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, 2017
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.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company þ Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:0)
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, 2017, based on the closing sales price as reported by the NASDAQ Market, 3,292,189 shares of Common Stock, having an aggregate market
value of approximately $14,650,241 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, 2018, the registrant had 4,994,888 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 2017 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, 2017
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 32.1
1
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22
42
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43
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44
47
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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3
4
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5
5
5
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, 2017, 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.
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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, 2017, Indian Railways Catering and Tourism Corporation Limited (IRCTC) accounted for
13% of our total revenues and NTT Communications Corporation (NTTCC) accounted for 11% of our revenues. For the year ended
December 31, 2016, IRCTC accounted for 12% 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, 2017, our direct sales organization included 19 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, 2017, approximately 53% of our revenues were derived from international sales. In the twelve months 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.
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, 2017, we had 2 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.
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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
2017, on systems and methods for secure sharing of task data over one or more networks. This patent will expire in March of 2037. We
also 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. In addition, we 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, 2017, we had 56 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 $6.6 million for the year ended December 31, 2017, and $6.9 million for the year
ended December 31, 2016.
Employees
As of December 31, 2017, we employed a total of 104 full-time employees, of whom 39 are based in North America, 16 in
Europe and 49 in Asia. Of these full-time employees, 21 are in sales and marketing, 56 are in product development, 7 are in global
services and client support, and 20 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.
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Executive Officers
Our executive officer and his age and positions as of quarter end are in the table below.
5
Name
Pehong Chen
Age
60
Chairman, President,Chief Executive Officer and Interim Financial
Officer
Position
Pehong Chen has served as our Chairman of the Board, Chief Executive Officer and President since our incorporation in May
1993, and as our Interim Chief Financial Officer since March 2018. 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.
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 solutions. 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, 2017, we had an accumulated deficit of approximately
$1.3 billion.
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.
7
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 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 the next twelve 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 have implemented cost reduction plans since the second half of 2017 and expect to reduce the cost of our operations by
approximately $2 million in 2018 to cover our cash needs through the next twelve months. Management may implement further cost
reductions in 2018 or seek financing from third parties as needed to ensure that our cash and cash equivalents and short-term investments
are sufficient to fund operations for the next twelve months. However, further cost reductions may result in voluntary departures of
highly skilled technical and managerial personnel from our company, which would have a material adverse effect on our business,
internal controls, financial condition and results of operations. 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. The outcome of these matters cannot be predicted at this time. Our ability to
continue as a going concern is dependent upon our ability to successfully accomplish these plans and secure sources of
financing and/or reduce costs and ultimately attain profitable operations.
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 Capital
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
9
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.
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 FASB and the SEC. 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 became effective for us on January 1, 2018. 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,
2017, approximately 53% 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 in March 2017, related to the secure sharing of task data over one or more networks, and another 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
11
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.
Our officers, and highly skilled technical and managerial personnel are critical to our business, and they may not remain with us.
Our performance substantially depends on the performance of our management team. 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, Chief Executive Officer, President and Interim
Chief Financial Officer, Dr. Pehong Chen, could cause us to incur increased operating expenses and divert senior management resources
in searching for replacements. Effective as of March 7, 2018, Peter Chu resigned as our Chief Financial Officer and Vice President of
Strategy and Product Management. In connection with Mr. Chu’s resignation, Dr. Chen was appointed as our Interim Chief Financial
Officer. As a result of this change, Dr. Chen has taken on substantially more responsibility for the management of our business and of our
financial reporting, which has resulted in greater workload demands and could divert his attention away from certain key areas of our
business. Changes in our organization as a result of Mr. Chu’s departure may have a disruptive impact on our ability to implement our
strategy and could have a material adverse effect on our business, internal controls, financial condition and results of operations.
Management transition inherently causes some loss of institutional knowledge, which can negatively affect strategy and execution. Until
we find and integrate a replacement for Dr. Chu, and unless his replacement is able to succeed in the position, we may be unable to
successfully manage and grow our business, and our results of operations, internal controls and financial condition could suffer as a
result. The loss of the services of our officers or other personnel 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(the
“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.
12
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 information technology.
A natural or manmade 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.
We are subject to foreign currency exchange risk.
A total of 53% and 54% of our fiscal year 2017 and 2016 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
the fluctuations in foreign currency exchange rates. These fluctuations could cause our revenues outside the United States and
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 17% of our cash and cash equivalents as well as investments were denominated in foreign currencies as of December 31, 2017.
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.
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 as a company, 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
13
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, 2017, Dr. Pehong Chen, our Chairman, President, Chief Executive Officer and Interim Chief Financial
Officer, 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:
• 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.
We recently transferred the listing of our common stock from the NASDAQ Global Market to the NASDAQ Capital Market. If we fail
to maintain the requirements for continued listing on the NASDAQ Capital 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.
In November 2017, we transferred the listing of our common stock from the NASDAQ Global Market to the NASDAQ Capital
Market as our stockholders’ equity had decreased from $12.1 million at June 30, 2017 to $9.7 million at September 30, 2017. We are
required to meet specified listing criteria in order to maintain our listing on the NASDAQ Capital Market. If we fail to satisfy the
NASDAQ Capital Market’s continued listing requirements, our common stock could be delisted from the NASDAQ Capital Market, in
which case we may be able to transfer to the over-the-counter bulletin board. For example, NASDAQ Rule 5550(b)(1) requires
companies listed on the NASDAQ Capital Market to maintain a minimum of $2.5 million in stockholders’ equity for continued listing. If
our stockholders’ equity falls below $2.5 million, the NASDAQ Capital 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
Capital 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 Stock Market ranged from $2.66 per share to
$8.06 per share between January 1, 2016 and December 31, 2017. 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 Stock 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.
14
ITEM 2. PROPERTIES
As of December 31, 2017, we leased approximately 25,633 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 3,927 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, 2017. 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
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". Effective as of November 13, 2017, the listing
of our common stock was transferred from the NASDAQ Global Market to the NASDAQ Capital Market. The following table shows
high and low sale prices per share of our common stock as reported on the NASDAQ Stock Market:
Fiscal Year 2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year 2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
$
5.95 $
5.45
4.50
4.50
$
8.06 $
7.68
6.70
5.60
4.50
3.90
3.57
2.66
5.63
6.20
4.49
4.40
As of February 28, 2018, there were 44 holders (not including beneficial holders of common stock held in street name) of
record of BroadVision common stock. On March 30, 2018, the closing price reported on the NASDAQ Capital Market for BroadVision
common stock was $2.70 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 2017 revenues of $6.4 million were lower compared to total 2016 revenues of $7.9 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. 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 2016. 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 $550,000 per quarter for the foreseeable future. We made aggregate payments to
BVOD of $2.3 million and $2.0 million (based on the RMB to USD exchange rates on the applicable dates of payment) for such services
in the years ended December 31, 2017 and 2016, 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 $0 and $46,000 of license
revenue related to that contract for the fiscal years 2017 and 2016, 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 for the periods presented 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.
For the periods presented, 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, 2017, 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.
Because we have a full valuation allowance against our U.S. net deferred tax assets, the Tax Cuts and Jobs Act of 2017, or Tax Act, will
not materially impact our balance sheet or statement of operations. See Note 5 – Income Taxes in the Notes to Financial Statements (Part
II, Item 8 of this Form 10-K) for the Tax Act’s impact to our net deferred tax assets.
19
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.
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
Benefit (provision) for income taxes
Net loss
Results of Operations
Years Ended December 31,
2017
2016
55 %
45
100
3
47
50
50
103
58
59
220
(170)
12
(158)
2
53 %
47
100
2
40
42
58
87
51
46
184
(126)
7
(119)
(1)
(156) %
(120) %
Revenues. License revenue from the sales of software licenses for the year ended December 31, 2017 was $3.5 million, down
$0.7 million, or 17% from $4.2 million for the year ended December 31, 2016. 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, 2017 was $1.7 million, down $0.5 million, or 23%
from $2.2 million for the year ended December 31, 2016. Consulting service revenue, which is generally related to services in
connection with our licensed software, for the year ended December 31, 2017, was $1.2 million, down $0.3 million, or 20% from $1.5
million for the year ended December 31, 2016. Total 2017 revenues of $6.4 million were lower compared to total 2016 revenues of $7.9
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.
20
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, 2017 was $178,000, up
$6,000, from $172,000 for the year ended December 31, 2016. 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,
2017 was $3.0 million, down $0.2 million, or 6% from $3.2 million for the year ended December 31, 2016. This decreases were mainly
due to decrease in third-party consultant fees incurred on consulting projects..
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, 2017, were $6.6 million, down $0.3 million, or 4% from $6.9 million for the year ended December 31, 2016. 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, 2017
were $3.7 million, down $0.4 million, or 10% from $4.1 million for the year ended December 31, 2016. 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, 2017, were $3.7 million, up 0.1 million, or 3% from $3.6 million for the year
ended December 31, 2016. The increase was primarily due to increases in bad debt expenses.
Interest income, net. Net interest income includes interest income on investment funds. We generated $129,000 and $86,000
in interest income for the year ended December 31, 2017, and 2016, respectively. This increase was primarily due to the interest income
resulting from the accrued short-term investment in bonds in 2017.
Other income, net. Other income, net during the year ended December 31, 2017, was $0.6 million compared to other income,
net, of $0.4 million for the year ended December 31, 2016. The increase was primarily due to gains from the remeasurement of the
foreign currency exchange rate fluctuation on our Euro assets.
Benefit (provision) for income taxes. The benefit for income taxes was $112,000 for the year ended December 31, 2017,
compared to the provision of ($48,000) for the year ended December 31, 2016. The increase to the benefit for the year ended December
31, 2017 was primarily due to refundable Alternative Minimum Tax (AMT) credits as a result of the repeal of AMT by the Tax Cuts and
Jobs Act. The provision for the year ended December 31, 2016 was primarily due to foreign income tax expense.
Liquidity and Capital Resources
Background and Overview
During the year ended December 31, 2017, we had a net loss of $9.9 million and negative cash flow from operations of $9.6
million, and at December 31, 2017, we had working capital of $7.6 million. At December 31, 2017, we had $8.6 million in cash and cash
equivalents and $1.0 million in short-term investments. Our combined cash, cash equivalents and short-term investment balances as of
December 31, 2017 declined by $10.1 million compared to such balances as of December 31, 2016. This decrease was mainly due to net
cash used for operating activities, as described in the Consolidated Statements of Cash Flows for 2017. Our cash, cash equivalents and
investment balances may fluctuate during the remainder of fiscal 2018 due to various risks and uncertainties, including, but not limited
to, the risks detailed in Part I, Item 1A titled “Risk Factors”.
Based on our current business plan, we believe that our existing cash, cash equivalents and investment balances
will be sufficient to meet our working capital and operating resource expenditure requirements for the next twelve
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.
Our future capital requirements will depend on many factors including growth or decline in customer accounts, the
timing and extent of spending to support product development efforts and ongoing investments in our products and
21
services, the introduction of new and enhanced products or services, features and functionality, and our ability to control
expenses generally. We have implemented cost reduction plans since the second half of 2017 and expect to reduce the cost of our
operations by approximately $2 million in 2018 to cover our cash needs through the next twelve months. Management may implement
further cost reductions in 2018 or seek financing from third parties as needed to ensure that our cash and cash equivalents and short-term
investments are sufficient to fund operations for the next twelve months. However, further cost reductions may result in voluntary
departures of highly skilled technical and managerial personnel from our company, which would have a material adverse effect on our
business, internal controls, financial condition and results of operations. We expect to opportunistically 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,
at best. If adequate funds are not available or are not available on acceptable terms, we may be unable to pay our debts as they become
due, develop our products, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements,
which could have a material adverse effect on our business, financial condition and future operating results. The outcome of these matters
cannot be predicted at this time. Our ability to continue as a going concern is dependent upon our ability to successfully accomplish these
plans and secure sources of financing and/or reduce costs and ultimately attain profitable operations.
The following table represents our liquidity indicators at December 31, 2017 and 2016 (dollars in thousands):
Cash and cash equivalents
Short-term investments
Working capital
Working capital ratio
Cash Used for Operating Activities
$
$
$
December 31,
2017
2016
8,560 $
1,000 $
7,649 $
2.87
11,730
7,974
17,390
4.96
Cash used for operating activities was $9.6 million for fiscal year 2017, mainly attributable to a $9.9 million operating loss
offset by noncash items and changes in operating assets and liabilities.
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.
Cash Provided by (Used For) Investing Activities
Cash provided by investing activities in fiscal year 2017 was $7.0 million. Cash used for investing activities in fiscal year 2016
was $11.5 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.
Cash Provided by Financing Activities
Cash provided by financing activities was $79,000 in fiscal year 2017. Cash provided by financing activities was $192,000 in
fiscal year 2016. 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, 2017, 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, 2017 and 2016.
Leases and Other Contractual Obligations
We lease our headquarters and other facilities under non-cancelable operating lease agreements, which expire at various dates
during or before November 2019. 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, 2017, total future minimum lease payments are $0.7 million under non-cancelable operating lease agreements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
22
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.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and Board of Directors
BroadVision, Inc.
Redwood City, California
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of BroadVision, Inc. and Subsidiaries (collectively referred to as the
“Company”) as of December 31, 2017 and 2016, the related consolidated statements of comprehensive loss, stockholders’ equity and
cash flows for each of the two years in the period ended December 31, 2017, and the related notes and schedule (collectively referred to
as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company at December 31, 2017 and 2016, and the results of their operations and their cash flows for each of
the two years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of
America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ OUM & CO. LLP
San Francisco, California
April 2, 2018
We have served as the Company's auditor since 2006.
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 $293 and $167 as of December 31, 2017 and 2016,
respectively
Prepaids and other
Total current assets
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,
2017
2016
8,560 $
1,000
1,193
983
11,736
35
208
11,979 $
434 $
1,658
1,187
808
4,087
583
4,670
11,730
7,974
896
1,186
21,786
60
147
21,993
377
1,866
1,260
893
4,396
734
5,130
1,271,585
(1,558)
(1,262,718)
7,309
11,979 $
1,270,649
(967)
(1,252,819)
16,863
21,993
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; 4,995 and 4,958 shares issued and
outstanding as of December 31, 2017 and 2016, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity
$
See Accompanying Notes to Consolidated Financial Statements
24
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands, except per share amounts)
Years Ended December 31,
2017
2016
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, net
Total other income
Loss before income taxes
Benefit (provision) for income taxes
Net loss
Other comprehensive (loss) income , 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
$
3,467 $
2,890
6,357
178
2,970
3,148
3,209
6,563
3,676
3,733
13,972
(10,763)
129
623
752
(10,011)
112
(9,899)
(591)
-
$
(10,490) $
$
(1.99) $
4,975
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)
2
(230)
(9,713)
(1.93)
4,924
See Accompanying Notes to Consolidated Financial Statements
25
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, 2015
4,895 $
- $
1,269,582 $
(739) $ (1,243,334) $
25,509
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
23
38
2
(228)
-
-
-
-
875
-
181
11
(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
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
15
22
(591)
-
-
-
857
-
79
(9,899)
(9,899)
(591)
857
-
79
Balances as of December 31, 2017
4,995 $
- $
1,271,585 $
(1,558) $ (1,262,718) $
7,309
See Accompanying Notes to 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 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 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 (decrease) increase 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 31,
2017
2016
$
(9,899)
$
(9,485)
32
857
115
-
(412)
203
(61)
(151)
(158)
(151)
41
875
37
(230)
818
(88)
(4)
(469)
(918)
(184)
(9,625)
(9,607)
(7)
(4,500)
11,474
6,967
79
-
79
(591)
(3,170)
11,730
(14)
(10,666)
22,223
11,543
181
11
192
2
2,130
9,600
$
$
8,560
$
11,730
15
$
6
See Accompanying Notes to 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.
Liquidity
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going
concern. During the year ended December 31, 2017, the Company had a net loss of $9.9 million and negative cash flow from operations
of $9.6 million, and at December 31, 2017 the company had working capital of $7.6 million. At December 31, 2017, the Company has
cash and cash equivalents of $8.6 million and $1.0 million in short-term investments. The Company has implemented cost reduction
plans since the second half of 2017 and expects to reduce its costs of operation by approximately $2 million in 2018 to cover its cash
needs through the next twelve months. Management may implement further cost reductions in 2018 and seek financing from third parties
as needed to ensure that the Company’s cash, cash equivalents and short-term investments are sufficient to fund its operations for the
next twelve months.
However, further cost reduction may voluntary departures of highly skilled technical and managerial personnel, which would
have a material adverse effect on our business, internal controls, financial condition and results of operations. We expect to
opportunistically 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, at best. If adequate funds are not available or are not available on acceptable terms, we
may be unable to pay our debts as they become due, develop our products, take advantage of future opportunities or respond to
competitive pressures or unanticipated requirements, which could have a material adverse effect on our business, financial condition and
future operating results. The outcome of these matters cannot be predicted at this time. Our ability to continue as a going concern is
dependent upon our ability to successfully accomplish these plans and secure sources of financing and/or reduce costs and ultimately
attain profitable operations.
Revenue Recognition
Overview
Our revenue consists of fees for licenses of our software products, maintenance, consulting services and training.
Our revenue recognition policies for the periods presented 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
28
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.
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, 2017 and 2016, respectively. Our short-term investments’ contractual
maturities occur before April 2018. Total interest income during fiscal years 2017 and 2016 was $129,000 and $86,000, 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 $44,000 and $46,000 in 2017 and 2016, respectively.
29
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, 2017, 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 $1.6 million and $1.8 million on December 31, 2017
and 2016, 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.
For the year ended December 31, 2017, Indian Railways Catering and Tourism Corporation Limited (“IRCTC”) accounted for
13% and NTT Communications Corporation (NTTCC) accounted for 11% of our revenues. For the year ended December 31, 2016,
IRCTC accounted for 12% 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.
30
We measure the following financial assets at fair value on a recurring basis. The fair value of these financial assets as of
December 31, 2017 and 2016 (in thousands) were as follows
Fair Value at Reporting Date Using
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
December 31,
2017
Significant
Other
Significant
Observable
Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
Cash and cash equivalents:
Cash
Money market funds
Total cash and cash equivalents
Fixed income securities
Corporate bonds - financial
Corporate bonds - industrial
U.S. Treasury Securities
Total fixed income securities
$
$
$
$
4,266 $
4,294
8,560 $
4,266 $
4,294
8,560 $
- $
- $
1,000
-
1,000
-
-
-
- $
-
- $
- $
1,000
-
1,000 $
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
Total cash and cash equivalents
Fixed income securities
Corporate bonds - financial
Corporate bonds - industrial
U.S. Treasury Securities
$
$
$
3,664 $
8,066
3,664 $
8,066
11,730 $
11,730 $
- $
-
- $
2,201 $
2,275
3,498
- $
2,201 $
-
-
2,275
3,498
Total fixed income securities
$
7,974 $
- $
7,974 $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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.
31
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, 2017, we had 1,053,474 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, 2017, 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.
As of December 31, 2017, we had 70,135 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 2017 and 2016, we received a total of
$79,000 and $181,000, 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, 2017 and 2016, is as follows (in thousands):
Cost of services
Research and development
Sales and marketing
General and administrative
Years Ended December 31,
2017
2016
116
$
281
237
223
857
$
127
272
297
179
875
$
$
32
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.
The following assumptions were used to determine stock-based compensation during the years ended December 31, 2017 and
2016:
Expected volatility
Expected dividends
Expected term (in years)
Risk free interest rate
Years Ended December 31,
2017
2016
-
-
-
-
67 %
0 %
6.25 year
1.5 %
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,
2017
2016
48 %
48 %
1 %
1 year
-
45 %
42 %
0.2 %
1 year
-
The weighted-average fair value of the purchase rights granted in the years ended December 31, 2017 and 2016, were $1.20
and $1.50, 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
Years Ended December 31,
2017
2016
$
(9,899) $
(9,485)
4,975
$
(1.99) $
4,924
(1.93)
33
Foreign Currency Transactions
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, 2017 and
2016, translation loss was $591,000 and $228,000, respectively, and is included in other comprehensive loss account in the Consolidated
Statements of Stockholder's Equity.
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 $2,500 and $7,500 in 2017 and 2016 respectively, 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.
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, net of taxes is as follows (in thousands):
Balance, December 31, 2016
Foreign currency translation adjustment
Balance, December 31, 2017
Income Taxes and Deferred Tax Assets
Accumulated
Other
Comprehensive
Loss
$
$
(967)
(591)
(1,558)
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.
Because we have a full valuation allowance against our U.S. net deferred tax assets, the Tax Cuts and Jobs Act of 2017, or Tax Act, will
not materially impact our balance sheet or statement of operations. See Note 5.
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.
34
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.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU 2014-09, and
has subsequently issued various amendments in 2015 and 2016 (ASU No.’s 2015-14, 2016-08,2016-10, 2016-11, 2016-12, and 2016-20).
The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and
supersedes current revenue recognition guidance, including industry-specific revenue guidance. 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 using either
of two methods: (i) full 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) modified 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. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim
periods within that reporting period.
We adopted the new revenue standard effective January 1, 2018 using the modified retrospective method through a cumulative
adjustment to equity. While we are still in the process of finalizing the impact of adoption of the new revenue standard on our financial
statements, we currently believe the most significant change relates to our accounting for our sales of subscription licences for our
Quicksilver product, which are arrangements that include term-based QuickSilver software licenses bundled with maintenance and
support. Currently, we recognize revenue attributable to these software subscription licenses ratably over the term of the arrangement.
The requirement to have vendor-specific-objective-evidence (“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 fees allocated to QuickSilver software license upon delivery. As a result, we anticipate
that revenue for these arrangements be recorded in an earlier period than under the existing guidance, resulting in an increase to our
opening balance of retained earnings as of January 1, 2018. In contrast, we expect revenue related to our professional services and cloud
offerings for business enterprises, individuals and teams to remain substantially unchanged. However, there may be select contracts with
complexities, which may cause variance in the actual revenue recognized based on the treatment required under the new standard for
these arrangements.
Adopting ASU No. 2014-09, Revenue from Contracts with Customers, or the new revenue standard, will involve significant
new estimates and judgments related to the estimates of stand-alone selling prices and the allocation of discounts and variable
consideration in allocating the transaction price. We expect that revenue be recognized earlier under the new standard and may have
more variability due to new criteria applied in the new accounting methods.
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, 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. The effective date of the new standard
for public companies is for fiscal years beginning after December 15, 2016.
We adopted ASU 2016-09 during the first quarter of fiscal 2017. ASU 2016-09 requires entities to record all tax effects related
to share-based payments at settlement or expiration through the statements of comprehensive income and the windfall tax benefit to be
recorded when it arises, subject to normal valuation allowance considerations. Our excess tax benefits for the twelve months ended
December 31, 2017 and the cumulative effect to retained earnings from previously unrecognized excess tax benefits for Federal and state
were $2,652,000 and $1,908,000, respectively. However, the net effect was not significant to our Condensed Consolidated Balance
Sheets after offset by the related valuation allowance.
35
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, based upon the uncertainty of realizing such deferred tax assets, that
it is more likely than not that some portion or all of the deferred tax assets will not be realized. 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.
Presentation requirements for cash flows related to employee taxes paid for withheld shares had no impact to all periods
presented as such cash flows have historically been presented as financing activities. Further, we did not elect an accounting policy
change to record forfeitures as they occur and thus we continue to estimate forfeitures at each period.
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
December 31,
2017
2016
$
169
$
2,169
179
2,517
(2,482)
Property and equipment, net
$
35
$
159
2,174
179
2,512
(2,452)
60
Depreciation and amortization expense for the years ended December 31, 2017 and 2016 was $32,000 and $41,000,
respectively. We retired $6,000 in fully depreciated property and equipment in 2017. There was no retirement in fully depreciated
property and equipment in 2016.
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,
2017
2016
518
$
25
319
224
57
515
568
297
158
243
111
489
1,658
$
1,866
$
$
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,
2017
2016
$
$
61 $
522
583 $
223
511
734
36
Note 5---Income Taxes
Losses before income taxes as follows (in thousands):
Domestic
Foreign
Loss before income taxes
Years Ended December 31,
2017
2016
$
$
(8,670) $
(1,341)
(10,011) $
(7,812)
(1,625)
(9,437)
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
Years Ended December 31,
2017
2016
$
123 $
(3)
(8)
112
(78,619)
731
119
(77,769)
77,769
Benefit (provision) for income taxes
$
112 $
-
(4)
(44)
(48)
(2,583)
(518)
58
(3,043)
3,043
(48)
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
$
3,504 $
Years Ended December 31,
2017
2016
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
Federal tax rate change
Others
Benefit (provision) for income taxes
$
470
166
(347)
77,769
(252)
821
(15)
-
(81,939)
(65)
112 $
3,303
216
169
(925)
(1,440)
(78)
(51)
(7)
(1,226)
-
(9)
(48)
37
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law resulting in significant changes to
the Internal Revenue Code. The Act reduces the federal corporate income tax rate from 35% to 21% effective for tax periods beginning
after December 31, 2017. The Act also includes provisions for the elimination of the Alternative Minimum Tax (“AMT”), among other
changes.
The provision for income tax benefit was $112,000 for the year ended December 31, 2017, compared to income tax expense
$48,000 for the year ended December 31, 2016. The tax benefit for the year ended December 31, 2017 was primarily due to refundable
AMT credits that resulted from the repeal of AMT by the Act. The Company has remeasured its deferred tax assets and liabilities based
on the rate at which they are expected to reverse in the future which resulted in a decrease of deferred tax assets of $81,939,000. Because
we have a full valuation allowance against our U.S. net deferred tax assets, the Act will not materially impact our balance sheet or
statement of operations. The effects of other provisions of the Act are not expected to have a material impact on the Company’s financial
statements.
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
Total deferred tax assets
Less: valuation allowance
Net deferred tax assets
Years Ended December 31,
2017
2016
$
45 $
1,866
130,003
9,556
141,470
(141,470)
$
- $
72
3,166
207,270
8,731
219,239
(219,239)
-
We have provided a full valuation allowance for all of our deferred tax assets as of December 31, 2017 and 2016, due to the
uncertainty regarding their future realization. The total valuation allowance decreased $77,769,000 from December 31, 2016 to
December 31, 2017.
As of December 31, 2017, we had federal and state net operating loss ("NOL") carryforwards of approximately $586,978,000
and $36,122,000 available to offset future regular and alternative minimum taxable income. Our federal net operating loss carryforwards
expire in various years from 2019 through 2037, if not used. The state net operating loss carryforwards expire in various years from 2029
to 2037, 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
2017 and 2016. As of December 31, 2017, we had federal and state research and development credit carryforwards of approximately
$7,046,000 and $6,196,000, respectively, available to offset future tax liabilities. The federal tax credit carryforwards expire in the tax
years from 2019 through 2037, 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, 2017.
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, 2017 and 2016 were $3,022,000 and $2,880,000, 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, 2017 and 2016,
respectively.
We recognize interest and penalties accrued related to unrecognized tax benefits in our provision for income taxes. During the
years ended December 31, 2017 and 2016, respectively, we did not recognize any interest and penalties.
38
A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits for the year ended
December 31, 2017 is as follows (in thousands):
Balance at January 1, 2017
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, 2017
$
2,880
150
-
(8)
$
3,022
We are subject to taxation in the United States and various foreign jurisdictions. Our tax years 1999 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.
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, 2017
and 2016, 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, 2017 and 2016. 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 2019. 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,
2018
2019
2020 and thereafter
Total minimum lease payments
Operating
Leases
$
563
154
-
717
Rent expense for the year ended December 31, 2017, was $1,300,000, same as for the year ended December 31, 2016.
39
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.
Note 7---Stockholders' Equity
Convertible Preferred Stock
As of December 31, 2017, 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, 2017, we had reserved 459,268 common shares for future issuance upon the exercise of stock options.
Year Ended December 31, 2017
Weighted-
Weighted-
Average
Exercise
Average
Remaining
Aggregate
Options
Price
Contractual
Intrinsic
(000's)
Per Share
Term (Years)
Value
Outstanding at beginning of year
667 $
9.12
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
- $
- $
(10) $
(63) $
594 $
529 $
587 $
-
-
6.48
15.52
8.49
8.75
8.52
$
5.83 $
5.67 $
0.05 $
-
-
-
-
There were no options granted under our stock plans during the year ended December31, 2017. The weighted-average fair
market value per share of options granted under our stock option plans during the year ended December 31, 2016 was $2.90.
We granted 15,292 shares of restricted stock to the non-employee members of our Board of Directors during the year ended
December 31, 2017 and recorded a stock-based compensation expense of $79,000. We granted 16,965 shares of restricted stock to the
non-employee members of our Board of Directors and Board of Directors’ advisor during the year ended December 31, 2016, and
recorded a stock-based compensation expense of $92,000. 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, 2017, total unrecognized compensation cost related to unvested stock options was $769,000, which is
expected to be recognized over the remaining weighted-average vesting period of 1 year. During the years ended December 31, 2017 and
2016, we received cash of $79,000 and $192,000, respectively, from employee stock purchases and exercises of stock options.
40
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):
Software licenses
Consulting services
Maintenance
Total revenues
Years Ended December 31,
2017
2016
$
3,467 $
1,230
1,660
$
6,357 $
4,227
1,521
2,192
7,940
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,
2017
2016
$
3,019 $
1,132
2,206
$
6,357 $
3,665
1,320
2,955
7,940
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. 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.
41
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 $550,000 per quarter for the foreseeable future. We made aggregate payments to BVOD of $2.3 million and
$2.0 million (based on the RMB to USD exchange rates on the applicable dates of payment) for such services in the years ended
December 31, 2017 and 2016, 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.
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 $0 and $46,000 of license
revenue related to that contract for the fiscal years 2017 and 2016, 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 $57,000 and $61,000 for the year ended December 31, 2017 and 2016,
respectively.
Note 11---Subsequent Event
Effective as of March 7, 2018, Peter Chu resigned as our Chief Financial Officer and Vice President of Strategy and Product
Management. In connection with Mr. Chu’s resignation, our founder, Chief Executive Officer and President, Dr. Pehong Chen was
appointed as our Interim Chief Financial Officer.
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 Interim
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, 2017.
42
Evaluation of Disclosure Controls and Procedures
An evaluation as of December 31, 2017, was carried out under the supervision and with the participation of our management,
including our Chief Executive Officer and Interim 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 Interim Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of December 31, 2017, 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, 2017 that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
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
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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, 2017 and 2016
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2017 and 2016
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2017 and 2016
Consolidated Statements of Cash Flows for the years ended December 31, 2017 and 2016
Notes to Consolidated Financial Statements
2. Financial Statement Schedule. Attached to this Annual Report on Form 10-K.
Schedule II---Valuation and Qualifying Accounts
44
3. Exhibits. The exhibits listed below are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K.
Exhibit
3.1
3.2
3.3
3.4
4.1
4.2
4.3
10.1(a)
10.2(a)
10.3(a)
10.4(a)
10.5
10.6
10.7
10.8(a)
10.9(a)
10.10(a)
10.11
10.12
10.13
21.1
23.1
24.1
31.1
32.1
Description
Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to Amendment No. 2
to the Company's Registration Statement on Form S-1 filed on May 29, 1996 (File No. 333-03844)).
Certificate of Amendment of Certificate of Incorporation (incorporated by reference to Exhibit 4.6 to the Company's
Form 10-K for the fiscal year ended December 31, 2006 filed on March 27, 2007 (File No. 000-28252)).
Certificate of Amendment of Certificate of Incorporation (incorporated by reference to Exhibit 3.3 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)).
Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company's Current Report on
Form 8-K filed on October 16, 2008 (File No. 000-28252)).
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 (incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-1
filed on December 20, 2004 (File No. 333-121430)).
Registration Rights Agreement, dated March 8, 2006, between the Company and Honu Holdings LLC (incorporated
by reference to Exhibit 4.5 to the Company's Annual Report on Form 10-K filed on June 9, 2006 (File No. 000-
28252)).
Employee Stock Purchase Plan, as amended (incorporated by reference to Exhibit 99.1 to the Company's
Registration Statement on Form S-8 filed on November 8, 2013 (File No. 333-192224)).
BroadVision, Inc. Severance Benefit Plan, as amended, effective October 21, 2009 (incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 27, 2009 (File No. 001-34205)).
2000 Non-Officer Equity Incentive Plan, as amended (incorporated by reference to Exhibit 99.1 to the Company's
Registration Statement on Form S-8 filed on October 15, 2003 (File No. 333-109709)).
Form of Indemnity Agreement between the Company and each of its directors and executive officers (incorporated
by reference to Exhibit 10.33 to the Company's Form 10-Q for the quarter ended September 30, 2002 filed on
November 14, 2002 (File No. 000-28252)).
Securities Purchase Agreement, dated as of November 10, 2004, by and among the Company and the investors listed
on Exhibit A thereto (incorporated by reference to Exhibit 10.45 to the Company's Current Report on Form 8-K
filed on November 10, 2004 (File No. 000-28252)).
Debt Conversion Agreement, dated as of December 20, 2005, between the Company and Honu Holdings, LLC
(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 22,
2005 (File No. 000-28252)).
Share Purchase Agreement, dated November 14, 2008, between BroadVision (Delaware) LLC and CHRM LLC
(incorporated by reference to Exhibit 10.1to the Company’s Current Report on Form 8-K filed on November 18,
2008 (File No. 001-34205)).
Amended and Restated 2006 Equity Incentive Plan, as amended (the "Amended and Restated Plan") (incorporated
by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 filed on May 8, 2009 (File No.
333-159075)).
Form of Restricted Stock Bonus Agreement under the Amended and Restated Plan (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 30, 2007 (File No. 000-28252)).
Form of Option Grant Notice under the Amended and Restated Plan under the Amended and Restated 2006 Equity
Incentive Plan (incorporated by reference to Exhibit 99.2 to the Company’s Registration Statement on Form S-8
filed on November 6, 2006 (File No. 333-138461)).
Lease Agreement, dated April 18, 2012, between the Company and VII PAC SHORES INVESTORS, L.L.C
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 20, 2012
(File No. 001-34205)).
First Amendment to Lease Agreement dated September 4, 2014 between BroadVision Inc. and VII Pac Shores
Investors, LLC (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on
October 15, 2014 (File No. 001-34205)).
Amended and Restated Operating Agreement of Broadvision (Delaware) LLC, dated November 14, 2008
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on November 18,
2008 (File No. 001-34205)).
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 and Interim Chief Financial Officer of the Company pursuant to
Exchange Act Rule13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Executive Officer and Interim Chief Financial Officer of the Company pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
45
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
XBRL Instance
XBRLTaxonomy Extension Schema
XBRLTaxonomy Extension Calculation
XBRLTaxonomy Extension Labels
XBRLTaxonomy Extension Presentations
XBRLTaxonomy Extension Definition
(a) Represents a management contract or compensatory plan or arrangement.
46
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 2nd day of April,
2018.
BROADVISION, INC.
By: /s/ PEHONG CHEN
Pehong Chen
Chairman of the Board, President, Chief Executive Officer and Interim Chief Financial
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Pehong Chen to
sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that the said attorney-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
Signature
/s/ Pehong Chen
Pehong Chen
/s/ François Stieger
François Stieger
/s/ James D. Dixon
James D. Dixon
/s/ Robert Lee
Robert Lee
Date
April 2, 2018
April 2, 2018
April 2, 2018
April 2, 2018
Title
Chairman of the Board, President, Chief
Executive Officer and Interim Chief
Financial Officer (Principal Executive,
Financial and Accounting Officer)
Director
Director
Director
47
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, 2017
Year Ended December 31, 2016
$
$
167 $
135 $
126 $
32 $
- $
- $
293
167
(1) Represents net charge-offs of specific receivables.
48