UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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
o
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2016
OR
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 1-34205
BROADVISION, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
1700 Seaport Blvd, Suite 210
Redwood City, California
(Address of principal executive offices)
94-3184303
(I.R.S. Employer
Identification No.)
94063
(Zip code)
(650) 331-1000
(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, $0.0001 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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) 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.
þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o No þ
As of June 30, 2016, based on the closing sales price as reported by the NASDAQ Market, 3,249,709 shares of Common Stock, having an
aggregate market value of approximately $21,545,571 were held by non-affiliates. For purposes of the above statement only, all directors and
executive officers of the registrant are assumed to be affiliates.
As of February 28, 2017, the registrant had 4,957,524 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Annual Report on Form 10-K is incorporated herein by reference to the Registrant’s definitive proxy
statement relating to the 2016 Annual Meeting of Stockholders to be filed, or will be filed as an amendment to this Annual Report, with the U.S.
Securities and Exchange Commission not later than 120 days after the end of the fiscal year to which this report relates.
BROADVISION, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 2016
TABLE OF CONTENTS
Part I
Item 1. Business
Item 1A. Risk Factors
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Part IV
Item 15. Exhibits and Financial Statement Schedules
SIGNATURES
EXHIBIT 21.1
EXHIBIT 23.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
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References in this prospectus to "we", "us" and "our" refer to BroadVision, Inc. and its subsidiaries. BroadVision, Clearvale,
the Clearvale logo, and Interleaf are our registered trademarks in the United States and/or other countries. Trademarks, service marks
and trade names of other companies appearing in this report are the property of their respective holders.
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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 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
Software Products
Services
Customers
Sales and Marketing
Alliances
Competition
Intellectual Property and Other Proprietary Rights
Research and Development
Employees
Executive Officers
1
1
3
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4
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5
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6
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PART I
ITEM 1. BUSINESS
Overview and Industry Background
Our Business
Since 1993, BroadVision has been a pioneer and consistent innovator of e-business solutions. We deliver a combination of
technologies and services into the global market that enable customers of all sizes to power mission-critical e-business initiatives that
ultimately deliver high value to their bottom line. Our offering consists of a robust framework for secure, mobile and cloud-based
collaboration, information sharing, and knowledge management, which enables our customers to deploy enterprise-class employee and
customer engagement, knowledge management, and e-commerce solutions.
Corporate Information
We were incorporated in Delaware in 1993 and have been a publicly traded corporation since 1996. From 2001 to date, our
annual revenue has declined and as of December 31, 2016, we had an accumulated deficit of approximately $1.3 billion. The majority of
our accumulated deficit to date has resulted from non-cash charges associated with our 2000 acquisition of Interleaf, Inc. and
restructuring charges related to excess real estate lease obligations.
Our principal executive offices are located at 1700 Seaport Boulevard, Suite 210, Redwood City, CA 94063. Our telephone
number is (650) 331-1000. Our website address is www.broadvision.com. We make available free of charge through our website our
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to these reports as soon
as reasonably practicable after filing, by providing a hyperlink to the Securities and Exchange Commission's website (www.sec.gov)
directly to our reports. The contents of our website are not incorporated by reference into this report.
Industry Background
E-business has become an integral part of work life and organizations are looking for ways to reduce costs, improve
productivity and increase revenues by moving their business onto mobile and cloud platforms. By providing a way to quickly assemble
and engage employees and customers via mobile and cloud-based solutions organizations can deliver better engagement experiences to
get more done with fewer resources. A significant number of industry analysts have highlighted the ways in which organizations can
reduce costs and improve customer satisfaction by implementing mobile and cloud solutions which can leverage key resources anytime
and from anywhere. In addition to accelerating the response time to customers, e-business engagement applications also enable
organizations to deliver higher quality services through more effective collaboration among providers of products and services.
Building on the solid foundation of BroadVision’s personalization and transaction management capabilities, BroadVision has
introduced the Clearvale family of Enterprise Social Networking (ESN) solutions to include engagement of partners, suppliers and
customers through mobile and social technologies in order to meet our customers’ needs. In January 2016, BroadVision launched Vmoso,
a mobile collaboration tool meeting industry standards of security which helps enterprises safeguard and leverage corporate knowledge to
increase productivity in internal and customer facing initiatives.
Software Products
Our primary product offerings are software solutions. We also offer a toolkit, framework and library for extending our
solutions. Our offerings have the following characteristics and advantages:
• Track record -- Experience from over 1,000 implementations over 20 years.
• Agility, extensibility and configurability -- Integrated tools for rapidly creating e-business applications with modular out-of-
the-box capabilities and custom development.
• Scalability -- Advanced load balancing and multi-layered caching for high concurrent users and transactions.
• Personalization -- Session and event-based observations for dynamic and targeted navigation.
• Secure transaction processing -- A wide range of commercial functions including order processing, discount, incentive, tax
computation, shipping and handling charges, payment processing and order tracking.
• Multi-platform -- Support for major operating systems (Linux, Solaris, Windows, HP-UX, and AIX), application servers
(WebLogic, WebSphere and JBoss) and databases (Oracle, Sybase, IBM, mySQL and SQL Server).
• Low total cost of ownership -- Support for open source platforms in addition to commercial platforms.
• Cloud -- Hosted SaaS (Software-as-a-Service) with our Clearvale and Vmoso products for allowing customers to access
enterprise-quality software without traditional IT overhead.
• Mobile -- Native mode application support for Apple iOS, Android as well as support for leading browsers which extends
access of our cloud applications and services to most connected devices.
1
Solutions
1. Business Agility Suite is a portal that provides personalized views of information and processes from diverse internal,
external and legacy sources. It supports collaboration both inside and outside the enterprise. It manages web content
throughout its lifecycle: creation, review, approval, version control, deployment, distribution and audit trail.
2. Commerce Agility Suite is our e-commerce system for transacting business on the web, from lead generation, navigation,
category management, incentive, shopping cart, order execution, to customer care. It supports both Business-to-Business
(B2B) and Business-to-Consumer (B2C) commerce. Additionally, it has the full capabilities of our Business Agility Suite.
3. Clearvale is our enterprise social network solution, aimed at revolutionizing enterprise knowledge flows. Beyond
individual social networks, it organizes multiple social networks into ecosystems, and manages them coherently. It has
three variations. Clearvale Express is free, for entry-level capabilities; Clearvale Enterprise is for full capabilities. We
operate these two variations as SaaS over the cloud. The third variation, Clearvale PaasPort is a platform for partners who
want to resell our enterprise social network solution.
4. Clear, formerly named CHRM, is a collaborative human resources management system. It is a Portal-based human
resources management system solution developed by our subsidiary BroadVision OnDemand, headquartered in Beijing,
China, using our Kukini toolkit and Kona framework. It facilitates collaboration by members of a customer’s organization
in each phase of the HR management life cycle.
5. QuickSilver is a high-end publishing system for large and complex documents. Some typical uses are aircraft manuals,
weapon system manuals and massive customizable insurance policies. It supports multiple output formats, such as HTML,
PDF and Postscript. It also includes a complete XML authoring environment.
6. Vmoso is a cloud application for conducting virtual enterprise communication, mobile workgroup collaboration, and social
business engagement. It unifies five workplace activities in one platform: email, instant messaging, content sharing,
workflow, and social networking. It empowers users and their extended organizations to communicate and collaborate
whenever, wherever and on whatever device they choose, allowing for greater productivity in less time and at lower cost.
Vmoso Developer Kit
The Vmoso Developer Kit allows developers to easily leverage Vmoso’s open APIs to create rich interfaces, plugins and
extensions to the Vmoso mobile communication and collaboration application.
Developer Toolkit: Kukini
Kukini is a visual workbench for designing, implementing and deploying e-business applications rapidly. It facilitates effective
collaboration of people with different skills. Its resulting applications run with a customer's J2EE application environment of choice, and
leverage our Kona framework and services library.
Framework: Kona
Kona is the common J2EE-based infrastructure underlying our Business Agility Suite, Commerce Agility Suite and Clear
solutions. It provides a standard-based and portable environment across many operating systems, application servers and databases. It
comes with rich APIs, schemas and utilities needed for building scalable and robust e-business applications. It allows modular services
to be easily added and configured, for extension and integration with other systems. We often refer to Kukini and Kona together as K2.
Library of Services
These services are modular building blocks that extend the capabilities of our various frameworks. Some of the services are
pre-packaged into our applications and platforms. These include:
a. Portal Services for organizing and presenting information with navigation hierarchy, content categorization,
personalization, and plugable portlets for integration.
b. Commerce Services for transacting business on the web with catalog management, pricing, shopping cart, checkout and
order management capabilities.
c. Process Services for transforming people-intensive processes and collaborations into web-based self-service applications
rapidly.
d. Content Services for managing web content throughout its lifecycle: creation, review, approval, version control,
deployment, distribution and audit trail.
e. Staging Services for moving content from multiple development environments to production environment.
2
f. Search for full-text and field searching of online content and referenced external files with relevance ranking. It also
supports query searches using a broad spectrum of search operators
g. Unified Stream Services for unification and integration of information from various sources presented in time and sort
preferences
h. Notification/Push Services: Event driven services utilized to deliver notifications via various messaging platforms.
i. Migration Services data moving across platforms.
Services
We provide a full spectrum of global consulting services to customers to realize the value from their investment in
BroadVision’s solutions. These consulting services include: business consulting; implementation services; integration and package
services; upgrade and migration services; and performance tuning. In addition we also enable our partners so that they can offer these
services to their end customers.
Vmoso Enterprise Transformation (VET)
Vmoso Enterprise Transformation, or VET, is a proprietary implementation approach for the Vmoso collaborative solution.
When you enroll in VET, our BroadVision Global Services representative will take you through a process of planning, establishing and
refining your communication, collaboration and engagement practices. This is an iterative process to instill new habits and ways of
working that supports the way you are currently working—it’s gradual transformation, not a dramatic shift. This can lead to an
empowered and organized workforce, engaged and delighted customers, and a productive organization with an improved bottom line.
Education Services
BroadVision offers a comprehensive range of in-depth, focused training courses and self-study materials for both customers
and partners to develop the knowledge they need to properly install, implement, and fully leverage the features of BroadVision’s
solutions. These services are backed up by train-the-trainer programs for in-house deployment and online testing to validate training
effectiveness.
Support and Maintenance Services
We offer a tiered support and maintenance program to better serve the needs of our global customer base. Standard Support
provides technical assistance during regular business hours; Enterprise Support is designed for customers with mission-critical
environments, providing customers with access to support experts 24 hours a day, 7 days a week; and Personalized Support assigns a
specific individual to a customer along with other customer specified support services, including on-site support engineers. We have
technical support centers in North America, Europe and Asia. Under our standard maintenance agreement, we provide telephone support
and upgrade rights to new releases, including patch releases (as necessary) and product enhancements (when and if available).
Customers
For the year ended December 31, 2016, Indian Railways Catering and Tourism Corporation Limited accounted for 12% of our
total revenues. For the year ended December 31, 2015, no customer accounted for more than 10% of our total revenues. We do not
believe that the loss of any single customer would have a material adverse effect on our business or results of operations.
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, 2016, our direct sales organization included 17 sales representatives, managers and sales support
personnel.
We have sales offices located throughout the world to support the sales and marketing of our products. In support of the
Americas organizations, offices located in the United States are in California and Massachusetts. Offices for our Europe region are
located in Italy. Our sales and marketing offices in the Asia Pacific/Japan/India region are located in India, China, Taiwan, and Japan.
We derive a significant portion of our revenue from our operations outside North America. In the twelve months ended
December 31, 2016, approximately 54% of our revenues were derived from international sales. In the twelve months ended December
31, 2015, approximately 59% of our revenue was derived from international sales. If we are unable to manage or grow our existing
international operations, we may not generate sufficient revenue required to establish and maintain these operations, which could slow
our overall growth and impair our operating margins.
3
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 applications capabilities online or 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 customize, develop and deploy their e-business solutions.
As of December 31, 2016, we had 5 employees engaged in a variety of marketing activities, including product planning,
marketing material development, public relations, identifying potential customers, establishing and maintaining close relationships with
recognized industry analysts and maintaining our website.
Alliances
We recognize that today's organizations require an open, partner-based approach to e-business. Accordingly, we have
assembled a global team of partners with the skills, services and value-added products necessary to develop, market, sell and deliver
competitive e-business solutions.
Clearvale Reseller Partners
In late 2010 we introduced Clearvale PaasPort, a channel program that enables partners to resell, customize and add value to
our Clearvale ESN solutions.
Consulting Partners
Our systems integration and consulting services partners deliver strategic business solutions to our global customers. These
partners offer deployment experience, strong vertical market expertise, and process-based solutions. We structure our contractual
arrangements with these consulting partners to motivate them to develop an expertise in our technology and sell our products and
services to potential customers, thus enabling us to extend the reach of our products and services.
Technology/OEM Partners
Our technology partners include Value-Added Resellers (VAR) and Independent Software Vendors (ISV) who build and
deploy BroadVision-based vertical and horizontal software solutions. Revenue generated from technology/OEM partners in recent years
has not been significant.
Competition
If we fail to compete successfully with current or future competitors, we may lose market share. The market for e-business is
intensely competitive. Our customers' requirements and the technology available to satisfy those requirements will continually change.
We expect competition in this market to intensify. 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 JDA, IBM Corporation, Microsoft, Oracle and SAP;
• other vendors of enterprise social networking and collaboration platforms or solutions, such as Microsoft’s Yammer, Jive
Software, Salesforce Chatter, Slack, and Facebook’s Facebook@Work; 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;
availability of knowledgeable developers;
•
time required for application deployment;
•
•
reliance on industry standards;
• product reliability;
• proven track record;
•
scalability;
• maintainability;
• product quality;
• price, including total cost of ownership; and
•
technical support.
4
Compared to us, many of these competitors and other current and future competitors may have longer operating histories and
significantly greater financial, technical, sales, marketing and other resources. As a result, they may be able to respond more quickly to
new or changing opportunities, technologies and customer requirements. Many of these companies can use their greater name recognition
and more extensive customer base to gain market share. Competitors may be able to undertake more extensive promotional activities,
adopt more aggressive pricing policies and offer more attractive terms to purchasers. Current and potential competitors may bundle their
products to discourage users from purchasing our products. In addition, competitors have established or may establish cooperative
relationships among themselves or with third parties to enhance their products. Accordingly, it is possible that new competitors or
alliances among competitors may emerge and rapidly acquire significant market share. Competitive pressures may make it difficult for us
to acquire and retain customers.
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
2014, on the unique concepts and features in our online solution that allows subscribers to connect with other people and share tasks and
content. The patent will expire in January 2034. We also hold a patent issued in 2004 on mechanisms for translating between a word
processing document and an XML file. This patent will expire in March 2020. 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 a combination of copyright, trademark, service mark, trade secret laws and contractual restrictions to protect
our proprietary rights in products and services. We have registered "BroadVision", "Clearvale", the Clearvale logo and "Interleaf" as
trademarks in the United States and/or 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 our company policy, we enter into confidentiality and assignment agreements with our employees, consultants,
partners 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.
Research and Development
As of December 31, 2016, we had 75 employees dedicated to research and development. Our research and development expenses
consist primarily of salaries, employee-related benefit costs and consulting fees incurred in association with the development of our
products. Research and development expenses are expensed as incurred. Our future success depends, in part, upon our ability to develop
new products and new versions of our products with new and expanded features. We believe that continued investment in our technology
is important for our future growth, and as a result, we expect to incur material research and development expenses for the foreseeable
future.
Research and development expenses were $6.9 million for the year ended December 31, 2016, and $7.2 million for the year ended
December 31, 2015.
Employees
As of December 31, 2016, we employed a total of 145 full-time employees, of whom 48 are based in North America, 18 in
Europe and 79 in Asia. Of these full-time employees, 22 are in sales and marketing, 75 are in product development, 24 are in global
services and client support, and 24 are in operations, administration and finance.
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.
5
Executive Officers
Our executive officers and their ages and positions as of December 31, 2016 are in the table below.
5
Name
Pehong Chen
Peter Chu
Age
59
53
Position
Chairman, President and Chief Executive Officer
Chief Financial Officer and Vice President Strategy and Product
Management
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.
Peter Chu was appointed our Chief Financial Officer in July 2014. Mr. Chu has also served as our Vice President of Strategy,
Product Management since October 2011 when he joined the Company. Prior to joining BroadVision, Mr. Chu was a Managing Partner
at AsiaTech Ventures for over a decade. Mr. Chu holds a BSEE from Stanford University and an MBA from Harvard University.
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.
Risks related to our business and industry
Our business currently depends on revenue related to BroadVision e-business solutions, and we expect that this revenue will continue
to decline.
We generate a large portion of our revenue from legacy products, including Business Agility Suite, Commerce Agility Suite
and QuickSilver. We expect that these products, and future upgraded versions, will continue to account for a large portion of our revenue
in the foreseeable future. We expect that our future financial performance, until we establish a significant installed base of new product
revenues, will depend on our ability to sustain our legacy business, which we expect to continue to decline as the result of a decrease in
market demand for these products and related products and services. If we fail to deliver the product enhancements that customers want,
or if competitors overtake our legacy customers, demand for our legacy products and services, and our revenue, may further decline.
We continue to introduce new products, services and technologies and our business will be harmed if we are not successful in selling
these offerings to our existing customers and new customers.
We entered into the business of ESN with the initial release of Clearvale in 2009. We announced the integration of Clearvale’s
social and mobile capabilities into our legacy products, as BroadVision 9 in 2013. We have been actively enhancing Clearvale, by adding
new functions and editions. We have spent significant resources in developing these offerings and training our employees to implement,
support, operate, sell and market the offerings. In February 2015 we launched our newest communication and collaboration offering,
Vmoso, and we announced a major incremental release of our Vmoso platform with a range of new functionality across several key
modules in September 2016. To date our Vmoso, Clearvale and BroadVision 9 offerings have only contributed to a minor portion of our
revenue. We do not yet know whether any of these new offerings will grow into a significant business line, and if so, whether sales of
these new offerings will be sufficient for us to offset the costs of development, implementation, support, operation, sales and marketing.
Although we have performed extensive testing of our products and technologies, their broad-based implementation may require more
support than we anticipate, which would further increase our expenses. If sales of our new products, services and technologies are lower
than we expect, or if we must lower our prices or delay implementation to fix unforeseen problems and develop modifications, our
operating margins are likely to decrease and we may not be able to operate profitably.
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We have introduced Cloud-based offerings. Our business will be harmed and our growth potential will be limited, if we are unable to
provide reliable, scalable, and cost-efficient Cloud hosting operation.
Historically, BroadVision has offered perpetual software licenses, with customers responsible for the IT equipment needed for
running BroadVision software. The Vmoso, Clearvale and Clear products, on the other hand, include Cloud-based offerings, where
BroadVision provides hosted IT equipment and operation for subscribing customers. The Cloud model is also known as Software-as-a-
Service, or SaaS. Our SaaS operations rely upon a distributed computing infrastructure platform for business operations. We have
designed our software and computer systems so as to utilize data processing, storage capabilities and other services provided by cloud
computing service providers. Currently, our worldwide cloud service providers include leading cloud infrastructure providers such as
Amazon. Any disruption of or interference with our use of cloud computing services would impact our operations and our business
would be adversely impacted. BroadVision has limited prior experience in operating Cloud hosting. We may be unable to timely
provide adequate computing capacity to keep up with business growth and performance requirements. Our hosted operation may fail due
to hardware problems, software problems, power problems, network problems, scalability problems, human errors, hacker attacks,
disasters, third-party data center problems and other reasons. The failures may cause us to compromise security, lose customer data or
identity, endure prolonged downtime, etc., all of which will harm our business and limit our growth. BroadVision has limited prior
experience in estimating the costs of Cloud hosting. If we underestimate the costs or under-charge customers, we may not have adequate
margins to sustain our Cloud hosting operation. Vmoso and Clearvale allow customers to use basic functions for free, a business practice
gaining popularity in our industry. If we do not have enough customers upgrading to for-fee premium packages, we may be unable to
sustain our Cloud hosting operation economically.
Current and potential competitors could make it difficult for us to acquire and retain customers now and in the future.
The market for our products is intensely competitive. We expect competition in this market to persist and increase in the future.
If we fail to compete successfully with current or future competitors, we may be unable to attract and retain customers. Increased
competition could also result in price reductions for our products and lower profit margins and reduced market share, any of which could
harm our business, results of operations and financial condition.
Many of our competitors have significantly greater financial, technical, marketing and other resources, greater name
recognition, a broader range of products and a larger installed customer base, any of which could provide them with a significant
competitive advantage. In addition, new competitors, or alliances among existing and future competitors, may emerge and rapidly gain
significant market share. Some of our competitors, particularly established software vendors, may also be able to provide customers with
products and services comparable to ours at lower or at aggressively reduced prices in an effort to increase market share or as part of a
broader software package they are selling to a customer. We may be unable to match competitor's prices or price reductions, and we may
fail to win customers that choose to purchase an information technology solution as part of a broader software and services package. As a
result, we may be unable to compete successfully with current or new competitors.
If we are unable to keep pace with the rapid technological changes in online commerce, portal, social networking and enterprise
software, 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
mobile, cloud-computing, social and enterprise software. 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.
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.
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. As of December 31, 2016, we had an accumulated deficit of approximately
$1.3 billion.
7
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.
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.
Our quarterly operating results are volatile and difficult to predict, and our stock price may decline if we fail to meet the expectations
of securities analysts or investors.
Historically our quarterly operating results have varied significantly from quarter to quarter and are likely to continue to vary
significantly in the future. If our revenues, operating results, earnings or projections are below the levels expected by securities analysts
or investors, our stock price is likely to decline.
We are likely to continue to experience significant fluctuations in our future 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;
• the timing of receipt, fulfillment and recognition as revenue of significant orders;
• 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 our competitors or us 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;
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 were unable to
adjust spending in a timely manner to compensate for any revenue shortfall, any significant revenue shortfall would likely have an
immediate negative effect on our operating results. If our operating results in one or more future quarters fail to meet the expectations of
securities analysts or investors, we would expect to experience an immediate and significant decline in the trading price of our stock.
Our 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 can 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.
8
Because a significant portion of our sales activity occurs at the end of each fiscal quarter, delays in a relatively small number of
license transactions could adversely affect our quarterly operating results.
A significant proportion of our sales are concentrated in the last month of each fiscal quarter. Gross margins are high for our
license transactions. Customers and prospective customers may use these conditions in an attempt to obtain more favorable terms. While
we endeavor to avoid making concessions that could result in lower margins, the negotiations often result in delays in closing license
transactions. Small delays in a relatively small number of license transactions could have a significant impact on our reported operating
results for that quarter.
We may face liquidity challenges and will need additional financing in the future.
We currently expect to be able to fund our working capital requirements from our existing cash and cash equivalents and short-
term investments through at least the next 12 months. However, we could experience unforeseen circumstances, such as an economic
downturn, difficulties in retaining customers and/or employees, or other factors that could increase our use of available cash and require
us to seek additional financing. We may find it necessary to obtain additional equity or debt financing due to the factors listed above or in
order to support a more rapid expansion, develop new or enhanced products or services, respond to competitive pressures, acquire
complementary businesses or technologies or respond to unanticipated requirements.
We may seek to raise additional funds through private or public sales of securities, strategic relationships, bank debt, financing
under leasing arrangements or otherwise. If additional funds are raised through the issuance of equity securities, the percentage
ownership of our current 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. 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.
If we are unable to maintain our disclosure controls and procedures, including our internal control over financial reporting, our
ability to report our financial results on a timely and accurate basis may be adversely affected.
We have evaluated our "disclosure controls and procedures" as such term is defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934, as amended. Effective controls are necessary for us to provide reliable financial reports and effectively prevent
fraud. If we cannot provide reliable financial reports or prevent fraud, our operating results could be harmed. Our internal control over
financial reporting has been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. Because of its
inherent limitations, internal control over financial reporting may not prevent or detect misstatements. For example, we delayed the
filing of our Annual Report on Form 10-K for the year ended December 31, 2015, in connection with our discovery that a former
employee of one of our wholly-owned German subsidiaries, Interleaf Germany, had fraudulently misappropriated funds from us and
falsified records to conceal the theft.
We cannot assure you that our controls and procedures will prevent all errors or fraud, or that any related losses would be
recoverable. We also cannot assure you that similar circumstances will not arise in the future that will cause us to delay the filing of our
periodic consolidated financial reports and, if we are unable to produce accurate or timely consolidated financial statements, we may be
subject to adverse regulatory consequences, including sanctions or investigations by the Securities and Exchange Commission, our stock
price may be adversely affected, our reputation may suffer and we may be unable to maintain compliance with the Nasdaq Global Market
continued listing requirements. Further, our independent registered public accounting firm did not perform an evaluation of our internal
control over financial reporting during the impacted periods in accordance with the provisions of the Sarbanes-Oxley Act. In light of the
fraudulent activities that were identified as a result of the limited procedures performed, it is possible that, had our independent registered
public accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the
Sarbanes-Oxley Act, additional instances of fraud, or significant deficiencies or material weaknesses, may have been identified.
In addition, maintaining sufficient expertise and historical institutional knowledge in our accounting and finance organization is
dependent upon retaining existing employees and filling any open positions with experienced personnel in a timely fashion. The market
for skilled accounting and finance personnel is competitive and we may have continued difficulty in retaining our staff because the region
in which we compete consists of many established companies that can offer more lucrative compensation packages. Our inability to staff
the department with competent personnel with sufficient training will affect our internal controls over financial reporting to the extent
that we may not be able to prevent or detect material misstatements.
9
Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the U.S.
We prepare our financial statements in conformity with accounting principles generally accepted in the U.S. These accounting
principles are subject to interpretation by the Financial Accounting Standards Board (FASB) and the Securities and Exchange
Commission. A change in these policies or interpretations could have a significant effect on our reported financial results, may
retroactively affect previously reported results, could cause unexpected financial reporting fluctuations, and may require us to make
costly changes to our operational processes and accounting systems. In May 2014, the FASB issued ASU 2014-09, Revenue from
Contracts with Customers which supersedes nearly all existing U.S. GAAP revenue recognition guidance. The new standard will become
effective for us on January 1, 2018. Early application is permitted to the original effective date of January 1, 2017. Although we are
continuing to assess all potential impacts of the standard on our financial statements or disclosures, it could change the way we account
for certain of our revenue transactions. Adoption of the standard could have a significant impact on our financial statements and may
retroactively affect the accounting treatment of transactions completed before adoption. See Note 1. Recent Accounting Pronouncements
included herein for additional discussion of the accounting changes.
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 may take a significant amount of time before achieving 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.
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 year ended December 31,
2016, approximately 54% of our revenue was derived from international sales. If we are unable to manage or grow our existing
international operations, we may not generate sufficient revenue required to establish and maintain these operations, which could slow
our overall growth and impair our operating margins.
As we rely materially on our operations outside of North America, we are subject to significant risks of doing business
internationally, including:
• 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;
• 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.
Our international sales growth could 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.
10
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 January 2014, on the elements of creating and sharing tasks over one or more networks. We also hold a U.S. patent, issued in
January 2004, on elements of the BroadVision platform, which covers mechanisms for translating between a word processing document
and an XML file. 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. Third parties have claimed and may claim in the future that we have infringed their
patent, trademark, copyright or other proprietary rights. Claims may be made for indemnification resulting from allegations of
infringement. Intellectual property infringement claims may be asserted against us as a result of the use by third parties of our products.
Claims or litigation, with or without merit, could result in substantial costs and diversions of resources, either of which could harm our
business.
We also rely on copyright, trademark, service mark, trade secret laws and contractual restrictions to protect our proprietary
rights in products and services. We have registered "BroadVision", "Clearvale", "Interleaf" and the Clearvale logo as trademarks in the
United States and/or 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,
partners and vendors. We also control access to and distribution of our software, documents and other proprietary information.
Notwithstanding these precautions, it may be possible for an unauthorized third party to copy or otherwise obtain and use our software or
other proprietary information or to develop similar software independently. Policing unauthorized use of our products will be difficult,
particularly because the global nature of the Internet makes it difficult to control the ultimate destination or security of software and other
transmitted data. The laws of other countries may afford us little or no effective protection of our intellectual property.
A breach of the encryption technology that we use could expose us to liability and harm our reputation, causing a loss of customers.
If any breach of the security technology embedded in our products or hosted Cloud operations 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, portal, social networking and enterprise software is the secure exchange of valuable and confidential information over public
networks. We rely on encryption and authentication technology, such as Open SSL, public key cryptography, encryption algorithms RC2
and MD5, digital certificates and HTTPS, to provide the security and authentication necessary to affect the secure exchange of
confidential information. Advances in computer capabilities, new discoveries in the field of cryptography, new hacking methods, security
holes in 3rd-party components (such as operating system bugs) or other events or developments could cause a breach of the above
measures that we use to protect customer data and identity.
The loss or malfunction of technology from third parties could delay the introduction of our products and services.
We rely in part on technology that we license from third parties or we obtain from open sources, including cloud-based
solutions from Amazon Web Services; relational database management systems from Oracle; Microsoft and MySQL; J2EE from Oracle
and JBoss; and others. The loss or malfunction of any third-party technology could harm our business. We integrate or sublicense third-
party technology with internally developed software to perform key functions. For example, our products and services incorporate data
encryption and authentication technology from Open SSL. Third-party technology might not continue to be available to us on
commercially reasonable terms, or at all. Moreover, third-party technology may contain defects that we cannot control. Problems with
third-party technology could cause delays in introducing our products or services until equivalent technology, if available, is identified,
licensed or obtained, and integrated. Delays in introducing our products and services could adversely affect our results of operations.
Our use of open source software could negatively affect our ability to sell our products and subject us to possible litigation.
We use open source software in our products and may continue to use open source software in the future. We may face claims
from others claiming ownership of, or seeking to enforce the terms of, an open source license, including by demanding release of the
open source software, derivative works, or our proprietary source code that was developed using such software. These claims could also
result in litigation, require us to purchase a costly license, or require us to devote additional research and development resources to
change our platform, any of which would have a negative effect on our business and operating results. In addition, if the license terms for
the open source software we utilize change, we may be forced to reengineer or discontinue our products or incur additional costs. We
cannot be certain that we have not incorporated open source software in our products in a manner that is inconsistent with our policies.
11
Our officers, and highly skilled technical and managerial personnel are critical to our business, and they may not remain with us in
the future.
Our performance substantially depends on the performance of our officers. We also rely on our ability to retain and motivate
qualified personnel, especially our management and highly skilled development teams. The loss of the services of any of our officers or
highly skilled technical and managerial personnel, 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 over the past several years 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 (web or mobile) 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 or use applications and volunteer information in response to survey
questions or to application forms 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 online
users to prevent the distribution of any of their personal data beyond that specific web site or application services, 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 online 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. 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. While we adhere to the privacy policies published with our solutions, 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. In addition, the European Union is in the process of
proposing reforms to its existing data protection legal framework, which may result in a greater compliance burden for companies with
customers in Europe.
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 may not have adequate back-up and redundant systems for both customer-used service and internal IT. A disaster could
severely harm our business because our service and operation 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. These systems are vulnerable to damage from fire, floods, earthquakes, power loss, acts of terrorism,
telecommunications failures and similar events. We also have significantly reduced our workforce since 2000, 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.
12
We are subject to foreign currency exchange risk.
fluctuations
A total of 54% and 59% of our fiscal year 2016 and 2015 revenues, respectively, were derived from international operations for
which we transact business in foreign currencies. International revenues and expenses denominated in foreign currencies translate into
higher or lower revenues and expenses in U.S. Dollars as the U.S. Dollar weakens or strengthens against such other
currencies. Substantially all of the revenues of our international operations are received, and substantially all expenses are incurred, in
currencies other than the U.S. Dollar, which increases or decreases the related U.S. Dollar-reported revenues and expenses depending on
rates. These fluctuations could cause our revenues outside the United States and
the
other results of operations to differ from our expectations or the expectations of our investors. Additionally, such foreign currency
exchange rate fluctuations could make it more difficult to detect underlying trends in our business and results of operations. In addition, a
total of 14% of our cash and cash equivalents as well as investments were denominated in foreign currencies as of December 31, 2016.
Accordingly, changes in the value of foreign currencies relative to the U.S. dollar can affect our operating results due to transactional and
translational re-measurements that are reflected in our results of operations. To the extent that fluctuations in currency exchange rates
cause our results of operations to differ from our expectations or the expectations of our investors, the trading price of our common stock
could be adversely affected.
foreign currency exchange
in
We do not engage in any hedging activities in order to manage any potential adverse financial impact resulting from
unfavorable changes in foreign currency exchange rates. We cannot predict with any certainty changes in foreign currency exchange rates
or the degree to which we can address these risks.
Our business could be negatively affected as a result of actions of activist stockholders.
The actions of activist stockholders could adversely affect our business. Specifically, responding to common actions of an
activist stockholder, including without limitation public proposals, requests to pursue a strategic combination or other transaction or other
special requests, could disrupt our operations, be costly and time-consuming or divert the attention of our management and
employees. In addition, perceived uncertainties as to our future direction in relation to the actions of an activist stockholder may result in
the loss of potential business opportunities or the perception that we are unstable and need to make changes, which may be exploited by
our competitors and make it more difficult to attract and retain personnel as well as consumers and service providers. Actions of an
activist stockholder may also cause fluctuations in our stock price based on speculative market perceptions or other factors that do not
necessarily reflect the underlying fundamentals and prospects of our business.
Weakened global economic conditions or tariffs and other trade restrictions may harm our industry, business, and results of
operations.
We derive revenue from clients in many countries, and our overall performance depends in part on worldwide economic
conditions. Global financial developments and downturns seemingly unrelated to us, our products or our industry may harm us. The
United States and other key international economies have been impacted by falling demand for a variety of goods and services, restricted
credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, bankruptcies, and overall
uncertainty with respect to the economy. The revenue growth and potential profitability of our business depends on demand for our
products generally. Historically, during economic downturns there have been reductions in spending on technology systems as well as
pressure for extended billing terms and other financial concessions, which would negatively affect our operating results. These conditions
affect the rate of technology spending and could adversely affect our customers’ ability or willingness to purchase our products, delay
prospective customers’ purchasing decisions, reduce the value or duration of their subscriptions, or affect renewal rates, all of which
could harm our operating results.
Additionally, the new U.S. presidential administration has called for substantial changes to foreign trade policy and has raised
the possibility of imposing significant increases in tariffs on international trade. We also rely on various U.S. corporate tax provisions
related to international commerce. If we are subject to new regulations, or if restrictions and tariffs increase our operating costs in the
future, and we are not able to recapture those costs from our customers, or if such initiatives regulations, restrictions and tariffs make it
more difficult for us to compete in overseas markets, our business, financial condition and results of operations could be adversely
impacted.
Risks related to BroadVision common stock
One stockholder beneficially owns a substantial portion of the outstanding BroadVision common stock, and as a result exerts
substantial control over us.
As of December 31, 2016, Dr. Pehong Chen, our Chairman and Chief Executive Officer (CEO), beneficially owned
approximately 1.6 million shares of our common stock, which represents approximately 33% of the outstanding common stock as of such
date. As a result, Dr. Chen exerts substantial control over all matters coming to a vote of our stockholders, including with respect to:
13
• the composition of our board of directors and, through it, any determination with respect to our business direction and
policies, including the appointment and removal of officers;
• any determinations with respect to mergers and other business combinations;
• our acquisition or disposition of assets;
• our financing activities; and
• the payment of dividends on our capital stock.
This control by Dr. Chen could depress the market price of our common stock or delay or prevent a change in control of
BroadVision.
If we fail to maintain the requirements for continued listing on the NASDAQ Global Market, our common stock could be delisted
from trading, which would adversely affect the liquidity of our common stock and our ability to raise additional capital.
Our common stock is currently listed on the NASDAQ Global Market. We are required to meet specified listing criteria in
order to maintain our listing on the NASDAQ Global Market. If we fail to satisfy the NASDAQ Global Market’s continued listing
requirements, our common stock could be delisted from the NASDAQ Global Market, in which case we may be able to transfer to the
NASDAQ Capital Market, which generally has lower financial requirements for initial listing or, if we fail to meet its listing
requirements, the over-the-counter bulletin board. For example, NASDAQ Rule 5450(b)(1)(A) requires companies listed on the
NASDAQ Global Select Market to maintain a minimum of $10.0 million in stockholders’ equity for continued listing. At December 31,
2016, our stockholders’ equity was $16.9 million. If our stockholders’ equity falls below $10.0 million, the NASDAQ Global Market
may take formal action and determine that we are no longer suitable for listing and may commence delisting procedures. Any potential
delisting of our common stock from the NASDAQ Global Market would make it more difficult for our stockholders to sell our stock in
the public market and would likely result in decreased liquidity and increased volatility for our common stock.
Our stock price has been highly volatile.
The high and low price of BroadVision common stock on the NASDAQ Global Market ranged from $4.40 per share to
$8.06 per share between January 1, 2015 and December 31, 2016. 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;
• low trading volume on the NASDAQ Global Market;
• 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, enterprise social
networking 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
As of December 31, 2016, we leased approximately 30,969 square feet of office space, consisting of
• Our headquarters of 16,399 square feet at Pacific Shores Center in Redwood City, California, used for research and
development, technical support, sales, marketing, consulting, training and administration;
• Beijing, China office of 8,414 square feet used primarily for research and development, sales, marketing and customer
•
services; and
Small regional offices used primarily for sales, marketing and customer services in Waltham, MA; Rome and Milan, Italy;
Tokyo, Japan; Taipei, Taiwan; and Bangalore, India.
We fully occupied all of our leased office spaces as of December 31, 2016. We believe our facilities are suitable for their
respective uses and are adequate to support our current and anticipated volume of business.
ITEM 3. LEGAL PROCEEDINGS
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We are subject from time to time to various legal actions and other claims arising in the ordinary course of business. We are not
presently a party to any material legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
15
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. From March 8,
2006 to May 24, 2007, our common stock was quoted on the Pink Sheets®. From May 25, 2007 to October 24, 2008, our common stock
was trading on the OTC Bulletin Board. Effective as of the open of trading on October 27, 2008, we effected a one-for-twenty-five
reverse split of our common stock. Effective as of November 10, 2008, we have transferred the quotation of our common stock from the
OTC Bulletin Board to the NASDAQ Global Market under the trading symbol "BVSN". The following table shows high and low sale
prices per share of our common stock as reported on the NASDAQ Global Market:
Fiscal Year 2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year 2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
$
High
Low
8.06 $
7.68
6.70
5.60
6.53 $
6.19
6.12
6.39
5.63
6.20
4.49
4.40
5.51
5.43
5.30
5.71
As of February 28, 2017, there were 200 holders (not including beneficial holders of common stock held in street name) of
record of BroadVision common stock. On March 28, 2017, the closing price reported on the NASDAQ Global Market for BroadVision
common stock was $5.30 per share.
We have never declared or paid cash dividends on our common stock, and currently do not plan to pay any cash dividends in
the foreseeable future.
Unregistered Sales of Equity Securities
None.
Issuer Purchases of Equity Securities
None.
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.
16
Overview
Since 1993, BroadVision has been a pioneer and consistent innovator of e-business solutions. We deliver a combination of
technologies and services into the global market that enable customers of all sizes to power mission-critical web, cloud and mobile
initiatives that ultimately deliver high-value to their bottom line. Our offering consists of a robust framework for personalization and self-
service, modular applications and agile toolsets that customers use to create e-commerce, portal solutions, Enterprise Social Networking
(ESN), and collaboration and knowledge management solutions. Most recently, we have added mobile and cloud capabilities to our
platforms to enable our customers for rapid deployment of robust, secure, and scalable solutions.
Our objective is to further our position as a global supplier of innovative e-business solutions with the addition of enterprise
collaboration and engagement solutions such as our mobile and cloud-based Vmoso, a collaboration and knowledge management
product, and Clearvale, an ESN product. Together with our legacy Business Agility Suite, Commerce Agility Suite and QuickSilver
solutions, our new enterprise collaboration and engagement solutions are designed to enhance the communication, collaboration and
knowledge management capabilities of organizations with their customers, partners and employees to improve productivity and
efficiency. In September 2016, we announced a major incremental release of our Vmoso platform with a range of new functionality
across several key modules.
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 based on (1) the number of persons registered to use the product;
(2) the number of CPUs utilized by the machines on which the product is installed. We also charge fees for access and use of Cloud or
SaaS solutions. Payment terms are generally 30 to 60 days from the date the software products are delivered, the maintenance or
subscription contracts are booked, or the consulting services are provided.
We have not generated net income since 2009. Our ability to generate profits or positive cash flows in future periods remains
uncertain.
Our operations face two key challenges: maturity of our major revenue-generating legacy products, and competing in a
crowded ESN solution space. We continue to invest heavily in cloud-based, mobile, messaging and collaboration technologies, while
continuing to support our legacy base. Total 2016 revenues of $7.9 million were lower compared to total 2015 revenues of $9.4 million,
with the decrease mainly in legacy revenue. We expect that the decline in our legacy revenue, which is the majority of our revenue mix,
will continue to dominate our overall financial performance until a significant installed base of new product revenues is established. We
are continuing to diligently invest in new technologies in an effort to maintain our competitive advantages in the mobile communications
and collaboration and knowledge management spaces.
Obligations to Related Parties
On November 14, 2008, BroadVision (Delaware) LLC, a Delaware limited liability company (“BVD”), which was then our
wholly owned subsidiary, entered into a Share Purchase Agreement with CHRM LLC, a Delaware limited liability company, that is
controlled by Dr. Pehong Chen, our CEO and largest stockholder and in which our CFO, Peter Chu holds a minority interest. We and
CHRM LLC then entered into an Amended and Restated Operating Agreement of BroadVision (Delaware) LLC dated as of November
14, 2008 (the “BVD Operating Agreement”). Under these agreements, CHRM LLC received, in exchange for the assignment of certain
intellectual property rights, 20 Class B Shares of BVD, representing the right to receive a portion of any distribution of “Funds” from
“Capital Transactions” (as such terms are defined in the BVD Operating Agreement), with the exact amount to be determined based on
our and CHRM LLC’s capital account balances at the time of such distribution. A “capital transaction” under that agreement is any
merger or sale of substantially all of the assets of BVD as a result of which the members of BVD will no longer have an interest in BVD
or the assets of BVD will be distributed to its members. Class B Shares do not participate in any profits of BVD except for net profits
related to a “capital transaction,” in which case the net profits are allocated to the owners of Class A and Class B Shares in proportion to
their respective number of shares. To the extent BVD’s losses do not exceed undistributed net profits accumulated since the date of
issuance of Class B Shares, such losses are allocated to Class A Shares. To the extent net losses exceed the undistributed net profits
accumulated since the date of issuance of Class B Shares, such excess is allocated to the owners of Class A and Class B Shares in
proportion to their respective cumulative capital contributions less any return of capital, until allocation of such losses results in having
the capital account balances equal to zero. Then, net losses are allocated to the owners of Class A and Class B Shares in proportion to
their respective number of shares. Upon liquidation the net assets of BVD are distributed to the owners of Class A and Class B in
proportion to their capital account balances.
BVD is the sole owner of BroadVision (Barbados) Limited (“BVB”) and BVB is the sole owner of BroadVision On Demand, a
Chinese entity (“BVOD”). We have invested approximately $9.0 million in BVOD (directly and through BVD and BVB) from 2007
through 2015. In 2014, we began making payments directly to BVOD for certain labor outsourcing services and expect to continue to pay
BVOD for such services at the rate of approximately $500,000 per quarter for the foreseeable future. We made aggregate payments to
BVOD of $2.0 million and $1.9 million (based on the RMB to USD exchange rates on the applicable dates of payment) for such services
in the years ended December 31, 2016 and 2015, respectively. These payments in part covered services rendered outside of the
applicable twelve month periods. We have a controlling voting interest in BVD. Pursuant to the terms of the BVD Operating Agreement,
the Class B Shares held by CHRM LLC have no voting rights.
17
The 20 Class B Shares of BVD represent a non-controlling interest. We allocate profits and losses of BVD to the non-
controlling interest under the Hypothetical Liquidation Book Value (“HLBV”) method. Under this method the profits and losses are
allocated by reference to the profit sharing provisions in the BVD Operating Agreement assuming liquidation of BVD at its book value at
the end of each reporting period. Profits and losses allocated to the balance of such interest under the HLBV method have not been
material.
In April 2015, we executed a renewal contract with SINA Corporation of which Dr. Pehong Chen, our CEO and largest
stockholder, is a board member through December 2015, pursuant to which we provided HR information management hosting service,
including software subscription, system upgrade and technical support, to SINA Corporation. The total license revenue that we were
entitled to receive under that contract through its expiration in March 2016, was $184,000. We recognized $46,000 and $176,000 of
license revenue related to that contract for the fiscal year 2016 and 2015, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 to the Consolidated Financial Statements for a full description of recent accounting pronouncements, including the
expected dates of adoption and expected impacts on the results of operations and financial condition, which is incorporated herein by
reference.
Critical Accounting Policies, Judgments and Estimates
This management's discussion and analysis of our financial condition and results of operations is based upon our Consolidated
Financial Statements, which have been prepared in accordance with U.S. GAAP. 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 receivable reserves, stock-
based compensation, investments and income taxes, 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.
Revenue Recognition
Overview
Our revenue consists of fees for licenses of our software products, maintenance, consulting services and training.
Our revenue recognition policies comply with Accounting Standards Codification ASC 985-605, Software: Revenue
Recognition, and Staff Accounting Bulletin SAB 104, Revenue Recognition. In October 2009, the Financial Accounting Standard Board
(FASB) amended the accounting standards in Accounting Standards Update ("ASU") 2009-13 (an update to ASC 605-25) ("ASU 2009-
13") for certain multiple deliverable revenue arrangements to: 1) provide updated guidance on whether multiple deliverables exist, how
the deliverables in an arrangement should be separated, and how the consideration should be allocated; 2) require an entity to allocate
revenue in an arrangement using best estimated selling price ("BESP") of deliverables if a vendor does not have vendor-specific objective
evidence (“VSOE”) of selling price or third-party evidence ("TPE") of selling price; and 3) eliminate the use of the residual method and
require an entity to allocate revenue using the relative selling price method.
We recognize revenue when all four of the following revenue recognition criteria have been met:
• Persuasive evidence of an arrangement exists;
• We have delivered the product or performed the service;
• The fee is fixed or determinable; and
• Collection is probable.
We qualify the second of the above listed criteria differently for different types of revenues, as follows.
18
Software License Revenue, Non-Subscription and Non-Hosted Products
Delivery of non-subscription and non-hosted software products is considered to have occurred when title to the physical media
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. We do not grant a right of return for non-subscription or non-hosted software products. We recognize revenue upon the
delivery of our software.
Software License Revenue, Subscription Products or Hosted Products
Although we make our software available to the customer at a particular point in time, the delivery of subscription software
products (such as QuickSilver) and hosted software products (such as Vmoso, Clearvale and Clear) is considered to have occurred ratably
over the duration of the contract. We recognize revenue ratably.
Services Revenues
Consulting services revenues and training revenues are recognized as such services are performed. These services 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.
Maintenance revenue, which includes revenue that is derived from software license agreements that entitle the customers to
technical support and future unspecified enhancements to our products, is recognized ratably over the related agreement period, which
time period is generally twelve months.
Receivable Reserves
Occasionally, our customers experience financial difficulty after we recognize the sale but before payment has been received.
We maintain receivable reserves for estimated losses resulting from the inability of our customers to make required payments. Our
normal payment terms are generally 30 to 90 days from the invoice date. If the financial condition of our customers were to deteriorate,
resulting in their inability to make the contractual payments, additional reserves may be required. Losses from customer receivables in
the two-year period ended December 31, 2016, have not been significant. If all efforts to collect a receivable fail, and the receivable is
considered uncollectible, we would write it off against the receivable reserve.
Research and Development and Software Development Costs
ASC 985-20, Costs of Software to be Sold, Leased, or Marketed ("ASC 985-20"), requires capitalization of certain software
development costs subsequent to the establishment of technological feasibility. Based on our product development process, technological
feasibility is established upon the completion of a working model. To date, costs incurred by us between the completion of the working
model and the point at which the product is ready for general release have been insignificant. Accordingly, we have charged all such
costs to research and development expenses in the period incurred.
Income Taxes and Deferred Tax Assets
Income taxes are computed using an asset and liability approach in accordance with ASC 740-10, Income Taxes ("ASC 740-
10"), which requires the recognition of taxes payable or refundable for the current year and deferred tax assets and liabilities for the
future tax consequences of events that have been recognized in our Consolidated Financial Statements or tax returns. The measurement
of current and deferred tax assets and liabilities is based on provisions of the enacted tax law; the effects of future changes in tax laws or
rates are not anticipated. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, is not expected to be realized.
We analyze our deferred tax assets with regard to potential realization. We have established a valuation allowance on our
deferred tax assets to the extent that management has determined that it is more likely than not that some portion or all of the deferred tax
asset will not be realized based upon the uncertainty of their realization. We consider the effects of estimated future taxable income,
current economic conditions and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance.
Stock-Based Compensation
We account for share-based payment arrangement in accordance with ASC 718-10, Compensation – Stock Compensation
("ASC 718-10"), using the modified-prospective transition method. Under ASC 718-10, share-based compensation cost is estimated at
the grant date based on the fair value of the award and is recognized as expense, net of estimated pre-vesting forfeitures, ratably over the
vesting period of the award.
19
Further details related to our Stock Benefit Plans and our adoption of ASC 718-10 are provided in Note 7 – Stockholders'
Equity in the Notes to our Consolidated Financial Statements.
Statements of Comprehensive Loss as a Percentage of Total Revenues
The following table sets forth certain items reflected in our Consolidated Statements of Comprehensive Loss expressed as a
percent of total revenues for the periods indicated.
Revenues:
Software licenses
Services
Total revenues
Cost of revenues:
Cost of software revenues
Cost of services
Total cost of revenues
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Operating loss
Other income (loss), net
Loss before income taxes
Provision for income taxes
Net loss
Results of Operations
Years Ended December 31,
2016
2015
53 %
47
100
2
40
42
58
87
51
46
184
(126)
7
(119)
(1)
47 %
53
100
2
35
37
63
76
52
37
165
(102)
(19)
(121)
-
(120) %
(121) %
Revenues. License revenue from the sales of software licenses for the year ended December 31, 2016 was $4.2 million, down
$0.2 million, or 5% from $4.4 million for the year ended December 31, 2015. Services revenues consist of maintenance revenues and
consulting services revenues. Maintenance revenue, which is generally derived from maintenance contracts sold with initial customer
licenses and from subsequent contract renewals, for the year ended December 31, 2016 was $2.2 million, down $.8 million, or 27% from
$3.0 million for the year ended December 31, 2015. Consulting service revenue, which is generally related to services in connection with
our licensed software, for the year ended December 31, 2016, was $1.5 million, down $0.5 million, or 25% from $2.0 million for the year
ended December 31, 2015.Total 2016 revenues of $7.9 million were lower compared to total 2015 revenues of $9.4 million, with the
decrease mainly resulting from the decline of our legacy business. We expect our revenues to continue to decrease due to the decline of
our legacy business, where customers have reduced their spending across licenses, maintenance and consulting services.
Cost of software revenues. Cost of software revenues includes the cost of our cloud hosting operation, 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 software revenues for the year ended December 31, 2016 was $172,000, up
$20,000, from $152,000 for the year ended December 31, 2015. The increase was primarily due to increases in usage of our cloud hosting
operation.
Cost of services. 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. Cost of services for the year ended December 31,
2016 was $3.2 million, down $0.1 million, or 3% from $3.3 million for the year ended December 31, 2015. This decrease was mainly due
to our overall cost reduction efforts in response to lower revenues.
20
Research and development. Research and development expenses consist primarily of salaries, employee-related benefit costs
and consulting fees incurred in association with the development of our products. Research and development expenses for the year ended
December 31, 2016, were $6.9 million, down $0.3 million, or 4% from $7.2 million for the year ended December 31, 2015. The
decrease was primarily due to decreases in employee-related benefit costs as a result of headcount turnover.
Sales and marketing. 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 for collateral materials,
trade shows, public relations, advertising and creative services. Sales and marketing expenses for the year ended December 31, 2016
were $4.1 million, down $0.8 million, or 16% from $4.9 million for the year ended December 31, 2015. The decrease was primarily due
to decreases in employee-related benefit costs as a result of headcount deduction.
General and administrative. General and administrative expenses consist primarily of salaries, employee-related benefit
costs, provisions and credits related to uncollectible accounts receivable, professional service fees and legal fees. General and
administrative expenses for the year ended December 31, 2016, were $3.6 million, up 0.1 million, or 3% from 3.5 million for the year
ended December 31, 2015. The increase was primarily due to increases in outside professional service fee and bad debt expenses.
Interest income, net. Net interest income includes interest income on investment funds. We generated $86,000 and $76,000 in
interest income for the year ended December 31, 2016, and 2015, respectively. This increase was primarily due to the interest income
resulting from the accrued short-term investment in bonds in 2016.
Other income (expense), net. Other income (expense), net during the year ended December 31, 2016, was other income, net,
of $0.4 million compared to other expense, net, of $1.8 million for the year ended December 31, 2015. The variances between the periods
were primarily due to gains and losses from the remeasurement of the foreign currency exchange rate fluctuation on our Euro assets, and
$230,000 and $183,000 gains from foreign currency translation reclassification pertaining to discontinued foreign subsidiaries in 2016
and 2015 respectively.
Provision for income taxes. The provision for income taxes was $48,000 for the year ended December 31, 2016, compared to
$29,000 for the year ending December 31, 2015. The provisions for each of the years ended December 31, 2016 and 2015 were primarily
due to foreign income tax expense.
Liquidity and Capital Resources
Background and Overview
At December 31, 2016, our current assets exceeded our current liabilities by approximately $17.4 million. Our management
believes that our cash and cash equivalents and short-term investments as of December 31, 2016 will be sufficient to fund operations
through at least the next twelve months.
As of December 31, 2016, we had $11.7 million in cash and $8.0 million in short-term investments, with no long-term debt
borrowings. The combined cash and short-term investment balances as of December 31, 2016 declined by $9.4 million compared to such
balances as of December 31, 2015. This decrease was mainly due to net cash used for operating activities, as described in the
Consolidated Statements of Cash Flows for 2016.
We anticipate that our existing cash and cash equivalents and short-term investments will continue to be used primarily to fund
our operating activities.
The following table represents our liquidity indicators at December 31, 2016 and 2015 (dollars in thousands):
Cash and cash equivalents
Short-term investments
Working capital
Working capital ratio
Cash Used for Operating Activities
December 31,
2016
2015
$
$
$
11,730 $
7,974 $
17,390 $
4.96
9,600
19,531
26,197
5.53
Cash used for operating activities was $9.6 million for fiscal year 2016, mainly attributable to a $9.5 million operating loss
offset by noncash items and changes in operating assets and liabilities.
21
Cash used for operating activities was $8.4 million for fiscal year 2015, mainly attributable to a $11.4 million operating loss
offset by a $1.5 million decrease in accounts receivables and a $1.1 million stock-based compensation as well as the other noncash items
and changes in operating assets and liabilities.
Cash Provided by (Used For) Investing Activities
Cash provided by investing activities in fiscal year 2016 was $11.5 million. Cash used for investing activities in fiscal year
2015 was $7.4 million. Cash provided by and used for investing activities in both periods was primarily related to the purchase or
maturities of short-term investments in bonds and certificates of deposit.
Cash Provided by Financing Activities
Cash provided by financing activities was $192,000 in fiscal year 2016. Cash provided by financing activities was $275,000 in
fiscal year 2015. Cash provided by financing activities in both periods was primarily attributable to purchases of common stock under the
Employee Stock Purchase Plan and employee exercise of stock options.
Off-Balance Sheet Arrangements
As of December 31, 2016, we had no off-balance sheet arrangements (as defined in Item 303(a)(4)(ii) of Regulation S-K under
the Securities Exchange Act of 1934, as amended) that create potential material risks for us and that are not recognized in our
Consolidated Balance Sheets as of December 31, 2016 and 2015.
Leases and Other Contractual Obligations
We lease our headquarters and other facilities under non-cancelable operating lease agreements expiring 2018. 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. As of
December 31, 2016, total future minimum lease payments are $1.4 million under non-cancelable operating lease agreements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements and the related Notes thereto of BroadVision, Inc. and the Report of the
Company’s Independent Registered Public Accounting Firm are filed as a part of this Form 10-K.
22
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders of
BroadVision, Inc.
We have audited the accompanying consolidated balance sheets of BroadVision, Inc. as of December 31, 2016 and 2015 and the related
consolidated statements of comprehensive loss, stockholders' equity, and cash flows for each of the two years in the period ended
December 31, 2016. In connection with our audits of the financial statements, we have also audited the financial statement schedule listed
in 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 are free of
material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial
position of BroadVision, Inc. as of December 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each
of the two years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also, in our
opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ OUM & Co. LLP
San Francisco, California
March 30, 2017
23
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amounts)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net of reserves of $167 and $135 as of December 31, 2016 and 2015,
respectively
Prepaids and other
Total current asset
Property and equipment, net
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Unearned revenue
Deferred maintenance
Total current liabilities
Other non-current liabilities
Total liabilities
Commitments and contingencies (Note 6)
Stockholders' equity:
December 31,
2016
2015
$
11,730 $
7,974
9,600
19,531
896
1,186
21,786
60
147
21,993 $
$
$
377 $
1,866
1,260
893
4,396
734
5,130
1,751
1,098
31,980
87
143
32,210
551
2,161
1,518
1,553
5,783
918
6,701
1,270,649
(967)
(1,252,819)
16,863
21,993 $
-
1,269,582
(739)
(1,243,334)
25,509
32,210
Convertible preferred stock, $0.0001 par value; 1,000 shares authorized; none issued and outstanding
Common stock, $0.0001 par value; 11,200 shares authorized; 4,958 and 4,895 shares issued and
outstanding as of December 31, 2016 and 2015, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity
$
See Accompanying Notes to Condensed Consolidated Financial Statements
24
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands, except per share amounts)
Years Ended December 31,
2016
2015
Revenues:
Software licenses
Services
Total revenues
Cost of revenues:
Cost of software revenues
Cost of services
Total cost of revenues
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Operating loss
Other income (loss):
Interest income, net
Other income (loss), net
Total other income (loss)
Loss before income taxes
Provision for income taxes
Net loss
$
4,227 $
3,713
7,940
172
3,152
3,324
4,616
6,901
4,051
3,618
14,570
(9,954)
86
431
517
(9,437)
(48)
(9,485)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment
Foreign currency translation reclassified into earnings for discontinued foreign
subsidiaries
Comprehensive loss
Earnings per share, basic and diluted:
Basic and diluted net loss per share
Shares used in computing:
Weighted average shares-basic and diluted
$
$
2
(230)
(9,713) $
(1.93) $
4,924
See Accompanying Notes to Condensed Consolidated Financial Statements
25
4,414
5,028
9,442
152
3,341
3,493
5,949
7,219
4,889
3,501
15,609
(9,660)
76
(1,824)
(1,748)
(11,408)
(29)
(11,437)
177
(183)
(11,443)
(2.36)
4,857
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Common Stock
Accumulated
Additional
Other
Total
Paid-in
Comprehensive Accumulated Stockholders'
Balances as of December 31, 2014
4,832 $
- $
1,268,243 $
(733) $ (1,231,897) $
35,613
Shares
Amount
Capital
Loss
Deficit
Equity
Net loss
Other comprehensive income (loss)
Stock-based compensation
Issuance of common stock from restricted stock awards
Issuance of common stock under employee stock
purchase plan
Issuance of common stock from exercise of options
9
54
-
-
-
-
-
1,064
-
275
-
(6)
(11,437)
(11,437)
(6)
1,064
-
275
-
Balances as of December 31, 2015
4,895 $
- $
1,269,582 $
(739) $ (1,243,334) $
25,509
Net loss
Other comprehensive income (loss)
Stock-based compensation
Issuance of common stock from restricted stock awards
Issuance of common stock under employee stock
purchase plan
Issuance of common stock from exercise of options
23
38
2
-
-
-
-
875
-
181
11
(228)
(9,485)
(9,485)
(228)
875
-
181
11
Balances as of December 31, 2016
4,958 $
- $
1,270,649 $
(967) $ (1,252,819) $
16,863
See Accompanying Notes to Condensed Consolidated Financial Statements
26
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization
Stock-based compensation
Provision (Benefit) of receivable reserves
(Gain) Loss on deconsolidation of a fully-owned subsidiary
Changes in operating assets and liabilities:
Accounts receivable
Prepaids and other
Other non-current assets
Accounts payable and accrued expenses
Unearned revenue and deferred maintenance
Other noncurrent liabilities
Net cash used for operating activities
Cash flows from investing activities:
Purchase of property and equipment
Purchase of short-term investments
Maturities of short-term investments
Net cash provided by (used for) by investing activities
Cash flows from financing activities:
Proceeds from issuance of common stock, net
Proceeds from exercise of common stock options, net
Net cash provided by financing activities
Effect of exchange rates on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosures of cash flows activities:
Cash paid for income taxes
Years Ended December 31st,
2016
2015
$
(9,485)
$
(11,437)
41
875
37
(230)
818
(88)
(4)
(469)
(918)
(184)
77
1,064
(9)
(183)
1,544
21
51
(62)
406
144
(9,607)
(8,384)
(14)
(10,666)
22,223
11,543
181
11
192
2
2,130
9,600
11,730
$
(16)
(21,931)
14,538
(7,409)
275
-
275
177
(15,341)
24,941
9,600
6
$
1
$
$
See Accompanying Notes to Condensed Consolidated Financial Statements
27
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1---Organization and Summary of Significant Accounting Policies
Nature of Business
BroadVision, Inc. (collectively with its subsidiaries, "BroadVision" or "we") was incorporated in the state of Delaware on
May 13, 1993, and has been a publicly traded corporation since 1996. We develop, market, and support 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.
Principles of Consolidation
The accompanying Consolidated Financial Statements include our and our subsidiaries’ accounts. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of Consolidated Financial Statements in conformity with U.S. GAAP 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, we evaluate the reasonableness of our estimates,
including those related to receivable reserves, stock-based compensation, investments and income taxes, 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 significant
accounting policies reflect the more significant judgments and estimates used in the preparation of our Consolidated Financial
Statements.
Revenue Recognition
Overview
Our revenue consists of fees for licenses of our software products, maintenance, consulting services and training.
Our revenue recognition policies comply with Accounting Standards Codification ASC 985-605, Software: Revenue
Recognition, and Staff Accounting Bulletin SAB 104, Revenue Recognition. In October 2009, the FASB amended the accounting
standards in Accounting Standards Update ("ASU") 2009-13 (an update to ASC 605-25) ("ASU 2009-13") for certain multiple
deliverable revenue arrangements to: 1) provide updated guidance on whether multiple deliverables exist, how the deliverables in an
arrangement should be separated, and how the consideration should be allocated; 2) require an entity to allocate revenue in an
arrangement using best estimated selling price ("BESP") of deliverables if a vendor does not have VSOE of selling price or third-party
evidence ("TPE") of selling price; and 3) eliminate the use of the residual method and require an entity to allocate revenue using the
relative selling price method.
We recognize revenue when all four of the following revenue recognition criteria have been met:
• Persuasive evidence of an arrangement exists;
• We have delivered the product or performed the service;
• The fee is fixed or determinable; and
• Collection is probable.
We qualify the second of the above listed criteria differently for different types of revenues, as follows.
Software License Revenue, Non-Subscription and Non-Hosted Products
Delivery of non-subscription and non-hosted software products is considered to have occurred when title to the physical media
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. We do not grant a right of return for non-subscription or non-hosted software products. We recognize revenue upon delivery
of our software.
28
Software License Revenue, Subscription Products or Hosted Products
Although we made the software available to the customer at a particular point in time, the delivery of subscription software
products (such as QuickSilver) and hosted software products (such as Vmoso, Clearvale and Clear) is considered to have occurred ratably
over the duration of the contract. We recognize revenue ratably over the contract periods.
Services Revenues
Consulting services revenues and training revenues are recognized as such services are performed. These services are not
essential to the functionality of the software. We record reimbursements from our customers for out-of-pocket expenses as an increase to
services revenues.
Maintenance revenue, which includes revenue that is derived from software license agreements that entitle the customers to
technical support and future unspecified enhancements to our products, is recognized ratably over the related agreement period, which
time period is generally twelve months.
Cash and Cash Equivalents, and Short-term Investments
We consider all debt with remaining maturities of three months or less at the date of purchase to be cash equivalents. Short-
term investments consist of debt that has a remaining maturity of less than one year as of the date of the balance sheet.
Management determines the appropriate classification of short-term investments at the time of purchase and evaluates such
designation as of each balance sheet date. All short-term investments to date have been classified as held-to-maturity and carried at
amortized cost, which approximates fair market value, on our Consolidated Balance Sheets. Our held-to-maturity securities did not have
any gross unrealized gains and losses as of December 31, 2016 and 2015, respectively. Our short-term investments’ contractual
maturities occur before July 2017. Total interest income during fiscal years 2016 and 2015 was $86,000 and $76,000, respectively.
Research and Development and Software Development Costs
ASC 985-20, Cost of Software to be Sold, Leased, or Marketed ("ASC 985-20"), requires capitalization of certain software
development costs subsequent to the establishment of technological feasibility. Based on our product development process, technological
feasibility is established upon the completion of a working model. To date, costs incurred by us from the completion of the working
model to the point at which the product is ready for general release have been insignificant. Accordingly, we have charged all such costs
to research and development expenses in the period incurred.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense, which is included in sales and marketing expense in the
accompanying Consolidated Statements of Comprehensive Loss, amounted to $46,000 and $22,000 in 2016 and 2015, respectively.
Receivable Reserves
Occasionally, our customers experience financial difficulty after we recognize the revenue but before payment has been
received. We maintain receivable reserves for estimated losses resulting from the inability of our customers to make required payments.
Our normal payment terms are generally 30 to 90 days from the invoice date. If the financial condition of our customers were to
deteriorate, resulting in their inability to make the contractual payments, additional reserves may be required. Losses from customer
receivables in the two-year period ended December 31, 2016, have not been significant. If all efforts to collect a receivable fail, and the
receivable is considered uncollectible, such receivable would be written off against the receivable reserve.
Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents,
short-term investments, and accounts receivable. We maintain our cash and cash equivalents and short-term investments with high-
quality institutions. Our management performs ongoing credit evaluations of our customers and requires certain of these customers to
provide security deposits or letters of credit.
Cash deposits and cash equivalents in foreign countries of approximately $1.8 million and $3.4 million on December 31, 2016
and 2015, respectively, are subject to local banking laws and may bear higher or lower risk than cash deposited in the United States. As
part of our cash and investment management processes, we perform periodic evaluations of the credit standing of the financial
institutions and we have not sustained any credit losses from instruments held at these financial institutions. From time to time, our
financial instruments maintained in our foreign subsidiaries may be subject to political risks or instability that may arise in foreign
countries where we operate.
29
For the year ended December 31, 2016, Indian Railways Catering and Tourism Corporation Limited accounted for 12% of our
total revenues. For the year ended December 31, 2015, no customer accounted for more than 10% of our total revenues.
Property and Equipment
Property and equipment are stated at cost and depreciated on a straight-line basis over their estimated useful lives (generally
two years for software, three years for computer equipment and four years for furniture and fixtures). Leasehold improvements are
amortized over the lesser of the remaining life of the lease term or their estimated useful lives.
Maintenance and repairs are charged to operations as incurred. When assets are retired or otherwise disposed of, the cost and
accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is reflected in operations in the
period realized.
Fair Value of Financial Instruments
We adopted the provisions of ASC 820-10, Fair Value Measurement ("ASC 820-10 "). ASC 820-10 establishes a framework
for measuring fair value and requires disclosures about fair value measurements by establishing a hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurements) and lowest priority to unobservable inputs (Level 3 measurements). The three levels
of the fair value hierarchy are described below:
• Level 1 – Quoted prices in active markets for identical assets or liabilities.
• Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets
or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or liabilities.
• Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of
the assets or liabilities.
We measure the following financial assets at fair value on a recurring basis. The fair value of these financial assets as of
December 31, 2016 and 2015 (in thousands) were as follows
Fair Value at Reporting Date Using
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
December 31,
2016
Significant
Other
Significant
Observable
Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
Cash and cash equivalents:
Cash
Money market funds
$
3,664 $
3,664 $
8,066
8,066
Total cash and cash equivalents
$
11,730 $
11,730 $
Fixed income securities
- $
-
- $
Corporate bonds - financial
$
2,201 $
- $
2,201 $
Corporate bonds - industrial
U.S. Treasury Securities
2,275
3,498
-
-
2,275
3,498
Total fixed income securities
$
7,974 $
- $
7,974 $
-
-
-
-
-
-
-
30
Fair Value at Reporting Date Using
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
December 31,
2015
Significant
Other
Significant
Observable
Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
Cash and cash equivalents:
Cash
Money market funds
$
8,909 $
8,909 $
691
691
Total cash and cash equivalents
$
9,600 $
9,600 $
Fixed income securities
- $
-
- $
Corporate bonds - financial
$
3,267 $
- $
3,267 $
Corporate bonds - industrial
U.S. Treasury Securities
Certificates of deposit
5,051
2,488
8,725
-
-
-
5,051
2,488
8,725
Total fixed income securities
$
19,531 $
- $
19,531 $
-
-
-
-
-
-
-
-
Level 2 securities are priced using quoted market prices for similar instruments, nonbinding market prices that are
corroborated by observable market data, or discounted cash flow techniques.
The fair value of cash and cash equivalents, short-term 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 Benefit Plans
Amended and Restated 2006 Equity Incentive Plan: At our 2006 annual meeting held on August 8, 2006, our stockholders
approved the adoption of our 2006 Equity Incentive Plan (the "Equity Plan"). At that time, our 1996 Equity Incentive Plan (the "Prior
Equity Plan") was terminated and replaced by the Equity Plan. On January 21, 2009, our Board of Directors adopted the Amended and
Restated BroadVision, Inc. 2006 Equity Incentive Plan (the "Amended and Restated Plan"), which was subsequently approved by our
stockholders on April 30, 2009. The Amended and Restated Plan includes an "evergreen" provision that provides for automatic annual
increases in the number of shares authorized for issuance. As of December 31, 2016, we had 1,223,824 shares of our Common Stock
reserved for issuance under the plan. In addition, the number of shares of our Common Stock available for issuance under the Plan will
automatically increase on January 1st of each year for a period of ten years, commencing on January 1, 2010 and ending on (and
including) January 1, 2019. Further, our Board of Directors may grant incentive or nonqualified stock options at prices not less than
100% of the fair market value of our 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 20% of the total number of shares subject to vesting will become exercisable per
year. These options generally expire ten years after the grant date.
2000 Non-Officer Plan: In February 2000, we adopted our 2000 Non-Officer Plan under which 106,666 shares of common
stock were reserved for issuance to selected employees, consultants, and our affiliates who are not Officers or Directors. As of December
31, 2016, we had 72,625 shares available for issuance under the 2000 Non-Officer Plan. Under the 2000 Non-Officer Plan, we may grant
non-statutory stock options at prices not less than 85% of the fair market value of our common stock at the date of grant. Options granted
under the 2000 Non-Officer Plan generally vest over two years and are exercisable for not more than ten years.
Employee Stock Purchase Plan: We also have a compensatory Employee Stock Purchase Plan (the "Purchase Plan") that enables
employees to purchase, through payroll deductions, shares of our common stock at a discount from the market price of the stock at the
time of purchase.
31
As of December 31, 2016, we had 92,207 shares available for issuance under the Purchase Plan. The Purchase Plan permits
eligible employees to purchase common stock with a value equivalent to a percentage of the employee's earnings, not to exceed the lesser
of 15% of the employee's earnings or $25,000 under Section 423(b)(8) of the Internal Revenue Code of 1986, at a price equal to the
lesser of 85% of the fair market value of the common stock on the date of the offering or the date of purchase. In accordance with ASC
718-10, Compensation – Stock Compensation ("ASC 718-10"), we record stock-based compensation expense related to the fair value of
the employee purchase rights in our Consolidated Statements of Comprehensive Loss. During 2016 and 2015, we received a total of
$181,000 and $275,000, respectively, primarily from the purchase of shares under the Purchase Plan.
Stock-Based Compensation
Under the fair value recognition provisions of ASC 718-10, share-based compensation cost is estimated at the grant date based
on the fair value of the award and is recognized as expense, net of estimated pre-vesting forfeitures, ratably over the vesting period of the
award. In addition, the adoption of ASC 718-10 requires additional accounting related to the income tax effects and disclosure regarding
the cash flow effects resulting from share-based payment arrangements. Calculating share-based compensation expense requires the input
of highly subjective assumptions, including the expected term of the share-based awards, stock price volatility, dividend yield, risk free
interest rates, and pre-vesting forfeitures. The assumptions used in calculating the fair value of stock-based awards represent our best
estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change
and we use different assumptions, our share-based compensation expense could be materially different in the future. In addition, we are
required to estimate the expected pre-vesting forfeiture rate and only recognize expense for those shares expected to vest. If our actual
forfeiture rate is materially different from our estimate, our share-based compensation expense could be significantly different from what
we have recorded in the current period. The total amount of stock-based compensation expense recognized during the years ended
December 31, 2016 and 2015, is as follows (in thousands):
Cost of services
Research and development
Sales and marketing
General and administrative
Years Ended December 31,
2016
2015
127
$
272
297
179
875
$
162
309
355
238
1,064
$
$
We adopted the alternative transition method for calculating the tax effects of stock-based compensation pursuant to ASC 718-
10. The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool
("APIC pool") related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC
pool and Consolidated Statements of Cash Flows of the tax effects of employee stock-based compensation awards that are outstanding
upon adoption of ASC 718-10.
The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model based on
assumptions noted in the following table below. The expected term of our options represents the period that our stock-based awards are
expected to be outstanding based on the simplified method provided for in SAB 107, as amended by SAB No. 110, Share-Based
Payment. Because we do not have sufficient historical exercise data, we used the simplified method for estimating the stock option
expected term. The risk-free interest rate for periods related to the expected life of the options is based on the U.S. Treasury yield curve
in effect at the time of grant. The expected volatility is based on historical volatilities of our stock over the expected life of the
option. The expected dividend yield is zero, as we do not anticipate paying dividends in the near future.
32
The following assumptions were used to determine stock-based compensation during the years ended December 31, 2016 and
2015:
Expected volatility
Expected dividends
Expected term (in years)
Risk free interest rate
Years Ended December 31,
2016
2015
67 %
0 %
6.25 year
1.5 %
59 %
0 %
6.25 year
2 %
The following assumptions were used to determine the expense related to the Employee Stock Purchase Plan:
Expected volatility
Weighted average volatility
Risk-free interest rate
Expected term (in years)
Expected dividend yield
Years Ended December 31,
2016
2015
45 %
42 %
0.2 %
1 year
0 %
22 %
29 %
0 %
1 year
0 %
The weighted-average fair value of the purchase rights granted in the years ended December 31, 2016 and 2015, were $1.50
and $1.40, respectively.
Earnings Per Share Information
Basic loss per share is computed using the weighted-average number of shares of common stock outstanding. Diluted net 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 using the treasury stock method. The following table sets forth the basic and diluted net
loss per share computational data for the periods presented (in thousands, except per share amounts):
Net loss
Weighted-average common shares outstanding used to compute basic and diluted net loss per
share
Basic and diluted net loss per share
Foreign Currency Transactions
Years Ended December 31,
2016
2015
$
(9,485) $
(11,437)
4,924
$
(1.93) $
4,857
(2.36)
The functional currencies of all foreign subsidiaries are the local currencies of the respective countries. Assets and liabilities of
these subsidiaries are translated into U.S. dollars at the balance sheet date. Income and expense items are translated at average exchange
rates for the period. Foreign exchange gains and losses resulting from the remeasurement of foreign currency assets and liabilities are
included as other income, net in the Consolidated Statements of Comprehensive Loss. For the years ended December 31, 2016 and
2015, translation loss was $228,000 and $6,000, respectively, and is included in other comprehensive loss account in the Consolidated
Statements of Stockholder's Equity.
33
Discontinued Foreign Subsidiary
In September 2016, we completed the sale of BroadVision Scandinavia AB. The total sale price was $10,000, of which the
Company received cash payment of $7,500 in 2016, and the remainder is to be paid in 2017 as stipulated in the underlying agreement.
Based on the assets and liabilities attributed to BroadVision Scandinavia AB on the date of the sale, and the estimated costs and expenses
incurred in connection with the sale, the Company recorded a gain of $230,000 in the consolidated statement of comprehensive loss for
the year ended December 31, 2016.
In January 2015, we wound down the operations of BroadVision B.V.. Based on the assets and liabilities attributed to
BroadVision B.V. on the date the legal entity was closed, the Company recorded a gain of $183,000 in the consolidated statement of
comprehensive loss for the year ended December 31, 2015.
Comprehensive Loss
Comprehensive loss includes net loss and other comprehensive loss, which consist of cumulative translation adjustments. Total
accumulated other comprehensive loss is displayed as a separate component of Consolidated Statement of Stockholder's Equity in the
accompanying Consolidated Balance Sheets. The accumulated balance of other comprehensive loss, consisting of foreign currency
translation adjustment and foreign currency translation reclassification upon sale of foreign subsidiary, net of taxes is as follows (in
thousands):
Balance, December 31, 2015
Foreign currency translation adjustment
Foreign currency translation reclassified into earnings upon sale of foreign subsidiary
Balance, December 31, 2016
Accumulated
Other
Comprehensive
Loss
$
$
(739)
2
(230)
(967)
Income Taxes and Deferred Tax Assets
Income taxes are computed using an asset and liability approach in accordance with ASC 740-10, Income Taxes ("ASC 740-
10"), which requires the recognition of taxes payable or refundable for the current year and deferred tax assets and liabilities for the
future tax consequences of events that have been recognized in our Consolidated Financial Statements or tax returns. The measurement
of current and deferred tax assets and liabilities is based on provisions of the enacted tax law; the effects of future changes in tax laws or
rates are not anticipated. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, is not expected to be realized.
We analyze our deferred tax assets with regard to potential realization. We have established a valuation allowance on our
deferred tax assets to the extent that management has determined that it is more likely than not that some portion or all of the deferred tax
asset will not be realized based upon the uncertainty of their realization. We consider the effects of estimated future taxable income,
current economic conditions and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance.
Segment and Geographic Information
We operate in one segment, electronic commerce business solutions. Our CEO is our chief operating decision maker. 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.
Comparative Figures
Certain comparative figures have been reclassified to conform to the current year presentation. These reclassifications had no
effect on net income, total assets or cash flow
34
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09), which amended
the existing accounting standards for revenue recognition and will supersede most existing revenue recognition guidance under U.S.
GAAP. ASU 2014-09 establishes principles to recognize revenues when promised goods or services are transferred to customers in an
amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five step process
to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition
process than are required under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the
amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance
obligation. ASU 2014-09 is effective for us using either of two methods: (i) retrospective application of ASU 2014-09 to each prior
reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective
application of ASU 2014-09 with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and
providing certain additional disclosures as defined per ASU 2014-09. As currently issued and amended, ASU 2014-09 is effective for
annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is
permitted only as of annual reporting periods beginning after December 15, 2016, with early adoption permitted but not earlier than the
original effective date. Accordingly, the updated standard is effective for us in the first quarter of fiscal 2018 and we do not plan to early
adopt. We have not yet selected a transition method and we are currently evaluating the effect that the updated standard will have on our
consolidated financial statements and related disclosures. While we are continuing to assess all potential impacts of the new standard, we
currently believe the most significant impact relates to our accounting for arrangements that include term-based software licenses
bundled with maintenance and support. Undercurrent GAAP, the revenue attributable to these software licenses is recognized ratably
over the term of the arrangement because VSOE does not exist for the undelivered maintenance and support element as it is not sold
separately. The requirement to have VSOE for undelivered elements to enable the separation of revenue for the delivered software
licenses is eliminated under the new standard. Accordingly, under the new standard we will be required to recognize as revenue a portion
of the arrangement fee upon delivery of the software license. While we currently expect revenue related to our professional services and
cloud offerings for business enterprises, individuals and teams to remain substantially unchanged, we are still in the process of evaluating
the impact of the new standard on these arrangements. Due to the complexity of certain of our contracts, the actual revenue recognition
treatment required under the new standard for these arrangements may be dependent on contract-specific terms and vary in some
instances.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40). The
new guidance addresses management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue
as a going concern and to provide related footnote disclosures. Management’s evaluation should be based on relevant conditions and
events that are known and reasonably knowable at the date that the financial statements are issued. The standard will be effective for
annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early
adoption is permitted. ASU 2014-15 will be effective for the company beginning in the first quarter of fiscal 2017. The Company does
not believe that the adoption of this guidance will have a material impact on its Consolidated Financial Statements.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) ("ASU 2016-02"), which
requires recognition of an asset and liability for lease arrangements longer than twelve months. ASU 2016-02 will be effective for the
Company beginning in the first quarter of fiscal 2019. Early application is permitted, and it is required to recognize and measure leases at
the beginning of the earliest period presented using a modified retrospective approach. The Company is currently assessing the potential
impact of adopting this new guidance on its Consolidated Financial Statements.
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"),
which simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities,
including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the
statement of cash flows. ASU 2016-09 will be effective for the Company beginning in the first quarter of fiscal 2017. Early application is
permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. We believe
the new standard will cause volatility in our effective tax rates and diluted earnings per share due to the tax effects related to share-based
payments being recorded to the income statement. The volatility in future periods will depend on our stock price at the awards’ vest
dates and the number of awards that vest in each period. Further, we will not elect an accounting policy change to record forfeitures as
they occur and will continue to estimate forfeitures at each period.
35
Note 2---Property and Equipment
Property and equipment consisted of the following (in thousands):
Furniture and fixtures
Computer and software
Leasehold improvements
Total property and equipment
Less accumulated depreciation and amortization
Property and equipment, net
December 31,
2016
2015
$
$
159
$
2,174
179
2,512
(2,452)
60
$
158
2,177
178
2,513
(2,426)
87
Depreciation and amortization expense for the years ended December 31, 2016 and 2015 was $41,000 and $77,000,
respectively. We retired zero and $69,000 in fully depreciated property and equipment in 2016 and 2015, respectively.
Note 3---Accrued Expenses
Accrued expenses consisted of the following (in thousands):
Employee benefits
Income tax
Sales and other taxes
Commissions and bonuses
Deferred rent
Other
Total accrued expenses
December 31,
2016
2015
568
$
297
158
243
111
489
615
278
144
298
89
737
1,866
$
2,161
$
$
Note 4---Other Non-Current Liabilities
Other non-current liabilities consist of the following (in thousands):
Deferred maintenance and unearned revenue
Other
Total other non-current liabilities
December 31,
2016
2015
$
$
223 $
511
734 $
301
617
918
36
Note 5---Income Taxes
Losses before income taxes as follows (in thousands):
Domestic
Foreign
Loss before income taxes
Years Ended December 31,
2016
2015
$
$
(7,812) $
(1,625)
(9,437) $
(10,223)
(1,185)
(11,408)
The components of benefit/(expense) for income taxes are as follows (in thousands):
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Valuation allowance
Provision for income taxes
Years Ended December 31,
2016
2015
$
- $
(4)
(44)
(48)
(1,422)
(336)
318
(1,440)
1,440
$
(48) $
4
(1)
(32)
(29)
(3,871)
1,186
461
(2,224)
2,224
(29)
The differences between the benefit/(expense) for income taxes computed at the federal statutory rate of 35% and our actual
income tax expense for the periods presented are as follows (in thousands):
Expected income tax benefit
$
3,303 $
Years Ended December 31,
2016
2015
Expected state income taxes expense, net of federal tax benefit
Research and development credit
Foreign taxes and foreign loss not benefited
Change in valuation allowance
Stock-based compensation
True-ups
Unrealized tax benefits
Unrealized loss from foreign investments
Others
Provision for income taxes
216
169
(925)
(1,440)
(78)
(51)
(7)
(1,226)
(9)
$
(48) $
37
3,993
(771)
147
(904)
(2,224)
(198)
(155)
154
-
(71)
(29)
The individual components of our deferred tax assets are as follows (in thousands):
Deferred tax assets:
Depreciation and amortization
Accrued, allowance and others
Net operating losses
Tax credits
Unrealized losses on marketable securities
Total deferred tax assets
Less: valuation allowance
Net deferred tax assets
Years Ended December 31,
2016
2015
$
72 $
3,166
207,270
8,731
-
219,239
(219,239)
$
- $
265
3,085
204,693
8,407
1,349
217,799
(217,799)
-
We have provided a valuation allowance for all of our deferred tax assets as of December 31, 2016 and 2015, due to the
uncertainty regarding their future realization. The total valuation allowance increased $1,440,000 from December 31, 2015 to
December 31, 2016.
As of December 31, 2016, we had federal and state net operating loss ("NOL") carryforwards of approximately $578,378,000
and $30,946,000 available to offset future regular and alternative minimum taxable income. The NOLs include deductions for stock-
based compensation for which a benefit would be recorded in additional paid-in capital when realized of $2,652,000 and $1,908,000
respectively. Our federal net operating loss carryforwards expire in various years from 2018 through 2036, if not used. The state net
operating loss carryforwards expire in various years from 2031 to 2036, if not used.
Due to the projected loss for the year with a full valuation allowance against its deferred tax assets, there is no tax impact for
2015 and 2016. As of December 31, 2016, we had federal and state research and development credit carryforwards of approximately
$6,789,000 and $6,003,000, respectively, available to offset future tax liabilities. The federal tax credit carryforwards expire in the tax
years from 2018 through 2036, if not utilized. The state research and development credits can be carried forward indefinitely.
Federal and state tax laws impose substantial restrictions on the utilization of net operating loss (“NOL”) and credit
carryforwards in the event of an "ownership change" for tax purposes, as defined in IRC Section 382. Based on a high-level ownership
change analysis performed each year, management concluded that there were no ownership changes through December 31, 2016.
We follow the provision of ASC 740-10-25, Income Taxes: Recognition ("ASC 740-10-25"). Our total amount of
unrecognized tax benefits as of December 31, 2016 and 2015 were $2,880,000 and $2,800,000, respectively. The total amount of
unrecognized tax benefits that, if recognized, would affect the effective tax rate were $160,000 and $160,000 as of December 31, 2016
and 2015, respectively.
We recognize interest and penalties accrued related to unrecognized tax benefits in our provision for income taxes. During the
years ended December 31, 2016 and 2015, respectively, we did not recognize any interest and penalties.
A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits for the year ended
December 31, 2016 is as follows (in thousands):
Balance at January 1, 2016
Additions based on tax provisions related to the current year
Additions for tax provisions of prior year
Lapse of the statute of limitation
Balance at December 31, 2016
$
2,800
112
-
(32)
$
2,880
We are subject to taxation in the United States and various foreign jurisdictions. Our tax years 1998 and forward remain open
in several jurisdictions due to the NOL carryforward from those tax years.
It is possible that the amount of our liability for unrecognized tax benefits may change within the next 12 months. However, an
estimate of the range of possible changes cannot be made at this time.
38
Note 6---Commitments and Contingencies
Warranties and Indemnification
We provide a warranty to our perpetual license customers that our software will perform substantially in accordance with the
documentation we provide with the software, typically for a period of 90 days following receipt of the software. Historically, costs
related to these warranties have been immaterial. Accordingly, we have not recorded any warranty liabilities as of December 31, 2016
and 2015, respectively.
Our perpetual software license agreements typically provide for indemnification of customers for intellectual property
infringement claims caused by use of a current release of our software consistent with the terms of the license agreement. The term of
these indemnification clauses is generally perpetual. The potential future payments we could be required to make under these
indemnification clauses is generally limited to the amount the customer paid for the software. Historically, costs related to these
indemnification provisions have been immaterial. We also maintain liability insurance that limits our exposure. As a result, we believe
the potential liability of these indemnification clauses is minimal. We rarely have litigation initiated against us by customers.
We entered into agreements whereby we indemnify our 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 we could be required to make under these indemnification agreements may be unlimited; however, we have a director and
officer insurance policy that limits our exposure and enables us to recover a portion of any future amounts paid. As a result of our
insurance policy coverage, we believe the estimated fair value of these indemnification agreements is insignificant. Accordingly, we have
no liabilities recorded for these agreements as of December 31, 2016 and 2015. We assess 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
We lease our headquarters facility and our other facilities under noncancelable operating lease agreements expiring through the
year 2018. Under the terms of the agreements, we are required to pay property taxes, insurance and normal maintenance costs.
A summary of total future minimum lease payments under noncancelable operating lease agreements is as follows (in
thousands):
Years ending December 31,
2017
2018
2019
2020
2021 and thereafter
Total minimum lease payments
$
Operating
Leases
953
420
40
-
-
1,413
Rent expense for the year ended December 31, 2016, was $1,300,000, same as for the year ending December 31, 2015.
Legal Proceedings
We are subject from time to time to various legal actions and other claims arising in the ordinary course of business. We are not
presently a party to any material legal proceedings.
39
Note 7---Stockholders' Equity
Convertible Preferred Stock
As of December 31, 2016, there were no outstanding shares of convertible preferred stock. Our Board of Directors and our
stockholders have authorized 1,000,000 shares of convertible preferred stock that are available for issuance.
Common Stock
As of December 31, 2016, we had reserved 385,666 common shares for future issuance upon the exercise of stock options.
Year Ended December 31, 2016
Weighted-
Weighted-
Average
Exercise
Average
Remaining
Aggregate
Options
Price
Contractual
Intrinsic
(000's)
Per Share
Term (Years)
Value
734 $
10 $
(2) $
(45) $
(30) $
667 $
481 $
635 $
9.06
4.70
6.01
6.76
9.96
9.12
9.87
9.25
$
6.71 $
6.31 $
0.20 $
-
-
-
-
Outstanding at beginning of year
Granted
Exercised
Forfeited
Expired
Outstanding at end of year
Options exercisable at end of year
Options vested and expected to vest at end of year
The weighted-average fair market value per share of options granted under our stock option plans during fiscal 2016 and 2015
was $2.90 and $3.20, respectively.
We granted 16,965 shares of restricted stock to the non-employee members of our Board of Directors and Board of Directors’
advisor in 2016 and recorded a stock-based compensation expense of $92,000. We granted 10,832 shares of restricted stock to the non-
employee members of our Board of Directors in 2015, and recorded a stock-based compensation expense of $63,000. The restricted stock
of our Board of Directors will vest over a one-year period measured from the date of the annual meeting of stockholders with one quarter
of the shares included in such Director Grant vesting on each of the dates that are three months, six months, nine months and twelve
months from the annual meeting, so long as each board member continues to serve as a member of our board of directors on such vesting
date.
As of December 31, 2016, total unrecognized compensation cost related to unvested stock options was $732,000, which is
expected to be recognized over the remaining weighted-average vesting periods of 1 year. During the year ended December 31, 2016 and
2015, we have received cash of $192,000 and $275,000, respectively from the employee stock purchases and exercise of stock
options.
Note 8---Geographic, Segment and Significant Customer Information
We operate in one segment: electronic business solutions. Our reportable segment includes our facilities in North and South
America (Americas), Europe and Asia Pacific and the Middle East (Asia/Pacific). Our chief operating decision maker is considered to be
the CEO. The CEO reviews financial information presented on a consolidated basis accompanied by disaggregated information about
revenues by geographic region and by product for purposes of making operating decisions and assessing financial performance. The
disaggregated revenue information reviewed by the CEO is as follows (in thousands):
40
Software licenses
Consulting services
Maintenance
Total revenues
Years Ended December 31,
2016
2015
$
4,227 $
1,521
2,192
$
7,940 $
4,414
2,056
2,972
9,442
We sell our products and provide global services 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 our products are promoted through
independent professional consulting organizations known as systems integrators ("SIs"). We provide global services through our
BroadVision Global Services organization and indirectly through distributors, VARs, ASPs, and SIs. We currently operate in three
primary geographical territories.
Disaggregated financial information regarding our product and service revenues by geographic region is as follows (in
thousands):
Americas
Europe
Asia/Pacific
Total revenues
Years Ended December 31,
2016
2015
$
3,665 $
1,320
2,955
$
7,940 $
3,903
2,149
3,390
9,442
In 2016, license sales through independent distributors, VARs, ASPs, and SIs became significant. Although it was immaterial
in the Americas and Europe, license sales via these channels accounted for 62% in Asia Pacific in 2016.
Note 9---Related Party Transactions
On November 14, 2008, BroadVision (Delaware) LLC, a Delaware limited liability company (“BVD”), which was then our
wholly owned subsidiary, entered into a Share Purchase Agreement with CHRM LLC, a Delaware limited liability company, that is
controlled by Dr. Pehong Chen, our CEO and largest stockholder and in which our CFO, Peter Chu holds a minority interest. We and
CHRM LLC then entered into an Amended and Restated Operating Agreement of BroadVision (Delaware) LLC dated as of November
14, 2008 (the “BVD Operating Agreement”). Under these agreements, CHRM LLC received, in exchange for the assignment of certain
intellectual property rights, 20Class B Shares of BVD, representing the right to receive a portion of any distribution of Funds from
“Capital Transactions” (as such term is defined in the BVD Operating Agreement), with the exact amount to be determined based on our
and CHRM LLC’s capital account balances at the time of such distribution. A “capital transaction” under that agreement is any merger or
sale of substantially all of the assets of BVD as a result of which the members of BVD will no longer have an interest in BVD or the
assets of BVD will be distributed to its members. Class B Shares do not participate in any profits of BVD except for net profits related to
a “capital transaction,” in which case the net profits are allocated to the owners of Class A and Class B Shares in proportion to their
respective number of shares. To the extent BVD’s losses do not exceed undistributed net profits accumulated since the date of issuance of
Class B Shares, such losses are allocated to Class A Shares. To the extent net losses exceed the undistributed net profits accumulated
since the date of issuance of Class B Shares, such excess is allocated to the owners of Class A and Class B Shares in proportion to their
respective cumulative capital contributions less any return of capital, until allocation of such losses results in having the capital account
balances equal to zero. Then, net losses are allocated to the owners of Class A and Class B Shares in proportion to their respective
number of shares. Upon liquidation the net assets of BVD are distributed to the owners of Class A and Class B in proportion to their
capital account balances.
BVD is the sole owner of BroadVision (Barbados) Limited (“BVB”) and BVB is the sole owner of BroadVision On Demand, a
Chinese entity (“BVOD”). We have invested approximately $9.0 million in BVOD (directly and through BVD and BVB). In 2014, we
began making payments directly to BVOD for certain labor outsourcing services and expect to continue to pay BVOD for such services
at the rate of approximately $500,000 per quarter for the foreseeable future. We made aggregate payments to BVOD of $2.0 million and
$1.9 million (based on the RMB to USD exchange rates on the applicable dates of payment) for such services in the years
ended December 31, 2016 and 2015, respectively. These payments in part covered services rendered outside of the applicable twelve
month periods. We have a controlling voting interest in BVD. Pursuant to the terms of the BVD Operating Agreement, the Class B
Shares held by CHRM LLC have no voting rights.
41
The 20 Class B Shares of BVD represent a non-controlling interest. We allocate profits and losses of BVD to the non-
controlling interest under the Hypothetical Liquidation Book Value (“HLBV”) method. Under this method the profits and losses are
allocated by reference to the profit sharing provisions in the BVD Operating Agreement assuming liquidation of BVD at its book value at
the end of each reporting period. Profits and losses allocated to the balance of such interest under the HLBV method have not been
material.
In April 2015, we executed a renewal contract with SINA Corporation of which Dr. Pehong Chen, our CEO and largest
stockholder, is a board member through December 2015, pursuant to which we provided HR information management hosting service,
including software subscription, system upgrade and technical support, to SINA Corporation. The total license revenue that we were
entitled to receive under that contract through its expiration in March 2016 was $184,000. We recognized $46,000 and $176,000 of
license revenue related to that contract for the fiscal year 2016 and 2015, respectively.
Note 10---Employee Benefit Plan
We provide 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 the lower of 100% of their compensation or the IRS annual maximum. The Plan
allows for discretionary contributions by us. As of July 1, 2011, we started a discretionary matching contribution. The amount is equal to
a percentage determined annually by our management for the contribution period. Employees will be eligible for the match after 12
months of service and after completing 1,000 hours of work during the plan year. Employees must be employed on the last business day
of the plan year to be eligible for the match. We have funded $61,000 and $69,000 for the year ended December 31, 2016 and 2015,
respectively.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Management's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term
is defined in Exchange Act Rule 13a-15(f). Our internal control system is designed to provide reasonable assurance regarding the
preparation and fair presentation of financial statements for external purposes in accordance with generally accepted accounting
principles. All internal control systems, no matter how well designed, have inherent limitations and can provide only reasonable
assurance that the objectives of the internal control system are met.
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief
Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting, based on criteria
established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) 2013. Based on our evaluation, we concluded that our internal control over financial reporting was effective as of
December 31, 2016.
Evaluation of Disclosure Controls and Procedures
An evaluation as of December 31, 2016, was carried out under the supervision and with the participation of our management,
including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
Exchange Act)). Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of December 31, 2016, to provide reasonable assurance that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time
periods specified in the Securities and Exchange Commission rules and forms, and is accumulated and communicated to management,
including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required
disclosure.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the quarter ended December 31, 2016 that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
42
Inherent Limitations on Effectiveness of Controls
As a result of being a smaller reporting company, we are not required to provide an attestation report of our registered public
accounting firm regarding our internal control over financial reporting. We have elected to not include such an attestation report in this
annual report, which election was approved by the Audit Committee of our Board of Directors.
ITEM 9B. OTHER INFORMATION
None.
43
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The information required by this Item is incorporated by reference to sections of our Definitive Proxy Statement to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the 2017 Annual Meeting of Stockholders
(the “Proxy Statement”) or will be filed as an amendment to this Annual Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the Proxy Statement or will be filed as an amendment to
this Annual Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference to the Proxy Statement or will be filed as an amendment to
this Annual Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated by reference to the Proxy Statement or will be filed as an amendment to
this Annual Report.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated by reference to the Proxy Statement or will be filed as an amendment to
this Annual Report.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this Report.
PART IV
1. Consolidated Financial Statements. The following Consolidated Financial Statements 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, 2016 and 2015
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2016 and 2015
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2016 and 2015
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.
44
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 30th day of March
2017.
BROADVISION, INC.
By: /s/ PEHONG CHEN
Pehong Chen
Chairman of the Board, President, and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Pehong Chen to
sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that the said attorney-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
Signature
/s/ Pehong Chen
Pehong Chen
/s/ Peter Chu
Peter Chu
/s/ François Stieger
François Stieger
/s/ James D. Dixon
James D. Dixon
/s/ Robert Lee
Robert Lee
Date
March 30, 2017
March 30, 2017
March 30, 2017
March 30, 2017
March 30, 2017
Title
Chairman of the Board, President and Chief
Executive Officer (Principal Executive
Officer)
Chief Financial Officer and Vice President
of Strategy and Product Management
(Principal Financial and Accounting
Officer)
Director
Director
Director
45
BROADVISION, INC. AND SUBSIDIARIES
SCHEDULE II---VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Charged
Balance at
(Credited) to
Beginning of
Period
Costs and
Expenses
Balance at
End of
Period
Deductions(1)
Receivable reserves:
Year Ended December 31, 2016
Year Ended December 31, 2015
$
$
135 $
213 $
32 $
- $
- $
(78) $
167
135
(1) Represents net charge-offs of specific receivables.
46
BROADVISION, INC. ANNUAL REPORT ON FORM 10-K DECEMBER 31, 2016
INDEX TO EXHIBITS
Description
Amended and Restated Certificate of Incorporation.
Certificate of Amendment of Certificate of Incorporation.
Certificate of Amendment of Certificate of Incorporation.
Amended and Restated Bylaws.
References are hereby made to Exhibits 3.1 to 3.4.
Registration Rights Agreement, dated November 10, 2004, among the Company and certain investors listed on
Exhibit A thereto.
Registration Rights Agreement, dated March 8, 2006, between the Company and Honu Holdings LLC.
Equity Incentive Plan, as amended (the "2000 Equity Incentive Plan").
Form of Incentive Stock Option under the 2000 Equity Incentive Plan.
Form of Nonstatutory Stock Option under the 2000 Equity Incentive Plan.
Form of Nonstatutory Stock Option (Performance-Based) under 2000 Equity Incentive Plan.
1996 Employee Stock Purchase Plan, as amended.
BroadVision, Inc. Severance Benefit Plan, as amended, effective October 21, 2009.
2000 Non-Officer Equity Incentive Plan, as amended.
Form of Indemnity Agreement between the Company and each of its directors and executive officers.
BroadVision, Inc. Change of Control Severance Benefit Plan, established effective May 22, 2003.
BroadVision, Inc. Executive Severance Benefit Plan, established effective May 22, 2003.
Securities Purchase Agreement, dated as of November 10, 2004, by and among the Company and the investors listed
on Exhibit A thereto.
Debt Conversion Agreement, dated as of December 20, 2005, between the Company and Honu Holdings, LLC.
Share Purchase Agreement, dated November 14, 2008, between BroadVision (Delaware) LLC and CHRM LLC.
Amended and Restated 2006 Equity Incentive Plan, as amended (the "Amended and Restated Plan").
2009 Employee Profit Sharing Plan.
Form of Restricted Stock Bonus Agreement under the Amended and Restated Plan.
Form of Option Grant Notice under the Amended and Restated Plan.
Form of Stock Option Agreement under the Amended and Restated Plan.
Lease Agreement, dated April 18, 2012, between the Company and VII PAC SHORES INVESTORS, L.L.C.
First Amendment to Lease Agreement dated September 4, 2014 between BroadVision Inc. and VII Pac Shores
Investors, LLC.
XBRL Instance
XBRLTaxonomy Extension Schema
XBRLTaxonomy Extension Calculation
XBRLTaxonomy Extension Labels
XBRLTaxonomy Extension Presentations
XBRLTaxonomy Extension Definition
Subsidiaries of the Company.
Consent of OUM & Co. LLP, an independent registered public accounting firm.
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.
Certification of the Chief Executive Officer of the Company.
Certification of the Chief Financial Officer of the Company.
Certification of the Chief Executive Officer and Chief Financial Officer of the Company pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Exhibit
3.1(1)
3.2(15)
3.3(6)
3.4(12)
4.1
4.2(14)
4.3(17)
10.1(8)(a)
10.2(1)(a)
10.3(1)(a)
10.4(1)(a)
10.5(2)(a)
10.6(1)(b)
10.7(5)
10.8(3)(a)
10.9(4)(b)
10.10(7)
10.11(9)
10.12(9)
10.13(10)
10.14(13)
10.15(11)
10.16(16)
10.17(21)(a)
10.18(18)(a)
10.19(19)(a)
10.20(20)(a)
10.21(21)(a)
10.22(21)
10.23(22)
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
21.1
23.1
24.1
31.1
31.2
32.1
47
(a) Represents a management contract or compensatory plan or arrangement.
(b) Confidential treatment granted.
(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
(File No. 333-03844).
(2) Incorporated by reference to the Company's Registration Statement on Form S-8 filed on November 8, 2013 (File No. 333-
192224).
(3) Incorporated by reference to the Company's Registration Statement on Form S-8 filed on October 15, 2003 (File No. 333-
109709).
(4) Incorporated by reference to the Company's Form 10-Q for the quarter ended June 30, 2001 filed on August 14, 2001 (File
No. 000-28252).
(5) Incorporated by reference to the Company's Current Report on Form 8-K filed on October 27, 2009 (File No. 001-34205).
(6) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, filed
on November 6, 2008 (File No. 000-28252).
(7) Incorporated by reference to the Company's Form 10-Q for the quarter ended September 30, 2002 filed on November 14,
2002 (File No. 000-28252).
(8) Incorporated by reference to the Company's Registration Statement on Form S-8 filed on August 1, 2002 (File No. 333-
97521).
(9) Incorporated by reference to the Company's Form 10-Q for the quarter ended June 30, 2003 filed on August 14, 2003 (File
No. 000-28252).
(10) Incorporated by reference to the Company's Current Report on Form 8-K filed on November 10, 2004 (File No. 000-28252).
(11) Incorporated by reference to the Company's Current Report on Form 8-K filed on December 22, 2005 (File No. 000-28252).
(12) Incorporated by reference to the Company's Current Report on Form 8-K filed on October 16, 2008 (File No. 000-28252)
(13) Incorporated by reference to the Company's Current Report on Form 8-K filed on December 23, 2004 (File No. 000-28252).
(14) Incorporated by reference to the Company's Registration Statement on Form S-1 filed on December 20, 2004 (File No. 333-
121430).
(15) Incorporated by reference to the Company's Form 10-K for the fiscal year ended December 31, 2006 filed on March 27,
2007 (File No. 000-28252).
(16) Incorporated by reference to the Company’s Current Report on Form 8-K filed on November 18, 2008 (File No. 001-
34205).
(17) Incorporated by reference to the Company's Annual Report on Form 10-K filed on June 9, 2006 (File No. 000-28252).
(18) Incorporated by reference to the Company's Current Report on Form 8-K filed on July 24, 2009 (File No. 001-34205).
(19) Incorporated by reference to the Company’s Current Report on Form 8-K filed on March 30, 2007 (File No. 000-28252).
(20) Incorporated by reference to the Company’s Registration Statement on Form S-8 filed on November 6, 2006 (File No. 333-
138461).
(21) Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 20, 2012 (File No. 001-34205).
(22) Incorporated by reference to the Company's Current Report on Form 8-K filed on October 15, 2014 (File No. 001-34205).
48