not anticipate.


	*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:


	•	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.

	•	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.

	•	Systems integrators may attempt to market their own products and services rather than ours.

	•	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.

	•	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. 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 heavily on our operations outside of North America, we are subject to significant risks of doing business internationally, including:


	•	difficulties in staffing and managing foreign operations and safeguarding foreign assets;

	•	unexpected changes in regulatory requirements;

	•	export controls relating to encryption technology and other export restrictions;

	•	tariffs and other trade barriers;

	•	difficulties in staffing and managing foreign operations;

	•	political and economic instability;

	•	fluctuations in currency exchange rates;

	•	reduced protection for intellectual property rights in some countries;

	•	cultural barriers;


	•	seasonal reductions in business activity during the summer months in Europe and certain other parts of the world; and

	•	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.


	*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 competitors’ 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.


	*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.

“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.


	*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 executive 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 executive 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 executive officers or key employees, particularly our founder and Chief Executive 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 recent execution and subsequent termination of our merger agreement with an affiliate of Vector 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


	*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 May 1, 2006. On May 1, 2006 the closing price of BroadVision common stock was $0.49 per share. Our stock price is subject to wide fluctuations in response to a variety of factors, including:


	•	quarterly variations in operating results;

	•	announcements of technological innovations;

	•	announcements of new software or services by us or our competitors;

	•	changes in financial estimates by securities analysts;

	•	general economic conditions; or

	•	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 2.	*PROPERTIES*

We lease approximately 154,000 square feet of office space, of which approximately 76% is in the United States. We occupy or sublease in excess of 90% of our leased office space.

At our headquarters, located in Redwood City, California, we occupy approximately 30,000 square feet of office facilities used for research and development, technical support, sales, marketing, consulting, training and administration. Additional leased domestic facilities include offices located in Bellevue, WA, McLean, VA, 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; Houten, Netherlands; Madrid, Spain; Milan, Italy; Japan; and 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 to various claims and legal actions arising from time to time in the ordinary course of business. In the opinion of management, after consultation with legal counsel, we have adequate defenses for each of the claims and actions, and we do not expect their ultimate disposition to have a material effect on our business, financial condition or results of operations. Although management currently believes that the outcome of other outstanding legal proceedings, claims and litigation involving us will not have a material adverse effect on our business, results of operations or financial condition, litigation is inherently uncertain, and there can be no assurance that existing or future litigation will not have a material adverse effect on our business, results of operations or financial condition.

On June 10, 2004, Metropolitan Life Insurance Company (“MetLife”) filed a complaint in the Superior Court of the State of California, County of Los Angeles, naming the Company as a defendant. The complaint alleged that we were liable for unlawful detainer of premises leased from MetLife. MetLife thereafter filed a First Amended Complaint alleging that we no longer held possession of the premises but were in breach of the lease. In February 2005, we and MetLife reached agreement and executed documents regarding a settlement of the pending lawsuit under which we paid MetLife an aggregate of $1.9 million in consideration for termination of the lease, dismissal of the lawsuit and in full settlement of approximately $3.1 million of past and future lease obligations. The three installment payments were made in February, May and September 2005.

On January 7, 2005, we announced that we had reached agreement with the SEC to settle administrative proceedings in connection with the restatement of our financial results for the third quarter of fiscal 2001. There were no fines or financial penalties associated with the settlement. Without admitting or denying any wrongdoing, we consented to the SEC’s entry of an administrative order that included findings that we issued a false and misleading earnings press release and misleading quarterly report. The order requires that we cease and desist from committing or causing violations of specified provisions of the federal securities laws. The SEC found that a former executive in charge of professional services who left BroadVision in 2002 was responsible for the improper accounting. The restatement concerned revenue related to one software license agreement. Following receipt of payment in full by the customer, we recognized revenue on that agreement in its entirety in the third quarter of 2001. We subsequently determined that the revenue should instead be recognized ratably over the four-year life of the agreement, and announced on April 1, 2002 that we were restating our financial statements for the third quarter of 2001 to effect this change. We have been accounting for the revenue ratably in all periods since the third quarter of 2001.

On July 28, 2005, our representatives received copies of four complaints relating to purported class action lawsuits, each filed by an alleged holder of shares of BroadVision common stock and each filed in California Superior Court for the county of San Mateo. These complaints were captioned Gary Goberville, et al., vs. Pehong Chen, et al., Civ 448490, Cookie Schwartz, et al., vs. BroadVision, Inc., et al. , Civ 448516, Leon Kotovich, et al., vs. BroadVision, Inc., et al., Civ 448518 and Anthony Noblett, et al., vs. BroadVision, Inc., et al., Civ 448519. Each claim named our directors and us as defendants, and each alleged that the director defendants violated their fiduciary duties to stockholders by, among other things, failing to maximize our value and ignoring, or failing to adequately protect against, certain purported conflicts of interest. Each complaint sought, among other things, injunctive relief and damages in an unspecified amount. On September 21, plaintiff Goberville filed an amended complaint alleging that defendants caused materially misleading information regarding a proposed merger to be disseminated to our stockholders. On October 20, 2005, the Court ordered consolidation of the four pending actions pursuant to the parties’ stipulation. In light of the termination of the merger agreement with an affiliate of Vector Capital Corporation (“Vector”) in November 2005, the plaintiffs in the four above entitled actions agreed to dismiss, without prejudice, their complaints against our directors and us on December 9, 2005.


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

On July 25, 2005, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Bravo Holdco (“Bravo Holdco”), a newly formed exempted company with limited liability incorporated under the laws of the Cayman Islands and wholly owned subsidiary of Vector, and Bravo Merger Sub, LLC, a newly formed Delaware limited liability company and wholly owned subsidiary of Bravo Holdco. Under the terms of the Merger Agreement, the holders of shares of BroadVision common stock that were outstanding immediately prior to the consummation of the merger (the “Merger”) were to receive $0.84 in cash for each share of common stock at the time of the consummation of the Merger. The consummation of the Merger was conditioned upon, among other things, the adoption of the Merger Agreement by the holders of a majority of the outstanding shares of BroadVision common stock and other closing conditions. A proxy card and proxy statement describing the terms of the Merger Agreement were mailed in September 2005 to stockholders of record as of September 16, 2005, with a special meeting date set for October 12, 2005. The special meeting was adjourned several times in an effort to achieve a quorum. Although over 90% of the shares present in

person or by proxy were in favor of the Merger Agreement, a quorum necessary to hold the stockholders’ meeting at which a vote to approve the Merger Agreement would be taken was not achieved. The Merger Agreement was terminated in November 2005.

PART II


ITEM 5.	*MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES*

Until our delisting on March 8, 2006, our common stock had been quoted on the Nasdaq National Market under the symbol “BVSN.” The following table shows high and low sale prices per share of our common stock as reported on the Nasdaq National Market:


	High		Low

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
Fiscal Year 2004
First Quarter		9.05		4.28
Second Quarter		6.87		2.92
Third Quarter		4.35		2.10
Fourth Quarter		3.13		2.05
Fiscal Year 2003
First Quarter		4.80		3.43
Second Quarter		7.95		3.66
Third Quarter		7.22		4.50
Fourth Quarter		5.89		4.06

As of March 15, 2006, there were 1,985 holders of record of BroadVision common stock. On March 3, 2006, our Board of Directors approved the voluntary delisting of BroadVision common stock from the Nasdaq National Market. Accordingly, we requested the delisting of BroadVision common stock in a letter to the Nasdaq Stock Market (“Nasdaq”) dated March 3, 2006, and the delisting was effective prior to the opening of trading on Wednesday, March 8, 2006. On May 1, 2006, the last sale price reported on the Pink Sheets ^® for BroadVision common stock was $0.49 per share.

We have never declared or paid cash dividends on our common stock and our credit facility with our commercial lender contained certain covenants that may limit our ability to pay cash dividends.

During the year ended December 31, 2005, we entered into the following agreement relating to the sale of unregistered securities:


	•	On December 20, 2005, we entered into an agreement with Honu to cancel the convertible note debt obligations held by Honu in exchange for approximately 34,500,000 shares of BroadVision common stock. The transaction was consummated in March 2006, and we issued the common shares in reliance on Section 4(2) of the Securities Act. In connection with the issuance of shares to Honu, we entered into a registration rights agreement with Honu, pursuant to which we agreed to prepare and file a registration statement registering the resale of the shares of BroadVision common stock issued to Honu on commercially reasonable terms.

The issuances of the securities in the transactions above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act promulgated thereunder as

transactions by an issuer not involving a public offering, where the purchasers represented their intention to acquire the securities for investment only and not with a view to distribution and received or had access to adequate information about the Registrant, or Rule 701 promulgated under the Securities Act as transactions pursuant to a compensatory benefit plan or a written contract relating to compensation.

Appropriate legends were affixed to the stock certificates and securities issued in the above transactions. No underwriters were employed in any of the above transactions.

The following table provides certain information with respect to all of the Company’s equity compensation plans in effect as of December 31, 2005.

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

Outstanding Options,

Securities Reflected in

Warrants and Rights

Column (a))

Plan Category

(a)

(b)

(c)

Equity compensation plans approved by security holders(1)

4,469,745

20.63

3,498,794

Equity compensation plans not approved by security holders(2)

587,838

16.70

2,741,744

Total

5,057,583

20.17

6,240,538


(1)	Includes the following: Incentive Plan, Employee Stock Purchase Plan, 1993 Interleaf Stock Option Plan and 1994 Interleaf Employee Stock Option Plan.

(2)	Includes the following: the 2000 Non-Officer Equity Incentive Plan (the “2000 Non-Officer Plan”) and non-plan grants.


ITEM 6.	*SELECTED CONSOLIDATED FINANCIAL DATA*

The selected consolidated financial data set forth below has been restated to reflect adjustments that are further discussed in the “Restatement” note in Item 7, “Management’s Discussion and Analysis,” below, and in Note 1 “Restatement” to our consolidated financial statements included in Part II Item 8 “Financial Statements and Supplementary Data” of this Form 10-K. 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,

			2005			2004			2003			2002			2001

			(Restated)(1)
			(In thousands, except per share amount)
Consolidated Statement of Operations Data:
Revenues:
	Software licenses		$	14,721		$	26,883		$	30,230		$	40,483		$	101,480
	Services			45,400			51,121			57,851			75,415			146,943

		Total revenues		60,121			78,004			88,081			115,898			248,423
Cost of revenues:
	Cost of software licenses			(38	)		1,303			2,561			8,144			9,895
	Cost of services			21,931			24,978			25,708			38,898			97,639

		Total cost of revenues		21,893			26,281			28,269			47,042			107,534

Gross profit				38,228			51,723			59,812			68,856			140,889
Operating expenses:
	Research and development			13,831			18,024			21,067			41,432			78,677
	Sales and marketing			16,208			27,340			26,394			48,918			139,799
	General and administrative			9,479			9,538			9,790			16,288			42,311
	Litigation settlement costs			—			—			4,250			—			—
	Goodwill and intangible amortization			—			—			886			3,548			211,216
	Charge for acquired in-process technology			—			—			—			—			6,418
	Impairment of assets			—			—			—			3,129			—
	Impairment of goodwill and other intangibles			31,368			—			—			—			336,379
	Restructuring (credit) charge			(462	)		(23,545	)		35,356			110,449			153,284
	Business combination charge			2,817			—			—			—			—

		Total operating expenses		73,241			31,357			97,743			223,764			968,084

Operating income (loss)				(35,013	)		20,366			(37,931	)		(154,908	)		(827,195	)
Other income (expense), net				(6,564	)		(2,109	)		2,899			(8,011	)		(6,928	)

Income (loss) before income taxes				(41,577	)		18,257			(35,032	)		(162,919	)		(834,123	)
Income tax benefit (provision)				2,611			309			(439	)		(7,603	)		(2,136	)

Net income (loss)			$	(38,966	)	$	18,566		$	(35,471	)	$	(170,522	)	$	(836,259	)

Net income (loss) per share:
	Basic earnings (loss) per share		$	(1.14	)	$	0.55		$	(1.08	)	$	(5.32	)	$	(27.20	)

	Shares used in computation — basic earnings (loss) per share			34,228			33,539			32,800			32,036			30,748

	Diluted earnings (loss) per share		$	(1.14	)	$	0.54		$	(1.08	)	$	(5.32	)	$	(27.20	)

	Shares used in computation — diluted earnings (loss) per share			34,228			34,321			32,800			32,036			30,748


	As of December 31,

	2005			2004			2003			2002			2001

	(Restated)(1)
	(In thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	4,849		$	41,851		$	78,776		$	77,386		$	75,758
Working capital (deficit)		(35,872	)		(20,273	)		748			5,616			67,165
Total assets		49,942			144,653			195,082			240,136			392,417
Debt and capital leases, less current portion		—			4,227			969			1,945			2,922
Accumulated deficit		1,225,075			1,186,109			(1,204,675	)		(1,169,204	)		(998,682	)
Total stockholders’ equity (deficit)		(9,723	)		28,341			7,950			41,633			203,147


(1)	Certain information presented above has been restated for 2004. See Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations, below.


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.

Certain information presented below has been restated for fiscal year 2004. See Note 1 to the Notes to our Consolidated Financial Statements. This discussion and analysis gives effect to the restatement. Because the restatement for such periods is included in this Report on Form 10-K, the Company does not anticipate amending its quarterly reports on Form 10-Q for the quarters ended March 31, 2005, June 30, 2005 and September 30, 2005.

Overview

BroadVision solutions are designed to help customers increase revenues and reduce costs by moving interactions and transactions to personalized self-service via the web. Our integrated self-service application suite — including process, commerce, portal and content — offers rich functionality out of the box, and is easily configured for each customer’s e-business environment.

Worldwide demand for enterprise software has declined significantly over the past several years. The decline in venture capital spending has resulted in fewer new companies with funding to, among other things, build an on-line business. Established companies have scaled back, delayed or cancelled web-based initiatives. As a result of these reasons and others, in particular the selling challenges created by our deteriorating financial condition, we have seen significant declines in our revenue over the past five fiscal years.

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 date, we have 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. See further discussion under “Background and Recent Events” below. Although we believe that cash flows will be benefited in future periods by a number of these events, we make no assurance about our ability to generate profits or positive cash flows in future periods.

We strive to anticipate changes in the demand for our services and aggressively manage our labor force appropriately. Through 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 what we anticipated.

Background and Recent Events

During the third and fourth quarters of 2004 and the first quarter of 2005, we reached agreements with certain landlords to extinguish approximately $155.0 million of future real estate obligations. We made cash buyout payments of $20.7 million in 2004 and $25.0 million in 2005. In addition, we issued to one of the landlords a five-year warrant to purchase approximately 700,000 shares of BroadVision common stock at an exercise price of $5.00 per share, which became exercisable in August 2005. As a component of the settlement of one of the previous leases, we have a residual lease obligation beginning in January 2007 of approximately $9.1 million. We may make an additional cash payment of $4.5 million if we exercise an option to terminate this residual real estate obligation prior to the start of the lease term. This option to terminate the residual lease obligation, discounted to net present value, is accounted for in accordance with SFAS 146 and is part of the current restructuring accrual as of December 31, 2005.

In November 2004, we 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 we were 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. However, because we did not satisfy the conditions required to make payments in stock, we were required to use cash to satisfy our payment obligations under the Notes. Certain principal payments that were due in the quarters ended September 30, 2005 and December 31, 2005, were deferred at the election of the investors for a period of 18 months under the terms of the Notes.

accelerated repayment of all or any significant portion of such amount would have left us with insufficient working capital to conduct our business, and we did not have sufficient cash to meet such an accelerated repayment obligation. On October 25, 2005, we 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. During the quarter ended December 31, 2005, we recorded a charge of $2.6 million in our Consolidated Statement of Operations, which represented the 20% increase in the redeemable debt premium.

In November 2005, the Notes were purchased by Vector Capital III, L.P. (“Vector III”), an entity affiliated with Vector Capital Corporation (“Vector”), 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, our Chief Executive Officer and largest stockholder. See further discussion below. Certain principal payments that were due in the quarters ended September 30, 2005 and December 31, 2005, were deferred at the election of the investors for a period of eighteen months under the terms of the Notes.

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 and June 30, 2005, respectively.

On July 25, 2005, we entered into the Merger Agreement with Bravo Holdco and Bravo Merger Sub, LLC. Under the terms of the Merger Agreement, the holders of shares of BroadVision common stock that were outstanding immediately prior to the consummation of the Merger were to receive $0.84 in cash for each share of common stock at the time of the consummation of the Merger. The consummation of the Merger was conditioned upon, among other things, the adoption of the Merger Agreement by the holders of a majority of the outstanding shares of BroadVision common stock and other closing conditions. Although over 90% of the shares present in person or by proxy were in favor of the Merger Agreement, a quorum necessary to hold the stockholders’ meeting at which a vote to approve the Merger Agreement would be taken was not achieved, and therefore, in November 2005, we and Vector announced mutual termination of the Merger Agreement. In connection with the termination and pursuant to the Merger Agreement, we made a $989,666 expense reimbursement payment to a Vector subsidiary on January 17, 2006. In the three-month period ended December 31, 2005, we recorded a charge of approximately $1.8 million for costs associated with the proposed Merger and the termination of the Merger Agreement, all of which was paid in January 2006.

In November 2005, Honu 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 us 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. The common share issuance, representing approximately 50% of the post-conversion shares outstanding, increased Dr. Chen’s ownership interest in BroadVision to approximately 59% of the total shares outstanding.

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 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 per share price afforded to Dr. Chen in connection with the Notes cancellation. Dr. Chen has waived any right to participate in the rights offering. Under the terms of the offering, each common stockholder as of December 20, 2005 will have the right to purchase approximately 5.9 shares of common stock for each common share then held. 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.

In June 2006, William Meyer resigned as our Chief Financial Officer, a position Mr. Meyer had held since April 2003. Dr. Chen will serve as Chief Financial Officer on an interim basis until a permanent replacement is hired.

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 Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“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, 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, 2005.

We have maintained various credit facilities with a commercial lender:


	•	During the three years ended December 31, 2005, we maintained a revolving line of credit in the form of a loan and security agreement with a commercial lender. In June 2005, we entered into a $20 million renewed and amended loan and security agreement with the lender that made more stringent the requirements we must meet in order to access the credit facility. We were not in compliance with these new requirements as of December 31, 2005, and the loan and security agreement expired in February 2006. The agreement required us to maintain certain levels of unrestricted cash and cash equivalents (excluding equity investments), and to maintain certain levels on deposit with the lender. At December 31, 2004, $20.0 million was outstanding under the line of credit. As of December 31, 2005, there was no outstanding balance on the line of credit. Borrowings bear interest at the bank’s prime rate (7.25% as of December 31, 2005 and 5.25% as of December 31, 2004) plus up to 1.25% and were collateralized by all of our assets. Interest was due monthly and principal was due at the expiration in February 2006.

	•	We have 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. Principal and interest are due in monthly payments through maturity based on the terms of the facilities. Principal payments of $389,000 are due in 2006. As of December 31, 2005, the entire balance of $389,000 was classified as currently due.


	*Restatement*

As discussed more fully in Note 5 to our Consolidated Financial Statements contained in Item 8 of this Form 10-K, subsequent to the issuance of the 2004 consolidated financial statements, based on clarifying SEC guidance issued in 2005, we made a determination that the convertible debentures entered into in 2004 included an embedded derivative that should be valued under the provisions of SFAS 133. We had previously determined that convertible debentures were conventional under the provisions of EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock. Therefore, we have restated our operating results for the three-month period and year ended December 31, 2004, and for the three-month periods ended March 31, June 30 and September 30, 2005.

The following tables outline the effects of the restatements and amendments described above for the periods that have been previously reported (in thousands, except per share data).

As of and for the Twelve Months Ended:


	December 31, 2004

	Previously
	Reported			Restated

Interest expense, net	$	(228	)	$	(629	)
Income (expense) from derivatives	$	(753	)	$	(2,421	)
Net income	$	20,635		$	18,566
Basic net income per share	$	0.62		$	0.55
Diluted net income per share	$	0.60		$	0.54
Total liabilities	$	114,243		$	116,312
Total stockholders’ equity	$	30,410		$	28,341

As of and for the Three Months Ended:


	December 31, 2004						March 31, 2005						June 30, 2005						September 30, 2005

	Previously						Previously						Previously						Previously
	Reported			Restated			Reported			Restated			Reported			Restated			Reported			Restated

Interest expense, net	$	(516	)	$	(917	)	$	(744	)	$	(1,723	)	$	(1,090	)	$	(2,532	)	$	(1,002	)	$	(2,073	)
Income (expense) from derivatives	$	(753	)	$	(2,421	)	$	2,517		$	7,991		$	997		$	2,257		$	698		$	794
Net (loss) income	$	(386	)	$	(2,455	)	$	2,919		$	7,413		$	(2,914	)	$	(3,095	)	$	(14,538	)	$	(15,512	)
Basic net (loss) income per share	$	(0.01	)	$	(0.07	)	$	0.09		$	0.22		$	(0.09	)	$	(0.09	)	$	(0.42	)	$	(0.45	)
Diluted net (loss) income per share	$	(0.01	)	$	(0.07	)	$	0.07		$	0.19		$	(0.09	)	$	(0.09	)	$	(0.42	)	$	(0.45	)
Total liabilities	$	114,243		$	116,312		$	85,099		$	82,673		$	75,424		$	73,179		$	50,963		$	49,694
Total stockholders’ equity	$	30,410		$	28,341		$	33,743		$	36,167		$	30,959		$	33,205		$	16,480		$	17,749

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 generally accepted accounting principles in the United States of America. 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, product returns, 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.


	*Basis of Presentation*

situation has also improved since the end of 2005 for reasons that include the effects of operating expense reductions, accounts receivable collections and maintenance contract renewals. Based on our current liquidity position, our analysis of the components of our current assets and liabilities, our actual financial results for the first quarter of 2006 and our internal financial forecast for the balance of the year, we currently expect to be able to fund our working capital requirements through at least the end of 2006 from our existing cash and cash equivalents and our anticipated cash flows from operations and subleases. Our Chairman, Chief Executive Officer and largest stockholder 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. Accordingly, no adjustments have been made to the carrying values or classification of the assets and liabilities in the accompanying financial statements to take account of any uncertainty as to our ability to continue as a going concern. If unanticipated events or circumstances occur, we may be required to seek additional capital and/or further reduce spending, which could have a material adverse effect on our ability to achieve our business objectives and continue as a going concern.

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 such equity securities 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 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, which could have a material adverse effect on our business, financial condition and future operating results.


	*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 the machine 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 do not 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 SAB 104, Revenue Recognition (“SAB 104”) .

Software License Revenue — We license our products through our direct sales force and indirectly through resellers. In general, software license revenues are recognized when a non-cancelable license agreement has been signed and the customer acknowledges an unconditional obligation to pay, the software product has been delivered, there are no uncertainties surrounding product acceptance, the fees are fixed and determinable and collection is considered probable. Delivery is considered to have occurred when title and risk of loss have been transferred to the customer, which generally occurs when media containing the licensed programs is provided to a common carrier. In case of electronic delivery, delivery occurs when the customer is given access to the licensed programs. 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 considered probable, 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 the us based upon a percentage of list price. Revenue generated under reseller agreements is recognized upon obtaining evidence of the resale of the license rights from the reseller to one or more end users and meeting all other revenue criteria. 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 objective evidence, which is specific to us. We limit 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.

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. 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 generally recognized as such services are performed on a percentage-of -completion basis. 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.


	*Allowances and Reserves*

We assess credit worthiness of significant customers in advance of revenue recognition based upon a combination of payment history and third-party credit reports. Occasionally, our customers experience financial difficulty after we record the revenue but before we are paid. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Our normal payment terms are 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 allowances may be required.


	*Research and Development and Software Development Costs*

Under the criteria set forth in the Statement of Financial Accounting Standards (SFAS) No. 86, Accounting for the Cost of Computer Software to be Sold, Leased or Otherwise Marketed , development costs incurred in the research and development of new software products are expensed as incurred until technological feasibility in the form of a working model has been 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.


	*Impairment Assessments*

We adopted SFAS 142 on January 1, 2002. Pursuant to SFAS 142, we are required to test goodwill for impairment upon adoption and annually or more often if events or changes in circumstances indicate that the asset might be impaired. While there was no accounting charge to record upon adoption, we concluded that, as of September 30, 2005, and December 31, 2005, based on the existence of impairment indicators including a decline in the market value of our common shares, we would be required to test goodwill for impairment. SFAS No. 142 provides for a two-step approach to determining whether and by how much goodwill has been impaired. Since we have only one reporting unit for purposes of applying SFAS No. 142, the first step requires a comparison of the fair value of BroadVision to our 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.


	*Deferred Tax Assets*

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 we determined that it is more likely than not that some portion or all of the deferred tax assets 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*

We apply APB Opinion No. 25 Accounting for Stock Issued to Employees (“APB 25”) and related interpretations when accounting for our stock option and stock purchase plans. In accordance with APB 25, we apply the intrinsic value method in accounting for employee stock options. Accordingly, we generally recognize no compensation expense with respect to stock-based awards to employees.

During the three months ended March 31, 2004, we recorded a compensation credit of $19,000 as a result of granting common stock to a third party consultant. This credit was calculated based upon the market value of the underlying stock on the date of grant.

We have determined pro forma information regarding net loss and net loss per share as if we had accounted for employee stock options under the fair value method as required by SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS 123”). The fair value of these stock-based awards to employees was estimated using the Black-Scholes option pricing model. Had compensation cost for our stock option plan and employee stock purchase plan been determined consistent with SFAS 123, our reported net income (loss) and

net income (loss) per share would have been changed to the amounts indicated below (in thousands, except per share data):


		Years Ended December 31,

		2005			2004			2003

					(Restated)
Net income (loss), as reported		$	(38,966	)	$	18,566		$	(35,471	)
Add: Stock-based compensation (income) expense included in reported net loss, net of related tax effects			—			(19	)		342
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects			(2,263	)		(4,545	)		(9,275	)

Pro forma net income (loss)		$	(41,229	)	$	14,002		$	(44,404	)

Net income (loss) per share:
	Basic — as reported	$	(1.14	)	$	0.55		$	(1.08	)

	Basic — pro forma	$	(1.20	)	$	0.42		$	(1.35	)

	Diluted — as reported	$	(1.14	)	$	0.54		$	(1.08	)

	Diluted — pro forma	$	(1.20	)	$	0.41		$	(1.35	)

In December 2004, the FASB issued SFAS 123(R), which replaces SFAS 123 and supersedes APB 25. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values beginning with the first interim or annual period beginning after June 15, 2005, with early adoption encouraged. In March 2006, the SEC released SEC Staff Accounting Bulletin No. 107, Share Based Payment (“SAB 107”). SAB 107 provides the SEC Staff’s position regarding the application of SFAS 123(R) and certain SEC rules and regulations, and also provides the Staff’s views regarding the valuation of share-based payment arrangements for public companies. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. Under SFAS 123(R), we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include prospective and retroactive adoption options. We adopted SFAS 123(R), utilizing the modified prospective method, in the first quarter of fiscal 2006, and such adoption will require us to record compensation expense in our 2006 consolidated financials statements and forward based upon the fair value of future stock option grants using the Black-Scholes model and the vesting in those periods. The impact on future operating results and financial condition will be affected by changes in our stock price, as well as assumptions regarding a number of complex and subjective variables and the related tax impact. These variables include, but are not limited to, our stock price volatility and employee stock option exercise behaviors.

In anticipation of the pending reporting requirements under the accounting standard referenced above, our Board of Directors, on November 29, 2005, unanimously approved accelerating the vesting of out-of -the-money, unvested stock options held by current employees, including executive officers, and Board members. The acceleration applied only to those options with an exercise price of $1.13 per share or higher. The closing market price of our common stock on November 28, 2005, the last full trading day before the date of the

acceleration, was $0.72 per share. The following table summarizes the options for which vesting was accelerated:


	Aggregate Number		Weighted
	of Common Shares		Average
	Issuable Under		Exercise
	Accelerated Stock		Price per
	Options		Share

Total Non-Employee Directors		122,181	$	2.98
Total Named Executive Officers		391,886		2.87

Total Directors and Named Executive Officers(1)		514,067		2.89
Total All Other Employees		610,707		2.97

Total(2)		1,124,774		2.94


(1)	Consists of current executive officers named in the Summary Compensation Table in the Company’s 2005 Proxy Statement filed with the Securities and Exchange Commission on April 22, 2005.

(2)	The accelerated options represent approximately 22% of total outstanding options.

The decision to accelerate vesting of these options was made to avoid recognizing compensation cost in the statement of operations as required under the provisions of SFAS 123(R), which was effective as of January 1, 2006.


	*Reverse Stock Splits*

On July 24, 2002, we announced that our Board of Directors had approved a one-for-nine reverse split of BroadVision common stock. The reverse split was effective on July 29, 2002. Each nine shares of outstanding Broad Vision common stock automatically converted into one share of common stock. BroadVision common stock began trading on a post-split basis at the opening of trading on the Nasdaq National Market on July 30, 2002.

The accompanying consolidated financial statements and related financial information contained herein have been retroactively restated to give effect for the July 2002 reverse split.


	*Restructuring Charges*

Through December 31, 2005, 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: (1) severance and benefits termination costs related to the reduction of our workforce; (2) lease termination costs and/or costs associated with permanently vacating our facilities; (3) other incremental costs incurred as a direct result of the restructuring plan; and (4) impairment costs related to certain long-lived assets abandoned. We account for each of these costs in accordance with SAB 100, Restructuring and Impairment Charges.

Severance and Termination Costs . We account for severance and benefits termination costs as follows:


	•	For exit or disposal activities initiated on or prior to December 31, 2002, we account for costs in accordance with EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring) (“EITF 94-3”). Accordingly, we record the liability related to these termination costs when the following conditions have been met: (1) 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; (2) the benefit arrangement is communicated to the employees in sufficient detail to enable the employees to determine the termination benefits; (3) the plan specifically identifies the number of employees to be terminated, their locations and their job classifications; and (4) the period of time to implement the plan does not indicate changes to the plan are likely.


	•	For exit or disposal activities initiated after December 31, 2002, we account for costs in accordance with SFAS No. 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.

Excess Facilities Costs . We account for excess facilities costs as follows:


	•	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 Issue No. 88-10, Costs Associated with Lease Modification or Termination (“EITF 88-10”). 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.

	•	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, which reduced 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.

As mentioned above, we have based our excess facilities accrual, in part, upon estimates of future sublease income. We have used the following factors, among others, in making such estimates: 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. We 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 sublease income differs 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.


	*Legal Matters*

Our current estimated range of liability related to pending litigation is based on claims for which it is probable that a liability has been incurred and we can estimate the amount and range of loss. We have

recorded the minimum estimated liability related to those claims, where there is a range of loss. We do not believe the ultimate resolution of these matters will have a material adverse impact on our financial position or results of operations. As additional information becomes available, we will assess the potential liability related to its pending litigation and revise our estimates, if necessary.

On June 10, 2004, MetLife filed a complaint in the Superior Court of the State of California, County of Los Angeles, naming us as a defendant. The complaint alleged that we were liable for unlawful detainer of premises leased from the plaintiff. MetLife thereafter filed a First Amended Complaint alleging that we no longer held possession of the premises but were in breach of the lease. In February 2005, MetLife reached agreement with us and executed documents regarding a settlement of the pending lawsuit under which we paid MetLife an aggregate of $1.9 million in consideration for termination of the lease, dismissal of the lawsuit and in full settlement of approximately $3.1 million of past and future lease obligations. This amount was accrued as a component of the restructuring accrual, and paid in three installment payments in February, May and September 2005.

On July 28, 2005, our representatives received copies of four complaints relating to purported class action lawsuits, each filed by an alleged holder of shares of BroadVision common stock and each filed in California Superior Court for the county of San Mateo. These complaints were captioned Gary Goberville, et al., vs. Pehong Chen, et al. , Civ 448490, Cookie Schwartz, et al., vs. BroadVision, Inc., et al. , Civ 448516, Leon Kotovich, et al., vs. BroadVision, Inc., et al. , Civ 448518 and Anthony Noblett, et al., vs. BroadVision, Inc., et al. , Civ 448519. Each claim named our directors and us as defendants, and alleged that the director defendants violated their fiduciary duties to stockholders by, among other things, failing to maximize our value and ignoring, or failing to adequately protect against, certain purported conflicts of interest. Each complaint sought, among other things, injunctive relief and damages in an unspecified amount. On September 21, 2005, plaintiff Goberville filed an amended complaint alleging that defendants caused materially misleading information regarding a proposed merger to be disseminated to our stockholders. On October 20, 2005, the Court ordered consolidation of the four pending actions pursuant to the parties’ stipulation. In light of the termination of the Merger Agreement with an affiliate of Vector in November 2005, the plaintiffs in the four above entitled actions agreed to dismiss, without prejudice, their complaints against our directors and us on December 9, 2005.

Statement 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.


			Years Ended
			December 31,

			2005			2004			2003

			(Restated)
Revenues:
	Software licenses			24	%		34	%		34	%
	Services			76			66			66

		Total revenues		100			100			100
Cost of revenues:
	Cost of software licenses			—			2			3
	Cost of services			36			32			29

		Total cost of revenues		36			34			32

Gross profit				64			66			68
Operating expenses:
	Research and development			23			23			24
	Sales and marketing			27			35			30
	General and administrative			16			12			11
	Litigation settlement costs			—			—			5
	Goodwill and intangible write-offs and amortization			52			—			1
	Restructuring (reversals) charges			(1	)		(30	)		40
	Business combination charges			5			—			—

		Total operating expenses		122			40			111

Operating income (loss)				(58	)		26			(43	)
Other (expense) income, net				(11	)		(3	)		3

Income (loss) before provision (benefit) for income taxes				(69	)		23			(40	)
Benefit (provision) for income taxes				4			1			—

Net income (loss)				(65	)%		24	%		(40	)%

Results of Operations


	Software		%			Services		%			Total		%

	(Dollars in thousands)
*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

*Year Ended December 31, 2003:*
Americas	$	14,435		48		$	30,700		53		$	45,135		51
Europe		11,725		39			23,733		41			35,458		40
Asia/ Pacific		4,070		13			3,418		6			7,488		9

Total	$	30,230		100	%	$	57,851		100	%	$	88,081		100	%


	*Revenues*

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.

Total revenues for the year ended December 31, 2004 were $78.0 million, down $10.1 million, or 11%, from $88.1 million for the prior year. This decline consisted of a decrease in software license revenue of $3.3 million, or 11%, and a decrease in services revenue of $6.7 million, or 12%. The fiscal 2004 decrease in software license revenues was primarily attributable to continued weakness in the information technology market due to economic uncertainties throughout 2004. The decrease in services revenue consisted of decreases in both maintenance and support ($4.6 million) and consulting services revenue ($2.1 million). These decreases were a result of a corresponding decline in software license revenues and of weak economic conditions during the fiscal year.

Total revenues for the year ended December 31, 2003 were $88.1 million, down $27.8 million, or 24%, from $115.9 million for the prior year. This decline consisted of a decrease in software license revenue of $10.3 million, or 25%, and a decrease in services revenue of $17.6 million, or 23%. The fiscal 2003 decrease in software license revenues was primarily attributable to continued weakness in the information technology market due to economic uncertainties throughout 2003. The decrease in services revenue consisted of decreases in both maintenance and support ($2.9 million) and consulting services revenue ($14.7 million). These decreases were a result of a corresponding decline in software license revenues and of weak economic conditions during the fiscal year.

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,

	2005			%			2004		%			2003		%

	(Dollars in thousands)
Cost of (credit for) software licenses(1)	$	(38	)		—	%	$	1,303		5	%	$	2,561		8	%
Cost of services(2)		21,931			48			24,978		49			25,708		44

Total cost of revenues(3)	$	21,893			36	%	$	26,281		34	%	$	28,269		32	%


(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 (credit for) software licenses for the year ended December 31, 2005, decreased $1.3 million, or over 100%, on a year-over-year basis. Cost of software licenses as a percent of license revenues was 0% in 2005 as compared to 5% in 2004. The decrease in absolute dollars is 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 software licenses for the year ended December 31, 2004, decreased $1.3 million, or 49%, on a year-over-year basis. Cost of software licenses as a percent of license revenues was 5% in 2004 as compared to 8% in 2003. The decrease in absolute dollars is a result of decreased license revenues.

Cost of software licenses for the year ended December 31, 2003 decreased $5.6 million, or 69%, on a year-over-year basis. Cost of software licenses as a percent of license revenues was 8% in 2003 as compared to 20% in 2002. The decrease in absolute dollars is a result of decreased license revenues, including revenue generated from our products that embed or include third-party products. During the fourth quarter of fiscal year 2002, we recorded a provision of $3.2 million related to prepaid royalties for software we no longer intended to utilize.

Cost of services for the year ended December 31, 2005 decreased $3.0 million, or 12%, on a year-over-year basis. Cost of services as a percent of services revenues was 48% in 2005 as compared to 49% in 2004. The decrease in absolute dollar terms 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.

Cost of services for the year ended December 31, 2004 decreased $0.7 million, or 3%, on a year-over-year basis. Cost of services as a percent of services revenues was 49% in 2004 as compared to 44% in 2003. The decrease in absolute dollar terms during 2004 as compared to 2003 was the result of reductions in consulting headcount and third-party consultant costs that occurred during the 2004 fiscal year. The increase as a percent of services revenue is due to higher outsourcing costs, due in part to turnover in senior project positions.

Cost of services for the year ended December 31, 2003 decreased $13.2 million, or 34%, on a year-over-year basis. Cost of services as a percent of services revenues was 44% in 2003 as compared to 52% in 2002. The decreases in absolute dollar terms and as a percentage of revenue during 2003 as compared to 2002 were the result of reductions in consulting headcount and third-party consultant costs that occurred during the 2003 fiscal year.

The number of total consulting employees was 50 as of December 31, 2005, 77 as of December 31, 2004, and 98 as of December 31, 2003.

Operating Expenses

Operating expenses consist of the following:


	•	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.

	•	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.

	•	General and administrative expenses consist primarily of salaries, employee-related benefit costs, provisions and credits related to uncollectible accounts receivable and professional service fees.

	•	Litigation settlement costs consist of costs incurred to settle pending or threatened litigation matters.

	•	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.

	•	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.

	•	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,

		2005			%			2004			%			2003		%

Research and development		$	13,831			23	%	$	18,024			23	%	$	21,067		24	%
Sales and marketing			16,208			27			27,340			35			26,394		30
General and administrative			9,479			16			9,538			12			9,790		11
Litigation settlement costs			—			—			—			—			4,250		5
Goodwill write-offs and amortization			31,368			52			—			—			886		1
Restructuring (reversals) charges			(462	)		(1	)		(23,545	)		(30	)		35,356		40
Business combination charges			2,817			5			—			—			—		—

	Total operating expenses	$	73,241			122	%	$	31,357			40	%	$	97,743		111	%

Research and development. Research and development expenses decreased $4.2 million, or 23% in 2005 compared to 2004, $3.0 million, or 14%, in 2004 compared to 2003, and $20.4 million, or 49%, in 2003 compared to 2002. The decreases in all years were 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 $11.1 million, or 41% in 2005 compared to 2004, increased $1.0 million, or 4%, in 2004 compared to 2003, and decreased $22.5 million, or 46%, in 2003 compared to 2002. Sales and marketing expenses increased in 2004 due to the launch of our latest product, BroadVision Process. In 2005 and 2003, sales and marketing expenses decreased 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 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. General and administrative expenses decreased $250,000, or 3%, in 2004 compared to 2003, and $6.5 million, or 40%, in 2003 compared to 2002. The decreases in both years were 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.

Litigation settlement costs. During the third quarter of 2003, we settled outstanding litigation, which resulted in a charge of $4.3 million. The settlement involved payments for past royalties and certain legal expenses and license fees that were due and payable in future periods. These payments did not have a material effect on our business, financial condition or results of operations.

Goodwill write-offs 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. See further discussion below.

Restructuring (reversals) charges. We approved restructuring plans to, among other things, reduce our workforce and consolidate facilities. These restructuring and asset impairment charges were taken to align our cost structure with changing market conditions and to create a more efficient organization. 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. Pretax charges of $35.4 million were recorded during the year ended December 31, 2003. During each period, we recorded 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.

Business combination charges. We recorded business combination charges of $2.8 million in the year ended December 31,2005, related to the termination of the merger agreement with a wholly-owned subsidiary of Vector.

The following table summarizes the restructuring accrual activity recorded during the three-years ended December 31, 2005 (in thousands):


	Severance
	and			Facilities/Excess
	Benefits			Assets			Total

Accrual balances, December 31, 2002	$	1,504		$	94,691		$	96,195
Restructuring charges		1,509			33,847			35,356
Cash payments		(2,342	)		(23,829	)		(26,171	)

Accrual balances, December 31, 2003		671			104,709			105,380
Restructuring charges		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

The severance and benefits accrual for each period included 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 2005 were as follows:


	•	Severance and benefits — 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 $1.0 million in the year ended December 31, 2005, related to workforce reductions as a component of our restructuring plans executed during the year. We estimate that the accrual as of December 31, 2005 of $416,000 will be paid in full by December 31, 2006.

	•	Facilities/excess assets — During the twelve months ended December 31, 2005, we recorded a facilities-related restructuring credit of $1.5 million. During the third and fourth quarters of 2004 and the first quarter of 2005, we reached agreements with certain landlords to extinguish future real estate obligations. We made cash payments of $25.0 million during the twelve months ended December 31, 2005 related to these agreements.

The nature of the charges and credits in 2004 were as follows:


	•	Severance and benefits — We recorded a charge of $1.1 million during the twelve months ended December 31, 2004, related to workforce reductions as a component of the our restructuring plans executed during the year.

	•	Facilities/excess assets — During the twelve months ended December 31, 2004, we recorded a facilities-related restructuring credit of $24.7 million. During the third and fourth quarters of 2004, we reached agreements with certain landlords to extinguish approximately $155.0 million of future real estate obligations. We made cash payments of $19.0 million during the third quarter and $1.7 million during the fourth quarter. Standby letters of credit of $21.9 million were issued on our behalf from

financial institutions as of December 31, 2004, in favor of the landlords to secure the fiscal 2005 payments. Accordingly, $21.9 million, along with additional letters of credit securing other long-term leases of $2.3 million, has been included in restricted cash in the accompanying Consolidated Balance Sheets at December 31, 2004. We also transferred ownership of certain furniture, fixtures, and leasehold improvements with a net book value of $8.5 million to the previous landlords.


	As a component of the settlement of one of the previous leases, we have a residual lease obligation beginning in 2007 of approximately $9.1 million. We may make an additional cash payment of $4.5 million if we exercise 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 facilities related restructuring credit of $24.6 million recorded in fiscal 2004.

	In connection with one of the buyout transactions, we issued to the landlord a five-year warrant to purchase approximately 700,000 shares of our common stock at an exercise price of $5.00 per share, exercisable beginning in August 2005.

	The nature of the charges in 2003 is as follows:


	•	Severance and benefits — The $1.5 million charge in fiscal 2003 related to workforce reductions as a component of our restructuring plans executed during the year.

	•	Facilities/excess assets — During the twelve months ended December 31, 2003, we recorded a facilities-related restructuring charge of $33.8 million. This charge related to our revisions of estimates with respect to the planned future occupancy and anticipated future subleases. These revisions were necessary due to a reduction in our planned future space needs and a further decline in the market for commercial real estate. We estimated future sublease timing and rates based upon current market indicators and information obtained from a third party real estate expert.

As of December 31, 2005, the total restructuring accrual of $7.2 million consisted of the following (in millions):


			Non-
	Current		Current		Total

Severance and Termination	$	0.4	$	—	$	0.4
Excess Facilities		5.1		1.7		6.8

Total	$	5.5	$	1.7	$	7.2

We estimate that the severance and termination accrual will be paid in full by December 31, 2006. We expect to pay the excess facilities amounts related to restructured or abandoned leased space as follows (in millions):


	Total Future
	Payments

Years Ending December 31,
2006	$	5.1
2007		0.7
2008		0.4
2009		0.4
2010		0.2

Total minimum facilities payments	$	6.8

Of this excess facilities accrual, $4.2 million relates to payments due in fiscal 2006 under lease termination agreements, and $2.6 million relates to future minimum lease payments, fees and expenses, net of estimated sublease income and planned company occupancy.

Activity related to the restructuring plans prior to January 1, 2003 is accounted for in accordance with EITF 94-3. Activity after January 1, 2003 is accounted for in accordance with SFAS 146, with the exception of amounts that were the result of changes in assumptions to restructuring plans that were initiated prior to January 1, 2003.

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
			Charged to
	Accrued		Restructuring			Amounts			Accrued
	Restructuring		Costs and			Paid or			Restructuring
	Costs, Beginning		Other			Written Off			Costs, Ending

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, 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

Year Ended December 31, 2003:
Lease cancellations and commitments	$	94,691	$	11,649		$	—		$	(23,314	)	$	83,026
Termination payments to employees and related costs		1,425		41			—			(1,037	)		429
Write-off on disposal of assets and related costs		79		(41	)		(26	)		(12	)		—

	$	96,195	$	11,649		$	(26	)	$	(24,363	)	$	83,455


	Goodwill and intangible write-offs

Other Income (Expense), net

Other income (expense), net, consists of the following (dollars in thousands, percentages are based upon total revenues):


	Years Ended December 31,

	2005			%(1)			2004			%(1)			2003		%(1)

Interest (expense) income, net	$	(10,094	)		(17	)%	$	(629	)		(1	)%	$	803		1	%
Income (expense) from derivatives		11,346			19			(2,421	)		(3	)		—		—
Loss on debt extinguishment		(6,967	)		(12	)		—			—			—		—
Other income (expense), net		(849	)		(1	)		941			1			2,096		2

(1) Percentage is calculated based on total revenues for the period indicated.

Net interest (expense) income 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. Net interest expense 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. Income (expense) from derivatives was generated from the revaluation of the embedded derivatives related to the Notes and the warrants issued in connection with the Notes. The loss on debt extinguishment 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. Net other income (expense) declined by $1.8 million in 2005 due to lower gains on equity investments and penalties paid to the holders of the Notes pending effectiveness of the underlying registration statement.

In October 2005, we inadvertently did not make timely payment of the $201,000 third quarter interest payment due under the Notes. 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. We 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 us to redeem 120% of all or any portion of the amounts outstanding under the applicable Note by delivering to us notice of such redemption, which redemption was 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, we 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 us with insufficient working capital to conduct our business, and we did not have sufficient cash to meet such an accelerated repayment obligation. During the quarter ended December 31, 2005, we recorded a charge of $2.6 million in our Consolidated Statement of Operations, which represented the 20% increase in the redeemable debt premium.

Interest income (expense), net, decreased from $803,000 of income in 2003 to $629,000 of expense in 2004, as our cash balance decreased and we issued the Notes in November 2004, which increased our fiscal 2004 interest expense. Net other income declined by $1.2 million in 2004 from 2003 due to lower gains on equity investments and fewer write-offs of liabilities deemed no longer required.


	*Income Taxes*

We recorded income tax (benefits) provisions of ($2.6 million), ($309,000), and $439,000 for the years ended December 31, 2005, 2004 and 2003, respectively. 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. For the year ended December 31, 2003, the tax provision mainly relates to foreign withholding taxes and state income taxes.


	*Liquidity and Capital Resources*


	*Background and Overview*

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. We face liquidity challenges. At December 31, 2005, our current liabilities exceeded our current assets by approximately $35.9 million (negative working capital) resulting in a working capital ratio of approximately 0.35 to 1.0. On a pro forma basis after giving effect to the stock-for-debt exchange that occurred in March 2006, our current liabilities exceeded our current assets at December 31, 2005, by approximately $15.3 million resulting in a working capital ratio of approximately 0.56 to 1.0. However, our liquidity situation has improved since the end of 2005 for reasons that include the effects of operating expense reductions, accounts receivable collections and maintenance contract renewals. Based on our current liquidity position, our analysis of the components of our current assets and liabilities, our actual financial results for the first quarter of 2006 and our internal financial forecast for the balance of the year, we currently expect to be able to fund our working capital requirements through at least the end of 2006 from our existing cash and cash equivalents and our anticipated cash flows from operations and subleases. Accordingly, no adjustments have been made to the carrying values or classification of the assets and liabilities in the accompanying financial statements to take account of any uncertainty as to our ability to continue as a going concern.

Despite our expectations as to our ability to fund our working capital requirements, we could experience unforeseen circumstances, such as an economic downturn, difficulties in retaining customers and/or key employees due to going concern issues or other factors, or less than anticipated cash flows from operations and subleases, that could increase our use of available cash and require us to seek additional financing. We may find it necessary to seek 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. Our Chairman, Chief Executive Officer and largest stockholder 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. However, we currently do not have any bank loan agreement or other similar financing arrangement in place that would entitle us to borrow additional funds, and there can be no assurance that we will be able to generate sufficient cash from ongoing operations, the pending rights offering or from any other source in order to fund our future working capital 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 such equity securities may have rights, preferences or privileges senior to those of the holders of BroadVision 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 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, which could have a material adverse effect on our business, financial condition and future operating results.

As of December 31, 2005, cash, cash equivalents, and restricted cash and investments totaled $4.8 million, which represents a decrease of $37.1 million as compared to a balance of $41.9 million on December 31, 2004. This decrease was primarily attributable to the payment of lease settlement obligations, payments of debt-related obligations and net cash used for operations during the year ended December 31, 2005.

The following table represents our liquidity at December 31, 2005 and 2004 (dollars in thousands):


	December 31,

	2005			2004

				(Restated)
Cash and cash equivalents	$	4,849		$	41,851
Restricted cash and investments, current portion	$	—		$	21,933
Restricted cash and investments, net of current portion	$	1,997		$	2,323
Working capital deficit	$	(35,872	)	$	(20,273	)
Working capital ratio		0.35			0.80

During the third and fourth quarters of 2004 and the first quarter of 2005, we reached agreements with certain landlords to extinguish approximately $155.0 million of future real estate obligations. We made cash buyout payments of $20.7 million in 2004 and $25.0 million in 2005. In addition, we issued to one of the landlords a five-year warrant to purchase approximately 700,000 shares of BroadVision common stock at an exercise price of $5.00 per share, exercisable beginning in August 2005. As a component of the settlement of one of the previous leases, we have a residual lease obligation beginning in January 2007 of approximately $9.1 million. We may make an additional cash payment of $4.5 million if we exercise an option to terminate this residual real estate obligation prior to the start of the lease term. This option to terminate the residual lease obligation, discounted to net present value, is accounted for in accordance with SFAS 146 and is part of the current restructuring accrual as of December 31, 2005.

In November 2004, we 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, we 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. The Notes bore interest at a rate of six percent per annum, and we were 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. However, because we did not satisfy the conditions required to make payments in stock, we were required to use cash to satisfy our payment obligations under the Notes. Certain principal payments that were due in the quarters ended September 30, 2005 and December 31, 2005, were deferred at the election of the investors for a period of 18 months under the terms of the Notes.

In October 2005, we 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. We 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 us to redeem 120% of all or any portion of the amounts outstanding under the applicable Note by delivering to us notice of such redemption, which redemption was 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, we 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 us with insufficient working capital to conduct our business, and we did not have sufficient cash to meet such an accelerated repayment obligation. On October 25, 2005, we 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. During the quarter ended December 31, 2005, we recorded a charge of $2.6 million in our Consolidated Statement of Operations, which represented the 20% increase in the redeemable debt premium.

In November 2005, the Notes were purchased by Vector III, an entity affiliated with Vector, 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, our Chief Executive Officer and largest stockholder. See further discussion below.

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 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 conversion price afforded to Dr. Chen in the Notes conversion. Dr. Chen has 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.

We have maintained various credit facilities with a commercial lender, each of which we are in default of at December 31, 2005:


	•	During the three years ended December 31, 2005, we maintained a revolving line of credit in the form of a loan and security agreement with a commercial lender. In June 2005, we entered into a $20 million renewed and amended loan and security agreement with the lender that made more stringent the requirements we must meet in order to access the credit facility. We were not in compliance with these new requirements as of December 31, 2005, and the loan and security agreement expired in February 2006. The agreement required us to maintain certain levels of unrestricted cash and cash equivalents (excluding equity investments), and to maintain certain levels on deposit with the lender. At December 31, 2004, $20.0 million was outstanding under the line of credit. As of December 31, 2005, there was no outstanding balance on the line of credit. Borrowings bear interest at the bank’s prime rate (7.25% as of December 31, 2005 and 5.25% as of December 31, 2004) plus up to 1.25% and were collateralized by all of our assets. Interest was due monthly and principal was due at the expiration in February 2006.

	•	We have 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. Principal and interest are due in monthly payments through maturity based on the terms of the facilities. Principal payments of $389,000 are due in 2006. As of December 31, 2005, the entire balance of $389,000 was classified as currently due.

Commitments totaling $2.0 million in the form of standby letters of credit were issued on our behalf from financial institutions as of December 31, 2005, primarily in favor of our various landlords to secure obligations under our facility leases. Accordingly, $2.0 million was presented as long-term restricted cash in the accompanying Consolidated Balance Sheet at December 31, 2005.

Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. The conversion feature of the Notes and the warrants issued in connection with the Notes were both considered

derivative financial investments as of December 31, 2005 and December 31, 2004. The value of these derivative instruments is based upon the fair value of our common stock. 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. Our interest rate risk related to borrowings historically has been minimal as interest expense related to adjustable rate borrowings has been immaterial for years ended December 31, 2005 and 2004.


	Cash Used For Operating Activities

Cash used for operating activities was $37.9 million, $41.9 million, and $23.1 million for fiscal years 2005, 2004 and 2003, respectively. 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.

Net cash used for operating activities for fiscal 2003 was primarily due to the net loss of $35.5 million adjusted for certain non-cash items such as depreciation expense, amortization of prepaid royalties and amortization of intangibles. Decreases in accounts payable and accrued expenses of $8.1 million and in unearned revenues and deferred maintenance of $11.7 million contributed to the use of cash, offset by decreases in other noncurrent assets of $1.9 million, in accounts receivable of $8.3 million and in prepaids and other of $1.6 million and an increase in the restructuring reserves of $7.5 million.


	Cash Provided By (Used For) Investing Activities

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. Cash provided by investing activities of $22.0 million for fiscal 2003 primarily consisted of net sales/maturities of investments.

Capital expenditures were $142,000 for fiscal 2005, $730,000 for fiscal 2004, and $131,000 for fiscal 2003. 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 Financing Activities

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, and $2.5 million for fiscal 2003. 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 was a $7.0 million reduction in bank borrowings and bank term debt principal payments of $900,000 in fiscal 2004. In fiscal 2003, cash provided by financing activities consisted mostly of proceeds from borrowings under our line of credit facility.


	Leases and Other Contractual Obligations

We lease our headquarters and other facilities under non-cancelable operating lease agreements expiring through the year 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, 2005, under non-cancelable operating lease agreements, net of amounts under non-cancelable sublease agreements, is as follows (in millions):


		Operating
		Leases

Years Ending December 31,
2006		$	3.5
2007			3.9
2008			2.1
2009			2.1
2010 and thereafter			4.1

	Total minimum lease payments	$	15.7

As of December 31, 2005, we have accrued $6.8 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, 2005 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		6.8		5.1		1.5		0.2		—

	$	8.8	$	5.1	$	2.5	$	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, our ability to further restructure operations successfully 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, 2005, 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,
	2005			2005			2005			2005			2004			2004			2004			2004

				(As restated)			(As restated)			(As restated)			(As restated)
	(In thousands)
	(Unaudited)
Statement of Operations Data:
Revenues:
Software licenses	$	3,780		$	3,134		$	3,391		$	4,416		$	7,292		$	4,654		$	7,097		$	7,840
Services		10,383			10,943			12,123			11,951			12,471			12,570			13,031			13,049

Total revenues		14,163			14,077			15,514			16,367			19,763			17,224			20,128			20,889
Cost of revenues:
Cost of software licenses		99			106			(186	)		(57	)		156			256			313			578
Cost of services		4,696			5,641			5,614			5,980			6,008			6,391			6,302			6,277

Total cost of revenues		4,795			5,747			5,428			5,923			6,164			6,647			6,615			6,855

Gross profit		9,368			8,330			10,086			10,444			13,599			10,577			13,513			14,034
Operating expenses:
Research and development		2,494			3,095			3,955			4,287			4,027			4,600			4,509			4,888
Sales and marketing		2,389			2,948			5,060			5,811			6,974			6,020			7,480			6,866
General and administrative		1,953			2,162			2,829			2,535			2,386			2,335			2,400			2,417
Goodwill and intangible write-offs		18,170			13,198			—			—			—			—			—			—
Restructuring (reversals) charges		(312	)		245			309			(704	)		660			(25,454	)		679			570
Business combination charges		1,840			977			—			—			—			—			—			—

Total operating expenses (credits)		26,534			22,625			12,153			11,929			14,047			(12,499	)		15,068			14,741

Operating income (loss)		(17,166	)		(14,295	)		(2,067	)		(1,485	)		(448	)		23,076			(1,555	)		(707	)
Other income (expense), net		(10,714	)		(1,757	)		(959	)		6,866			(2,457	)		315			57			(24	)
Benefit (provision) for income taxes		109			540			(70	)		2,032			450			(11	)		6			(136	)

Net (loss) income	$	(27,771	)	$	(15,512	)	$	(3,096	)	$	7,413		$	(2,455	)	$	23,380		$	(1,492	)	$	(867	)

Basic net (loss) income per share	$	(0.81	)	$	(0.45	)	$	(0.09	)	$	0.22		$	(0.07	)	$	0.70		$	(0.04	)	$	(0.03	)

Dilute net (loss) income per share	$	(0.81	)	$	(0.45	)	$	(0.09	)	$	0.19		$	(0.07	)	$	0.69		$	(0.04	)	$	(0.03	)

Shares used in computing basic net (loss) income per share		34,430			34,320			34,181			33,971			33,768			33,599			33,476			33,300

Shares used in computing diluted net (loss) income per share		34,430			34,320			34,181			39,968			33,768			34,052			33,476			33,300

As a Percent of Revenue


	Three Months Ended

	Dec 31,			Sep 30,			Jun 30,			Mar 31,			Dec 31,			Sep 30,			Jun 30,			Mar 31,
	2005			2005			2005			2005			2004			2004			2004			2004

				(As restated)			(As restated)			(As restated)			(As restated)
	(In thousands)
	(Unaudited)
Statement of Operations Data:
Revenues:
Software licenses		27	%		22	%		22	%		27	%		37	%		27	%		35	%		38	%
Services		73			78			78			73			63			73			65			62

Total revenues		100			100			100			100			100			100			100			100
Cost of revenues:
Cost of software licenses		1			1			(1	)		(1	)		1			2			2			3
Cost of services		33			40			36			37			30			37			31			30

Total cost of revenues		34			41			35			36			31			39			33			33

Gross profit		66			59			65			64			69			61			67			67
Operating expenses:
Research and development		18			22			25			26			21			27			22			23
Sales and marketing		17			21			33			36			35			35			37			33
General and administrative		14			15			18			15			12			13			12			12
Litigation settlement costs		—			—			—			—			—			—			—			—
Goodwill and intangible write-offs		128			94			—			—			—			—			—			—
Restructuring (reversals) charges		(2	)		2			2			(4	)		3			(148	)		4			3
Business combination charges		13			7			—			—			—			—			—			—

Total operating expenses (credits)		187			161			78			73			71			(73	)		75			71

Operating income (loss)		(121	)		(102	)		(13	)		(9	)		(2	)		134			(8	)		(3	)
Other, net		(75	)		(8	)		(7	)		54			(10	)		2			1			(1	)

Net (loss) income		(196	)%		(110	)%		(20	)%		45	%		(12	)%		136	%		(7	)%		(4	)%

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 December 2004, the FASB issued SFAS No. 123(R), which replaces SFAS 123, and supersedes APB 25. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values beginning with the first interim or annual period beginning after June 15, 2005, with early adoption encouraged. In March 2006, the SEC released SEC Staff Accounting Bulletin No. 107, Share Based Payment (“SAB 107”). SAB 107 provides the SEC Staff’s position regarding the application of SFAS 123(R) and certain SEC rules and regulations, and also provides the Staff’s views regarding the valuation of share-based payment arrangements for public companies. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. Under SFAS 123(R), we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include prospective and retroactive adoption options. We adopted SFAS 123(R), utilizing the modified prospective method, in the first quarter of fiscal 2006, and such adoption will require us to record compensation expense in its 2006 consolidated financials statements and forward based upon the fair value of future stock option grants using the Black-Scholes model

and the vesting in those periods. The impact on future operating results and financial condition will be affected by changes in its stock price, as well as assumptions regarding a number of complex and subjective variables and the related tax impact. These variables include, but are not limited to, stock price volatility and employee stock option exercise behaviors.

In December 2004, the FASB issued SFAS No. 153 (SFAS 153), “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.” SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, “Accounting for Nonmonetary Transactions” , and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for periods beginning after June 15, 2005. We do not expect that adoption of SFAS 153 will have a material effect on our consolidated financial position, consolidated results of operations, or liquidity.

In March 2005, the FASB issued Interpretation No. (FIN) 47, Accounting for Conditional Asset Retirement Obligations (“FIN 47”), to clarify the requirement to record liabilities stemming from a legal obligation to clean up and retire fixed assets, such as a plant or factory, when an asset retirement depends on a future event. We evaluated the requirements of FIN 47 and concluded that the application of FIN 47 does not have a material impact on its results of operations or financial position.

In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections a replacement of APB Opinion No. 20 and FASB Statement No. 3 (“SFAS 154”) that establishes new standards on accounting for changes in accounting principles. Pursuant to the new rules, all such changes must be accounted for by retrospective application to the financial statements of the prior periods unless it is impracticable to do so. SFAS 154 completely replaces Accounting Principles Bulletin (APB) Opinion 20 and SFAS 3, though it carries forward the guidance in those pronouncements with respect to accounting for changes in estimates, changes in the reporting entity, and the correction of errors. This statement is effective for accounting for changes and corrections of errors made in fiscal years beginning after December 15, 2005. We do not anticipate that the adoption of this statement will have a material impact on consolidated financial position, consolidated results of operations or liquidity.

In June 2005, the Emerging Issues Task Force (EITF) issued No. 05-06, Determining the Amortization Period for Leasehold Improvements (“EITF 05-6”). The pronouncement requires that leasehold improvements acquired in a business combination or purchase, significantly after the inception of the lease, be amortized over the lesser of the useful life of the asset or the lease term that includes reasonably assured lease renewals as determined on the date of the acquisition of the leasehold improvement. This pronouncement should be applied prospectively effective January 1, 2006. We do not expect the adoption of EITF 05-6 to have a material effect on our consolidated financial position, results of operations or cash flows.

In July 2005, the Financial Accounting Standards Board (FASB) issued an Exposure Draft of a proposed Interpretation “Accounting for Uncertain Tax Positions — an interpretation of FASB Statement No. 109.” Under the proposed Interpretation, a company would recognize in its financial statements its best estimate of the benefit of a tax position, only if the tax position is considered probable of being sustained on audit based solely on the technical merits of the tax position. In evaluating whether the probable recognition threshold has been met, the proposed Interpretation would require the presumption that the tax position will be evaluated during an audit by taxing authorities. The proposed Interpretation would be effective as of the beginning of the first fiscal year ending after December 15, 2006, with a cumulative effect of a change in accounting principle to be recorded upon the initial adoption. The proposed Interpretation would apply to all tax positions and only benefits from tax positions that meet the probable recognition threshold at or after the effective date would be recognized. We are currently analyzing the proposed Interpretation and have not determined its potential impact on our Consolidated Financial Statements. While the rules in the final Interpretation cannot be predicted with certainty, there is risk that the final Interpretation could result in a cumulative effect charge to earnings upon adoption, increases in future effective tax rates, and/or increases in future interperiod effective tax rate volatility.

In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155, Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140 (“SFAS 155”). SFAS 155 amends SFAS 133 and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities , to, among other things, clarify or amend provisions regarding the fair value measurement of financial instruments with embedded derivatives and the recording of interests in securitized financial assets. SFAS 155 will be effective for all financial instruments acquired or issued after January 1, 2007. We are currently analyzing SFAS 155 and have not determined its potential impact on our Consolidated Financial Statements.


ITEM 7A.	*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, 2005 and 2004. 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, Short-Term Investments, Long-Term Investments*

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 investments that serve as collateral for financial instruments such as letters of credit are classified as restricted. 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 2005 and 2004 were $1.4 million and $573,000, respectively. Our cash and cash equivalents, short-term investments and long-term investments consisted of the following as of December 31, 2005 and 2004 (in thousands):


									Classified on Balance Sheet as:

											Restricted		Restricted
	Purchase/		Gross		Gross				Cash and		Cash and		Cash and
	Amortized		Unrealized		Unrealized		Aggregate		Cash		Investments,		Investments,
	Cost		Gains		Losses		Fair Value		Equivalents		Current		Non-Current

As of December 31, 2005:
Cash and certificates of deposits	$	6,027	$	—	$	—	$	6,027	$	4,030	$	—	$	1,997
Money market		819		—		—		819		819		—		—

Total	$	6,846	$	—	$	—	$	6,846	$	4,849	$	—	$	1,997

As of December 31, 2004:
Cash and certificates of deposits	$	55,240	$	—	$	—	$	55,240	$	30,984	$	21,933	$	2,323
Money market		10,867		—		—		10,867		10,867		—		—

Total	$	66,107	$	—	$	—	$	66,107	$	41,851	$	21,933	$	2,323


	*Concentrations of Credit Risk*

Financial assets that potentially subject us to significant concentrations of credit risk consist principally of cash, cash equivalents, short-term investments, and trade accounts receivable. We maintain our cash and cash equivalents and short-term investments with four separate financial institutions. We market and sell our products throughout the world and perform ongoing credit evaluations of our customers. We maintain reserves for potential credit losses. For the years ended December 31, 2005, 2004, and 2003, no customer accounted for more than 10% of total revenue.


	*Fair Value of Financial Instruments*

Our financial instruments consist of cash and cash equivalents, short-term investments, restricted cash and investments, long-term investments, equity investments, accounts receivable, accounts payable and debt. We believe the reported carrying amounts of our financial instruments approximates fair value, based upon the short maturity of cash equivalents, short-term investments, accounts receivable and payable, and based on the current rates available to it on similar debt issues.


	*Foreign Currency*

We license products and maintain significant operations in foreign countries. Fluctuations in the value of foreign currencies, principally the Euro, 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 license, 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.


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 sheets 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 statements 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 audits.

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 financial statement schedule 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 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 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 of BroadVision, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheet of BroadVision, Inc. (the “Company”) as of December 31, 2004, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the two years in the period ended December 31, 2004. We have also audited the financial statement schedule as of and for each of the years ended December 31, 2004 and 2003 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 audits.

We conducted our audits 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 audits provide a reasonable basis for our opinion.

Also, in our opinion, the financial statement schedule as of and for each of the years ended December 31, 2004 and 2003, presents fairly, in all material respects, the information set forth therein.

As described in the Restatement discussion in Note 1, the Company’s financial statements as of December 31, 2004 and for the year then ended have been restated.


	/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 and the Convertible Debentures discussion in Note 5, as to which the date is May 26, 2006

BROADVISION, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


			December 31,

			2005			2004

						(Restated,
						See Note 1)
			(In thousands, except
			per share amounts)
ASSETS
Current assets:
	Cash and cash equivalents		$	4,849		$	41,851
	Accounts receivable, less receivable reserves of $731 and $1,409 as of December 31, 2005 and 2004, respectively			12,640			14,370
	Restricted cash and investments, current portion			—			21,933
	Prepaids and other			1,914			2,232

		Total current assets		19,403			80,386
Property and equipment, net				2,334			3,566
Restricted cash and investments, net of current portion				1,997			2,323
Equity investments				—			574
Goodwill				25,066			56,434
Other assets				1,142			1,370

Total assets			$	49,942		$	144,653


LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
	Current portion of bank borrowings		$	389		$	20,637
	Current portion of convertible debentures			—			10,214
	Current portion of convertible debentures due to related party			20,535			—
	Accounts payable			4,396			7,470
	Accrued expenses			16,090			40,745
	Warrant liability			277			4,899
	Unearned revenue			2,678			3,573
	Deferred maintenance			10,910			13,121

		Total current liabilities		55,275			100,659
Convertible debentures, net of current portion				—			3,837
Bank borrowings, net of current portion				—			390
Other non-current liabilities				4,390			11,426

		Total liabilities		59,665			116,312
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; 34,522 and 33,951 shares issued and outstanding as of December 31, 2005 and 2004, respectively			3			3
	Additional paid-in capital			1,215,256			1,214,619
	Accumulated other comprehensive income (loss)			93			(172	)
	Accumulated deficit			(1,225,075	)		(1,186,109	)

		Total stockholders’ equity (deficit)		(9,723	)		28,341

Total liabilities and stockholders’ equity (deficit)			$	49,942		$	144,653

The accompanying notes are an integral part of these consolidated financial statements.

BROADVISION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS


			Years Ended December 31,

			2005			2004			2003

						(Restated,
						See Note 1)
			(In thousands, except per share amounts)
Revenues:
	Software licenses		$	14,721		$	26,883		$	30,230
	Services			45,400			51,121			57,851

		Total revenues		60,121			78,004			88,081
Cost of revenues:
	Cost of (credit for) software licenses			(38	)		1,303			2,561
	Cost of services			21,931			24,978			25,708

		Total cost of revenues		21,893			26,281			28,269

Gross profit				38,228			51,723			59,812
Operating expenses:
	Research and development			13,831			18,024			21,067
	Sales and marketing			16,208			27,340			26,394
	General and administrative			9,479			9,538			9,790
	Litigation settlement costs			—			—			4,250
	Goodwill write-offs and amortization			31,368			—			886
	Restructuring (reversals) charges			(462	)		(23,545	)		35,356
	Business combination charges			2,817			—			—

		Total operating expenses		73,241			31,357			97,743

Operating (loss) income				(35,013	)		20,366			(37,931	)
Interest (expense) income, net				(10,094	)		(629	)		803
Income (expense) from derivatives				11,346			(2,421	)		—
Loss on debt extinguishment				(6,967	)		—			—
Other income (expense), net				(849	)		941			2,096

	Income (loss) before benefit (provision) for income taxes			(41,577	)		18,257			(35,032	)
Benefit (provision) for income taxes				2,611			309			(439	)

	Net income (loss)		$	(38,966	)	$	18,566		$	(35,471	)

Basic net income (loss) per share			$	(1.14	)	$	0.55		$	(1.08	)

Diluted net income (loss) per share			$	(1.14	)	$	0.54		$	(1.08	)

Shares used in computing basic net income (loss) per share				34,228			33,539			32,800

Shares used in computing diluted net income (loss) per share				34,228			34,321			32,800

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)


			Common Stock
										Accumulated									Total
							Additional			Other									Stockholders’
							Paid-in			Comprehensive			Accumulated			Comprehensive			Equity
			Shares		Amount		Capital			Income (Loss)			Deficit			Income (Loss)			(Deficit)

			(In thousands)
Balances as of December 31, 2002				32,439	$	3	$	1,210,797		$	37		$	(1,169,204	)				$	41,633
Comprehensive income:
	Net loss			—		—		—			—			(35,471	)	$	(35,471	)		(35,471	)
	Unrealized investment gain, less reclassification adjustment for gains (losses) included in net loss			—		—		—			(86	)		—			(86	)		(86	)

		Total comprehensive loss														$	(35,557	)

Issuance of common stock under employee stock purchase plan				365		—		863			—			—						863
Issuance of common stock from exercise of options				369		—		669			—			—						669
Stock-based compensation charge				25		—		342			—			—						342

Balances as of December 31, 2003				33,198	$	3	$	1,212,671		$	(49	)	$	(1,204,675	)				$	7,950
Comprehensive income:
	Net income (restated, see Note 1)			—		—		—			—			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 (restated, see Note 1)														$	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 (restated, see Note 1)				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	)

The accompanying notes are an integral part of these consolidated financial statements.

BROADVISION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


				Years Ended December 31,

				2005			2004			2003

							(Restated,
							See Note 1)
				(In thousands)
Cash flows from operating activities:
Net income (loss)				$	(38,966	)	$	18,566		$	(35,471	)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization					1,231			3,672			11,261
Stock-based compensation charge (reversal)					—			(19	)		342
Provision for (release of) doubtful accounts and reserves					(678	)		(1,466	)		(812	)
Amortization of prepaid royalties					70			613			1,167
(Gain) loss on cost method investments					(1,117	)		517			385
Loss on sale or abandonment of fixed assets					117			—			—
Impairment of assets					—			(96	)		—
Amortization and write-offs of goodwill and other intangibles					31,368			—			886
Loss on debt extinguishment					6,967			—			—
Non-cash restructuring reversals					—			(24,855	)		(457	)
(Gain) loss on revaluation of embedded derivatives and warrants					(11,346	)		2,422			—
Amortization of discount and revaluation of convertible notes					9,422			401			—
Changes in operating assets and liabilities, net of effects from acquired business:
		Accounts receivable			2,408			2,476			8,349
		Prepaid expenses and other current assets			248			2,501			1,621
		Other non-current assets			228			600			1,909
		Accounts payable and accrued expenses			(6,970	)		(2,237	)		(8,135	)
		Restructuring accrual			(26,908	)		(37,788	)		7,489
		Unearned revenue and deferred maintenance			(3,921	)		(6,989	)		(11,653	)
		Other non-current liabilities			(54	)		(168	)		—

			Net cash used for operating activities		(37,901	)		(41,850	)		(23,119	)
Cash flows from investing activities:
Purchase of property and equipment					(142	)		(730	)		(131	)
Proceeds from sale of assets					26			—			186
Sales/maturity of short-term investments					—			—			27,342
Purchase of short-term investments					—			—			(2,917	)
Purchase of long-term investments					—			(100	)		(2,729	)
Sales/maturity of long-term investments					—			624			3,403
Proceeds from sale of cost method investments					590			—			—
Transfer (to) from restricted cash/investments					22,259			(4,428	)		(3,123	)
Proceeds from dividends on equity investments					1,101			795			—

			Net cash provided by (used for) investing activities		23,834			(3,839	)		22,031
Cash flows from financing activities:
	Proceeds from bank line of credit and term debt borrowings				35,000			89,076			2,000
	Repayments of bank line of credit and term debt borrowings				(55,638	)		(96,994	)		(1,051	)
	Proceeds from issuance of convertible debt, net				—			14,887			—
	Repayment of convertible debt				(3,199	)		—			—
	Proceeds from issuance of common stock, net				637			1,911			1,529

			Net cash (used in) provided by financing activities		(23,200	)		8,880			2,478
Effect of exchange rates on cash and cash equivalents					265			(116	)		—

Net (decrease) increase in cash and cash equivalents					(37,002	)		(36,925	)		1,390
Cash and cash equivalents, beginning of year					41,851			78,776			77,386

Cash and cash equivalents, end of year				$	4,849		$	41,851		$	78,776

Supplemental cash flow disclosures:
	Cash paid for interest			$	873		$	99		$	199

	Cash (refunded) paid for income taxes			$	(445	)	$	426		$	1,263

The accompanying notes are an integral part of these consolidated financial statements.

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2005

Note 1 — Organization and Summary of Significant Accounting Policies


	*Nature of Business*

BroadVision, Inc. (collectively with its subsidiaries, 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.

As discussed in Note 9, in September 2005, the Company received a notice from the Listing Qualifications Department of The Nasdaq Stock Market stating that it was not in compliance with the Minimum Bid Price Rule, and that it would be provided 180 calendar days (or until March 6, 2006) to regain compliance. Because of this non-compliance and in order to complete the share issuance for the stock for debt exchange without violating applicable listing standards, the Company delivered to Nasdaq a notification of voluntarily delisting of its common stock from the Nasdaq National Market, and its common stock was delisted from the Nasdaq National Market effective March 8, 2006. Accordingly, the last day of trading on the Nasdaq National Market was March 7, 2006. Quotations for BroadVision’s common stock are currently available through the “Pink Sheets” under the trading symbol “BVSN”, and the Company anticipates that such quotations will continue to be available.


	*Restatement*

As discussed more fully in Note 5, subsequent to the issuance of the 2004 consolidated financial statements, based on clarifying SEC guidance issued in 2005, the Company made a determination that the convertible debentures entered into in 2004 included an embedded derivative that should be valued under the provisions of SFAS 133. The Company had previously determined that convertible debentures were conventional under the provisions of EITF 00-19. Therefore, the Company has restated its operating results for the three-month period and year ended December 31, 2004, and restated its operating results for the three-month periods ended March 31, June 30 and September 30, 2005. See Notes 5 and 12.

The following tables outline the effects of the restatements described above for the periods that have been previously reported by the Company (in thousands, except per share data).

As of and for the Twelve Months (Fiscal Year) Ended:


	December 31, 2004

	Previously
	Reported			Restated

Interest expense, net	$	(228	)	$	(629	)
Income (expense) from derivatives	$	(753	)	$	(2,421	)
Net income	$	20,635		$	18,566
Basic net income per share	$	0.62		$	0.55
Diluted net income per share	$	0.60		$	0.54
Total liabilities	$	114,243		$	116,312
Total stockholders’ equity	$	30,410		$	28,341

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

As of and for the Three Months Ended (unaudited):


	December 31, 2004						March 31, 2005						June 30, 2005						September 30, 2005

	Previously						Previously						Previously						Previously
	Reported			Restated			Reported			Restated			Reported			Reported			Restated			Restated

Interest expense, net	$	(516	)	$	(917	)	$	(744	)	$	(1,723	)	$	(1,090	)	$	(2,532	)	$	(1,002	)	$	(2,073	)
Income (expense) from derivatives	$	(753	)	$	(2,421	)	$	2,517		$	7,991		$	997		$	2,257		$	698		$	794
Net (loss) income	$	(386	)	$	(2,455	)	$	2,918		$	7,413		$	(2,914	)	$	(3,095	)	$	(14,538	)	$	(15,512	)
Basic net (loss) income per share	$	(0.01	)	$	(0.07	)	$	0.09		$	0.22		$	(0.09	)	$	(0.09	)	$	(0.42	)	$	(0.45	)
Diluted net (loss) income per share	$	(0.01	)	$	(0.07	)	$	0.07		$	0.19		$	(0.09	)	$	(0.09	)	$	(0.42	)	$	(0.45	)
Total liabilities	$	114,243		$	116,312		$	85,099		$	82,673		$	75,424		$	73,179		$	50,963		$	49,674
Total stockholders’ equity	$	30,410		$	28,341		$	33,743		$	36,167		$	30,959		$	33,205		$	16,480		$	17,749


	*Basis of Presentation*

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company faces liquidity challenges. At December 31, 2005, the Company’s current liabilities exceeded its current assets by approximately $35.9 million (negative working capital) resulting in a working capital ratio of approximately 0.35 to 1.0. Subsequent to December 31, 2005, the Company’s Chairman, Chief Executive Officer, converted the debt of $20.5 million to Common Stock as described in Note 5. This will improve the working capital of the Company. The Company’s liquidity situation has also improved since the end of 2005 for reasons that include the effects of operating expense reductions, accounts receivable collections and maintenance contract renewals. Based on the Company’s current liquidity position, the Company’s analysis of the components of its current assets and liabilities, the Company’s actual financial results for the first quarter of 2006 and the Company’s internal financial forecast for the balance of the year, the Company currently expects to be able to fund its working capital requirements through at least the end of 2006 from its existing cash and cash equivalents and its anticipated cash flows from operations and subleases. The Company’s Chairman, Chief Executive Officer and largest stockholder has committed to provide, upon the Company’s 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. Accordingly, no adjustments have been made to the carrying values or classification of the assets and liabilities in the accompanying financial statements to take account of any uncertainty as to the Company’s ability to continue as a going concern. If unanticipated events or circumstances occur, the Company may be required to seek additional capital and/or further reduce spending, which could have a material adverse effect on the Company’s ability to achieve its business objectives and continue as a going concern.


	*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. In the Company’s opinion, the consolidated financial statements presented herein include all necessary adjustments, consisting of normal recurring adjustments, to fairly state the Company’s financial position, results of operations, and cash flows for the periods indicated.

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)


	*Use of Estimates*

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain assumptions and estimates that affect reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to collectibility of customer accounts, the value assigned to and estimated useful lives of long-lived assets, the realizability of goodwill and tax assets, contingent liabilities and the valuation of equity securities. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from estimates.


	*Revenue Recognition*


	Overview

The Company’s revenue consists of fees for licenses of the Company’s software products, and related 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 Central Processing Units (“CPUs”) utilized by the machine on which the product is installed. Licenses for software whereby fees charged are based upon the number of persons registered to use the product are differentiated between licenses for development use and licenses for use in deployment of the customer’s website. Licenses for software whereby fees charged are on a per-CPU basis do not differentiate between development and deployment usage. The Company’s revenue recognition policies are in accordance with Statement of Position (“SOP”) No. 97-2, Software Revenue Recognition (“SOP 97-2”), as amended; SOP No. 98-9, Software Revenue Recognition, With Respect to Certain Transactions (“SOP 98-9”) and SAB 104, Revenue Recognition (“SAB 104”).

The Company licenses its products through its direct sales force and indirectly through resellers. In general, software license revenues are recognized when a non-cancelable license agreement has been signed and the customer acknowledges an unconditional obligation to pay, the software product has been delivered, there are no uncertainties surrounding product acceptance, the fees are fixed and determinable and collection is considered probable. Delivery is considered to have occurred when title and risk of loss have been transferred to the customer, which generally occurs when media containing the licensed programs is provided to a common carrier. In case of electronic delivery, delivery occurs when the customer is given access to the licensed programs. If collectibility is not considered probable, revenue is recognized when the fee is collected. Subscription-based license revenues are recognized ratably over the subscription period. The Company enters into reseller arrangements that typically provide for sublicense fees payable to the Company based upon a percentage of list price. The Company does not grant its resellers the right of return. Revenue generated under reseller agreements is recognized upon obtaining evidence of the resale of the license rights from the reseller to one or more end users and meeting all other revenue criteria.

The Company recognizes license revenue using the residual method pursuant to the requirements of SOP 97-2, as amended by SOP 98-9. Revenues recognized from multiple-element software arrangements are allocated to each element of the arrangement based on the fair values of the elements, such as licenses for software products, maintenance, consulting services or customer training. The determination of fair value is based on objective evidence, generally as priced when sold separately, which is specific to the Company. The Company limits its assessment of objective evidence for each element to either the price charged when the same element is sold separately or the price established by management having the relevant authority to do so, for an element not yet sold separately. If evidence of fair value of all undelivered elements exists but evidence does not exist for one or more delivered elements, then revenue is recognized using the residual method.

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

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. Where applicable, work performed is determined based upon a cost-based, percentage-of -completion method. Revenues recognized in advance of customer billings are generally not significant. 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 BroadVision Global Services (BVGS). Services that the Company provides are not essential to the functionality of the software. In accordance with EITF 01-14, which the Company adopted as of January 1, 2002, the Company records reimbursement by its customers for out-of -pocket expenses as an increase to services revenues.


	*Cash, Cash Equivalents and Short-Term Investments*

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 short-term and long-term investment unrealized gains (losses) was $49,000 as of December 31, 2003. Total realized gains during fiscal years 2005 and 2004 were $1.4 million and $573,000, respectively, and are included in other income in the accompanying Consolidated Statements of Operations.

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

Our cash and cash equivalents, short-term investments and long-term investments consisted of the following as of December 31, 2005 and 2004 (in thousands):


									Classified on Balance Sheet as:

													Restricted
											Restricted		Cash and
	Purchase/		Gross		Gross				Cash and		Cash and		Investments,
	Amortized		Unrealized		Unrealized		Aggregate		Cash		Investments,		Non-
	Cost		Gains		Losses		Fair Value		Equivalents		Current		Current

As of December 31, 2005:
Cash and certificates of deposit	$	6,027	$	—	$	—	$	6,027	$	4,030	$	—	$	1,997
Money market		819		—		—		819		819		—		—

Total	$	6,846	$	—	$	—	$	6,846	$	4,849	$	—	$	1,997

As of December 31, 2004:
Cash and certificates of deposit	$	55,240	$	—	$	—	$	55,240	$	30,984	$	21,933	$	2,323
Money market		10,867		—		—		10,867		10,867		—		—

Total	$	66,107	$	—	$	—	$	66,107	$	41,851	$	21,933	$	2,323


	*Research and Development and Software Development Costs*

Under the criteria set forth in Statement of Financial Accounting Standards (“SFAS”) No. 86, Accounting for the Cost of Computer Software to be Sold, Leased or Otherwise Marketed , development costs incurred in the research and development of new software products are expensed as incurred until technological feasibility in the form of a working model has been 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, the Company has not capitalized any costs related to the development of software for external use.


	*Advertising Costs*

Advertising costs are expensed as incurred. Advertising expense, which is included in sales and marketing expense, amounted to $68,000, $82,000, and $122,000 in 2005, 2004, and 2003, 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.


	*Allowances and Reserves*

Occasionally, the Company’s customers experience financial difficulty after the Company records the sale but before payment has been received. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company’s normal payment terms are 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 allowances may be required. Losses from customer receivables in the three-year period ended December 31, 2005, have not be significant.

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)


	*Restructuring*

Through December 31, 2005, the Company has approved certain restructuring plans to, among other things, reduce its workforce and consolidate facilities. These restructuring charges were taken to align the Company’s cost structure with changing market conditions and to create a more efficient organization. The Company’s restructuring charges are comprised primarily of: (i) severance and benefits termination costs related to the reduction of the Company’s workforce; (ii) lease termination costs and/or costs associated with permanently vacating its facilities; (iii) other incremental costs incurred as a direct result of the restructuring plan; and (iv) impairment costs related to certain long-lived assets abandoned. 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. 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.

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)


	*Legal Matters*

The Company’s current estimated range of liability related to pending litigation is based on claims for which it is probable that a liability has been incurred and the Company can estimate the amount and range of loss. The Company has recorded the minimum estimated liability related to those claims, where there is a range of loss. Because of the uncertainties related to both the determination of the probability of an unfavorable outcome and the amount and range of loss in the event of an unfavorable outcome, the Company is unable to make a reasonable estimate of the liability that could result from the remaining pending litigation. As additional information becomes available, the Company will assess the potential liability related to its pending litigation and revise its estimates, if necessary. Such revisions in the Company’s estimates of the potential liability could materially impact the Company’s results of operations and financial position.


	*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. Depreciation and amortization expense for the years ended December 31, 2005, 2004 and 2003 was $1.2 million, $3.7 million, and $11.3 million, respectively. 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. The Company recorded asset impairments of approximately $515,000 during fiscal 2003 in connection with the Company’s restructuring plan, which are included in the restructuring charge recorded in the Company’s Consolidated Statement of Operations.


	*Valuation of Long-Lived Assets*

The Company adopted Statement of Financial Accounting Standards 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.

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 it has a single reporting unit and then comparing its net book value to its market capitalization based upon the quoted market price of its 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 of $18.2 million in the quarter ended December 31, 2005. Further, as of December 31, 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, 2005.

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)


	*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 Option and Purchase Plans*

The Company accounts for employee stock-based awards in accordance with the provisions of APB Opinion 25, Financial Accounting Standards Board Interpretation No. 44 (FIN 44), Accounting for Certain Transactions Involving Stock Compensation — an Interpretation of APB Opinion 25 , and related interpretations. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. Pursuant to SFAS 123, Accounting for Stock-Based Compensation (“SFAS 123”), the Company discloses the pro forma effects of using the fair value method of accounting for stock-based compensation arrangements. The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS 123 and Emerging Issues Task Force (EITF) 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees For Acquiring or in Conjunction with Selling Goods or Services.

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

In anticipation of the pending reporting requirements under the accounting standard Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”), the Company’s Board of Directors, on November 29, 2005, unanimously approved accelerating on November 29, 2005, the vesting of out-of -the-money, unvested stock options held by current employees, including executive officers and Board members. 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. The following table summarizes the options for which vesting was accelerated:


	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 statement of operations as required under the provisions of SFAS 123(R), which was effective as of January 1, 2006.

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

terminated employee. The compensation charge was calculated using the Black-Scholes model. Of the total charge, $131,000 was recorded in general and administrative expense, $67,000 was recorded in sales and marketing expense and the remaining $144,000 was related to employees terminated under the Company’s restructuring plan and therefore included in the restructuring charge.

On February 7, 2002, the Board of Directors approved an increase by an amount not to exceed 5% of the number of shares outstanding for issuance under the Company’s Employee Stock Purchase Plan (the “Purchase Plan”). The Purchase Plan permits eligible employees to purchase common stock equivalent to a percentage of the employee’s earnings, not to exceed 15%, at a price equal to 85% of the fair market value of the common stock at dates specified by the Board of Directors as provided in the Plan. Under the Purchase Plan, the Company issued approximately 516,412, 443,401, and 365,049 shares to employees in the years ended December 31, 2005, 2004 and 2003, respectively. Under SFAS 123, compensation cost is recognized for the fair value of the employees’ purchase rights, which was estimated using the Black-Scholes option pricing model with no expected dividends, an expected life of approximately 12 months, and the following weighted-average assumptions:


	Years Ended December 31,

	2005		2004		2003

Risk-free interest rate		3.84%		3.61%		0.9%
Volatility		89%		108%		118%

The weighted-average fair value of the purchase rights granted in the years ended December 31, 2005, 2004, and 2003, was $0.82, $4.04, and $1.22, respectively.

The fair value of each option grant is 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			2003

Expected life		7.4 years			3.5 years			3.5 years
Risk-free interest rate		4.12	%		3.61	%		2.97	%
Volatility		21	%		108	%		118	%

We have determined pro forma information regarding net income (loss) and earnings per share as if we had accounted for employee stock options under the fair value method as required by SFAS 123. The fair value of these stock-based awards to employees was estimated using the Black-Scholes option pricing model. See Note 9 of Notes to Consolidated Financial Statements. Had compensation cost for the Company’s stock option plan and employee stock purchase plan been determined consistent with SFAS 123, the Company’s

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

reported net income (loss) and net earnings (loss) per share would have been changed to the amounts indicated below (in thousands except per share data):


		Years Ended December 31,

		2005			2004			2003

					(Restated)
Net income (loss), as reported		$	(38,966	)	$	18,566		$	(35,471	)
Add: Stock-based compensation (income) expense included in reported net loss, net of related tax effects			—			(19	)		342
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects			(2,263	)		(4,545	)		(9,275	)

Pro forma net income (loss)		$	(41,229	)	$	14,002		$	(44,404	)

Net income (loss) per share:
	Basic — as reported	$	(1.14	)	$	0.55		$	(1.08	)

	Basic — pro forma	$	(1.20	)	$	0.42		$	(1.35	)

	Diluted — as reported	$	(1.14	)	$	0.54		$	(1.08	)

	Diluted — pro forma	$	(1.20	)	$	0.41		$	(1.35	)


	*Reverse Stock Splits*

On July 24, 2002, the Company announced that its Board of Directors had approved a one-for-nine reverse split of its common stock. The reverse split was effective as of July 29, 2002. Each nine shares of outstanding common stock of the Company automatically converted into one share of common stock. The Company’s common stock began trading on a post-split basis at the opening of trading on the Nasdaq National Market on July 30, 2002.

The accompanying consolidated financial statements and related financial information contained herein have been retroactively restated to give effect for the July 2002 reverse stock split.


	*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. Excluded from the computation of diluted loss per share for the years ended December 31, 2003, are 1,231,000 common

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

share equivalents related to options and warrants to acquire shares of common stock because their effects would be anti-dilutive.


	Years Ended December 31,

	2005			2004		2003

	(In thousands, except
	per share amounts)
				(Restated)
Net income (loss)	$	(38,966	)	$	18,566	$	(35,471	)

Weighted-average common shares outstanding to compute basic income (loss) per share		34,228			33,539		32,800
Weighted-average common equivalent shares from outstanding common stock options and warrants		—			782		—

Total weighted-average common and common equivalent shares outstanding to compute diluted loss per share		34,228			34,321		32,800

Basic income (loss) per share	$	(1.14	)	$	0.55	$	(1.08	)

Diluted income (loss) per share	$	(1.14	)	$	0.54	$	(1.08	)

In the years ended December 31, 2005 and 2003, 6,802,000 and 4,747,000 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.

Subsequent to December 31, 2005, the Company issued 34.5 million shares of common stock in connection with the cancellation of the Notes. See further discussion at Note 12.


	*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 in other income (expense), net in the Consolidated Statements of Operations. A translation loss of $116,000 was recorded in the year ended December 31, 2004, and a translation gain of $265,000 was recorded in the year ended December 31, 2005.


	*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

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

accumulated balances for each classification of 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, 2002	$	37		$	—		$	37
Net change during period		(86	)		—			(86	)

Balance, December 31, 2003		(49	)		—			(49	)
Net change during period		49			(172	)		(123	)

Balance, December 31, 2004		—			(172	)		(172	)
Net change during period		—			265			265

Balance, December 31, 2005	$	—		$	93		$	93


	*Income Taxes and Deferred Tax Assets*

Income taxes are computed using an asset and liability approach, 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, are 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.


	*New Accounting Pronouncements*

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. Under SFAS 123(R), the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include prospective and retroactive adoption options. The Company adopted SFAS 123(R), utilizing the modified prospective method, in the first quarter of fiscal 2006, and such adoption will require the Company to record compensation expense in its 2006 consolidated financials statements and forward based upon the fair value of future stock option grants using the Black-Scholes model and the vesting in those periods. The impact on future operating results and financial condition will be affected by changes in its stock price, as well as assumptions regarding a number of complex and subjective variables and the related tax impact. These variables include, but are not limited to, the Company’s stock price volatility and employee stock option exercise behaviors.

In December 2004, the FASB issued SFAS No. 153 (SFAS 153), “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.” SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, “Accounting for Nonmonetary Transactions” , and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for periods beginning after June 15, 2005. The Company does not expect that adoption of SFAS 153 will have a material effect on its consolidated financial position, consolidated results of operations, or liquidity.

In March 2005, the FASB issued Interpretation No. (FIN) 47, Accounting for Conditional Asset Retirement Obligations (“FIN 47”), to clarify the requirement to record liabilities stemming from a legal obligation to clean up and retire fixed assets, such as a plant or factory, when an asset retirement depends on a future event. The Company evaluated the requirements of FIN 47 and concluded that the application of FIN 47 does not have a material impact on its results of operations or financial position.

In May 2005, the FASB issued SFAS No. 154 that establishes new standards on accounting for changes in accounting principles. Pursuant to the new rules, all such changes must be accounted for by retrospective application to the financial statements of the prior periods unless it is impracticable to do so. SFAS No. 154 completely replaces Accounting Principles Bulletin (APB) Opinion 20 and SFAS 3, though it carries forward the guidance in those pronouncements with respect to accounting for changes in estimates, changes in the reporting entity, and the correction of errors. This statement is effective for accounting for changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of this statement did not have a material impact on the Company’s consolidated financial position, results of operations or liquidity.

In June 2005, the Emerging Issues Task Force (EITF) issued No. 05-06, Determining the Amortization Period for Leasehold Improvements (“EITF 05-6”). The pronouncement requires that leasehold improvements acquired in a business combination or purchase, significantly after the inception of the lease, be amortized over the lesser of the useful life of the asset or the lease term that includes reasonably assured lease renewals as determined on the date of the acquisition of the leasehold improvement. This pronouncement should be applied prospectively effective January 1, 2006. The Company does not expect the adoption of EITF 05-6 to have a material effect on its consolidated financial position, results of operations or cash flows.

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

during an audit by taxing authorities. The proposed Interpretation would be effective as of the beginning of the first fiscal year ending after December 15, 2006, with a cumulative effect of a change in accounting principle to be recorded upon the initial adoption. The proposed Interpretation would apply to all tax positions and only benefits from tax positions that meet the probable recognition threshold at or after the effective date would be recognized. The Company is currently analyzing the proposed Interpretation and has not determined its potential impact on its Consolidated Financial Statements. While the rules in the final Interpretation cannot be predicted with certainty, there is risk that the final Interpretation could result in a cumulative effect charge to earnings upon adoption, increases in future effective tax rates, and/or increases in future interperiod effective tax rate volatility.

In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155, Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140 (“SFAS 155”). SFAS 155 amends SFAS 133 and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities , to, among other things, clarify or amend provisions regarding the fair value measurement of financial instruments with embedded derivatives and the recording of interests in securitized financial assets. SFAS 155 will be effective for all financial instruments acquired or issued after January 1, 2007. The Company is currently analyzing SFAS 155 and has not determined its potential impact on its Consolidated Financial Statements.

In March 2006, the FASB issued SFAS No. 156 (“FAS 156”), “Accounting for Servicing of Financial Assets — An Amendment of FASB Statement No. 140.” Among other requirements, FAS 156 requires a company to recognize a servicing asset or servicing liability when it undertakes an obligation to service a financial asset by entering into a servicing contract under certain situations. Under FAS 156 an election can also be made for subsequent fair value measurement of servicing assets and servicing liabilities by class, thus simplifying the accounting and provide for income statement recognition of potential offsetting changes in the fair value of servicing assets, servicing liabilities and related derivative instruments. The Statement will be effect beginning the first fiscal year that begins after September 15, 2006. We do not expect the adoption of FAS 156 to have a material impact on our financial position or results of operations.

Note 2 — Property and Equipment


	December 31,

	2005			2004

	(In thousands)
Furniture and fixtures	$	2,791		$	4,036
Computer and software		32,705			49,258
Leasehold improvements		6,219			6,086

		41,715			59,380
Less accumulated depreciation and amortization		(39,381	)		(55,814	)

Total property and equipment, net	$	2,334		$	3,566

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). Depreciation and amortization expense for the years ended December 31, 2005, 2004, and 2003 was $1.2 million, $3.7 million, and $11.3 million, respectively. In 2005, the Company reduced the cost and accumulated depreciation of property and equipment by $17.9 million to write off fully-depreciated assets as a result of a detailed review of assets during the year.

In 2004, the Company transferred ownership of certain furniture, fixtures, and leasehold improvements with a net book value of $8.5 million to previous landlords as a part of a settlement relating to future real estate

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

obligations. The Company recorded asset impairments of approximately $515,000 during fiscal 2003 in connection with the Company’s restructuring plan, which is included in the Company’s restructuring charge recorded in the Company’s Consolidated Statement of Operations.

Note 3 — Goodwill

The Company adopted 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.

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 Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). As of September 30, 2005, the Company performed Step 1 under the provisions of SFAS 142 by determining that it has a single reporting unit and then comparing its net book value to its market capitalization based upon the quoted market price of its 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 our third quarter financial statements, the Company obtained a third-party valuation report, completed Step 2 and recorded an adjustment to the original estimate (recognized as an additional impairment charge) of $18.2 million in the quarter ended December 31, 2005. Further, as of December 31, 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, 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.

Upon adoption of SFAS 141 and 142 in the year ended December 31, 2003, the Company no longer amortizes its non-technology based intangible asset, or assembled workforce. Amortization expense for completed technology intangibles was $886,000 in 2003. As of December 31, 2003, completed technology intangibles had been fully amortized.

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

Note 4 — Accrued Expenses

Accrued expenses consisted of the following:


	December 31,

	2005		2004

	(In thousands)
Employee benefits	$	1,048	$	1,253
Commissions and bonuses		533		1,334
Sales and other taxes		3,885		5,085
Restructuring		5,533		26,292
Other		5,091		6,781

Total accrued expenses	$	16,090	$	40,745

Note 5 — Bank Borrowings, Convertible Debentures and Other Non-Current Liabilities


	*Bank Borrowings*

Bank borrowings consist of the following:


		December 31,

		2005			2004

		(In thousands)
Revolving line of credit borrowings		$	—		$	20,000
Term debt			389			1,027

	Total bank borrowings		389			21,027
Less: Current portion of bank borrowings			(389	)		(20,637	)

Bank borrowings, net of current portion		$	—		$	390

We have maintained various credit facilities with a commercial lender:


	•	During the three years ended December 31, 2005, we maintained a revolving line of credit in the form of a loan and security agreement with a commercial lender. In June 2005, we entered into a $20 million renewed and amended loan and security agreement with the lender that made more stringent the requirements we must meet in order to access the credit facility. We were not in compliance with these new requirements as of December 31, 2005, and the loan and security agreement expired in February 2006. The agreement required us to maintain certain levels of unrestricted cash and cash equivalents (excluding equity investments), and to maintain certain levels on deposit with the lender. At December 31, 2004, $20.0 million was outstanding under the line of credit. As of December 31, 2005, there was no outstanding balance on the line of credit. Borrowings bear interest at the bank’s prime rate (7.25% as of December 31, 2005 and 5.25% as of December 31, 2004) plus up to 1.25% and were collateralized by all of our assets. Interest was due monthly and principal was due at the expiration in February 2006.

	•	We have 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. Principal and interest are due in monthly payments through maturity based on the terms of the facilities. Principal payments of $389,000 are due in 2006. As of December 31, 2005, the entire balance of $389,000 was classified as currently due.

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)


	*Convertible Debentures*

Convertible debentures consisted of the following:


	December 31,

	2005			2004

				(Restated)
	(In thousands)
Convertible debentures, 6% coupon	$	20,535		$	16,000
Discount on convertible debentures		—			(8,805	)
Embedded derivatives		—			6,856

Convertible debentures, net of discount		20,535			14,051
Less: Current portion of convertible debentures		(20,535	)		(10,214	)

Convertible debentures, net of current portion	$	—		$	3,837

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 we did not satisfy the conditions required to make payments in stock, we were 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.

Upon issuance, the Company concluded that the Notes were 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 no embedded derivatives required valuation under SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”. Subsequent to the issuance of the 2004 consolidated financial statements, based on clarifying SEC guidance issued in 2005, the Company concluded that the Notes were non-conventional under the provisions of EITF 00-19, and the conversion feature of the Notes (the “Conversion Feature”) should be valued under the provisions of SFAS 133 as embedded derivatives. The Company’s subsequent 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. As discussed in Note 1, the accompanying financial statements for 2004 and certain interim periods in 2004 and 2005 have been restated to correct errors pertaining to the accounting for the foregoing derivative instruments.

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

In conjunction with the issuance of the Notes, the Company issued warrants to purchase 1,739,130 shares of common stock. See Note 9. 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. The warrants have also been accounted for as a derivative under SFAS 133.

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 is recording 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 revalution 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,

	2005		2004			2003

			(Restated)
Warrants related to the Notes	$	3,337	$	(97	)	$	—
Warrants related to real estate buyout		1,285		(656	)		—
Conversion Feature		5,857		(1,471	)		—
Additional Investment Rights		867		(197	)		—

Income (expense) from derivatives	$	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
	Dec. 31,			At			Dec. 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	%

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

The following table includes the assumptions used to value the warrants at issuance, at December 31, 2004 and at December 31, 2005:


	At Dec. 31
							At
	2005			2004			Issuance

Exercise price (per share)	$	3.58		$	3.58		$	3.58
Contractual term (years)		3.6			4.6			5.0
Volatility		0.84			1.08			1.12
Risk-free interest rate		4.28	%		3.62	%		3.79	%

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, and subsequently on November 18, 2005, the Notes were in turn purchased by 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 are being carried at December 31, 2005, at fair value upon reissuance.

The Notes 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 our common shares increased to approximately 59% (see Note 12).

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)


	*Other Non-Current Liabilities*

Other non-current liabilities consist of the following:


	December 31,

	2005		2004

	(In thousands)
Restructuring	$	1,722	$	7,871
Deferred maintenance and unearned revenue		2,334		3,148
Other		334		407

Total other non-current liabilities	$	4,390	$	11,426

Note 6 — Income Taxes

The components of benefit (provision) for income taxes are as follows (in thousands):


		Years Ended December 31,

		2005			2004			2003

Current:
	Federal	$	660		$	—		$	—
	State		(10	)		(110	)		(244	)
	Foreign		1,961			419			(195	)

	Total current		2,611			309			(439	)
Deferred:
	Federal		—			—			—
	State		—			—			—

	Total deferred		—			—			—

Income tax benefit (provision)		$	2,611		$	309		$	(439	)

The differences between the benefit (provision) for income taxes computed at the federal statutory rate of 35% and the Company’s actual income tax benefit (provision) for the periods presented are as follows (in thousands):


	Years Ended December 31,

	2005			2004			2003

Expected income tax benefit (provision)	$	14,552		$	(6,390	)	$	12,262
State income tax benefit (provision), net of federal tax benefit (provision)		662			(1,103	)		1,683
California net operating loss reduction		—			—			(1,186	)
Foreign taxes		(264	)		(72	)		(663	)
Utilization of foreign net operating loss carryforwards		913			688			533
Valuation allowance changes affecting provision		(575	)		7,521			(11,546	)
Foreign losses not benefited		(952	)		(322	)		(1,542	)
Non-deductible goodwill and intangible amortization		(10,806	)		—			(355	)
Tax credits		—			32			351
Other		(919	)		(45	)		24

Benefit (provision) for income taxes	$	2,611		$	309		$	(439	)

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

The individual components of the Company’s deferred tax assets and liabilities are as follows (in thousands):


		December 31,

		2005			2004

Deferred tax assets:
	Depreciation and amortization	$	5,716		$	11,701
	Accrued liabilities		5,204			16,764
	Capitalized research and development		2,748			4,748
	Net operating losses		214,599			164,985
	Tax credits		13,148			13,740
	Unrealized loss on marketable securities		1,589			5,320

	Total deferred tax assets		243,005			217,259
Less: valuation allowance			(243,005	)		(217,259	)

Net deferred tax assets		$	—		$	—

The Company has provided a valuation allowance for all of its deferred tax assets as of December 31, 2005 and 2004, due to the uncertainty regarding their future realization. The total valuation allowance increased $25.7 million from December 31, 2004 to December 31, 2005 due primarily to net operating losses incurred. As of December 31, 2005, the Company had federal and state operating loss carryforwards of approximately $573.9 million and $152.2 million, respectively, available to offset future regular and alternative minimum taxable income. In addition, the Company had federal and state research and development credit carryforwards of approximately $11.1 million and $3.0 million, respectively, available to offset future tax liabilities. The Company’s federal net operating loss and tax credit carryforwards expire in the tax years 2006 through 2025, if not utilized. The state net operating loss carryforwards expire in the tax years 2006 through 2015. The state research and development credits can be carried forward indefinitely.

Federal and state tax laws limit the use of net operating loss carryforwards in certain situations where changes occur in the stock ownership of a company. The Company believes such an ownership change, as defined, may have occurred and, accordingly, certain of the Company’s federal and state operating loss carryforwards may be limited in their annual usage.

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, 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.

Those earnings 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.

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

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. The Company also indemnifies certain customers from third-party claims of intellectual property infringement relating to the use of its products. Historically, costs related to these guarantees have not been significant and the Company is unable to estimate the maximum potential impact of these guarantees on its future results of operations.

Our software license agreements typically provide for indemnification of customers for intellectual property infringement claims. To date, no such claims have been filed against us.

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 either December 31, 2005 or 2004. 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, net of amounts under non-cancelable sublease agreements, is as follows (in millions):


		Total Future
		Payments

Years ending December 31,
2006		$	3.5
2007			3.9
2008			2.1
2009			2.1
2010 and thereafter			4.1

	Total minimum facilities payments	$	15.7

These future minimum lease payments are net of approximately $1.7 million of sublease income to be received under non-cancelable sublease agreements. As of December 31, 2005, we have accrued $6.8 million of estimated future facilities costs as a restructuring accrual. Included in this accrual is a Company purchase right of $4.5 million (discounted to its $4.2 million present value) that, upon exercise by the Company, would terminate approximately $9.1 million of future lease obligations through June 2012. See Note 8.

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

Rent expense for the years ended December 31, 2005, 2004 and 2003 was $3,187,000, $4,162,000 and $4,606,000, respectively.


	*Equity Investments*

In January 2000, the Company entered into a limited partnership agreement with a venture capital firm under which it was obligated to contribute capital based upon the periodic funding requirements. The total capital commitment was $2.0 million, of which $1.1 million had been contributed through December 31, 2003. In September 2004, the Company sold its interest in the partnership agreement for approximately $576,000 in cash and recorded a loss of approximately $230,000. That loss is included in “Other Income (Expense), net” in the accompanying Consolidated Statement of Operations. As a result of this sale, the Company’s obligation to make future capital contributions has been extinguished.


	*Standby Letter of Credit Commitments*

Commitments totaling $2.0 million and $24.3 million in the form of standby letters of credit were issued on the Company’s behalf from financial institutions as of December 31, 2005 and 2004, respectively, in favor of the Company’s various landlords to secure obligations under the Company’s facility leases.


	*Legal Proceedings*

On June 10, 2004, Metropolitan Life Insurance Company (“MetLife”) filed a complaint in the Superior Court of the State of California, County of Los Angeles, naming the Company as a defendant. The complaint alleged that the Company was liable for unlawful detainer of premises leased from the plaintiff. The plaintiff thereafter filed a First Amended Complaint alleging that the Company no longer held possession of the premises but was in breach of the lease. In February 2005, MetLife and the Company reached agreement and executed documents regarding a settlement of the pending lawsuit under which the Company will pay MetLife an aggregate of $1,927,500 in consideration for termination of the lease, dismissal of the lawsuit and in full settlement of approximately $3.1 million of past and future lease obligations. This amount was accrued as a component of the restructuring accrual, and paid in three installment payments in February, May, and September 2005.

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

the director defendants violated their fiduciary duties to stockholders by, among other things, failing to maximize our value and ignoring, or failing to adequately protect against, certain purported conflicts of interest. Each complaint seeks, among other things, injunctive relief and damages in an unspecified amount. On September 21, plaintiff Goberville filed an amended complaint alleging that defendants caused materially misleading information regarding a proposed merger to be disseminated to the Company’s stockholders. On October 20, 2005, the Court ordered consolidation of the four pending actions pursuant to the parties’ stipulation. In light of the termination of the Merger Agreement with an affiliate of Vector on December 2, 2005, the plaintiffs in the four above entitled actions agreed to dismiss, without prejudice, their complaints against our directors and BroadVision, Inc. on December 9, 2005.

The Company is also subject to various other claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material effect on the Company’s business, financial condition or results of operations. Although management currently believes that the outcome of other outstanding legal proceedings, claims and litigation involving the Company will not have a material adverse effect on its business, results of operations or financial condition, litigation is inherently uncertain, and there can be no assurance that existing or future litigation will not have a material adverse effect on the Company’s business, results of operations or financial condition.

Note 8 — Restructuring

Through December 31, 2005, the Company has approved restructuring plans to, among other things, reduce its workforce and consolidate facilities. These 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: (1) severance and benefits termination costs related to the reduction of our workforce; (2) lease termination costs and/or costs associated with permanently vacating our facilities; (3) other incremental costs incurred as a direct result of the restructuring plan; and (4) impairment costs related to certain long-lived assets abandoned. We account for each of these costs in accordance with SAB 100, Restructuring and Impairment Charges. Restructuring charges are not associated with nor do they benefit continuing activities.

Severance and Termination Costs . We account for severance and benefits termination costs as follows:


	•	For exit or disposal activities initiated on or prior to December 31, 2002, we account for costs in accordance with EITF 94-3 . Accordingly, we record the liability related to these termination costs when the following conditions have been met: (1) 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; (2) the benefit arrangement is communicated to the employees in sufficient detail to enable the employees to determine the termination benefits; (3) the plan specifically identifies the number of employees to be terminated, their locations and their job classifications; and (4) the period of time to implement the plan does not indicate changes to the plan are likely.

	•	For exit or disposal activities initiated after December 31, 2002, we account for costs in accordance with SFAS No. 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.

Excess Facilities Costs . We account for excess facilities costs as follows:


	•	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 Issue No. 88-10. Accordingly, we

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)


		recorded the costs associated with lease termination and/or abandonment when the leased property had no substantive future use or benefit to us.

	•	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.

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.

The following table summarizes the restructuring accrual activity recorded during the three-years ended December 31, 2005 (in thousands):


	Severance
	and			Facilities/
	Benefits			Excess Assets			Total

Accrual balances, December 31, 2002	$	1,504		$	94,691		$	96,195
Restructuring charges		1,509			33,847			35,356
Cash payments		(2,342	)		(23,829	)		(26,171	)

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

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.

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

The nature of the charges and credits in 2005 were as follows:


	•	Severance and benefits — 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 $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. The Company estimates that the accrual as of December 31, 2005 of $416,000 will be paid in full by December 31, 2006.

	•	Facilities/excess assets — During the twelve months 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. A letter of credit of $2.0 million secured by an equal amount of restricted cash is available to the landlord and secures certain facilities leases as more fully described in Note 8.

The nature of the charges and credits in 2004 were as follows:


	•	Severance and benefits — The Company recorded a related charge of $1.1 million during the twelve months 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.

	•	Facilities/excess assets — During the twelve months 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. Standby letters of credit of $21.9 million were issued on our behalf from financial institutions as of December 31, 2004, in favor of the landlords to secure the fiscal 2005 payments. Accordingly, $21.9 million, along with additional letters of credit securing other long-term leases of $2.3 million, has been included in restricted cash in the accompanying Consolidated Balance Sheets at December 31, 2004. The Company also transferred ownership of certain furniture, fixtures, and leasehold improvements with a net book value of $8.5 million to the previous landlords.


	As a component of the settlement of one of the previous leases, the Company has a residual lease obligation beginning in 2007 of approximately $9.1 million. The Company may make an additional cash payment of $4.5 million if it exercises 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.

	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.

The nature of the charges in 2003 is as follows:


	•	Severance and benefits — The $1.5 million charge in fiscal 2003 related to workforce reductions as a component of the Company’s restructuring plans executed during the year.

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)


	•	Facilities/excess assets — During the twelve months ended December 31, 2003, the Company recorded a facilities-related restructuring charge of $33.8 million. This charge related to the Company’s revisions of estimates with respect to the planned future occupancy and anticipated future subleases. These revisions were necessary due to a reduction in planned future BroadVision space needs and a further decline in the market for commercial real estate. The Company estimated future sublease timing and rates based upon current market indicators and information obtained from a third party real estate expert.

As of December 31, 2005, the total restructuring accrual of $7.2 million consisted of the following (in millions):


			Non-
	Current		Current		Total

Severance and termination	$	0.4	$	—	$	0.4
Excess facilities		5.1		1.7		6.8

Total	$	5.5	$	1.7	$	7.2

The Company estimates that the $0.4 million severance and termination accrual will be paid in full by December 31, 2006. 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,
2006	$	5.1
2007		0.7
2008		0.4
2009		0.4
2010		0.2

Total minimum facilities payments	$	6.8

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

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
	Accrued		Charged to			Amounts
	Restructuring		Restructuring			Paid or			Accrued
	Costs,		Costs and			Written			Restructuring
	Beginning		Other			Off			Costs, Ending

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
Write-off on disposal of assets and related costs		—		—			—			—

	$	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

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

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, 2005:
Lease cancellations and commitments	$	11,515		—		$	(647	)	$	(8,217	)	$	2,651
Termination payments to employees and related costs		459		—			—			(148	)		311
Write-off on disposal of assets and related costs		—		—			—

	$	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

Year Ended December 31, 2003:
Lease cancellations and commitments	$	94,691	$	11,649		$	—		$	(23,314	)	$	83,026
Termination payments to employees and related costs		1,425		41			—			(1,037	)		429
Write-off on disposal of assets and related costs		79		(41	)		(26	)		(12	)		—

	$	96,195	$	11,649		$	(26	)	$	(24,363	)	$	83,455

Note 9 — Stockholders’ Equity (Deficit)


	*Convertible Preferred Stock*

As of December 31, 2005, there were no outstanding shares of convertible preferred stock. The Board of Directors and the stockholders have authorized the issuance of 10,000,000 shares of convertible preferred stock.

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)


	*Warrants*

As of December 31, 2005, the following warrants to purchase the Company’s common stock were outstanding (dollars in thousands, except per share data):


					Fair Value at
					Dec. 31,
			Price per
Description	Shares		Share		2005		2004

Issued to landlord in real estate buyout transaction in August 2004		700,000	$	5.00	$	51	$	1,337
Issued to convertible debenture investors in November 2004		1,739,130		3.58		226		3,562
Others issued in connection with revenue transactions in 1997 and 2000		9,628		Various		—		—

Total shares and fair value and average price per share		2,448,758		4.71	$	277	$	5,899

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 warrants and as triggered by the debt to equity exchange of the Notes, the warrant was reissued in March 2006. See Note 12 for subsequent event discussion.

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 fiscal 2005, the Company recorded credits related to the change in fair value of the warrants of $4.6 million. During fiscal 2004, the Company recorded charges related to the change in fair value from the date of issuance of the 2004 warrants to December 31, 2004, of $754,000. 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 equity.


	*Common Stock*

On July 24, 2002, the Company announced that its Board of Directors had approved a one-for-nine reverse split of its common stock. The reverse split was effective July 29, 2002. Each nine shares of outstanding common stock of the Company automatically converted into one share of common stock. The accompanying consolidated financial statements and related financial information contained herein have been retroactively restated to give effect for this stock split.

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. See Note 12.


	*Employee Based Compensation*

The Company applies APB Opinion 25 and related interpretations when accounting for its stock option and stock purchase plans. As of December 31, 2002, the Company had reserved 96 million shares of common stock for issuance under its Equity Incentive Plan. Under this plan, the Board of Directors may grant incentive or nonqualified stock options at prices not less than 100% or 85%, respectively, of the fair market value of the

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

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 year ended December 31, 2005 and 2004, no shares were repurchased. There were 133 unvested shares that were repurchased by the Company during the year ended December 31, 2003 at a weighted-average price of $7.81.

As of December 31, 2005, the Company had reserved 12,558,550 common shares for future issuance upon the exercise of stock options and warrants and upon the exercise of the conversion provision of the Notes.

In anticipation of the pending reporting requirements under SFAS 123(R), the Company’s Board of Directors on November 29, 2005 unanimously approved accelerating the vesting of out-of -the-money, unvested stock options held by current employees, including executive officers, and Board members. 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. The following table summarizes the options for which vesting was accelerated:


	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.

The Company’s President and Chief Executive Officer (“CEO”) has options to purchase 1,704,444 shares of common stock at an average exercise price of $38.60 per share. The table below is a summary of shares granted through December 31, 2005:


								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

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

Activity in the Company’s stock option plan is as follows:


	Years Ended December 31,

	2005					2004					2003

				Weighted-					Weighted-					Weighted-
				Average					Average					Average
	Options			Exercise		Options			Exercise		Options			Exercise
Fixed Options	(000’s)			Price		(000’s)			Price		(000’s)			Price

Outstanding at beginning of period		4,876		$	21.93		4,128		$	27.32		6,036		$	29.03
Granted		422			2.18		1,264			3.35		190			4.77
Exercised		(26	)		1.50		(87	)		3.07		(170	)		2.31
Forfeited		(1,507	)		13.24		(429	)		21.23		(1,928	)		25.10

Outstanding at end of period		3,765			23.48		4,876			21.93		4,128			27.17

Options exercisable at end of period		3,748		$	23.49		2,656		$	44.90		2,060		$	40.91
Weighted-average fair value of options granted during the period				$	0.70				$	2.33				$	3.47

The following table summarizes stock options outstanding under the plan as of December 31, 2005:


			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		159		7.38	$	1.42		142	$	1.49
2.10 - 2.94		1,363		7.85		2.37		1,363		2.37
3.08 - 3.80		431		7.43		3.65		431		3.65
4.25 - 8.50		396		6.39		6.25		396		6.25
10.75 - 30.00		121		4.48		21.41		121		21.41
30.50 - 39.63		176		5.53		35.01		176		35.01
42.75 - 87.19		1,104		4.45		62.86		1,104		62.86
133.06 - 448.31		15		4.45		186.56		15		186.56

		3,765		6.40	$	23.48		3,748	$	23.49

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

The Company grants options outside of the Company’s stock option plan. The terms of these options are generally identical to those granted under the Company’s plan. A summary of options outside of the plan is presented below:


	Years Ended December 31,

	2005					2004					2003

				Weighted-					Weighted-					Weighted-
				Average					Average					Average
	Options			Exercise		Options			Exercise		Options			Exercise
Fixed Options	(000’s)			Price		(000’s)			Price		(000’s)			Price

Outstanding at beginning of period		1,151		$	17.69		1,614		$	15.96		2,471		$	17.61
Granted		3			2.10		71			7.07		178			5.17
Exercised		(28	)		1.50		(210	)		1.70		(198	)		1.54
Forfeited		(538	)		19.48		(324	)		17.10		(837	)		21.59

Outstanding at end of period		588			16.70		1,151			17.69		1,614			15.96

Options exercisable at end of period		588			16.70		647			28.77		609			31.88

Weighted-average fair value of options granted during the period				$	0.42				$	7.07				$	3.77

The following table summarizes stock options, granted outside the plan, outstanding as of December 31, 2005:


			Outstanding
			Weighted-
			Average		Weighted				Weighted
			Remaining		Average		Exercisable		Average
	Options		Contractual		Exercise		Options		Exercise
Range of Exercise Prices	(000’s)		Life in Years		Price		(000’s)		Price

$ 1.50 - $ 4.91		408		6.83	$	1.53		408	$	1.53
5.00 - 7.92		103		6.17		6.32		103		6.32
35.01 - 64.44		37		5.30		41.64		37		41.64
91.94 - 381.94		40		4.00		176.40		40		176.40

		588		6.43	$	16.70		588		16.70

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 common stock in the Company. During the year ended December 31, 2003, the Company recorded compensation expense of $342,000. This charge was recorded as a result of granting terminated employees continued vesting of their stock options for a period beyond their actual termination date. The compensation charge was calculated using the Black-Scholes model. $131,000 of the charge is recorded in general and administrative expense, $67,000 is recorded in sales and marketing and the remaining $144,000 is included in restructuring charge as it related to employees terminated under the Company’s restructuring plan.

In December 2005, the Company announced its intention to effect a rights offering under which all stockholders of record at the close of business on December 20, 2005 will receive nontransferable rights to purchase approximately 5.9 additional common shares at $0.45 per share for each common share then held. Dr. Chen and his affiliates have waived any right to purchase shares 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

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

Exchange Commission as part of a registration statement on February 3, 2006 (see Note 12). It is anticipated that the rights offering will be made in the second quarter of fiscal 2006.

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, 2005.

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 (Asia/ Pacific). 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. The disaggregated revenue information reviewed by the CEO is as follows (in thousands):


	Years Ended December 31,

	2005		2004		2003

Software licenses	$	14,720	$	26,883	$	30,230
Services		19,095		19,942		22,012
Maintenance		26,306		31,179		35,839

Total revenues	$	60,121	$	78,004	$	88,081

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 application service providers (“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,

		2005		2004		2003

Revenues:
	Americas	$	34,328	$	37,278	$	45,135
	Europe		20,228		33,321		35,458
	Asia/ Pacific		5,565		7,405		7,488

	Total Company	$	60,121	$	78,004	$	88,081

During the years ended December 31, 2005, 2004 and 2003, no customer accounted for 10% or more of the Company’s revenues.

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

The following represents long-lived assets by geographic region (in thousands):


		December 31,

		2005		2004

Long-Lived Assets:
	Americas	$	29,039	$	60,312
	Europe		328		531
	Asia/ Pacific		445		527

	Total Company	$	29,812	$	61,370

Note 12 — Subsequent Events

As discussed in Note 5, on March 8, 2006, pursuant to an agreement entered into on December 20, 2005, the Company completed the exchange of approximately $15.5 million of principal and interest on outstanding secured convertible notes for common shares of the Company. In connection with this transaction, the Company issued 34,500,000 shares of its common stock to a company owned by Dr. Pehong Chen, the Company’s Chairman, Chief Executive Officer, President and largest stockholder, at a price of $0.45 per share in exchange for the cancellation of the notes, all of which were held by Dr. Chen’s company, and the accrued interest on the notes. At the same time, BroadVision paid Dr. Chen’s company approximately $180,000 in cash, representing the portion of the accrued interest on the notes that was not paid in stock. The common share issuance, representing approximately 50% of the post-conversion shares outstanding, increased Dr. Chen’s beneficial ownership interest to 58.7% of the total shares outstanding. The closing price of the Company’s common stock on the Nasdaq National Market on March 8, 2006, was $0.44 per share.

As discussed in Note 10, the Company filed an S-1 Registration Statement on February 3, 2006, related to a pending rights offering. Under the terms of the offering, all stockholders of record at the close of business on December 20, 2005 will receive nontransferable rights to purchase approximately 5.9 additional common shares at $0.45 per share for each common share then held. Dr. Chen and his affiliates have waived any right to purchase shares 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 the S-1 registration statement. It is anticipated that the rights offering will be made in the second quarter of fiscal 2006.

In connection with the Note cancellation and stock issuance discussed above, the warrants issued to convertible debenture investors in November 2004 (see Note 9), which were originally exercisable to purchase 1,739,130 shares at an exercise price of $3.58 per share, were adjusted such that, following such share issuance, the warrants became exercisable for 3,082,219 common shares at an exercise price of $2.02 per share. The exchange was pursuant to the terms of the warrants, which included a provision for pricing based upon dilutive share issuances. In connection with this exchange, the Company will record a charge of $282,000 in the quarter ended March 31, 2006, in its consolidated financial statements. The remaining terms of the warrants were unchanged.

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

Note 13 — Quarterly Results of Operations

The following tables set forth certain unaudited condensed consolidated statement of operations data for the eight quarters ended December 31, 2005.

The unaudited quarterly information should be read in conjunction with the Consolidated Financial Statements and Notes thereto included. 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. In addition, data for the quarters ended December 31, 2004, March 31, 2005, June 30, 2005 and September 30, 2005 differ from amounts previously reported on the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 and the Company’s Quarterly Reports on Form 10-Q for the first three quarters of

BROADVISION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

the year ended December 31, 2005. For a reconciliation of the data set forth below to amounts previously reported, see Note 1 of Notes to Consolidated Financial Statements.


	Three Months Ended

	Dec 31,			Sep 30,			Jun 30,			Mar 31,			Dec 31,			Sep 30,			Jun 30,			Mar 31,
	2005			2005			2005			2005			2004			2004			2004			2004

				(As restated)			(As restated)			(As restated)			(As restated)

	(In thousands)
	(Unaudited)
Statement of Operations Data:
Revenues:
Software licenses	$	3,780		$	3,134		$	3,391		$	4,416		$	7,292		$	4,654		$	7,097		$	7,840
Services		10,383			10,943			12,123			11,951			12,471			12,570			13,031			13,049

Total revenues		14,163			14,077			15,514			16,367			19,763			17,224			20,128			20,889
Cost of revenues:
Cost of software licenses		99			106			(186	)		(57	)		156			256			313			578
Cost of services		4,696			5,641			5,614			5,980			6,008			6,391			6,302			6,277

Total cost of revenues		4,795			5,747			5,428			5,923			6,164			6,647			6,615			6,855

Gross profit		9,368			8,330			10,086			10,444			13,599			10,577			13,513			14,034
Operating expenses:
Research and development		2,494			3,095			3,955			4,287			4,027			4,600			4,509			4,888
Sales and marketing		2,389			2,948			5,060			5,811			6,974			6,020			7,480			6,866
General and administrative		1,953			2,162			2,829			2,535			2,386			2,335			2,400			2,417
Goodwill and intangible write-offs		18,170			13,198			—			—			—			—			—			—
Restructuring (reversals) charges		(312	)		245			309			(704	)		660			(25,454	)		679			570
Business combination charges		1,840			977			—			—			—			—			—			—

Total operating expenses (credits)		26,534			22,625			12,153			11,929			14,047			(12,499	)		15,068			14,741

Operating income (loss)		(17,166	)		(14,295	)		(2,067	)		(1,485	)		(448	)		23,076			(1,555	)		(707	)
Other income (expense), net		(10,714	)		(1,757	)		(959	)		6,866			(2,457	)		315			57			(24	)
Benefit (provision) for income taxes		109			540			(70	)		2,032			450			(11	)		6			(136	)

Net (loss) income	$	(27,771	)	$	(15,512	)	$	(3,096	)	$	7,413		$	(2,455	)	$	23,380		$	(1,492	)	$	(867	)

Basic net (loss) income per share	$	(0.81	)	$	(0.45	)	$	(0.09	)	$	0.22		$	(0.07	)	$	0.70		$	(0.04	)	$	(0.03	)

Dilute net (loss) income per share	$	(0.81	)	$	(0.45	)	$	(0.09	)	$	0.19		$	(0.07	)	$	0.69		$	(0.04	)	$	(0.03	)

Shares used in computing basic net (loss) income per share		34,430			34,320			34,181			33,971			33,768			33,599			33,476			33,300

Shares used in computing diluted net (loss) income per share		34,430			34,320			34,181			39,968			33,768			34,052			33,476			33,300


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. as our independent registered public accounting firm.


ITEM 9A.	*CONTROLS AND PROCEDURES*


	*Disclosure Controls and Procedures*

Our Chief Executive Officer and our Chief Financial Officer are responsible for establishing and maintaining “disclosure controls and procedures” (as defined in the rules promulgated under the Securities Exchange Act of 1934, as amended) for our company. Based on their evaluation of our disclosure controls and procedures (as defined in the rules promulgated under the Securities Exchange Act of 1934), our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2005, the end of the period covered by this report. This conclusion was based on the identification of one material weakness in internal control over financial reporting as of December 31, 2005, as described in the following subsection.


	*Management’s Report on Internal Control Over Financial Reporting*

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. An internal control material weakness is a significant deficiency, or aggregation of deficiencies, that does not reduce to a relatively low level the risk that material misstatements in financial statements will be prevented or detected on a timely basis by employees in the normal course of their work. An internal control significant deficiency, or aggregation of deficiencies, is one that could result in a misstatement of the financial statements that is more than inconsequential.

In making its assessment of internal control over financial reporting, management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Because of the material weakness described in the preceding paragraphs, our management believes that, as of December 31, 2005, our internal control over financial reporting was not effective based on those criteria.


	*Changes in Internal Control Over Financial Reporting*

There were no changes in our internal control over financial reporting during our fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


	*Limitations on the Effectiveness of Controls*

Our management, including our Chief Executive Officer and 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.


ITEM 9B.	*OTHER INFORMATION*

Not applicable.

PART III


ITEM 10.	*DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT*

The names of current executive officers and members of our board of directors and a brief biography for each of them are set forth below:


Name	Age		Principal Occupation/Position Held with the Company

Pehong Chen		48	Chairman of the Board of Directors, President, Chief Executive Officer and Chief Financial Officer
David L. Anderson		62	Managing Director, Sutter Hill Ventures
James D. Dixon		62	Formerly an executive with bankofamerica.com
Robert Lee		57	Formerly an executive with Pacific Bell
Roderick C. McGeary		55	Formerly Chief Executive Officer, Brience, Inc.
T. Michael Nevens		56	Former Managing Partner, McKinsey & Company

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 and Tumbleweed Communications Corp. 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.

David L. Anderson has served as a director of the Company since November 1993. Since 1974, Mr. Anderson has been a Managing Director of the General Partner of Sutter Hill Ventures, a venture capital investment firm. Mr. Anderson also serves on the board of directors of Dionex Corporation and Molecular Devices Corporation, and on the board of directors of several privately held companies. He holds a B.S. in Electrical Engineering from the Massachusetts Institute of Technology and an M.B.A. from Harvard Graduate School of Business Administration.

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, 724 Solutions Inc., a provider of mobile network technology 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 Interland, which provides web hosting for the small and medium business market, Netopia, which manufactures and sells DSL internet routers for consumers and small businesses, and Blue Shield of California, which provides health insurance to members in California. 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.

Roderick C. McGeary has served as a director of the Company since April 2004. Mr. McGeary served as Chief Executive Officer of Brience, Inc. from July 2000 to July 2002. From April 2000 to June 2000, he served as a Managing Director of KPMG Consulting LLC, a wholly owned subsidiary of BearingPoint, Inc. (formerly KPMG Consulting, Inc.). From August 1999 to April 2000, he served as Co-President and Co-Chief Executive Officer of BearingPoint, Inc. From January 1997 to August 1999, he was employed by KPMG LLP as its Co-Vice Chairman of Consulting. Prior to 1997, he served in several capacities with KPMG LLP, including audit partner for technology clients. Mr. McGeary also serves on the board of directors of BearingPoint, Inc. and Cisco Systems, Inc. Mr. McGeary is a Certified Public Accountant and holds a B.S. in Accounting from Lehigh University.

T. Michael Nevens has served as a director of the Company since April 2003. Prior to his retirement from McKinsey & Company, a management consulting firm, in December 2002, Mr. Nevens served as a director and was managing partner of McKinsey & Company’s Global High Tech Practice and founder and Chairman of its IT Vendor Relations Committee. Prior to joining McKinsey in 1980, Mr. Nevens spent five years in several staff positions with the U.S. House of Representatives and various political organizations. He also currently serves on the board of directors of Borland Software Corporation. Mr. Nevens holds a B.S. in

100

Physics from the University of Notre Dame and an M.S. in Industrial Administration from the Krannert School of Purdue University.


	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 grants 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.


	Audit Committee Financial Expert

Our Audit Committee is presently composed of three non-employee directors: Messrs. Dixon (Chairman), Nevens and McGeary. 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 has determined that Mr. Dixon qualifies as an “audit committee financial expert,” as defined in applicable Securities and Exchange Commission (“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.


	*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, 2005 and, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with.

101


ITEM 11.	*EXECUTIVE COMPENSATION*


	*Summary of Compensation*

The following table shows for the fiscal years December 31, 2003, 2004 and 2005, compensation awarded or paid to, or earned by, our Chief Executive Officer our other most highly compensated executive officer at December 31, 2005 and one individual who was an executive officer of BroadVision until his departure during fiscal 2005 (the “Named Executive Officers”):

Summary Compensation Table


										Long Term
										Compensation
				Annual Compensation(1)						Awards
										Securities		All Other
						Annual		Other Annual		Underlying		Annual
				Salary		Bonus		Compensation		Options		Compensation
Name and Principal Position		Year		($)		($)		($)(2)		(#)		($)

Pehong Chen			2005	$	350,000	$	—	$	—	$	—	$	—
	Chairman of the Board, President		2004		350,000		—		—		—		—
	and Chief Executive Officer		2003		350,000		—		—		—		—
William E. Meyer(3)			2005	$	224,000	$	—		—		—		—
	Executive Vice President		2004		224,000		10,000		—		—		—
	and Chief Financial Officer		2003		168,000		10,000		—		240,000		—
Alex Kormushoff(4)			2005	$	203,360	$	—		—		—		69,000
	Senior Vice President,		2004		205,000		—		—		200,000		56,250
	Worldwide Field Operations		2003		200,000		18,750		—		—		—


(1)	Includes amounts earned but deferred at the election of the Named Executive Officers under our 401(k) plan.

(2)	As permitted by rules promulgated by the SEC no amounts are shown with respect to certain “perquisites” where such amounts do not exceed the lesser of 10% of the sum of the amount in the salary and bonus columns or $50,000.

(3)	Mr. Meyer joined the Company as Executive Vice President and Chief Financial Officer on April 1, 2003.

(4)	Mr. Kormushoff joined BroadVision on September 23, 2002 and became Senior Vice President, Global Services on July 1, 2003. Mr. Kornushoff was Senior Vice President, Worldwide Field Operations from October 2004 until his departure in December, 2005. Other compensation paid to Mr. Kormushoff includes payment of commissions on sales.


	*Stock Option Grants and Exercises*

We grant options to our executive officers under our 1996 Equity Incentive Plan (the “Incentive Plan”). As of December 31, 2005, options to purchase a total of 3,756,932 shares were outstanding under the Incentive Plan and options to purchase 3,378,775 shares remained available for grant thereunder.

102

The following tables show for the fiscal year ended December 31, 2005, certain information regarding options granted to, exercised by, and held at year end by, the Named Executive Officers.

Fiscal Year End Option Values of Unexercised Options


					Number of Securities				Value of Unexercised
					Underlying Unexercised				In-the-Money
					Options at				Options at
	Shares				December 31, 2005				December 31, 2005 ($)(3)
	Acquired		Value		(#)(2)				Unexercisable
	on Exercise		Realized
Name	(#)		($)(1)		Exercisable		Unexercisable		Exercisable		Unexercisable

Pehong Chen		—		—		1,704,444		—		—		—
William E. Meyer		—		—		240,000		—		—		—
Alex Kormushoff		—		—		243,333		—		—		—


(1)	Value received is based on the per share deemed values of our common stock on the date of exercise, determined after the date of grant solely for financial accounting purposes, less the exercise price, without taking into account any taxes that may be payable in connection the transaction.

(2)	Reflects vested and unvested shares at December 31, 2005. Options granted are immediately exercisable, but are subject to our right to repurchase unvested shares on termination of employment.

(3)	Fair market value of BroadVision’s common stock at December 31, 2005, which was $0.49 per share, less the exercise price of the options.

REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD

OF DIRECTORS ON EXECUTIVE COMPENSATION*

As noted above, the Compensation Committee of the Board of Directors (the “Committee”) is currently composed of the non-employee directors identified at the end of this report. None of these non-employee directors has any interlocking or other type of relationship that would call into question his independence as a committee member. The Committee is responsible for setting and administering the policies which govern annual performance, and determines the compensation of the Chief Executive Officer (“CEO”) and other executive officers of the Company.

COMPENSATION PHILOSOPHY

The objectives of the Company’s executive compensation policies are to attract, retain and reward executive officers who contribute to the Company’s success, to align the financial interests of executive officers with the performance of the Company, to ensure a direct relationship between executive pay and stockholder value, to motivate executive officers to achieve the Company’s business objectives and to reward individual performance. During 2005, the Company used base salary, annual incentives and long-term incentives under the Incentive Plan to achieve these objectives. In carrying out these objectives, the Committee considers the following:


	•	The level of compensation paid to executive officers in positions of companies similarly situated in size and products. To ensure that pay is competitive, the Committee, from time to time, compares the Company’s executive compensation packages with those offered by other companies in the same or

* The material in this report is not “soliciting material,” is not deemed “filed” with the SEC, and is not to be incorporated by reference into any filing of the Company under the Securities Act or Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing in meeting Company financial and business objectives during the prior fiscal year, as well as the executive officer’s performance of individual responsibilities and the Company’s financial position and overall performance. The Committee periodically considers the low, midpoint and upper ranges of base salaries published by compensation surveys in establishing base salaries of each executive officer.

103

similar industries or with other similar attributes. Compensation surveys used by the Company typically include public and private companies comparable in size, products or industry to the Company.


	•	The individual performance of each executive officer. Individual performance includes meeting individual performance objectives, demonstration of job knowledge, skills, teamwork and acceptance of the Company’s core values.

	•	Corporate performance, which is evaluated by factors such as performance relative to competitors, performance relative to business conditions and progress in meeting the Company’s objectives and goals as typically reflected in the annual operating plan.

	•	The responsibility and authority of each position relative to other positions within the Company.

The Committee does not quantitatively weigh these factors but considers all of these factors as a whole in establishing executive compensation. The application given each of these factors in establishing the components of executive compensation follows.

BASE SALARY

Base salaries are established for each executive officer at levels that are intended to be competitive with salaries for comparable positions at other software and computer industry companies of similar size and products. The Company seeks to pay salaries to executive officers that are commensurate with their qualifications, duties and responsibilities and that are competitive in the marketplace. In conducting periodic compensation reviews, the Committee considers each individual executive officer’s achievements

ANNUAL INCENTIVE

Annual bonus incentives for executives are intended to reflect the Company’s belief that management’s contribution to stockholder returns comes from achieving operating results that maximize the Company’s earnings and cash flow over a multi-year time horizon. The Company believes that the achievement of its performance objectives depends on (a) its ability to deliver outstanding products and services to its customers, (b) its success in establishing and maintaining a position of strength in its chosen markets and (c) its short- and long-term profitability, as well as the quality of that profitability. For purposes of annual incentive compensation, progress towards these performance objectives is measured against the results anticipated in the Company’s annual operating plan, which is approved by the Board of Directors.

The 2005 incentive compensation for executive officers other than the CEO was based in part on the achievement of total Company results consistent with the Company’s 2005 operating plan, as well as achievement of other objectives in the 2005 operating plan specific to such officers’ individual areas of management responsibility. The Company believes that this incentive compensation structure closely links the incentives paid to its executives with the results necessary to create long-term value for stockholders.

LONG-TERM INCENTIVES

The Committee also endorses the position that stock ownership by management is beneficial in aligning management and stockholder interests in enhancing stockholder value. In that regard, stock options also are used to retain executives and motivate results to improve long-term stock market performance. Stock options are granted at the prevailing market value and will have value only if the Company’s stock price increases. As part of its periodic review of compensation, the Compensation Committee reviews the stock option holdings of the Company’s officers and senior executives, and recommends additional stock option grants as appropriate.

The Committee determines the number of options to be granted to executive management based on (a) competitive practice within the comparison group used in determining base salary, (b) historical performance of the executive and (c) the amount of prior grants held by such executive, as well as the number of vested versus unvested options. When using comparative data, the Company targets its option grants in the mid to high range of comparable companies.

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Section 162(m) limits the Company to a deduction for federal income tax purposes of no more than $1.0 million of compensation paid to certain covered employees in a taxable year. Compensation above $1.0 million may be deducted if it is “performance-based compensation” within the meaning of the Code. Stock options granted under the Incentive Plan with an exercise price at least equal to the fair market value of the Company’s Common Stock on the date of grant are considered to be “performance-based compensation.”

CEO COMPENSATION FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005

Dr. Chen served as Chairman, President and Chief Executive Officer throughout the year, and he continues to hold these offices.

Dr. Chen’s base salary, annual incentives and long-term incentives were determined in accordance with the criteria described in the “Base Salary,” “Annual Incentive” and “Long-Term Incentive” sections of this report. Dr. Chen received $350,000 in base salary. This amount, together with a potential annual incentive tied to the achievement of 2005 revenue and net income targets, was estimated to provide an annual cash compensation level which would be competitive with the mid to high range of compensation paid by comparable software companies. Dr. Chen did not receive a bonus in 2005 because the Company did not meet the operating plan targets for 2005. See “Summary Compensation Table.”

CONCLUSION

Through the plans described above, a significant portion of the Company’s executive compensation programs and Dr. Chen’s compensation are contingent on Company performance and realization of benefits closely linked to increases in long-term stockholder value. The Company remains committed to this philosophy of pay for performance, recognizing that the competitive market for talented executives and the volatility of the Company’s business may result in highly variable compensation for a particular time period.

COMPENSATION COMMITTEE

David L. Anderson, Chairman

Robert Lee

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PERFORMANCE MEASUREMENT COMPARISON*

The following graph shows the total stockholder return of an investment of $100 in cash on December 31, 2000 for (a) the Company’s Common Stock, (b) the Nasdaq Stock Market (U.S.) Index (the “Nasdaq Index”) and (c) the JP Morgan H&Q 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


*	$100 invested on 12/31/00 in stock or index-including reinvestment of dividends. Fiscal year ending December 31.

*This Section is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference in any filing of the Company under the Securities Act or the Exchange Act whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

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ITEM 12.	*SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS*

Controlling Stockholder

As of March 15, 2006, Dr. Pehong Chen, directly and through entities controlled by him, held a majority of the voting power of the Company’s outstanding stock. As a result, Dr. Chen controls the election of all members of the Board of Directors and all other matters submitted to a vote of the Company’s 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 March 15, 2006 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)			42,079,429		59.4%
William E. Meyer(3)			265,061		*
Alex Kormushoff			0		*
David L. Anderson(4)			101,437		*
James D. Dixon(5)			96,000		*
Robert Lee(6)			85,039		*
Roderick C. McGeary(7)			84,000		*
T. Michael Nevens(8)			108,000		*
Honu Holdings, LLC(2)			34,500,000		49.9%
	585 Broadway Redwood City,
	CA 94063
All Current Directors and Executive Officers as a group (7 persons)(9)			42,818,966		60.4%


*	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 69,180,991 shares outstanding on March 15, 2006, adjusted as required by rules promulgated by the SEC. The Company’s directors and executive officers can be reached at BroadVision, Inc., 585 Broadway, 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 March 15, 2006. Also includes 34,500,000 shares held by Honu Holdings, LLC, of which Dr. Chen is the sole member. Excludes 300,000 shares of common stock held in trust by independent trustees for the benefit of Dr. Chen’s children.

(3)	Includes 250,000 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of March 15, 2006.

(4)	Includes 46,604 shares of common stock issuable upon the exercise of a stock option exercisable within 60 days of March 15, 2006 and 30,833 shares held by The Anderson Living Trust, of which Mr. Anderson is Trustee.

(5)	Includes 60,000 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of March 15, 2006.

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(6)	Includes 60,000 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of March 15, 2006. Also includes 1,039 shares held in trust by Mr. Lee and his wife for their benefit.

(7)	Includes 60,000 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of March 15, 2006.

(8)	Includes 60,000 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of March 15, 2006.

(9)	Includes the information contained in the notes above, as applicable, for directors and executive officers of the Company as of March 15, 2006.


ITEM 13.	*CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS*

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 $60,000 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. All future transactions between us and any of our directors, executive officers or related parties will be subject to the review and approval of our nominating and corporate governance committee, compensation 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 March 15, 2006, represents approximately 49.9% of our total outstanding common stock immediately following such issuance.


	*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.


ITEM 14.	*PRINCIPAL ACCOUNTANT FEES AND SERVICES*

The following presents aggregate fees billed to us by Stonefield Josephson, Inc., our principal accountant for the year ended December 31, 2005, and by BDO Seidman, LLP, our principal accountant for the fiscal year ended December 31, 2004. All fees described were approved by the Audit Committee.

Audit Fees. Audit fees billed were $801,000 and $890,000 for the years ended December 31, 2005 and December 31, 2004, 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.

108


	Audit-Related Fees. No audit-related fees were billed in the years ended December 31, 2005 and December 31, 2004.

	Tax Fees. Tax fees billed were $181,000 and $174,000 for the years ended December 31, 2005 and December 31, 2004, 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, 2005 and December 31, 2004.

The Audit Committee has determined that the rendering of the services other than audit services by Stonefield 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.

PART IV


ITEM 15.	*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, 2005 and 2004

	Consolidated Statements of Operations for each of the years in the three-year period ended December 31, 2005

	Consolidated Statements of Stockholders’ Equity (Deficit) and Comprehensive Income (Loss) for each of the years in the three-year period ended December 31, 2005

	Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2005

	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.

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SIGNATURES

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 9th day of June 2006.


	BROADVISION, INC.


	By:	/s/ Pehong Chen



	Pehong Chen
	Chairman of the Board,
	Chief Executive Officer and President

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 Pehong Chen	Chairman of the Board, Chief Executive Officer and President (Principal Executive Officer)	June 9, 2006

/s/ Pehong Chen Pehong Chen	Chief Financial Officer (Principal Accounting Officer)	June 9, 2006

/s/ David L. Anderson David L. Anderson	Director	June 7, 2006

/s/ James D. Dixon James D. Dixon	Director	June 7, 2006

/s/ Bob Lee Bob Lee	Director	June 7, 2006

/s/ Roderick McGeary Roderick McGeary	Director	June 7, 2006

/s/ T. Michael Nevens T. Michael Nevens	Director	June 7, 2006

110

BROADVISION, INC. AND SUBSIDIARIES

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS


				Charged
		Balance at		(Credited) to						Balance at
		Beginning of		Costs and						End of
		Period		Expenses			Deductions(1)			Period

		(In thousands)
Allowance for doubtful accounts and reserves:
	Year Ended December 31, 2005	$	1,409	$	(598	)	$	(80	)	$	731
	Year Ended December 31, 2004		3,022		(1,466	)		(147	)		1,409
	Year Ended December 31, 2003		5,502		(812	)		(1,668	)		3,022


(1)	Represents net charge-offs of specific receivables.

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BROADVISION, INC. ANNUAL REPORT ON FORM 10-K DECEMBER 31, 2005

INDEX TO EXHIBITS


Exhibit			Description

	3	.1(1)	Amended and Restated Certificate of Incorporation.

	3	.2(6)	Certificate of Amendment of Certificate of Incorporation.

	3	.3(21)	Amended and Restated Bylaws.

	4	.1(1)	References are hereby made to Exhibits 3.1 to 3.2.

	4	.4(19)	Registration Rights Agreement dated November 10, 2004 among the Company and certain investors listed on Exhibit A thereto.

	4	.5	Registration Rights Agreement dated March 8, 2006, between the Company and Honu Holdings LLC.

	10	.1(8)(a)	Equity Incentive Plan as amended through May 1, 2002 (the “Equity Incentive Plan”).

	10	.2(1)(a)	Form of Incentive Stock Option under the Equity Incentive Plan.

	10	.3(1)(a)	Form of Nonstatutory Stock Option under the Equity Incentive Plan.

	10	.4(1)(a)	Form of Nonstatutory Stock Option (Performance-Based).

	10	.5(8)(a)	1996 Employee Stock Purchase Plan as amended May 1, 2002 (the “Employee Stock Purchase Plan”).

	10	.6(1)(a)	Employee Stock Purchase Plan Offering (Initial Offering).

	10	.7(1)(a)	Employee Stock Purchase Plan Offering (Subsequent Offering).

	10	.8(1)(b)	Terms and Conditions dated January 1, 1995 between IONA Technologies LTD and the Company.

	10	.13(2)	Lease dated February 5, 1997 between the Company and Martin/ Campus Associates, L.P.

	10	.20(3)(a)	2000 Non-Officer Equity Incentive Plan.

	10	.23(4)(b)	Independent Software Vendor Agreement dated June 30, 1998 between the Company and IONA Technologies, PLC, as amended.

	10	.27(5)	Amended and Restated Loan and Security Agreement dated March 31, 2002 between the Company and Silicon Valley Bank.

	10	.33(7)	Form of Indemnity Agreement between the Company and each of its directors and executive officers.

	10	.34(9)	Offer letter dated March 4, 2003 by and between the Company and William Meyer.

	10	.35(10)	First Amendment to the Amended and Restated Loan and Security Agreement dated February 28, 2003 between the Company and Silicon Valley Bank.

	10	.36(10)	Second Amendment to the Amended and Restated Loan and Security Agreement dated June 30, 2003 between the Company and Silicon Valley Bank.

	10	.37(10)	BroadVision, Inc. Change in Control Severance Benefit Plan, established effective May 22, 2003.

	10	.38(10)	BroadVision, Inc. Executive Severance Benefit Plan, established effective May 22, 2003.

	10	.39(10)	Third Amendment to the Amended and Restated Loan and Security Agreement dated June 30, 2003 between the Company and Silicon Valley Bank.

	10	.41(11)	Offer Letter dated September 23, 2002 between the Company and Alex Kormushoff.

	10	.42(11)	Fourth Amendment to the Amended and Restated Loan and Security Agreement dated January 21, 2004 between the Company and Silicon Valley Bank.

	10	.43(11)	Fifth Modification to Amended and Restated Loan and Security Agreement dated February 27, 2004 between the Company and Silicon Valley Bank.

	10	.44(13)	Assignment and Assumption of Master Lease, Partial Termination of Master Lease and Assignment and Assumption of Subleases, dated July 7, 2004, between Pacific Shores Investors, LLC and the Company.

112


Exhibit			Description


	10	.45(13)	Warrant to Purchase up to 700,000 share of common stock, dated July 7, 2004, issued to Pacific Shores Investors, LLC.

	10	.46(13)	Triple Net Space Lease, dated as of July 7, 2004, between Pacific Shores Investors, LLC and the Company.

	10	.47(14)	Sixth Amendment to the Amended and Restated Loan and Security Agreement dated September 29, 2004 between the Company and Silicon Valley Bank.

	10	.48(15)	Securities Purchase Agreement dated as of November 10, 2004.

	10	.49(16)	Seventh Amendment to the Amended and Restated Loan and Security Agreement dated November 9, 2004 between the Company and Silicon Valley Bank.

	10	.50(17)	Agreement to Restructure Lease and To Assign Subleases dated as of October 1, 2004 between VEF III Funding, LLC and the Company.

	10	.51(18)	Amendment No. 5 to IONA Independent Software Vendor Agreement dated December 20, 2004, between IONA Technologies, Inc. and the Company.

	10	.52(19)	Agreement to Assign Lease and Sublease dated as of January 26, 2005 between the Company and 100 Spear Street Owners Corporation.

	10	.53(19)	Letter dated January 26, 2005 amending Agreement to Assign Lease and Sublease dated as of January 26, 2005 between the Company and 100 Spear Street Owners Corporation.

	10	.54(20)	Settlement Agreement dated for reference purposes February 4, 2005, by and between Metropolitan Life Insurance Company and the Company.

	10	.55(21)	Debt Conversion Agreement dated as of December 20, 2005, between the Company and Honu Holdings, LLC

	21	.1(22)	Subsidiaries of the Company.

	23	.1	Consent of BDO Seidman, LLP.

	23	.2	Consent of Stonefield Josephson, Inc.

	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 of the Company.

	31	.2	Certification of the 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.

113


	(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.

(12)	Incorporated by reference to the Company’s Form 10-Q for the quarter ended March 31, 2004 filed on May 10, 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.


	(a)	Represents a management contract or compensatory plan or arrangement.

	(b)	Confidential treatment requested.


(21)	Incorporated by reference to the Company’s Current Report on Form 8-K filed on December 22, 2005.

(22)	Filed previously with the Company’s Form 10-K for the fiscal year ended December 31, 2004, filed on March 15, 2005.

114

EXHIBIT 4.5

REGISTRATION RIGHTS AGREEMENT

This REGISTRATION RIGHTS AGREEMENT (this “ Agreement ”) is dated as of March 8, 2006, by and among BroadVision, Inc., a Delaware corporation (the “ Company ”), and Honu Holdings LLC, a Delaware limited liability company (the “ Buyer ”).

WHEREAS:

A. Buyer and the Company have entered into a Debt Conversion Agreement dated December 20, 2005 (the “ Debt Conversion Agreement ”), pursuant to which the Company is issuing 34,500,000 shares of the Company’s common stock (the “ Shares ”) to Buyer in a private placement.

B. It is a condition to the parties’ obligations under the Debt Conversion Agreement that Buyer and the Company enter into this Agreement.

C. To induce Buyer to execute and deliver the Debt Conversion Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the “ 1933 Act ”), and applicable state securities laws.

NOW, THEREFORE, the Company and Buyer hereby agree as follows:

1. Definitions .

Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Debt Conversion Agreement. As used in this Agreement, the following terms shall have the following meanings:

a. “ Business Day ” means any day other than Saturday, Sunday or any other day on which commercial banks in The City of New York are authorized or required by law to remain closed.

b. “ Effective Date ” means the date the Registration Statement has been declared effective by the SEC.

c. “ Effectiveness Deadline ” means the date that is 180 days after the Closing Date.

d. “ Filing Deadline ” means the date that is 90 days after the date of this Agreement.

e. “ Investor ” means Buyer or any transferee or assignee thereof to whom a Buyer assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 9 and any transferee or assignee thereof to whom a transferee or assignee assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 9.

f. “ register ,” “ registered ,” and “ registration ” refer to a registration effected by preparing and filing one or more Registration Statements (as defined below) in compliance with the 1933 Act and pursuant to Rule 415 and the declaration or ordering of effectiveness of such Registration Statement(s) by the SEC.

g. “ Registrable Securities ” means (i) the Shares and (ii) any share capital of the Company issued or issuable with respect to the Shares as a result of any share split, share dividend, recapitalization, exchange or similar event or otherwise.

h. “ Registration Statement ” means a registration statement or registration statements of the Company filed under the 1933 Act covering the Registrable Securities.

i. “ Required Holders ” means the holders of a majority of the Registrable Securities.

j. “ Rule 415 ” means Rule 415 under the 1933 Act or any successor rule providing for offering securities on a continuous or delayed basis.

k. “ SEC ” means the United States Securities and Exchange Commission.

2. Registration .

a. Mandatory Registration . The Company shall prepare, and, as soon as practicable but in no event later than the Filing Deadline, file with the SEC the Registration Statement on Form S-3 covering the resale of all of the Registrable Securities. In the event that Form S-3 is unavailable for such a registration, the Company shall use such other form as is available for such a registration. The Company shall use all commercially reasonable efforts to have the Registration Statement declared effective by the SEC as soon as practicable, but in no event later than the Effectiveness Deadline.

b. Sufficient Number of Shares Registered . In the event the number of shares available under a Registration Statement filed pursuant to Section 2(a) is insufficient to cover all of the Registrable Securities required to be covered by such Registration Statement, the Company shall amend the applicable Registration Statement, or file a new Registration Statement (on the short form available therefor, if applicable), or both, so as to cover at least all of the Registrable Securities required to be so covered, in each case, as soon as practicable, but in any event not later than 15 days after the necessity therefor arises. The Company shall use all commercially reasonable efforts to cause such amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof.

3. Related Obligations .

At such time as the Company is obligated to file a Registration Statement with the SEC pursuant to Section 2(a) or 2(b), the Company will use all commercially reasonable efforts to effect the registration of the Registrable Securities in accordance with the intended method of disposition thereof and, pursuant thereto, the Company shall have the following obligations:

a. The Company shall submit to the SEC, promptly upon being informed that no review of a particular Registration Statement will be made by the staff of the SEC or that the staff has no further comments on a particular Registration Statement, as the case may be, a request for acceleration of effectiveness of such Registration Statement to a time and date not later than 48 hours after the submission of such request. The Company shall keep each Registration Statement effective pursuant to Rule 415 at all times until the earlier of (i) the date as of which the Investors may sell all of the Registrable Securities covered by such Registration Statement without restriction pursuant to Rule 144(k) (or any successor thereto) promulgated under the 1933 Act or (ii) the date on which the Investors shall have disposed of all of the Registrable Securities covered by such Registration Statement (the “ Registration Period ”). The Company shall ensure that each Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein (in the case of prospectuses, in the light of the circumstances in which they were made) not misleading.

b. The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and the prospectus used in connection with such Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the 1933 Act, as may be necessary to keep such Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such Registration Statement. In the case of amendments and supplements to a Registration Statement that are required to be filed pursuant to this Agreement (including pursuant to this Section 3(b)) by reason of the Company filing a report on Form 10-Q, Form 10-K, Form 8-K or any analogous report under the Securities Exchange Act of 1934, as amended (the “ 1934 Act ”), the Company shall have incorporated such report by reference into such Registration Statement, if applicable, or shall file such amendments or supplements with the SEC promptly following the day on which the 1934 Act report is filed that created the requirement for the Company to amend or supplement such Registration Statement.

c. The Company shall furnish to each Investor whose Registrable Securities are included in any Registration Statement, without charge, (i) promptly after the same is prepared and filed with the SEC, at least one copy of such Registration Statement and any amendment(s) thereto, including financial statements and schedules, all documents, including exhibits, incorporated therein by reference, if requested by an Investor and not otherwise available on the EDGAR system, and each preliminary prospectus, (ii) upon the effectiveness of any Registration Statement (but in no event later than two Business Days after the Effective Date), ten copies of the prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of copies as such Investor may reasonably request) and (iii) such other documents, including copies of any preliminary or final prospectus, as such Investor may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by such Investor.

d. The Company shall use all commercially reasonable efforts to (i) register and qualify, unless an exemption from registration and qualification applies, the resale by Investors of the Registrable Securities covered by a Registration Statement under such other securities or “blue sky” laws of such jurisdictions in the United States as the Investor may reasonably request, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (y) subject itself to general taxation in any such jurisdiction or (z) file a general consent to service of process in any such jurisdiction.

e. The Company shall cooperate with the Investors who hold Registrable Securities and, to the extent applicable, facilitate the timely preparation and delivery of certificates representing the Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the Investors may reasonably request and registered in such names as the Investors may request.

f. If requested by an Investor, the Company shall (i) as soon as practicable incorporate in a prospectus supplement or post-effective amendment such information as an Investor reasonably requests to be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being offered or sold, the purchase price being paid therefor and any other terms of the offering of the Registrable Securities to be sold in such offering, (ii) as soon as practicable make all required filings of such prospectus supplement or post-effective amendment after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment and (iii) as soon as practicable, supplement or make amendments to any Registration Statement if reasonably requested by an Investor holding any Registrable Securities.

g. Notwithstanding anything to the contrary herein, at any time after the Registration Statement has been declared effective by the SEC, the Company may delay the disclosure of material, non-public information concerning the Company the disclosure of which at the time is not, in the good faith opinion of the Board of Directors of the Company and its counsel, in the best interest of the Company and, in the opinion of counsel to the Company, otherwise required (a “ Grace Period ”); provided, that the Company shall promptly (i) notify the Investors in writing of the existence of material, non-public information giving rise to a Grace Period (provided that in each notice the Company will not disclose the content of such material, non-public information to the Investors) and the date on which the Grace Period will begin, and (ii) notify the Investors in writing of the date on which the Grace Period ends.

4. Obligations of the Investors .

a. At least five Business Days prior to the first anticipated filing date of a Registration Statement, the Company shall notify each Investor in writing of the information the Company requires from each such Investor if such Investor elects to have any of such Investor’s Registrable Securities included in such Registration Statement. It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Investor that such Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the effectiveness of the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request.

b. Each Investor, by such Investor’s acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any Registration Statement hereunder, unless such Investor has notified the Company in writing of such Investor’s election to exclude all of such Investor’s Registrable Securities from such Registration Statement.

c. To the extent required by applicable law, each Investor shall promptly notify the Company of any change in any information regarding such Investor furnished by such Investor to the Company for inclusion in a Registration Statement. Each Investor covenants and agrees that it will comply with the prospectus delivery requirements of the 1933 Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement.

5. Expenses of Registration .

All reasonable expenses, other than underwriting discounts and commissions, incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees, and fees and disbursements of counsel for the Company shall be paid by the Company.

6. Indemnification .

In the event any Registrable Securities are included in a Registration Statement under this Agreement:

a. To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend each Investor, the directors, officers, members, partners, employees, agents, representatives of, and each Person, if any, who controls any Investor within the meaning of the 1933 Act or the 1934 Act (each, an “ Indemnified Person ”), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys’ fees, amounts paid in settlement or expenses, joint or several, (collectively, “ Claims ”) incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or

governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto (“ Indemnified Damages ”), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other “blue sky” laws of any jurisdiction in which Registrable Securities are offered (“ Blue Sky Filing ”), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in the light of the circumstances under which the statements therein were made, not misleading, (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement or (iv) any violation of this Agreement (the matters in the foregoing clauses (i) through (iv) being, collectively, “ Violations ”). Subject to Section 6(c), the Company shall reimburse the Indemnified Persons, promptly as such expenses are incurred and are due and payable, for any legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (i) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation that occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person for such Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto, if such prospectus was timely made available by the Company pursuant to Section 3(c); (ii) with respect to any preliminary prospectus, shall not inure to the benefit of any such Person from whom the Person asserting any such Claim purchased the Registrable Securities that are the subject thereof (or to the benefit of any Person controlling such Person) if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected in the prospectus, as then amended or supplemented and if such prospectus was timely made available by the Company pursuant to Section 3(c), and the Indemnified Person was promptly advised in writing not to use the incorrect prospectus prior to the use giving rise to a violation and such Indemnified Person, notwithstanding such advice, used it or failed to deliver the correct prospectus as required by the 1933 Act; (iii) shall not be available to the extent such Claim is based on a failure of the Investor to deliver or to cause to be delivered the prospectus made available by the Company, including a corrected prospectus, if such prospectus or corrected prospectus was timely made available by the Company pursuant to Section 3(c) ; and (iv) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld or delayed. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9.

b. In connection with any Registration Statement in which an Investor is participating, each such Investor agrees to severally and not jointly indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors, each of its officers who signs the Registration Statement and each Person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act (each, an “ Indemnified Party ”), against any Claim or Indemnified Damages to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or are based upon any Violation, in each case to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use in connection with such Registration Statement or any post-effective amendment thereof; and, subject to Section 6(c), such Investor promptly will reimburse any legal or other expenses reasonably incurred by an Indemnified Party in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) and the agreement with respect to contribution contained in Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld or delayed; provided, further, however, that the Investor shall be liable under this Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(b) with respect to any preliminary prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented.

c. Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses of not more than one counsel for such Indemnified Person or Indemnified Party to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. In the case of an Indemnified Person, legal counsel referred to in the immediately preceding sentence shall be selected by the Investors holding a majority in interest of the Registrable Securities included in the Registration Statement to which the Claim relates. The Indemnified Party or Indemnified

Person shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or Claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or Claim. The indemnifying party shall keep the Indemnified Party or Indemnified Person reasonably apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the prior written consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such Claim or litigation. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action.

d. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred.

e. The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or others and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.

7. Contribution .

To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that: (i) no Person involved in the sale of Registrable Securities which Person is guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) in connection with such sale shall be entitled to contribution from any Person involved in such sale of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities pursuant to such Registration Statement.

8. Reports Under the 1934 Act .

With a view to making available to the Investors the benefits of Rule 144 promulgated under the 1933 Act or any other similar rule or regulation of the SEC that may at

any time permit the Investors to sell securities of the Company to the public without registration (“ Rule 144 ”), the Company agrees to:

a. make and keep public information available, as those terms are understood and defined in Rule 144;

b. file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act so long as the Company remains subject to such requirements and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and

c. furnish to each Investor so long as such Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company, if true, that it has complied with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent annual report of the Company and such other reports and documents so filed by the Company (other than any correspondence filed by the Company with the SEC, including, without limitation, any confidential treatment requests) and (iii) such other information as may be reasonably requested to permit the Investors to sell such securities pursuant to Rule 144 without registration.

9. Assignment of Registration Rights .

The rights under this Agreement shall be automatically assignable by the Investors to any transferee of all or any portion of such Investor’s Registrable Securities if: (i) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment; (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (a) the name and address of such transferee or assignee and (b) the securities with respect to which such registration rights are being transferred or assigned; (iii) immediately following such transfer or assignment the further disposition of such securities by the transferee or assignee is restricted under the 1933 Act and applicable state securities laws; and (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this sentence the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein.

10. Amendment of Registration Rights .

Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Required Holders. Any amendment or waiver effected in accordance with this Section 10 shall be binding upon each Investor and the Company. No such amendment shall be effective to the extent that it applies to less than all of the holders of the Registrable Securities. No consideration shall be offered or paid to any party to amend or consent to a waiver or modification of any provision of any of this Agreement unless the same consideration also is offered to all of the parties to this Agreement.

11. Termination of Obligations .

The obligations of the Company pursuant to Section 3 hereof shall cease and terminate upon the earlier to occur of (a) such time as all of the Registrable Securities have been resold or (b) such time as all of the Registrable Securities may be resold pursuant to Rule 144(k).

12. Miscellaneous .

a. A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the such record owner of such Registrable Securities.

b. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:

If to the Company:

BroadVision, Inc.
585 Broadway
Redwood City, California 94063
Attention:       Chief Financial Officer
Telephone:     650-261-5100
Facsimile:       650-261-5900

If to Buyer:

Honu Holdings LLC
c/o Cooley Godward LLP
101 California Street, Fifth Floor
San Francisco, CA 94111-5800
Attn: Kenneth L. Guernsey
Telephone: 415-693-2000
Facsimile: 415-693-2222

Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a courier or overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.

c. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

d. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of California, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of California or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of California. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

e. This Agreement and the instruments referenced herein constitute the entire agreement among the parties hereto with respect to the subject matter hereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein. This Agreement and the instruments referenced herein supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof.

f. Subject to the requirements of Section 9, this Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties hereto.

g. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

h. This Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.

i. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

j. All consents and other determinations required to be made by the Investors pursuant to this Agreement shall be made, unless otherwise specified in this Agreement, by the Required Holders.

k. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules of strict construction will be applied against any party.

l. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

[signature page follows]

IN WITNESS WHEREOF , Buyer and the Company have caused their respective signature page to this Registration Rights Agreement to be duly executed as of the date first written above.


		COMPANY:

		BROADVISION, INC.

		By:		/s/ William E. Meyer
				William E. Meyer
				Chief Financial Officer

		BUYER:

		HONU HOLDINGS LLC

		By:		/s/ Pehong Chen
				Pehong Chen
				Manager

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
BroadVision, Inc.:

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-109709, 333-97521, 333-63798, 333-35114, 333-62619, and 333-14057) of BroadVision, Inc. of our report dated March 11, 2005, except for the matters affecting the 2004 consolidated financial statements described in the Restatement discussion in Note 1 and the Convertible Debentures discussion in Note 5, as to which the date is May 26, 2006, relating to the consolidated financial statements and financial statement schedule, which appears in this Form 10-K.

/s/ BDO SEIDMAN, LLP

San Jose, California
June 7, 2006

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
BroadVision, Inc.:

We consent to the use of our report of Independent Registered Public Accounting Firm dated May 26, 2006 on the consolidated balance sheet of BroadVision, Inc. as of December 31, 2005, the related consolidated statements of operations, shareholders’ equity (deficit) and comprehensive income (loss), and cash flows for the year then ended and the financial statement schedule that appear in this Form 10-K and on Form S-8 (Nos. 333-109709, 333-97521, 333-63798, 333-35114, 333-62619, and 333-14057) .

/s/ Stonefield Josephson, Inc.
Irvine, California
June 7, 2006

Exhibit 31.1

CERTIFICATION

I, Pehong Chen, Chief Executive Officer of BroadVision, Inc., certify that:

1. I have reviewed this Annual Report on Form 10-K of BroadVision, Inc.;

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

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

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 9, 2006


/s/ Pehong Chen Pehong Chen
Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, Pehong Chen, Chief Financial Officer of BroadVision, Inc., certify that:

1. I have reviewed this Annual Report on Form 10-K of BroadVision, Inc.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 9, 2006


/s/ Pehong Chen Pehong Chen
Chief Financial Officer

Exhibit 32.1

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Pehong Chen, the Chief Executive Officer and the Chief Financial Officer of BroadVision, Inc. (the “Company”), hereby certifies that, to the best of his knowledge:

1. The Company’s Annual Report on Form 10-K for the year ended December 31, 2005, and to which this Certification is attached as Exhibit 32.1 (the “Annual Report”), fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934, and

2. The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

IN WITNESS WHEREOF, the undersigned has set his hands hereto as of the 9th day of June, 2006.


/s/ Pehong Chen Pehong Chen
Chief Executive Officer and Chief Financial Officer

This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of BroadVision, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.


		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.

	•	Multi-platform availability — BroadVision 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. BroadVision also supports Open Source platforms, such as Linux with Jboss and Hypersonic.

	•	Multilingual/multicurrency — BroadVision applications are global ready and designed to support multiple languages (Arabic, Chinese, Hebrew, Japanese, Korean, Slovakian, Turkish and most Western European languages) and a wide range of currencies, including the euro.