UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, DC 20549
FORM 10-K
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FOR ANNUAL AND TRANSITION
REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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(Mark
One)
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ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the Year Ended
December 31, 2007
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OR
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the transition period
from to
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Commission File Number 0-28252
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BROADVISION, INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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94-3184303
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(State
or other jurisdiction of
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(I.R.S.
Employer
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incorporation
or organization)
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Identification
Number)
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1600 Seaport Blvd, Suite 550,
North Bldg.
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Redwood City, California
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94063
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(Address
of principal executive offices)
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(Zip
code)
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(650)
331-1000
(Registrant's
telephone number, including area code)
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Securities registered pursuant
to Section 12(b) of the Act:
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None
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Securities registered pursuant
to Section 12(g) of the Act:
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Common Stock, $.0001 par
value
(Title
of Class)
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes o No
R
Indicate by
check mark if the registrant is not required to file reports pursuant to Section
13 or 15(d) of the Act.
Yes o No
R
Indicate
by check mark whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes
R No o
Indicate
by check mark if the disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K.
Yes
R No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Exchange Act
Rule 12b-2.
Large
accelerated filer o Accelerated
filer þ Non-accelerated
filer o Smaller reporting company
o
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes o No
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As of
June 29, 2007, based on the closing sales price as quoted by the OTCBB,
52,431,543 shares of Common Stock, having an aggregate market value of
approximately $104,338,771 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
January 31, 2008, the registrant had 108,950,347 shares of common stock
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Parts of
the Proxy Statement for the registrant's Annual Meeting of Stockholders to be
held in June 2008 are incorporated by reference into Part III of this Annual
Report on Form 10-K.
BROADVISION, INC.
ANNUAL
REPORT ON FORM 10-K
YEAR
ENDED DECEMBER 31, 2007
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Business
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3 | |
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Risk
Factors
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10 | |
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Unresolved
Staff Comments
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16 | |
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Properties
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16 | |
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Legal
Proceedings
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16 | |
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Submission
of Matters to a Vote of Security Holders
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16 | |
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Market
for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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17 | |
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Selected
Consolidated Financial Data
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19 | |
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Management's
Discussion and Analysis of Financial Condition and Results of
Operations
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20 | |
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Quantitative
and Qualitative Disclosures About Market Risk
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31 | |
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Financial
Statements and Supplementary Data
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33 | |
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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57 | |
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Controls
and Procedures
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58 | |
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Other
Information
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58 | |
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Directors,
Executive Officers and Corporate Governance
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59 | |
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Executive
Compensation
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59 | |
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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59 | |
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Certain
Relationships and Related Transactions, and Director
Independence
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59 | |
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Principal
Accountant Fees and Services
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59 | |
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Exhibits
and Financial Statement Schedules
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60 | |
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References
in this prospectus to "we", "us" and "our" refer to BroadVision, Inc. and its
subsidiaries. BroadVision, BroadVision One-To-One, iGuide, Interleaf and
Interleaf Xtreme are our U.S. registered trademarks. Trademarks,
service marks and trade names of other companies appearing in this report are
the property of their respective holders.
CAUTIONARY
STATEMENT PURSUANT TO THE PRIVATE SECURITIES
LITIGATION
REFORM ACT OF 1995
Certain
statements set forth or incorporated by reference in this Form 10-K
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. In some cases, you can identify
forward-looking statements by words such as "may", "will", "should", "expect",
"intend", "plan", "anticipate", "believe", "estimate", "predict", "potential" or
similar terms. These statements relate to future events or our future financial
performance and involve known and unknown risks, uncertainties and other factors
that may cause our actual results, levels of activity, performance or
achievements to differ materially from any future results, levels of activity,
performance or achievements expressed or implied by these forward-looking
statements. These risks and other factors include those listed under "Risk
Factors" and elsewhere in this document. These statements are only predictions
based on our current expectations and projections about future events, and we
cannot guarantee future results, levels of activity, performance or
achievements.
We
expressly disclaim any obligation to update or publicly release any revision to
these forward-looking statements after the date of this
Form 10-K.
Information
regarding market and industry statistics contained in the "Business" section of
this report is included based on information available to us that we believe is
accurate. It is generally based on academic and other publications that are not
produced for purposes of securities offerings or economic
analysis.
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PART I, ITEM 1 TABLE
OF CONTENTS (BUSINESS SECTION)
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ITEM 1. BUSINESS
Our
Business
Since
1993, BroadVision has been a pioneer and consistent innovator of e-business
solutions. We deliver a combination of technologies and services into the global
market that enable customers of all sizes to power mission-critical web
initiatives that ultimately deliver high-value to their bottom line. Our
offering consists of a robust framework for personalization and self-service,
modular applications and agile toolsets that customers use to create e-commerce
and portal solutions. As of December 31, 2007, we had licensed our products to
more than 1,800 customers - including Audible.com, Baker Hughes, BioRad
Laboratories, Canon, Cardinal Health, Citibank, Circuit City, DPD Geopost, EFG
Bank, Epson America, Finnair, Hilti, Indian Railway, ING Bank, Internet Security
Systems, Mettler Toledo, Prime Polymer, Standard Bank of Argentina, Unicredito,
Vodafone, W.W. Grainger and Xerox.
Corporate
Information
We were
incorporated in Delaware in 1993 and have been a publicly traded corporation
since 1996. From 2001 to date, our annual revenue has declined and as of
December 31, 2007, we had an accumulated deficit of approximately
$1.2 billion. The majority of our accumulated deficit to date has resulted
from non-cash charges associated with our 2000 acquisition of Interleaf, Inc.
and restructuring charges related to excess real estate lease
obligations.
During
2004, we entered into a series of termination agreements to settle nearly all of
our excess lease obligations. In November 2004, we issued $16 million in
aggregate principal amount of senior subordinated secured convertible notes (the
"Notes"). In November 2005, Honu Holdings, LLC, a Delaware limited liability
company controlled by Dr. Pehong Chen, our Chairman, Chief Executive
Officer, President and largest stockholder ("Honu"), acquired all Notes then
outstanding. In December 2005, Dr. Chen agreed to cancel all amounts owed
under the Notes in exchange for 34,500,000 shares of BroadVision common
stock at an effective price per share of $0.45, a 25% discount to the
December 20, 2005 closing price of BroadVision common stock, and $180,000
in cash that represented the portion of the accrued interest on the Notes that
was not paid in stock. That exchange was completed in March 2006. The common
shares issued to Honu, representing approximately 50% of the post-conversion
shares outstanding, increased Dr. Chen's beneficial ownership interest in
BroadVision to 59% of the total shares outstanding. Dr. Chen's ownership
decreased to approximately 39% following the issuance of shares in the rights
offering in the fourth quarter of 2006.
In
February 2006, we announced a subscription rights offering to existing
stockholders to sell a total of up to 178 million shares, or 5.9 shares for each
share of BroadVision common stock held as of the record date of December 20,
2005, at an effective price per share of $0.45. The primary purpose of the
rights offering is to allow the holders of BroadVision common stock an
opportunity to further invest in BroadVision in order to maintain their
proportionate interest in BroadVision common stock, at the same price per share
as the price afforded to Dr. Chen in connection with the Notes cancellation
transaction.
The
rights offering expired on November 28, 2006. Eligible participants exercised
rights to purchase 36.4 million shares, resulting in $15.8 million in net
proceeds for us. Then we reduced our total number of authorized shares of common
stock from 2,000,000,000 to 280,000,000 in February 2007. We deregistered the
shares not sold in the rights offering and subject to the registration statement
we filed in connection with the rights offering.
In order
to complete the issuance of shares to Dr. Chen without violating applicable
listing standards, we delivered to NASDAQ a notification of voluntary delisting
of BroadVision common stock from the NASDAQ National Market effective prior to
the opening of trading on March 8, 2006. We had previously received a notice
from NASDAQ stating that we were not in compliance with the minimum bid price
rules applicable to stocks traded on NASDAQ, and that we had until March 6, 2006
to regain compliance. Our stock was quoted on the Pink Sheets from March 8, 2006
to May 24, 2007. Since May 25, 2007, quotations for BroadVision common stock
have been available through the OTC Bulletin Board under the trading symbol
"BVSN".
As of
December 31, 2007, we have completed our 24-month turnaround plan that began in
January 2006. Under this plan we have implemented cost-cutting measures, and
demonstrated stable revenue, positive operating profits and significant increase
of unrestricted cash balance.
In early
2007, we introduced a product roadmap that included new products, services and
technologies, to complement and replace certain of our existing products,
services and technologies. We formally released BroadVision 8.1™ at the
end of the third quarter of 2007, a major milestone in completing our new K2 (Kona *
Kukini) e-business solution sets.
During
the second quarter of 2007, we recorded, for the first time, modest subscription
and consulting revenues related to our new CHRMTM
on-demand solution, which we officially launched in Beijing in August
2007. We also received modest subscription and consulting revenues
relating to CHRM in
the third and fourth quarters of 2007.
Our principal executive offices are
located at 1600 Seaport Boulevard, Suite 550, North Building, 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 SEC's website directly to our reports. The contents
of our website are not incorporated by reference into this
report.
e-business
has become an integral part of work life and organizations are looking for ways
to reduce costs, improve productivity and increase revenues by moving their
business online. More and more households and organizations worldwide have
adopted a web paradigm and expect websites to be easy to use and available for
their convenience. By providing a way for enterprises to quickly assemble and
deploy web-based solutions that tap into their resources, organizations can
dramatically reduce the cost and improve the quality of interactions between
employees, customers and business partners. A significant number of industry
analysts have highlighted the ways in which organizations can reduce costs and
improve customer satisfaction by implementing a self-service model, including
online shopping and call center operations. In addition to accelerating the
response time for the consumer, e-business applications also enable
organizations to collect valuable market research data about their
customers.
BroadVision
excels in offering e-business solutions that tightly integrate portal and
commerce on a single, secure, high-performance framework that also enables
advanced personalization and seamless integration to enterprise
systems.
BroadVision's software offers advantages over competitive offerings
in the following key respects:
Lasting
business value extended to everyone:
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Low total cost of ownership
(TCO) philosophy -- Support for both commercial and open
source platforms as well as mixed commercial-open source deployment
environments
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Agility and
extensibility -- Integrated tools for both business and
IT to rapidly create unique e-business applications with the combination
of out-of-the-box capabilities and custom
development
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Built-in best
practices -- Proven technology and methodologies that
take the guesswork out of building reliable, available and scalable web
applications
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Configurability -- Modular
application services that can be assembled to meet customer's exact
business requirements
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Focus on
e-business -- Mature applications and proven
methodologies developed from over 1,000 implementations and 14 years of
experience
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Scalability -- Advanced
load balancing and multi-layered caching allow BroadVision applications to
support large numbers of concurrent customers and
transactions
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Personalization -- Our
advanced personalization technology, including session and event-based
observations and transaction information, provide a better understanding
of site visitors and allow our customers to dynamically tailor content to
them
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Ease of
use -- Our applications and tools are designed with
graphical user interfaces that allow non-technical business managers to
modify business rules and content in real
time
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Secure transaction
processing -- Our applications provide secure handling of
a wide range of commercial and financial services transactions including
order pricing and discount/incentive handling, tax computation, shipping
and handling charges, payment authorization, credit card processing, order
tracking, news and stock feeds through a combination of built-in
functionality and integration with third-party
products
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Multi-platform
availability -- Our applications are optimized for a
variety of hardware and software platforms including IBM AIX, Sun Solaris,
Microsoft Windows NT and Hewlett-Packard's HP-UX. Supported databases
include Oracle, Sybase, Informix, IBM and Microsoft SQL Server. Supported
application servers include WebLogic, WebSphere and SunOne. We also
support Open Source platforms, such as Linux with Jboss and
Hypersonic
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Multilingual/multicurrency -- Our
applications are global ready and designed to support multiple languages
(including Arabic, Chinese, Hebrew, Japanese, Korean, Slovakian, Turkish
and most Western European languages) and a wide range of currencies,
including the euro
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Product
Overviews
Our
offerings consist of modular applications and agile toolsets that are built on a
robust framework for personalization and self-service:
Solutions
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Business
Agility Suite
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Interact
with visitors through personalized views of information, resources, and business
processes stored in diverse internal and external legacy information systems.
Support collaboration both inside and outside the enterprise. Empower business
owners to manage more of the website, from content to personalization to
collaboration. Take control of the quality of information as customers create,
manage and publish content to customer's e-business applications. Establish "one
voice" with consistent branding and reuse valuable content assets more
effectively. Bring all of the right people into the content development process
with Web-based content creation, versioning and flexible content
workflow.
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Commerce
Agility Suite
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In
addition to all the capabilities of Business Agility Suite, create an
environment in which customers can transact more business throughout the entire
sales process from lead generation to sales execution to customer support. Allow
customers' businesses to manage Business-to-Business ("B2B") and
Business-to-Consumer ("B2C") channels through a single solution. Deliver
advanced merchandising and personalization capabilities and easy-to-use catalog
management tools for business users.
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OnDemand™
and Collaborative Human Resource Management
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Our
BroadVision OnDemand™ ("BVOD") business unit, headquartered in Beijing,
China. BVOD's on - demand solutions - easy to setup and operate via personalized
self-service without costly upfront investments and lingering maintenance
overhead - deliver compelling value to our customers immediately and
continuously. CHRM (Collaborative Human Resource Management), developed using
Kona-Kukini in record time and with tremendous cost savings as BVOD's first
offering, has proven to be an impressive showcase for the K2
Methodology. This on-demand solution provides superb visibility and agility for
all members of our customers' organizations to collaborate more productively in
each phase of the HR management life cycle, creating a strategic competitive
advantage through the efficient management of human assets.
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QuickSilver™
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Provides
powerful features for creation and publishing of lengthy, complex documents
supporting multiple output formats (including HTML, PDF and Postscript) and
automatic publishing of personalized content to BroadVision Portal. Assemble
publications from a variety of text, graphic and database sources, including
Microsoft Word, AutoCad, Microsoft Excel, and Oracle. Includes a complete XML
authoring environment.
e-business Framework
Components
Methodology
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BroadVision
e-business Methodology
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Apply the
best practices developed during BroadVision's 15+ years of experience with some
of the world's largest e-business websites. Ensure application performance,
reliability, availability and scalability. Enable global productivity by
leveraging multi-shore development teams with optimized division of work.
Promote reuse of custom developed components.
Developer
Toolkit
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Kukini
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Utilize
teams of business and IT to create a distinctive user experience with a flexible
toolkit. Provide both sets of users with a visual environment where they can
work together to design and deploy complex e-business applications and websites
quickly and efficiently. Creates a structure for dividing tasks among people
with different skill levels while enforcing best practices. Run with customer's
J2EE application environment of choice and leverage the rich and scalable
BroadVision Kona services.
Framework
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Kona
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The Kona
framework tightly integrates Portal, Content, Commerce and Staging services with
personalization capability. Build differentiated e-business applications quickly
and efficiently using a set of open, flexible and configurable services. Use
out-of-the box functionality, data schemas and tools to have an e-business
application up and running in days or weeks, not months. Empower business users
to take control of day-to-day site management tasks. Leverage commercial
operating systems, databases and application servers or a mix of commercial and
open source components to drive the highest level of performance with the lowest
total cost of ownership.
Application Services
Library
Accelerate
application development with a modular set of flexible, out-of-the-box web
services build on the functionality of Kona, expanding the capabilities of the
core framework.
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Commerce
Services
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Display
product offerings and transact business on customers' websites. Includes
configurable catalog management, pricing, shopping cart, checkout and order
management capabilities. Enables business users to maintain control over
day-to-day activities on the site.
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Portal
Services
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Provide
end users with a personalized and intuitive navigation experience as they
interact with customer's business. Incorporates a navigation hierarchy, content
categorization and familiar portlet structure into any e-business
application.
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Process
Services™
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Extends
web capabilities and transforms costly, people-intensive processes and
collaborations into web-based self-service applications. Allows business and IT
to design, test and deploy solutions in days, not months, significantly reducing
costs and accelerating time-to-implementation.
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Content
Services™
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Manages
web content throughout its lifecycle: from creation and management through
deployment and distribution. As part of a BroadVision solution, it creates a
review, approval and publishing cycle that replace a cumbersome email trail,
provides for version control, creates an audit trail, and helps organizations
deliver personalized, timely and up-to-date content.
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Staging
Services™
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Simplifies
the process of moving content from multiple systems to the production
environment. Reduces the cost of managing BroadVision application assets and
improves process standardization for enterprise staging
initiatives.
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eMerchandising™
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Drive
higher conversion rates, differentiate e-commerce sites and connect online and
offline experiences with innovative, patent-pending discounting capabilities.
Create, manage and implement complex sales discounts while maintaining oversight
over profitability. Deploys discounts to BroadVision and non-BroadVision
e-commerce sites.
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Search™
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Provides
full-text and field searching of online content and any referenced external
files and returns results with relevance-ranked scores. Supports query searches
using a broad spectrum of search operators. Connects people to the information
they seek regardless of medium. Developed in partnership with FAST, a global
leader in real-time search and filter technology.
Open
Standards-Based Architecture
BroadVision
e-business solutions are built on object-oriented application code written in
J2EE programming environments, which allows developers and system integrators to
use, integrate, modify, adapt or extend the applications with minimal impact on
other areas to create a rapidly customized product that meets specific business
requirements. BroadVision Process leverages a proven open source stack at the
platform layers to reduce total cost of ownership and optimize
performance.
Support
for the J2EE standards for object-oriented computing enables high-volume
performance, flexible application deployment and easy integration with
third-party or legacy applications. Our applications fully support XML, which is
the emerging standard for managing and exchanging data between e-business
systems as well as for re-purposing and sending information to wireless
devices.
In
addition, we use other widely accepted standards in developing our products,
including Web Services, Structured Query Language (SQL) for accessing relational
database management systems; Common Gateway Interface (CGI) and Hypertext
Transfer Protocol (HTTP) for web access; Secure Socket Layer (SSL) for secure
transmissions over networks; and the RC2 and MD5 encryption algorithms supplied
by RSA Security.
Our
applications can be operated in conjunction with relational database management
systems provided by IBM Corporation, Informix, Microsoft, Oracle and Sybase.
Supported application servers include WebLogic, WebSphere, SunOne and
JBoss.
Support for Open
Source
BroadVision
Process and BroadVision Portal give organizations the option of running on a
commercially available technology stack described above or on an open source
stack. While our commitment to commercial platforms has not changed, we
recognize that our customers are adopting Open Source as a platform because of
its total cost of ownership and runtime benefits.
BroadVision
provides a full spectrum of global services to contribute to the success of our
customers, including business consulting services, implementation services
related to our software and related software, migration and performance tuning
services and ongoing training and technical support.
Education
Services
Coursework
is available for Content Managers, Technical Developers and System
Administrators through BroadVision Education Services. Customers and partners
can arrange for on-site programs, which keep employees at the office, or take
advantage of public courses at BroadVision locations.
Support and
Maintenance Services
BroadVision
offers a tiered support and maintenance program to better serve the needs of our
global customer base. Standard Support provides technical assistance during
regular business hours; Enterprise Support is designed for customers with
mission-critical environments, providing customers with access to support
experts 24 hours a day, 7 days a week; and Personalized Support
assigns a specific individual to a customer along with other customer specified
support services, including on-site support engineers. We have technical support
centers in North America, Europe and Asia. Under our standard maintenance
agreement, we provide telephone support and upgrade rights to new releases,
including patch releases (as necessary) and product enhancements (when and if
available).
As of
December 31, 2007, we had licensed our products to over 1,800 end-user
customers and partners. During each of the years ended December 31, 2007,
2006 and 2005, no customer accounted for more than 10% of our total revenues. At
December 31, 2007 and 2006, one customer accounted for 20% and 13% of our
accounts receivable balance, respectively. We do not believe that the loss of
any single customer would have a material adverse effect on our business or
results of operations.
Our
software is deployed in all major industry groups, including financial services,
government, healthcare, manufacturing, retail and telecommunications. Customers
include Audible.com, Baker Hughes, BioRad Laboratories, Canon, Cardinal Health,
Citibank, Circuit City, DPD Geopost, EFG Bank, Epson America, Finnair, Hilti,
Indian Railway, ING Bank, Internet Security Systems, Mettler Toledo, Prime
Polymer, Standard Bank of Argentina, Unicredito, Vodafone, W.W. Grainger and
Xerox.
We market
our products primarily through a direct sales organization with operations in
North America, Europe and Asia/Pacific. On December 31, 2007, our direct
sales organization included 30 sales representatives, managers and sales support
personnel.
We have
sales offices located throughout the world to support the sales and marketing of
our products. In support of the Americas organizations, offices located in the
United States are in California and Massachusetts.
Offices
for our Europe region are located in France, Germany, Italy, Spain and the
United Kingdom.
Our sales
and marketing offices in the Asia Pacific/Japan/India/Middle East region are
located in India and Japan. We derive a significant portion of our revenue from
our operations outside North America. In the twelve months ended
December 31, 2007, approximately 37% of our revenues were derived from
international sales. In the twelve months ended December 31, 2006, approximately
40% of our revenue was derived from international sales. If we are unable to
manage or grow our existing international operations, we may not generate
sufficient revenue required to establish and maintain these operations, which
could slow our overall growth and impair our operating margins.
Initial
sales activities typically involve discussion and review of the potential
business value associated with the implementation of a BroadVision solution, a
demonstration of our e-business applications capabilities at the prospect's
site, followed by one or more detailed technical reviews. The sales process
usually involves collaboration with the prospective customer in order to specify
the scope of the solution. Our global services organization helps customers to
design, develop and deploy their e-business solutions.
As of
December 31, 2007, seven employees were engaged in a variety of marketing
activities, including product planning, marketing material development, public
relations, identifying potential customers, establishing and maintaining close
relationships with recognized industry analysts and maintaining our
website.
We
recognize that today's organizations require an open, partner-based approach to
e-business. Accordingly, we have assembled a global team of best-of-breed
partners with the skills, services and value-added products necessary to
develop, market, sell and deliver the most competitive e-business solutions
available.
Consulting
Partners
Our
systems integration and consulting services partners deliver strategic business
solutions to our global customers. These partners offer deployment experience,
strong vertical market expertise, and process-based solutions. Our contractual
agreements with these consulting partners motivate them to build a development
expertise in our technology and sell our products and services to potential
customers, thus enabling us to extend the reach of our products and services.
Revenue generated from consulting partners in recent years has not been
significant.
Technology/OEM
Partners
Our
technology partners include Value-Added Resellers (VAR) and Independent Software
Vendors (ISV) who build and deploy BroadVision-based vertical and horizontal
software solutions. Our goal is to create value-added solutions that address a
customer's specific business and IT goals. In addition, technology partners
include distributors who are authorized representatives that market, distribute,
resell and support our products and services or application service providers
who develop, host and support value-added application solutions based on our
technology. The contracts that govern our relationships with these partners are
generally terminable by either party upon 30 to 90 days notice. In most
cases, technology/OEM partners license our products to users under the terms of
a reseller or distribution agreement. Revenue generated from technology/OEM
partners in recent years has not been significant.
If we
fail to compete successfully with current or future competitors, we may lose
market share. The market for e-business is intensely competitive. Our customers'
requirements and the technology available to satisfy those requirements will
continually change. We expect competition in this market to persist. Our primary
competition currently includes:
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in-house
development efforts by prospective customers or
partners;
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other
vendors of application software or application development platforms and
tools directed at interactive commerce and portal applications, such as
Art Technology Group, BEA Systems, IBM Corporation, Microsoft, Oracle and
SAP.
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web
content developers that develop custom software or integrate other
application software into custom
solutions.
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The
principal competitive factors affecting the market for our products
are:
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depth
and breadth of functionality
offered;
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availability
of knowledgeable developers;
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time
required for application
deployment;
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reliance
on industry standards;
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product
reliability;
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proven
track record;
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scalability;
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maintainability;
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product
quality;
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price; and
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technical
support.
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Compared
to us, many of these competitors and other current and future competitors have
longer operating histories and significantly greater financial, technical,
sales, marketing and other resources. As a result, they may be able to respond
more quickly to new or changing opportunities, technologies and customer
requirements. Many of these companies can use their greater name recognition and
more extensive customer base to gain market share. Competitors may be able to
undertake more extensive promotional activities, adopt more aggressive pricing
policies and offer more attractive terms to purchasers. Current and potential
competitors may bundle their products to discourage users from purchasing our
products. In addition, competitors have established or may establish cooperative
relationships among themselves or with third parties to enhance their products.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. Competitive pressures
may make it difficult for us to acquire and retain customers.
Our
success and ability to compete are dependent to a significant degree on our
proprietary technology. We hold a U.S. patent, issued in January 1998 and
expiring in August 2015, on elements of the BroadVision One-To-One Enterprise
product, which covers e-commerce operations common in today's web business. We
also hold a U.S. patent, issued in November 1996 and expiring in February
2014, acquired as part of the Interleaf acquisition, on the elements of the
extensible electronic document processing system for creating new classes of
active documents. The patent on active documents (associating procedures to
elements of an electronic document) is fundamental and hard to avoid by some
modern document processing systems. Although we hold these patents, they may not
provide an adequate level of intellectual property protection. In addition,
litigation may be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets, to determine the validity and scope of the
proprietary rights of others, or to defend against claims of infringement or
invalidity. We cannot guarantee that infringement or other claims will not be
asserted or prosecuted against us in the future, whether resulting from our
intellectual property or licenses from third parties. Claims or litigation,
whether successful or unsuccessful, could result in substantial costs and
diversions of resources, either of which could harm our business.
We also
rely on copyright, trademark, service mark, trade secret laws and contractual
restrictions to protect our proprietary rights in products and services. We have
registered "BroadVision", "BroadVision One-To-One", "iGuide", "Interleaf" and
"Interleaf Xtreme" as trademarks in the United States and in other countries. It
is possible that our competitors or other companies will adopt product names
similar to these trademarks, impeding our ability to build brand identity and
possibly confusing customers.
As a
matter of our company policy, we enter into confidentiality and assignment
agreements with our employees, consultants and vendors. We also control access
to and distribution of our software, documents and other proprietary
information. Notwithstanding these precautions, it may be possible for an
unauthorized third party to copy or otherwise obtain and use our software or
other proprietary information or to develop similar software independently.
Policing unauthorized use of our products will be difficult, particularly
because the global nature of the Internet makes it difficult to control the
ultimate destination or security of software and other transmitted data. The
laws of other countries may afford us little or no effective protection of our
intellectual property.
As of
December 31, 2007, we employed a total of 195 full-time employees, of
whom 106 are based in North America, 32 in Europe and 57 in Asia. Of these
full-time employees, 37 are in sales and marketing, 73 are in product
development, 44 are in global services and client support, and 41 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.
Our sole
executive officer and his age and position as of December 31, 2007 are in
the table below. In addition, Shin-Yuan Tzou was named as Chief Financial
Officer in January 2008. Information for Dr. Tzou is included
below.
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Name
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Age
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Position
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Pehong
Chen
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50
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Chairman,
President, Chief Executive Officer and Interim Chief Financial
Officer
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Shin-Yuan
Tzou
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50
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Chief
Financial Officer (as of January,
2008)
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Pehong Chen has served as our
Chairman of the Board, Chief Executive Officer and President since our
incorporation in May 1993. From 1992 to 1993, Dr. Chen served as the Vice
President of Multimedia Technology at Sybase, a supplier of client-server
software products. Dr. Chen founded and, from 1989 to 1992, served as
President of Gain Technology, a provider of multimedia applications development
systems, which was acquired by Sybase. He received a B.S. in Computer Science
from National Taiwan University, an M.S. in Computer Science from Indiana
University and a Ph.D. in Computer Science from the University of California at
Berkeley.
Shin-Yuan Tzou was appointed
our Chief
Financial Officer in January 2008. Most recently, Dr. Tzou served as our Chief
of Staff, responsible for our Sarbanes-Oxley compliance taskforce, successfully
streamlining all back-office business processes worldwide across finance, legal,
HR, IT, etc. He has also served as the Regional General Manager for the
Asia-Pacific-Japan region, heading both Sales and BroadVision Professional
Services organizations. Dr. Tzou has been with us since 1995, won "Most Valuable
Player" award in 1997, and has contributed to the design and development of
every version of our self-service suite as our Chief Technology Officer. Prior
to BroadVision, Dr. Tzou worked for IBM and Silicon Graphics. He earned his
Ph.D. in Computer Science from 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.
We have a history
of losses and our future profitability on a quarterly or annual basis is
uncertain, which could have a harmful effect on our business and the value of
BroadVision common stock.
While we
have recently generated positive operating income and cash flow, we have
incurred substantial cumulative net operating losses and negative cash flows
from operations since 2000. As of December 31, 2007, we had an accumulated
deficit of approximately $1.2 billion.
Given our
planned operating and capital expenditures, for the foreseeable future we expect
our results of operations to fluctuate, and during this period we may incur
losses and/or negative cash flows. If our revenue does not increase or if we
fail to maintain our expenses at an amount less than our projected revenue, we
will not be able to achieve or sustain operating profitability on a consistent
basis. We are continuing our efforts to reduce and control our expense
structure. We believe strict cost containment and expense reductions are
essential to achieving positive cash flow and profitability. A number of factors
could preclude us from successfully bringing costs and expenses in line with our
revenues, including unplanned uses of cash, the inability to accurately forecast
business activities and further deterioration of our revenues. If we are not
able to effectively reduce our costs and achieve an expense structure
commensurate with our business activities and revenues, we may have inadequate
levels of cash for operations or for capital requirements, which could
significantly harm our ability to operate our business.
Our
failure to operate profitably or control negative cash flows on a quarterly or
annual basis could harm our business and the value of BroadVision common stock.
If the negative cash flow continues, our liquidity and ability to operate our
business would be severely and adversely impacted. Additionally, our ability to
raise financial capital may be hindered due to our operational losses and
negative cash flows, reducing our operating flexibility.
Our business
currently depends on revenue related to BroadVision e-business solutions, and if
the market does not increasingly accept these products and related products and
services, our revenue may continue to decline.
We
generate our revenue from licenses of BroadVision e-business solutions,
including process, commerce, portal and content management and related products
and services. We expect that these products, and future upgraded versions, will
continue to account for a large portion of our revenue in the foreseeable
future. Our future financial performance will depend on increasing acceptance of
our current product and on the successful development, introduction and customer
acceptance of new and enhanced versions of our products. If new and future
versions and updates of our products and services do not gain market acceptance
when released commercially, or if we fail to deliver the product enhancements
and complementary third party products that customers want, demand for our
products and services, and our revenue, may decline.
We
have recently introduced new products, services and technologies and our
business will be harmed if we are not successful in selling these offerings to
our existing customers and new customers.
In early
2007, we introduced a product roadmap that included new products, services and
technologies, to complement and replace certain of our existing products,
services and technologies. We formally released BroadVision 8.1™ at the
end of the third quarter of 2007. We have spent significant resources in
developing these offerings and training our employees to implement and support
the offerings, and we plan to add additional sales and marketing resources to
support these new products, services and technologies. We do not yet know
whether any of these new offerings will appeal to existing and potential new
customers, and if so, whether sales of these new offerings will be sufficient
for us to offset the costs of development, implementation, support and
marketing. Our existing customers may determine that the BroadVision products
and services they currently use are sufficient for their purposes, or that the
added benefit from these new offerings is not sufficient to merit the additional
cost. As a result we may need to decrease our prices or develop
modifications. Although we have performed extensive testing of our new
products and technologies, their broad-based implementation may require more
support than we anticipate, which would further increase our expenses. If sales
of our new products, services and technologies are lower than we expect, or if
we must lower our prices or delay implementation to fix unforeseen problems and
develop modifications, our operating margins are likely to decrease and we may
not be able to operate profitably. A failure to operate profitably would
significantly harm our business.
Because our
quarterly operating results are volatile and difficult to predict, our quarterly
operating results in one or future periods are likely to fluctuate
significantly, which could cause our stock price to decline if we fail to meet
the expectations of securities analysts or investors.
Prior to
year 2006 our quarterly operating results have varied significantly and are
likely to continue to vary significantly in the future even though our year 2006
and year 2007 quarterly operating results have relatively stabilized. We cannot
guarantee that our quarterly operating results in the future will not fluctuate
significantly. If our revenues, operating results, earnings or future
projections are below the levels expected by securities analysts or investors,
our stock price is likely to decline.
We may
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:
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introduction
of products and services and enhancements by us and our
competitors;
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•
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competitive
factors that affect our pricing;
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market
acceptance of new products;
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•
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the
mix of products sold by us;
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•
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changes
in our pricing policies or our competitors;
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•
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changes
in our sales incentive plans;
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the
budgeting cycles of our customers;
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customer
order deferrals in anticipation of new products or enhancements by our
competitors or us or because of macro-economic
conditions;
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•
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nonrenewal
of our maintenance agreements, which generally automatically renew for
one-year terms unless earlier terminated by either party upon 90-days
notice;
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product
life cycles;
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changes
in strategy;
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seasonal
trends;
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the
mix of distribution channels through which our products are
sold;
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•
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the
mix of international and domestic sales;
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the
rate at which new sales people become productive;
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changes
in the level of operating expenses to support projected
growth;
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•
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increase
in the amount of third party products and services that we use in our
products or resell with royalties attached;
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•
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fluctuations
in the recorded value of outstanding common stock warrants that will be
based upon changes to the underlying market value of BroadVision common
stock;
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the
timing of receipt and fulfillment of significant orders;
and
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•
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costs
associated with litigation, regulatory compliance and other corporate
events such as operational
reorganizations.
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As a
result of these factors, we believe that quarter-to-quarter comparisons of our
revenue and operating results are not necessarily meaningful, and that these
comparisons are not accurate indicators of future performance. Because our
staffing and operating expenses are based on anticipated revenue levels, and
because a high percentage of our costs are fixed, small variations in the timing
of the recognition of specific revenue could cause significant variations in
operating results from quarter to quarter. If we were unable to adjust spending
in a timely manner to compensate for any revenue shortfall, any significant
revenue shortfall would likely have an immediate negative effect on our
operating results. If our operating results in one or more future quarters fail
to meet the expectations of securities analysts or investors, we would expect to
experience an immediate and significant decline in the trading price of our
stock.
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 well as our
internal control over financial reporting as required by Section 404 of the
Sarbanes-Oxley Act of 2002. Our independent registered public accounting firm
has performed a similar evaluation of our internal control over financial
reporting. 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. As of
December 31, 2007, we concluded that our internal controls over financial
reporting were effective, as further described below in Item 9A, Controls
and Procedures.
We
previously reported that as of March 31, 2006, we did not have a sufficient
number of experienced personnel in our accounting and finance organization to
facilitate an efficient financial statement close process and permit the
preparation of our financial statements in accordance with U.S. GAAP. For
example, there were a significant number of adjustments to our financial
statements during the course of the 2005 audit, at least one of which was
individually material and required us to restate several prior quarters. Our
personnel also lacked certain required skills and competencies to oversee the
accounting operations and perform certain important control functions, such as
the review, periodic inspection and investigation of transactions of our foreign
locations. We consider this to be a deficiency that was also a material weakness
in the operation of entity-level controls. Despite taking a variety of remedial
measures, we were unable to conclude that no material weakness existed as of
December 31, 2006. Accordingly, when our management assessed the effectiveness
of our internal control over financial reporting as of December 31, 2006,
this assessment identified one material weakness.
While we
have remedied this material weakness as of December 31, 2007, maintaining
sufficient expertise and historical institutional knowledge in our accounting
and finance organization is dependent upon retaining existing employees and
filling any open positions with experienced personnel in a timely fashion. The
market for skilled accounting and finance personnel is competitive and we may
have continued difficulty in retaining our staff because (1) the region in which
we compete consists of many established companies that can offer more
lucrative compensation packages and (2) some professionals are reluctant to
deal with the complex accounting issues relating to our historical operations.
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.
If
we are unable to keep pace with the rapid technological changes in online
commerce and communication, our products and services may fail to be
competitive.
Our
products and services may fail to be competitive if we do not maintain or exceed
the pace of technological developments in Internet commerce and communication.
Failure to be competitive could cause our revenue to decline. The information
services, software and communications industries are characterized by rapid
technological change, changes in customer requirements, frequent new product and
service introductions and enhancements and evolving industry standards and
practices. The introduction of products and services embodying new technologies
and the emergence of new industry standards and practices can render existing
products and services obsolete. Our future success will depend, in part, on our
ability to:
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develop
leading technologies;
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enhance
our existing products and services;
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•
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develop
new products and services that address the increasingly sophisticated and
varied needs of our prospective customers; and
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•
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respond
to technological advances and emerging industry standards and practices on
a timely and cost-effective basis.
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Our
sales and product implementation cycles are lengthy and subject to delay, which
make it difficult to predict our quarterly results.
Our sales
and product implementation cycles generally span months. Delays in customer
orders or product implementations, which are difficult to predict, can affect
the timing of revenue recognition and adversely affect our quarterly operating
results. Licensing our products is often an enterprise-wide decision by
prospective customers. The importance of this decision requires that we engage
in a lengthy sales cycle with prospective customers. A successful sales cycle
may last up to nine months or longer. Our sales cycle is also affected by a
number of other factors, some of which we have little or no control over,
including the volatility of the overall software market, the business condition
and purchasing cycle of each prospective customer, and the performance of our
technology partners, systems integrators and resellers. The implementation of
our products can also be time and resource intensive, and subject to unexpected
delays. Delays in either product sales or implementations could cause our
operating results to vary significantly from quarter to quarter.
Current and
potential competitors could make it difficult for us to acquire and retain
customers now and in the future.
The
market for our products is intensely competitive. We expect competition in this
market to persist and increase in the future. If we fail to compete successfully
with current or future competitors, we may be unable to attract and retain
customers. Increased competition could also result in price reductions for our
products and lower profit margins and reduced market share, any of which could
harm our business, results of operations and financial condition.
Many of
our competitors have significantly greater financial, technical, marketing and
other resources, greater name recognition, a broader range of products and a
larger installed customer base, any of which could provide them with a
significant competitive advantage. In addition, new competitors, or alliances
among existing and future competitors, may emerge and rapidly gain significant
market share. Some of our competitors, particularly established software
vendors, may also be able to provide customers with products and services
comparable to ours at lower or at aggressively reduced prices in an effort to
increase market share or as part of a broader software package they are selling
to a customer. We may be unable to match competitor's prices or price
reductions, and we may fail to win customers that choose to purchase an
information technology solution as part of a broader software and services
package. As a result, we may be unable to compete successfully with current or
new competitors.
Because a
significant portion of our sales activity occurs at the end of each fiscal
quarter, delays in a relatively small number of license transactions could
adversely affect our quarterly operating results.
A
significant proportion of our sales are concentrated in the last month of each
fiscal quarter. Gross margins are high for our license transactions. Customers
and prospective customers may use these conditions in an attempt to obtain more
favorable terms. While we endeavor to avoid making concessions that could result
in lower margins, the negotiations often result in delays in closing license
transactions. Small delays in a relatively small number of license transactions
could have a significant impact on our reported operating results for that
quarter.
We have
substantially modified our business and operations and will need to manage and
support these changes effectively in order for our business plan to
succeed.
We have
substantially expanded and subsequently contracted our business and operations
since our inception in 1993. We grew from 652 employees at the end of 1999 to
2,412 employees at the end of 2000 and then reduced our numbers to 181 at the
end of 2005, and 159 at the end of 2006. On December 31, 2007, we had 195
employees. As a consequence of our employee base growing and then contracting so
rapidly, we entered into significant contracts for facilities space for which we
ultimately determined we did not have a future use. We announced during the
third and fourth quarters of 2004 that we had agreed with the landlords of
various facilities to renegotiate future lease commitments, extinguishing a
total of approximately $155 million of future obligations. The management
of the expansion and later reduction of our operations has taken a considerable
amount of our management's attention during the past several years. As we manage
our business to introduce and support new products, we will need to continue to
monitor our workforce and make appropriate changes as necessary. If we are
unable to support past changes and implement future changes effectively, we may
have to divert additional resources away from executing our business plan and
toward internal administration. If our expenses significantly outpace our
revenues, we may have to make additional changes to our management systems and
our business plan may not succeed.
We may face
liquidity challenges and need additional financing in the
future.
We
currently expect to be able to fund our working capital requirements from our
existing cash and cash equivalents and our anticipated cash flows from
operations and subleases through at least December 31, 2008. However, we could
experience unforeseen circumstances, such as an economic downturn, difficulties
in retaining customers and/or key employees, or other factors that could
increase our use of available cash and require us to seek additional financing.
We may find it necessary to obtain additional equity or debt financing due to
the factors listed above or in order to support a more rapid expansion, develop
new or enhanced products or services, respond to competitive pressures, acquire
complementary businesses or technologies or respond to unanticipated
requirements.
We may
seek to raise additional funds through private or public sales of securities,
strategic relationships, bank debt, financing under leasing arrangements or
otherwise. If additional funds are raised through the issuance of equity
securities, the percentage ownership of our stockholders will be reduced,
stockholders may experience additional dilution or any equity securities we sell
may have rights, preferences or privileges senior to those of the holders of our
common stock. We expect that obtaining additional financing on acceptable terms
would be difficult, at best. If adequate funds are not available or are not
available on acceptable terms, we may be unable to pay our debts as they become
due, develop our products, take advantage of future opportunities or respond to
competitive pressures or unanticipated requirements, which could have a material
adverse effect on our business, financial condition and future operating
results.
We are dependent
on direct sales personnel and third-party distribution channels to achieve
revenue growth.
To date,
we have sold our products primarily through our direct sales force. Our ability
to achieve significant revenue growth in the future largely will depend on our
success in recruiting, training and retaining sufficient direct sales personnel
and establishing and maintaining relationships with distributors, resellers and
systems integrators. Our products and services require a sophisticated sales
effort targeted at the senior management of our prospective customers. New hires
as well as employees of our distributors, resellers and systems integrators
require training and 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.
Failure to
maintain relationships with third-party systems integrators could harm our
ability to achieve our business plan.
Our
relationships with third-party systems integrators who deploy our products have
been a key factor in our overall business strategy, particularly because many of
our current and prospective customers rely on integrators to develop, deploy and
manage their online marketplaces. Our efforts to manage our relationships with
systems integrators may not succeed, which could harm our ability to achieve our
business plan due to a variety of factors, including:
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•
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Systems
integrators may not view their relationships with us as valuable to their
own businesses. The related arrangements typically may be terminated by
either party with limited notice and in some cases are not covered by a
formal agreement.
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•
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Under
our business model, we often rely on our system integrators' employees to
perform implementations. If we fail to work together effectively, or if
these parties perform poorly, our reputation may be harmed and deployment
of our products may be delayed or inadequate.
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•
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Systems
integrators may attempt to market their own products and services rather
than ours.
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•
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Our
competitors may have stronger relationships with our systems integrators
than us and, as a result, these integrators may recommend a competitor's
products and services over ours.
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•
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If
we lose our relationships with our systems integrators, we will not have
the personnel necessary to deploy our products effectively, and we will
need to commit significant additional sales and marketing resources in an
effort to reach the markets and customers served by these
parties.
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We may be unable
to manage or grow our international operations and assets, which could impair
our overall growth or financial position.
We derive
a significant portion of our revenue from our operations outside North America.
In the twelve months ended December 31, 2007, approximately 37% 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:
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difficulties
in staffing and managing foreign operations and safeguarding foreign
assets;
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•
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unexpected
changes in regulatory requirements;
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export
controls relating to encryption technology and other export
restrictions;
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tariffs
and other trade barriers;
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difficulties
in staffing and managing foreign operations;
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political
and economic instability;
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fluctuations
in currency exchange rates;
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reduced
protection for intellectual property rights in some
countries;
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cultural
barriers;
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seasonal
reductions in business activity during the summer months in Europe and
certain other parts of the world; and
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potentially
adverse tax consequences.
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Management of international operations
presents special challenges, particularly at our reduced staffing levels. For
example, in December 2005, an inappropriate transfer of approximately $60,000
was made from our bank account in Japan to a consulting services provider
affiliated with two officers of our Japan subsidiary without the approvals
required under our internal control policies. Although this transfer was later
detected, the funds were recaptured and the services of the Japan subsidiary
officers involved were terminated, we face the risk that other similar
misappropriations of assets may occur in the future.
During
the second quarter of 2007, we recorded, for the first time, modest subscription
and consulting revenues related to our new CHRM on-demand solution, which
we officially launched in Beijing in August 2007. 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.
Our success and
competitive position will depend on our ability to protect our proprietary
technology.
Our
success and ability to compete are dependent to a significant degree on our
proprietary technology. We hold a U.S. patent, issued in January 1998, on
elements of the BroadVision platform, which covers electronic commerce
operations common in today's web business. We also hold a U.S. patent,
issued in November 1996, acquired as part of the Interleaf acquisition on the
elements of the extensible electronic document processing system for creating
new classes of active documents. Although we hold these patents, they may not
provide an adequate level of intellectual property protection. In addition,
litigation may be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets, or to determine the validity and scope of
the proprietary rights of others. It is also possible that third parties may
claim we have infringed their patent, trademark, copyright or other proprietary
rights. Claims may be made for indemnification resulting from allegations of
infringement. Intellectual property infringement claims may be asserted against
us as a result of the use by third parties of our products. Claims or
litigation, with or without merit, could result in substantial costs and
diversions of resources, either of which could harm our business.
We also
rely on copyright, trademark, service mark, trade secret laws and contractual
restrictions to protect our proprietary rights in products and services. We have
registered "BroadVision", "iGuide", "Interleaf" and "Interleaf Xtreme" as
trademarks in the United States and in other countries. It is possible that our
competitors or other companies will adopt product names similar to these
trademarks, impeding our ability to build brand identity and possibly confusing
customers.
As a
matter of our company policy, we enter into confidentiality and assignment
agreements with our employees, consultants and vendors. We also control access
to and distribution of our software, documents and other proprietary
information. Notwithstanding these precautions, it may be possible for an
unauthorized third party to copy or otherwise obtain and use our software or
other proprietary information or to develop similar software independently.
Policing unauthorized use of our products will be difficult, particularly
because the global nature of the Internet makes it difficult to control the
ultimate destination or security of software and other transmitted data. The
laws of other countries may afford us little or no effective protection of our
intellectual property.
A breach of the
encryption technology that we use could expose us to liability and harm our
reputation, causing a loss of customers.
If any breach of the security
technology embedded in our products were to occur, we would be exposed to
liability and our reputation could be harmed, which could cause us to lose
customers. A significant barrier to online commerce and communication is the
secure exchange of valuable and confidential information over public networks.
We rely on encryption and authentication technology, including Open SSL and
public key cryptography technology featuring the major encryption algorithms RC2
and MD5, 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 or other events or developments
could cause a breach of the RSA or other algorithms that we use to protect
customer transaction data.
The loss or
malfunction of technology licensed from third parties could delay the
introduction of our products and services.
We rely
in part on technology that we license from third parties, including relational
database management systems from Oracle and Sybase, Informix object request
broker software from IONA Technologies PLC, and database access technology from
Rogue Wave Software. The loss or malfunction of any of these technology licenses
could harm our business. We integrate or sublicense this technology with
internally developed software to perform key functions. For example, our
products and services incorporate data encryption and authentication technology
licensed from Open SSL. Third-party technology licenses might not continue to be
available to us on commercially reasonable terms, or at all. Moreover, the
licensed technology may contain defects that we cannot control. Problems with
our technology licenses could cause delays in introducing our products or
services until equivalent technology, if available, is identified, licensed and
integrated. Delays in introducing our products and services could adversely
affect our results of operations.
Our officers, key
employees and highly skilled technical and managerial personnel are critical to
our business, and they may not remain with us in the
future.
Our
performance substantially depends on the performance of our officers and key
employees. We also rely on our ability to retain and motivate qualified
personnel, especially our management and highly skilled development teams. The
loss of the services of any of our officers or key employees, particularly our
founder and Chief Executive Officer, Dr. Pehong Chen, could cause us to
incur increased operating expenses and divert senior management resources in
searching for replacements. The loss of their services also could harm our
reputation if our customers were to become concerned about our future
operations. We do not carry "key person" life insurance policies on any of our
employees. Our future success also depends on our continuing ability to
identify, hire, train and retain other highly qualified technical and managerial
personnel. Competition for these personnel is intense, especially in the
Internet industry. We have in the past experienced, and may continue to
experience, difficulty in hiring and retaining sufficient numbers of highly
skilled employees. The significant downturn in our business over the past
several years has had and may continue to have a negative impact on our
operations. We have restructured our operations by reducing our workforce and
implementing other cost containment activities. These actions could lead to
disruptions in our business, reduced employee morale and productivity, increased
attrition, and problems with retaining existing and recruiting future
employees.
Limitations on
the online collection of profile information could impair the effectiveness of
our products.
Online
users' resistance to providing personal data, and laws and regulations
prohibiting use of personal data gathered online without express consent or
requiring businesses to notify their web site visitors of the possible
dissemination of their personal data, could limit the effectiveness of our
products. This in turn could adversely affect our sales and results of
operations.
One of
the principal features of our products is the ability to develop and maintain
profiles of online users to assist business managers in determining the nature
of the content to be provided to these online users. Typically, profile
information is captured when consumers, business customers and employees visit a
web site and volunteer information in response to survey questions concerning
their backgrounds, interests and preferences. Profiles can be augmented over
time through the subsequent collection of usage data. Although our products are
designed to enable the development of applications that permit web site visitors
to prevent the distribution of any of their personal data beyond that specific
web site, privacy concerns may nevertheless cause visitors to resist providing
the personal data necessary to support this profiling capability. The mere
perception by prospective customers that substantial security and privacy
concerns exist among online users, whether or not valid, may indirectly inhibit
market acceptance of our products.
In
addition, new laws and regulations could heighten privacy concerns by requiring
businesses to notify web site users that the data captured from them while
online may be used by marketing entities to direct product messages to them. We
are subject to increasing regulation at the federal and state levels relating to
online privacy and the use of personal user information. Several states have
proposed legislation that would limit the uses of personal user information
gathered online or require online services to establish privacy policies. In
addition, the U.S. Federal Trade Commission, or FTC, has urged Congress to
adopt legislation regarding the collection and use of personal identifying
information obtained from individuals when accessing web sites. The FTC has
settled several proceedings resulting in consent decrees in which Internet
companies have been required to establish programs regarding the manner in which
personal information is collected from users and provided to third parties. We
could become a party to a similar enforcement proceeding. These regulatory and
enforcement efforts could also harm our customers' ability to collect
demographic and personal information from users, which could impair the
effectiveness of our products.
We may not have
adequate back-up systems, and natural or manmade disasters could damage our
operations, reduce our revenue and lead to a loss of
customers.
We do not
have fully redundant systems for service at an alternate site. A disaster could
severely harm our business because our service could be interrupted for an
indeterminate length of time. Our operations depend upon our ability to maintain
and protect our computer systems at our facility in Redwood City, California,
which reside on or near known earthquake fault zones. Although these systems are
designed to be fault tolerant, they are vulnerable to damage from fire, floods,
earthquakes, power loss, acts of terrorism, telecommunications failures and
similar events. In addition, our facilities in California could be subject to
electrical blackouts if California faces another power shortage similar to that
of 2001. Although we do have a backup generator that would maintain critical
operations, this generator could fail. We also have significantly reduced our
workforce in a short period of time, which has placed different requirements on
our systems and has caused us to lose personnel knowledgeable about our systems,
both of which could make it more difficult to quickly resolve system
disruptions. Disruptions in our internal business operations could harm our
business by resulting in delays, disruption of our customers' business, loss of
data, and loss of customer confidence.
Risks
related to BroadVision common stock
One
stockholder beneficially owns a substantial portion of the outstanding
BroadVision common stock, and as a result exerts substantial control over
us.
As of
December 31, 2007, Dr. Pehong Chen, our Chairman and CEO, beneficially owned
approximately 42.0 million shares of our common stock, which represents
approximately 37% 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.
Our stock price
has been highly volatile.
The trading price of
BroadVision common stock has been highly volatile. For example, the trading
price of BroadVision common stock has ranged from $0.41 per share to
$4.57 per share between January 1, 2006 and December 31, 2007. On
December 31,
2007 the closing price of BroadVision common stock was $1.79 per share. Our
stock price is subject to wide fluctuations in response to a variety of factors,
including:
|
•
|
quarterly
variations in operating results;
|
|
|
•
|
announcements
of technological innovations;
|
|
|
•
|
announcements
of new software or services by us or our competitors;
|
|
|
•
|
changes
in financial estimates by securities analysts;
|
|
|
•
|
low
trading volume on the OTC Bulletin Board;
|
|
|
•
|
general
economic conditions; or
|
|
|
•
|
other
events or factors that are beyond our
control.
|
In
addition, the stock market has experienced significant price and volume
fluctuations that have particularly affected the trading prices of equity
securities of many technology companies. These fluctuations have often been
unrelated or disproportionate to the operating performance of these companies.
Any negative change in the public's perception of the prospects of Internet or
electronic commerce companies could further depress our stock price regardless
of our results. Other broad market fluctuations may decrease the trading price
of BroadVision common stock. In the past, following declines in the market price
of a company's securities, securities class action litigation, such as the class
action lawsuits filed against us and certain of our officers and directors in
early 2001, has often been instituted against that company. Litigation could
result in substantial costs and a diversion of management's attention and
resources.
ITEM
1B. UNRESOLVED STAFF
COMMENTS
Not
Applicable.
ITEM 2. PROPERTIES
As of
December 31, 2007, we leased approximately 76,000 square feet of office
space, of which approximately 84% was in the United States. We occupied or
subleased 100% of our leased office space as of December 31, 2007. In early
January 2007, we relocated our offices from 585 Broadway in Redwood City,
California to Pacific Shores Center also in Redwood City,
California. We terminated our lease at 585 Broadway in Redwood City,
California as of October 31, 2007.
In September 2006, we decided not to exercise a $4.5 million buy-out
option for a 50,000 square foot lease for 66 months from January 1, 2007 through
June 30, 2012 at Pacific Shores Center. We instead decided to occupy a portion
of the new space and sub-lease the remaining excess space. As noted above, in
January 2007, we moved into our new worldwide headquarters at Pacific Shores
Center, occupying approximately 27,000 square feet of office facilities
used for research and development, technical support, sales, marketing,
consulting, training and administration. We subleased approximately
22,500 square feet effective on January 8, 2007.
Our
additional leased domestic facilities include offices located in New York, NY
and Waltham, MA, which are primarily used for sales, marketing and customer
service activities. Leased facilities of significant size located outside of the
United States and used primarily for sales, marketing, customer support and
administrative functions include facilities located in Paris, France; Reading,
UK; Madrid, Spain; Milan, Italy; Tokyo, Japan; Beijing, China; and New Delhi,
India.
We
believe our facilities are suitable for their respective uses and are adequate
to support our current and anticipated volume of business. We believe that
suitable additional space will be available to accommodate any necessary or
currently anticipated expansion of our operations.
ITEM 3. LEGAL
PROCEEDINGS
We are
subject from time to time to various legal actions and other claims arising in
the ordinary course of business. We are not presently a party to any material
legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
None.
ITEM 5. MARKET
FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
On March
3, 2006, our Board of Directors approved the voluntary delisting of BroadVision
common stock from the NASDAQ National Market and we requested the delisting of
BroadVision common stock. The delisting was effective prior to the opening of
trading on Wednesday, March 8, 2006. Until our delisting on March 8, 2006, our
common stock had been quoted on the NASDAQ National Market under the symbol
"BVSN". From March 8, 2006 to May 24, 2007, our common stock has been quoted on
the Pink Sheets®. Since May 25, 2007, our common stock began trading on the OTC
Bulletin Board. The following table shows high and low sale prices per share of
our common stock as reported on the NASDAQ National Market, on the Pink Sheets
and OTC Bulletin Board:
|
High
|
Low
|
|||||||
|
Fiscal
Year 2007
|
||||||||
|
First
Quarter
|
$ | 4.57 | $ | 0.76 | ||||
|
Second
Quarter
|
2.85 | 1.75 | ||||||
|
Third
Quarter
|
2.96 | 1.77 | ||||||
|
Fourth
Quarter
|
2.76 | 1.60 | ||||||
|
Fiscal
Year 2006
|
||||||||
|
First
Quarter
|
0.71 | 0.41 | ||||||
|
Second
Quarter
|
0.52 | 0.44 | ||||||
|
Third
Quarter
|
0.74 | 0.45 | ||||||
|
Fourth
Quarter
|
0.88 | 0.58 | ||||||
As of
January 31, 2008, there were 1,920 holders of record of BroadVision common
stock. On February 20, 2008, the last sale price reported on the OTC Bulletin
Board for BroadVision common stock was $1.00 per share.
We have
never declared or paid cash dividends on our common stock.
PERFORMANCE
MEASUREMENT COMPARISON*
The
following graph shows the total stockholder return of an investment of $100 in
cash on December 31, 2002 for (a) our Common Stock, (b) the NASDAQ Stock Market
(U.S.) Index (the "NASDAQ Index") and (c) the RDG Internet 100 Index. All values
assume reinvestment of the full amount of all dividends and are calculated as of
December 31 of each year:
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG
BROADVISION, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE
RDG INTERNET COMPOSITE INDEX
ITEM 6. SELECTED CONSOLIDATED FINANCIAL
DATA
The
information below is derived from our Consolidated Financial Statements and
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations", the Consolidated Financial
Statements of BroadVision and Notes thereto, and other financial information
included elsewhere in this Form 10-K. Historical results are not
necessarily indicative of results that may be expected for future
periods.
|
Years
Ended December 31,
|
||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
(In
thousands, except per share amount)
|
||||||||||||||||||||
|
Consolidated
Statement of Operations Data:
|
||||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||
|
Software
licenses
|
$ | 21,127 | $ | 15,215 | $ | 14,721 | $ | 26,883 | $ | 30,230 | ||||||||||
|
Services
|
28,891 | 36,769 | 45,400 | 51,121 | 57,851 | |||||||||||||||
|
Total revenues
|
50,018 | 51,984 | 60,121 | 78,004 | 88,081 | |||||||||||||||
|
Cost
of revenues:
|
||||||||||||||||||||
|
Cost
of (credit for) software licenses
|
45 | 258 | (38 | ) | 1,303 | 2,561 | ||||||||||||||
|
Cost
of services
|
8,961 | 12,456 | 21,931 | 24,978 | 25,708 | |||||||||||||||
|
Total cost of revenues
|
9,006 | 12,714 | 21,893 | 26,281 | 28,269 | |||||||||||||||
|
Gross
profit
|
41,012 | 39,270 | 38,228 | 51,723 | 59,812 | |||||||||||||||
|
Operating
expenses:
|
||||||||||||||||||||
|
Research
and development
|
9,668 | 10,510 | 13,831 | 18,024 | 21,067 | |||||||||||||||
|
Sales
and marketing
|
8,131 | 8,653 | 16,208 | 27,340 | 26,394 | |||||||||||||||
|
General
and administrative
|
6,293 | 8,019 | 9,479 | 9,538 | 9,790 | |||||||||||||||
|
Litigation
settlement costs
|
- | - | - | - | 4,250 | |||||||||||||||
|
Goodwill
and intangible amortization
|
- | - | - | - | 886 | |||||||||||||||
|
Goodwill
impairment
|
- | - | 31,368 | - | - | |||||||||||||||
|
Restructuring
charges (credits)
|
649 | (3,369 | ) | (462 | ) | (23,545 | ) | 35,356 | ||||||||||||
|
Business
combination charges
|
- | - | 2,817 | - | - | |||||||||||||||
|
Total operating expenses
|
24,741 | 23,813 | 73,241 | 31,357 | 97,743 | |||||||||||||||
|
Operating
income (loss)
|
16,271 | 15,457 | (35,013 | ) | 20,366 | (37,931 | ) | |||||||||||||
|
Other
income (expense), net
|
934 | 193 | (6,564 | ) | (2,109 | ) | 2,899 | |||||||||||||
|
Income
(loss) before income taxes
|
17,205 | 15,650 | (41,577 | ) | 18,257 | (35,032 | ) | |||||||||||||
|
Income
tax benefit (expense)
|
73 | (634 | ) | 2,611 | 309 | (439 | ) | |||||||||||||
|
Net
income (loss)
|
$ | 17,278 | $ | 15,016 | $ | (38,966 | ) | $ | 18,566 | $ | (35,471 | ) | ||||||||
|
Net
income (loss) per share:
|
||||||||||||||||||||
|
Basic
earnings (loss) per share
|
$ | 0.16 | $ | 0.23 | $ | (1.14 | ) | $ | 0.55 | $ | (1.08 | ) | ||||||||
|
Shares
used in computation -- basic earnings (loss)
per share
|
107,755 | 65,734 | 34,228 | 33,539 | 32,800 | |||||||||||||||
|
Diluted
earnings (loss) per share
|
$ | 0.16 | $ | 0.23 | $ | (1.14 | ) | $ | 0.54 | $ | (1.08 | ) | ||||||||
|
Shares
used in computation -- diluted earnings (loss) per
share
|
110,746 | 65,734 | 34,228 | 34,321 | 32,800 | |||||||||||||||
|
As
of December 31,
|
||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
(In
thousands)
|
||||||||||||||||||||
|
Consolidated
Balance Sheet Data:
|
||||||||||||||||||||
|
Cash
and cash equivalents
|
$ | 53,973 | $ | 37,003 | $ | 4,849 | $ | 41,851 | $ | 78,776 | ||||||||||
|
Working
capital (deficit)
|
40,494 | 18,955 | (35,872 | ) | (20,273 | ) | 748 | |||||||||||||
|
Total
assets
|
90,312 | 76,942 | 49,942 | 144,653 | 195,082 | |||||||||||||||
|
Debt
and capital leases, less current portion
|
- | - | - | 4,227 | 969 | |||||||||||||||
|
Accumulated
deficit
|
(1,192,393 | ) | (1,210,059 | ) | (1,225,075 | ) | (1,186,109 | ) | (1,204,675 | ) | ||||||||||
|
Total
stockholders' equity (deficit)
|
64,765 | 43,254 | (9,723 | ) | 28,341 | 7,950 | ||||||||||||||
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You
should read this discussion and analysis in conjunction with our Consolidated
Financial Statements and the related notes appearing elsewhere in this report.
In addition to the historical consolidated information, the following discussion
contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, which are
subject to the "safe harbor" created by those sections. These forward-looking
statements are generally identified by words such as "expect", "anticipate",
"intend", "believe", "hope", "assume", "estimate", "plan", "will" and other
similar words and expressions. These forward-looking statements involve risks
and uncertainties that could cause our actual results to differ materially from
those expressed or implied in the forward-looking statements as a result of
certain factors. Factors that could cause or contribute to differences include
those discussed below and elsewhere in this Form 10-K, particularly in Item
1A, "Risk Factors." We undertake no obligation to publicly release any revisions
to the forward-looking statements or to reflect events and circumstances after
the date of this document.
Overview
Since 1993,
BroadVision has been a pioneer and consistent innovator of e-business solutions.
We deliver a combination of technologies and services into the global market
that enable customers of all sizes to power mission-critical web initiatives
that ultimately deliver high-value to their bottom line. Our offering consists
of a robust framework for personalization and self-service, modular applications
and agile toolsets that customers use to create e-commerce and portal solutions.
As of December 31, 2007, we had licensed our products to more than 1,800
customers - including Audible.com, Baker Hughes, BioRad Laboratories, Canon,
Cardinal Health, Citibank, Circuit City, DPD Geopost, EFG Bank, Epson America,
Finnair, Hilti, Indian Railway, ING Bank, Internet Security Systems, Mettler
Toledo, Prime Polymer, Standard Bank of Argentina, Unicredito, Vodafone, W.W.
Grainger and Xerox.
Our
objective is to further our position as a global supplier of web-based,
self-service applications. This will require us to continue to build new
functionality into our applications that offer our customers a compelling value
proposition to license our products rather than design and build custom
solutions.
We
generate revenue from fees for licenses of our software products, and related
maintenance, consulting services and customer training. We generally charge fees
for licenses of our software products either based on the number of persons
registered to use the product or based on the number of CPUs utilized by the
machine on which the product is installed. Payment terms are generally 30 days
from the date the products are delivered, the maintenance contract is booked or
the consulting services are provided.
From 2001
to 2005, we incurred significant losses and negative cash flows from operations.
In fiscal years 2004 and 2005, we incurred significant cash usage related to the
termination of excess real estate obligations, certain reductions in workforce
and the execution and subsequent termination of an acquisition agreement.
Although we generated net income in year 2006 and 2007 and believe that our
future cash flows will benefit from these events, our ability to generate
profits or positive cash flows in future periods remains uncertain.
We strive
to anticipate changes in the demand for our services and aggressively manage our
labor force appropriately. As part of our budgeting process, cross-functional
management participates in the planning, reviewing and managing of our business
plans. This process is intended to allow us to adjust our cost structures to
changing market needs, competitive landscapes and economic factors. Our emphasis
on cost control helps us manage our margins even if revenues generated fall
short of our expectations.
In 2008,
our focus will be on delivering new products and technologies and generating
demand among existing and potential new customers.
In
February 2006, we announced a subscription rights offering to existing
stockholders to sell a total of 178 million shares, or 5.9 shares for each share
of BroadVision common stock held as of the record date of December 20, 2005, at
an effective price per share of $0.45. The primary purpose of the rights
offering was to allow the holders of BroadVision common stock on the record date
an opportunity to further invest in BroadVision in order to maintain their
proportionate interest in BroadVision common stock, at the same price per share
as the per share price afforded to Dr. Chen in connection with his acquisition
of shares of common stock in exchange for the cancellation of the convertible
notes Dr. Chen held. The rights offering expired on November 28, 2006. Eligible
participants exercised rights to purchase 36.4 million shares, resulting in
$15.8 million in net proceeds. We deregistered the shares not sold in the rights
offering and subject to the registration statement we filed in connection with
the rights offering. Then we reduced our total number of authorized
shares of common stock from 2,000,000,000 to 280,000,000 in February 2007. Dr.
Chen's ownership was approximately 39% as a result of closing the rights
offering in the fourth quarter of 2006. As of December 31, 2007, Dr. Chen's
ownership was approximately 37%.
In order
to complete the issuance of shares to Dr. Chen without violating applicable
listing standards, we voluntarily delisted our common stock from the NASDAQ
National Market effective prior to the opening of trading on March 8, 2006. We
had previously received a notice from NASDAQ stating that we were not in
compliance with the minimum bid price rules applicable to stocks traded on
NASDAQ, and that we had until March 6, 2006 to regain compliance. Our stock was
quoted on the Pink Sheets from March 8, 2006 to May 24, 2007. Since May 25,
2007, quotations for BroadVision common stock have been available through the
"OTC Bulletin Board" under the trading symbol "BVSN".
In June
2006, William Meyer resigned as our Chief Financial Officer, a position Mr.
Meyer had held since April 2003. Dr. Chen has served as Chief Financial Officer
on an interim basis until January 2008 when Dr. Shin-Yuan Tzou was appointed to this
position. Most recently, Dr. Tzou served as our Chief of Staff. He has also
served as the Regional General Manager for the Asia-Pacific-Japan region. Dr.
Tzou has been with us since 1995 and has served as our Chief Technology Officer.
Prior to BroadVision, Dr. Tzou worked for IBM and Silicon Graphics. He earned
his Ph.D. in Computer Science from University of California at Berkeley.
In late
2007, we broadened our business model with the introduction of our first product
that is offered to customers through a licensing model known as software as a
service, or SaaS. SaaS, which has gained popularity in recent years, is a
different way of commercializing computer software than the enterprise license
model that we and most other software vendors have traditionally used. In the
SaaS model, instead of licensing software to customers for use on their
computers, the software is operated, or hosted, on the vendor's own computers,
and customers are allowed to access and utilize the software remotely in return
for the payment of one-time or recurring subscription fees.
Our first SaaS offering, called
CHRM*060, is the centerpiece of our CHRM family of workforce relationship
management solutions that also includes three more advanced modules. This family
of applications, all of which are designed to operate only in conjunction with
our Kona *
Kukini, or K2
software, was developed by our development team in China, the members of which
have been employed by our China subsidiary, BroadVision OnDemand (Beijing) Ltd.,
or BVOD, since its formation in 2007. The concept underlying the CHRM product
family originated as a new stand-alone company idea that was initiated in China
in 2005 by a group of engineers and business executives that included Dr. Pehong
Chen, our President, Chief Executive Officer and largest stockholder. At the
time the CHRM product idea was conceived, BroadVision, Inc. was actively seeking
to be acquired in a transaction that was publicly announced but ultimately
abandoned in late 2005. Shortly after the acquisition transaction was abandoned,
the CHRM development project, which was then at an early stage, was absorbed
into BroadVision, Inc.
In support of BVOD's efforts to
commercialize the CHRM product in China, BroadVision, Inc. is appointing BVOD as
its exclusive licensee to operate the K2 software for
purposes of offering the CHRM products on a SaaS basis to customers in China.
BroadVision, Inc. is also appointing BVOD as its exclusive sales representative
for purposes of licensing the K2 products on an enterprise
license basis to customers in China. In return, BVOD is appointing BroadVision,
Inc. as its exclusive licensee for the purpose of offering the CHRM family of
products on a SaaS basis to customers everywhere in the world except China.
BroadVision, Inc. and BVOD are also each providing various types of professional
and business services to each other. In view of the origins of the CHRM project
outside our Company and in order to ensure that we have full ownership of the
product, we have advised Dr. Pehong Chen and certain other individuals involved
in the CHRM development project that a limited liability company owned by them
will be issued a 20% interest in the BroadVision, Inc. subsidiary that
indirectly owns BVOD and, accordingly, the CHRM product family. All of the
foregoing relationships, the pricing of which will be determined on an
arms-length basis, are in the process of being formally
established.
The CHRM family of applications was
commercially launched in China by BVOD in November 2007 and in the United States
by BroadVision, Inc. in January 2008. Revenues
related to the CHRM product family were not material in 2007 and
are not expected to be material in 2008.
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. generally accepted accounting principles. In
preparing these financial statements, we are required to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosures of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates, including those related to doubtful
accounts, stock-based compensation, investments, goodwill and intangible assets,
income taxes and restructuring, as well as contingencies and litigation. We base
our estimates on historical experience and on various other assumptions that we
believe are reasonable, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates
using different assumptions or conditions. We believe the following critical
accounting policies reflect the more significant judgments and estimates used in
the preparation of our Consolidated Financial Statements.
Revenue
Recognition
Overview
Our
revenue consists of fees for licenses of our software products, maintenance,
consulting services and customer training. We generally charge fees for licenses
of our software products either based on the number of persons using the
product or based on the number of CPUs on which the product is installed.
Licenses for software for which fees are charged based upon the number of
persons using the product include licenses for development use and licenses for
use by registered users of the customer's website (deployment use). Licenses for
software for which fees are charged on a per-CPU basis differentiate between
development and deployment usage. Our revenue recognition policies comply with
the provisions of Statement of Position ("SOP") No. 97-2, Software Revenue Recognition
("SOP 97-2"), as amended by SOP No. 98-9, Software Revenue Recognition, With
Respect to Certain Transactions ("SOP 98-9"), and Staff Accounting
Bulletin ("SAB") 104, Revenue
Recognition ("SAB 104"). We apply the separation
criteria in Emerging Issues Task Force ("EITF"), "Revenue Arrangements with Multiple
Deliverables" ("EITF 00-21") to determine whether our arrangements with
multiple deliverables should be treated as separate units of accounting. EITF
00-21 indicates that revenue recognized for any multiple-element contract is to
be allocated to each element of the arrangement based on the relative fair value
of each element. The determination of the fair value of each element is based on
our analysis of objective evidence from comparable sales of the individual
element.
Software
License Revenue
We
license our products through our direct sales force and indirectly through
resellers and Application Service Providers ("ASP"). In general, software
license revenues are recognized when a non-cancelable license agreement has been
signed and the customer acknowledges an unconditional obligation to pay, the
software product has been delivered, there are no uncertainties surrounding
product acceptance, the fees are fixed and determinable and collection is
reasonably assured. Delivery is considered to have occurred when title and risk
of loss have been transferred to the customer, which generally occurs when media
containing the licensed programs is provided to a common carrier. In case of
electronic delivery, delivery occurs when the customer is given access to the
licensed programs. For products that cannot be used without a licensing key, the
delivery requirement is met when the licensing key is made available to the
customer. If collectibility is not reasonably assured, revenue is recognized
when the fee is collected. Subscription-based license revenues are recognized
ratably over the subscription period. We enter into reseller arrangements that
typically provide for sublicense fees payable to us based upon a percentage of
list prices. We do not grant resellers the right of return.
We
recognize revenue using the residual method pursuant to the requirements of SOP
97-2, as amended by SOP 98-9. Revenues recognized from multiple-element software
arrangements are allocated to each element of the arrangement based on the fair
values of the elements, such as licenses for software products, maintenance,
consulting services or customer training. The determination of fair value is
based on vendor-specific objective evidence, which is specific to us. We limit
our assessment of objective evidence for each element to either the price
charged when the same element is sold separately or the price established by
management having the relevant authority to do so, for an element not yet sold
separately. If evidence of fair value of all undelivered elements exists but
evidence does not exist for one or more delivered elements, then revenue is
recognized using the residual method. Under the residual method, the fair value
of the undelivered elements is deferred and the remaining portion of the
arrangement fee is recognized as revenue.
We record
unearned revenue for software license agreements when cash has been received
from the customer and the agreement does not qualify for revenue recognition
under our revenue recognition policy. We record accounts receivable for software
license agreements when the agreement qualifies for revenue recognition but cash
or other consideration has not been received from the customer.
Services
Revenue
Consulting
services revenues and customer training revenues are recognized as such services
are performed.
Maintenance
revenues, which include revenues bundled with software license agreements that
entitle the customers to technical support and future unspecified enhancements
to our products, are deferred and recognized ratably over the related agreement
period, generally twelve months.
Our
consulting services, which consist of consulting, maintenance and training, are
delivered through the BroadVision Global Services ("BVGS") organization. The
services that we provide are not essential to the functionality of the software.
We record reimbursement from our customers for out-of-pocket expenses as an
increase to services revenues.
Receivable
Reserves
Occasionally,
our customers experience financial difficulty after we record the sale but
before payment has been received. We maintain receivable reserves for estimated
losses resulting from the inability of our customers to make required payments.
Our normal payment terms are generally 30 to 90 days from invoice date. If
the financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional reserves may be
required. Losses from customer receivables in the three-year period ended
December 31, 2007, have not been significant. If all efforts to collect a
receivable fail, and the receivable is considered uncollectible, we would write
off against the receivable reserve.
Research and
Development and Software Development Costs
Statement
of Financial Accounting Standards ("SFAS") No. 86, Accounting for the Cost of Computer
Software to be Sold, Leased or Otherwise Marketed, requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on our product development
process, technological feasibility is established upon the completion of a
working model. To date, costs incurred by us between the completion of the
working model and the point at which the product is ready for general release
have been insignificant. Accordingly, we have charged all such costs to research
and development expense in the period incurred.
Impairment
Assessments
In the
quarter ended September 30, 2005, we recognized a goodwill impairment charge of
$13.2 million as an estimated impairment in accordance with the requirements of
SFAS 142, Goodwill and Other
Intangible Assets ("SFAS"). As of September 30, 2005, we performed Step 1
under the provisions of SFAS 142 by determining that we have a single reporting
unit and then comparing our net book value to the our market capitalization
based upon the quoted market price of our stock. Based upon the results of Step
1 and as permitted under SFAS 142, we estimated the impairment charge under Step
2 by estimating the fair value of all other assets and liabilities of the
reporting unit. Subsequent to the issuance of our third quarter financial
statements, we completed Step 2 and recorded an adjustment to the original
estimate (recognized an additional impairment charge) of $18.2 million in the
quarter ended December 31, 2005. Further, as of December 31, 2007 and 2006, we
performed a goodwill impairment analysis under Step 1. Because the fair value
was determined to be greater than book value, Step 2 under SFAS 142 was not
required, and therefore no additional impairment was necessary at December 31,
2007 and 2006.
Income
Taxes and Deferred Tax Assets
Income
taxes are computed using an asset and liability approach in accordance with SFAS
No. 109, Accounting for Income
Taxes, which requires the recognition of taxes payable or refundable for
the current year and deferred tax assets and liabilities for the future tax
consequences of events that have been recognized in our Consolidated Financial
Statements or tax returns. The measurement of current and deferred tax assets
and liabilities is based on provisions of the enacted tax law; the effects of
future changes in tax laws or rates are not anticipated. The measurement of
deferred tax assets is reduced, if necessary, by the amount of any tax benefits
that, based on available evidence, is not expected to be realized.
We
analyze our deferred tax assets with regard to potential realization. We have
established a valuation allowance on our deferred tax assets to the extent that
management has determined that it is more likely than not that some portion or
all of the deferred tax asset will not be realized based upon the uncertainty of
their realization. We have considered estimated future taxable income and
ongoing prudent and feasible tax planning strategies in assessing the amount of
the valuation allowance.
Accounting for
Stock-Based Compensation
Effective
January 1, 2006, we adopted the fair value recognition provisions of SFAS No.
123 (revised 2004), Share-Based Payment ("SFAS
123R"), using the modified-prospective transition method. Under the fair value
recognition provisions of SFAS 123R, share-based compensation cost is estimated
at the grant date based on the fair value of the award and
is recognized as expense, net of estimated
pre-vesting forfeitures, ratably over the
vesting period of the award.
On
November 10, 2005, the FASB issued FASB Staff Position No. FAS 123R-3 "Transition Election Related to
Accounting for Tax Effects of Share-Based Payment Awards" ("FSP 123R-3").
We adopted the alternative transition method provided in the FASB Staff Position
for calculating the tax effects of stock-based compensation pursuant to SFAS
123R in the fourth quarter of fiscal 2006. The alternative transition method
includes simplified methods to establish the beginning balance of the additional
paid-in capital pool (APIC pool) related to the tax effects of employee
stock-based compensation, and to determine the subsequent impact on the APIC
pool and Consolidated Statements of Cash Flows of the tax effects of employee
stock-based compensation awards that are outstanding upon adoption of SFAS 123R.
The adoption did not have a material impact on our results of operations and
financial condition.
Prior to
January 1, 2006, we accounted for share-based payments to our employees and
non-employee members of our board of directors under the recognition and
measurement provisions of Accounting Principles Board ("APB") Opinion No. 25,
Accounting
for Stock Issued
to Employees, and related guidance, as permitted by SFAS No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"), and amended by SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure ("SFAS
148"). We did not
recognize any significant share-based employee compensation costs in our
statements of operations prior to January 1, 2006, as options granted to
employees and non-employee members of the board of directors generally had an
exercise price equal to the fair value of the underlying common stock on the
date of grant. As required by SFAS 148, prior to the adoption of SFAS 123R, we
provided pro forma disclosure of net income (loss) applicable to common
shareholders as if the fair-value-based method defined in SFAS No. 123 had been
applied. In the pro forma information for periods prior to 2006, we accounted
for pre-vesting forfeitures as they occurred. Our operating results for prior
periods have not been restated.
Further
details related to our Stock Benefit Plans and our adoption of SFAS 123R are
provided in Note 9 Stockholders' Equity to our Consolidated Financial
Statements.
Restructuring
Charges
Through
December 31, 2007, we have approved restructuring plans to, among other things,
reduce our workforce and consolidate facilities. Restructuring and asset
impairment charges were taken to align our cost structure with changing market
conditions and to create a more efficient organization. Our restructuring
charges are comprised primarily of: (i) severance and benefits termination
costs related to the reduction of our workforce; (ii) lease termination
costs and/or costs associated with permanently vacating our facilities;
(iii) other incremental costs incurred as a direct result of the
restructuring plan; and (iv) impairment costs related to certain long-lived
assets abandoned. We account for each of these costs in accordance with SAB No.
100, Restructuring and
Impairment Charges, ("SAB 100").
Severance
and Termination Costs. We account
for severance and benefits termination costs as follows:
|
|
l For exit or
disposal activities initiated on or prior to December 31, 2002, we
account for costs in accordance with EITF 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring) ("EITF
94-3"). Accordingly, we record the liability related to these termination
costs when the following conditions have been met: (i) management
with the appropriate level of authority approves a termination plan that
commits us to such plan and establishes the benefits the employees will
receive upon termination; (ii) the benefit arrangement is
communicated to the employees in sufficient detail to enable the employees
to determine the termination benefits; (iii) the plan specifically
identifies the number of employees to be terminated, their locations and
their job classifications; and (iv) the period of time to implement
the plan does not indicate changes to the plan are
likely.
|
|
|
l For exit or
disposal activities initiated after December 31, 2002, we account for
costs in accordance with SFAS 146, Accounting for Costs
Associated with Exit or Disposal Activities ("SFAS 146"). SFAS
146 requires that a liability for a cost associated with an exit or
disposal activity be recognized and measured initially at fair value only
when the liability is incurred. This differed from EITF 94-3, which
required that a liability for an exit cost be recognized at the date of an
entity's commitment to an exit
plan.
|
Excess
Facilities Costs. We account
for excess facilities costs as follows:
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|
l For exit or
disposal activities initiated on or prior to December 31, 2002, we
account for lease termination and/or abandonment costs in accordance with
EITF 88-10, Costs
Associated with Lease Modification or Termination. Accordingly, we
recorded the costs associated with lease termination and/or abandonment
when the leased property had no substantive future use or benefit to
us.
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|
l For exit or
disposal activities initiated after December 31, 2002, we account for
lease termination and/or abandonment costs in accordance with SFAS 146,
which requires that a liability for such costs be recognized and measured
initially at fair value on the cease use date of the
facility.
|
Severance
and termination costs and excess facilities costs we record under these
provisions are not associated with nor do they benefit continuing
activities.
Inherent
in the estimation of the costs related to our restructuring efforts are
assessments related to the most likely expected outcome of the significant
actions to accomplish the restructuring. In determining the charges related to
the restructurings to date, the majority of estimates made by management have
related to charges for excess facilities. In determining the charges for excess
facilities, we were required to estimate future sublease income, future net
operating expenses of the facilities, and brokerage commissions, among other
expenses. The most significant of these estimates have related to the timing and
extent of future sublease income in which to reduce our lease obligations. We
based our estimates of sublease income, in part, on the opinions of independent
real estate experts, current market conditions and rental rates, an assessment
of the time period over which reasonable estimates could be made, the status of
negotiations with potential subtenants, and the location of the respective
facility, among other factors. We have recorded the low-end of a range of
assumptions modeled for restructuring charges, in accordance with SFAS 5.
Adjustments to the facilities accrual will be required if actual lease exit
costs or sublease income differ from amounts currently expected. We will review
the status of restructuring activities on a quarterly basis and, if appropriate,
record changes to our restructuring obligations in current operations based on
management's most current estimates.
On
June 29, 2005, our Board of Directors approved a business restructuring
plan, primarily consisting of headcount reductions, designed to adjust expenses
to a level more consistent with anticipated revenues. The reduction included
approximately 63 employees, or 22% of our workforce. We recorded severance
charges of approximately $443,000 and $627,000 in the three-month periods ended
September 30, 2005 and June 30, 2005, respectively.
During
2006 we recorded restructuring credit of $3.4 million primarily due to a $4.5
million accrual reversal related to the buy-out option of a new space that we
decided to occupy and have sub-leased out excess facility space.
During
2007, one of our leases located in Redwood City expired. We incurred
an asset retirement obligation of $40,000 before returning the property back to
the landlord. We have also reversed $347,000 in severance accruals
due to the expiration of the statute of limitations related to these accruals.
This resulted in a reversal of the related accrual amount of $347,000, which is
recorded as part of operating expenses in the Consolidated Statements of
Operations.
Statements
of Operations as a Percent of Total Revenues
The
following table sets forth certain items reflected in our Consolidated
Statements of Operations expressed as a percent of total revenues for the
periods indicated.
|
Year
Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Revenues:
|
||||||||||||
|
Software
licenses
|
42 | % | 29 | % | 24 | % | ||||||
|
Services
|
58 | 71 | 76 | |||||||||
|
Total revenues
|
100 | 100 | 100 | |||||||||
|
Cost
of revenues:
|
||||||||||||
|
Cost
of software licenses
|
- | - | - | |||||||||
|
Cost
of services
|
18 | 24 | 36 | |||||||||
|
Total cost of revenues
|
18 | 24 | 36 | |||||||||
|
Gross
profit
|
82 | 76 | 64 | |||||||||
|
Operating
expenses:
|
||||||||||||
|
Research
and development
|
19 | 20 | 23 | |||||||||
|
Sales
and marketing
|
16 | 17 | 27 | |||||||||
|
General
and administrative
|
13 | 15 | 16 | |||||||||
|
Goodwill
impairment
|
- | - | 52 | |||||||||
|
Restructuring
charges (credits)
|
1 | (6 | ) | (1 | ) | |||||||
|
Business
combination charges
|
- | - | 5 | |||||||||
|
Total operating expenses
|
49 | 46 | 122 | |||||||||
|
Operating
income (loss)
|
33 | 30 | (58 | ) | ||||||||
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Other
income (expense), net
|
2 | - | (11 | ) | ||||||||
|
Income
(loss) before income taxes
|
35 | 30 | (69 | ) | ||||||||
|
Income
taxes benefit (expense)
|
- | (1 | ) | 4 | ||||||||
|
Net
income (loss)
|
35 | % | 29 | % | (65 | )% | ||||||
Results
of Operations
|
Software
Licenses
|
%
|
Services
|
%
|
Total
|
%
|
|||||||||||||||||||
|
(In
thousands)
|
||||||||||||||||||||||||
|
Year
Ended December 31, 2007:
|
|
|
|
|||||||||||||||||||||
|
Americas
|
$ | 13,824 | 65 | $ | 17,890 | 62 | $ | 31,714 | 64 | |||||||||||||||
|
Europe
|
5,293 | 25 | 6,799 | 24 | 12,092 | 24 | ||||||||||||||||||
|
Asia/Pacific
|
2,010 | 10 | 4,202 | 14 | 6,212 | 12 | ||||||||||||||||||
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Total
|
$ | 21,127 | 100 | $ | 28,891 | 100 | $ | 50,018 | 100 | |||||||||||||||
|
Year
Ended December 31, 2006:
|
||||||||||||||||||||||||
|
Americas
|
$ | 10,186 | 67 | $ | 20,790 | 57 | $ | 30,976 | 60 | |||||||||||||||
|
Europe
|
3,025 | 20 | 11,505 | 31 | 14,530 | 28 | ||||||||||||||||||
|
Asia/Pacific
|
2,004 | 13 | 4,474 | 12 | 6,478 | 12 | ||||||||||||||||||
|
Total
|
$ | 15,215 | 100 | $ | 36,769 | 100 | $ | 51,984 | 100 | |||||||||||||||
|
Year
Ended December 31, 2005:
|
||||||||||||||||||||||||
|
Americas
|
$ | 7,615 | 52 | $ | 26,713 | 59 | $ | 34,328 | 57 | |||||||||||||||
|
Europe
|
4,918 | 33 | 15,310 | 34 | 20,228 | 34 | ||||||||||||||||||
|
Asia/Pacific
|
2,188 | 15 | 3,377 | 7 | 5,565 | 9 | ||||||||||||||||||
|
Total
|
$ | 14,721 | 100 | % | $ | 45,400 | 100 | % | $ | 60,121 | 100 | % | ||||||||||||
Revenues
Total
revenues for the year ended December 31, 2007 were $50.0 million, down $2.0
million, or 4%, from $52.0 million for the prior year. License revenue from the
sales of software licenses increased from $15.2 million to $21.1 million. The
increases came from all regions due to increased license sales to existing
customers in North America, Europe and Asia. Maintenance revenue, which is
generally derived from maintenance contracts sold with initial customer licenses
and from subsequent contract renewals, declined from $24.7 million to $22.7
million due to certain customers choosing to not fully renew maintenance
contracts, together with the decline in new license revenue. Consulting revenue,
which is generally related to services in connection with our licensed software,
declined from $12.0 million to $6.2 million, primarily because customers
purchased existing versions of our product instead of the newly released
version.
Total
revenues for the year ended December 31, 2006 were $52.0 million, down $8.1
million, or 14%, from $60.1 million for the prior year. License revenue from the
sales of software licenses increased from $14.7 million to $15.2 million. The
increases were mainly due to increased license sales to existing customers in
North America. License revenue in Europe declined due to our consolidation of
operations and sales organizations in this region. Maintenance revenue, which is
generally derived from maintenance contracts sold with initial customer licenses
and from subsequent contract renewals, declined from $26.3 million to $24.7
million due to certain customers choosing to not fully renew maintenance
contracts, together with the decline in new license revenue. Consulting revenue,
which is generally related to services in connection with our licensed software,
declined from $19.1 million to $12.0 million, primarily due to lower employee
and third-party contractor headcount, and the resulting decline in capacity.
This results from the lagging effect caused by declining license revenues in
prior quarters; consulting projects tend to trail license revenues between six
to twelve months.
Cost
of Revenues
Cost of
(credit for) software licenses includes the net costs of product media,
duplication, packaging, and other manufacturing costs as well as royalties
payable to third parties for software that is either embedded in, or bundled and
sold with, our products.
Cost of
services consists primarily of employee-related costs, third-party consultant
fees incurred on consulting projects, post-contract customer support and
instructional training services.
|
Years
Ended December 31,
|
||||||||||||||||||||||||
|
2007
|
%
|
2006
|
%
|
2005
|
%
|
|||||||||||||||||||
|
(Dollars
in thousands)
|
||||||||||||||||||||||||
|
Cost
of (credit for) software licenses (1)
|
$ | 45 | - | % | $ | 258 | 2 | % | $ | (38 | ) | - | % | |||||||||||
|
Cost
of services (2)
|
8,961 | 31 | 12,456 | 34 | 21,931 | 48 | ||||||||||||||||||
|
Total
cost of revenues (3)
|
$ | 9,006 | 18 | % | $ | 12,714 | 24 | % | $ | 21,893 | 36 | % | ||||||||||||
(1)
Percentage is calculated based on total software license revenues for the period
indicated.
(2)
Percentage is calculated based on total services revenues for the period
indicated.
(3)
Percentage is calculated based on total revenues for the period
indicated.
Cost of
software licenses for the year ended December 31, 2007, decreased
$0.2 million or 83%, on a year-over-year basis. This decrease is primarily
a result of reducing use of other software to create our product.
Cost of
software licenses for the year ended December 31, 2006, increased
$0.3 million, or over 100%, on a year-over-year basis. This increase is
primarily a result of increased license revenues.
Cost of
services for the year ended December 31, 2007 decreased $3.5 million,
or 28%, on a year-over-year basis. This decrease was the result of the
continuing consolidation of our facilities, and less services
revenue.
Cost of
services for the year ended December 31, 2006 decreased $9.5 million,
or 43%, on a year-over-year basis. This decrease was the result of the reduction
in consulting headcount, the consolidation of our facilities, and less services
revenue.
The
number of total consulting employees was 25 as of December 31, 2007, 27 as of
December 31, 2006 and 50 as of December 31, 2005.
Operating
Expenses
Operating
expenses consist of the following:
|
|
l Research and development
expenses consist primarily of salaries, employee-related benefit
costs and consulting fees incurred in association with the development of
our products. Costs incurred for the research and development of new
software products are expensed as incurred until such time that
technological feasibility, in the form of a working model, is established
at which time such costs are capitalized and recorded at the lower of
unamortized cost or net realizable value. The costs incurred subsequent to
the establishment of a working model but prior to general release of the
product have not been significant. To date, we have not capitalized any
costs related to the development of software for external
use.
|
|
|
l Sales and marketing
expenses consist primarily of salaries, employee-related benefit
costs, commissions and other incentive compensation, travel and
entertainment and marketing program-related expenditures such as
collateral materials, trade shows, public relations, advertising and
creative services.
|
|
|
l General and administrative
expenses consist primarily of salaries, employee-related benefit
costs, provisions and credits related to uncollectible accounts receivable
and professional service fees.
|
|
|
l Goodwill and intangible
write-offs and amortization represents costs to write-off or
amortize goodwill and other intangible assets. As of January 1, 2002,
we no longer amortize goodwill or the assembled workforce as we have
identified the assembled workforce as an intangible asset that does not
meet the criteria of a recognizable intangible asset as defined by
SFAS 142.
|
|
|
l Restructuring (reversals)
charges represent costs incurred to restructure our operations.
These charges, including charges for excess facilities, severance and
certain non-cash items, were recorded under the provisions of EITF 94-3,
and SFAS 146.
|
|
|
l Business combination
charges represent costs incurred in connection with merger or
acquisition activity.
|
A summary
of operating expenses is set forth in the following table (dollars in thousands,
percentages are based on total revenues):
|
Years
Ended December 31,
|
||||||||||||||||||||||||
|
2007
|
%
|
2006
|
%
|
2005
|
%
|
|||||||||||||||||||
|
Research
and development
|
$ | 9,668 | 19 | % | $ | 10,510 | 20 | % | $ | 13,831 | 23 | % | ||||||||||||
|
Sales
and marketing
|
8,131 | 16 | 8,653 | 17 | 16,208 | 27 | ||||||||||||||||||
|
General
and administrative
|
6,293 | 13 | 8,019 | 15 | 9,479 | 16 | ||||||||||||||||||
|
Goodwill
impairment
|
- | - | - | - | 31,368 | 52 | ||||||||||||||||||
|
Restructuring
charges (credits), net
|
649 | 1 | (3,369 | ) | (6 | ) | (462 | ) | (1 | ) | ||||||||||||||
|
Business
combination charges
|
- | - | - | - | 2,817 | 5 | ||||||||||||||||||
|
Total
operating expenses
|
$ | 24,741 | 49 | % | $ | 23,813 | 46 | % | $ | 73,241 | 122 | % | ||||||||||||
Research and
development. Research and development expenses
decreased $0.8 million, or 8% in 2007 compared to 2006 and decreased $3.3
million, or 24% in 2006 compared to 2005. The decrease from 2006 to 2007 was
primarily attributable to our off-shoring of certain research and development
activities to our subsidiary in China. The decrease from 2005 to 2006 was
primarily attributable to reductions in staffing levels resulting in decreased
salary and salary related costs, as well as other cost-cutting efforts taken as
part of our restructuring plan, such as the consolidation of
facilities.
Sales and
marketing. Sales and marketing expenses decreased
$0.5 million, or 6% in 2007 compared to 2006 and decreased $7.6 million, or 47%
in 2006 compared to 2005. The decrease from 2006 to 2007 was primarily due to a
one-time favorable payroll tax adjustment in Europe. The decrease
from 2005 to 2006 was primarily due to decreased salary expense as a result of
reductions in force, decreased variable compensation due to lower revenues, and
decreased facility, travel and marketing program costs as a result of various
cost-cutting actions.
General and
administrative. General and administrative
expenses decreased $1.7 million, or 22% in 2007 compared to 2006, due to a
reduction of $321,000 in accounting fees, reversal of $735,000 in bad debt
reserves and a reduction of $440,000 in contractor costs. General and
administrative expenses decreased $1.5 million, or 15% in 2006 compared to 2005,
due to a $1.5 million decrease in labor-related expenses and a receipt of a
$700,000 (net of expense) property tax refund in 2006, offset by $860,000 in
additional accounting fees.
Goodwill impairment and
amortization. On April 14, 2000, we acquired
all of the outstanding common stock of Interleaf, Inc. in a transaction
accounted for as a purchase business combination. As a result of this
transaction, we recorded goodwill and other intangible assets of
$794.7 million. Amortization of recognizable intangible assets related to
the Interleaf transaction was $3.5 million in 2002. In the third quarter of
2005, we determined that an impairment of the goodwill had occurred, and
therefore we recorded a write-off of $13.2 million as an estimated impairment
amount. In the fourth quarter of 2005, we recorded an additional charge of $18.2
million related to a revision of that estimate. Since the fair value of these
assets as of December 31, 2006 and 2007 was determined to be greater than book
value, we determined that no additional impairment or amortization was necessary
in 2006 and 2007.
Restructuring charge (credit),
net. In fiscal 2007, one of our leases located in
Redwood City, California expired. We incurred an asset retirement
obligation of $40,000 before returning the property back to the landlord. We
have also reversed the severance accruals due to the expiration of the statute
of limitations related to these accruals. This resulted in a reversal
of a $347,000 accrual. During 2006 we recorded a restructuring credit of $3.4
million primarily due to a $4.5 million accrual reversal related to the buy-out
option of a new space that we decided not to exercise. In addition, we have
sub-leased out excess facility space. In fiscal 2005, we recorded a
restructuring credit of $462,000, primarily due to an additional sublease
entered into for a portion of our headquarters facility. During each period, we
recorded an amount in the low-end of a range of assumptions modeled for the
restructuring charges, in accordance with SFAS No. 5, Accounting for Contingencies.
Adjustments to the restructuring reserves will be made in future periods, if
necessary, based upon the then current actual events and
circumstances.
The
following table summarizes the restructuring accrual activity recorded during
the three-years ended December 31, 2007 (in thousands):
|
Severance
|
Facilities/
|
|||||||||||
|
and
|
Excess
|
|||||||||||
|
Benefits
|
Assets
|
Total
|
||||||||||
|
Accrual
balances, December 31, 2004
|
$ | 824 | $ | 33,339 | $ | 34,163 | ||||||
|
Restructuring
charges (credits)
|
1,006 | (1,468 | ) | (462 | ) | |||||||
|
Cash
payments
|
(1,414 | ) | (25,032 | ) | (26,446 | ) | ||||||
|
Accrual
balances, December 31, 2005
|
416 | 6,839 | 7,255 | |||||||||
|
Restructuring charges
(credits)
|
348 | (3,717 | ) | (3,369 | ) | |||||||
|
Cash
payments
|
(417 | ) | (907 | ) | (1,324 | ) | ||||||
|
Accrual balances,
December 31, 2006
|
347 | 2,215 | 2,562 | |||||||||
|
Restructuring (credits)
charges
|
(347 | ) | 996 | 649 | ||||||||
|
Cash
payments
|
- | (1,877 | ) | (1,877 | ) | |||||||
|
Accrual
balances, December 31,
2007
|
$ | - | $ | 1,334 | $ | 1,334 | ||||||
Business combination charges.
We recorded business combination charges of $2.8 million in the year ended
December 31, 2005, related to the termination of our merger agreement with a
wholly owned subsidiary of Vector Capital Corporation.
Other
Income (Expense), net
Other
income (expense), net, consists of the following (dollars in thousands,
percentages are based upon total revenues) for the indicated
periods:
|
Years
Ended December 31,
|
||||||||||||||||||||||||
|
2007
|
%
|
2006
|
%
|
2005
|
%
|
|||||||||||||||||||
|
Interest
income (expense), net
|
$ | 1,906 | 4 | % | $ | 638 | 1 | % | $ | (10,094 | ) | (17 | )% | |||||||||||
|
(Expense)
Income from derivatives
|
(3,147 | ) | (6 | ) | (1,333 | ) | (3 | ) | 11,346 | 19 | ||||||||||||||
|
Loss
on debt extinguishment
|
- | - | - | - | (6,967 | ) | (12 | ) | ||||||||||||||||
|
Other
income (expense), net
|
2,175 | 4 | 888 | 2 | (849 | ) | (1 | ) | ||||||||||||||||
|
Total
other income (expense), net
|
$ | 934 | $ | 193 | $ | (6,564 | ) | |||||||||||||||||
Net
interest income (expense) includes interest income on invested funds, less
interest on the face amount of the Notes and on bank debt and the amortization
of the discount on the Notes. Due to positive cash from operating activities and
cash previously generated from the rights offering, we generated $1,906,000 net
interest income in 2007. Due to positive cash from operating
activities and the rights offering, we generated $638,000 net interest income in
2006. Net interest expense decreased by $10.7 million in 2006 as
compared to 2005 due to the pay-off the convertible debt.
Expense
from derivatives in 2007 and 2006 were from the revaluation of the warrants
issued in connection with the Notes and the real estate buyout. Income from
derivatives in 2005 included $4.6 million from the revaluation of the warrants
issued in connection with the Notes and the real estate buyout and $6.7 million
from the revaluation of the embedded derivatives related to the
Notes.
Loss on debt
extinguishment of $7.0 million in 2005 was recorded upon the agreement to
exchange the Notes for common stock and the presumed cancellation and reissuance
of the Notes at the fair value of the underlying shares to be exchanged. On the
agreement date, the carrying value included Note face value of $15.4 million
less discount of $1.9 million. The value of the underlying shares was $20.7
million less accrued interest of $165,000.
Net other
income increased from $888,000 in 2006 to $2,175,000 in 2007. The
increase was mainly from foreign currency exchange gains. Net other
income increased from expense of $849,000 in 2005 to income of $888,000 in 2006.
The change is mainly due to reversal of $850,000 accrued liabilities to which we
are no longer subject.
Income
Taxes
We
recorded income tax (benefits) provisions of ($73,000), $634,000, and ($2.6
million) for the years ended December 31, 2007, 2006, and 2005,
respectively. The tax benefit from fiscal 2007 was primarily due to tax accruals
determined to be no longer required. For the year ended December 31, 2006,
the tax provision mainly relates to foreign and federal income taxes. The tax
benefit from fiscal 2005 was primarily due to tax accruals determined to be no
longer required.
Liquidity
and Capital Resources
Background and
Overview
During
the previous years through December 31, 2005, we faced various liquidity
challenges. During the year ended December 31, 2006, the following significant
events occurred: approximately $20.5 million in convertible debt was exchanged
for 34.5 million shares of common stock; we generated cash flow from operations
of approximately $16.0 million; and we closed our rights offering and raised net
proceeds of approximately $15.8 million. At December 31, 2007, our current
assets exceeded our current liabilities by approximately $40 million. Our
management believes that cash resources at December 31, 2007 will be sufficient
to fund operations through at least December 31, 2008. If our existing cash
resources are not sufficient to meet our obligations, we will seek to raise
additional capital through public or private equity financing or from other
sources. If adequate funds are not available or are not available on acceptable
terms as needed, we may be unable to pay our debts as they become due, develop
our products, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements.
Our
Consolidated Balance Sheet strengthened considerably throughout 2006 and 2007.
As of December 31, 2006, we had $37.0 million of cash, with no long-term debt
borrowings. This represents a 671% increase from the prior year's starting cash
position of $4.8 million. Positive cash flow from business operations and rights
offering each contributed approximately half of the $32.2 million cash generated
during 2006. As of December 31, 2007, we had $54.0 million of cash,
with no long-term debt borrowings. This represents a 46% increase from the prior
year's starting cash position of $37.0 million. Positive cash flow from business
operations contributed approximately all cash generated during
2007.
Revenues
in year 2006 of $52.0 million were down 13% from 2005 revenues of $60.1 million,
due primarily to declines in consulting revenues mentioned above, which were
down 37%. Maintenance revenues were down 6%; license revenues up a modest 4%.
The most significant change was the year-over-year decline in consulting
revenues, which can be attributable to a lagging effect caused by declining
license revenues in prior quarters. Since consulting projects tend to trail
licenses by 6 to 12 months, as our licenses went down during the turbulent 2005,
our lagging effect finally caught up with us in the second half of 2006.
However, on a more positive note, this decline was more than offset by
corresponding cost savings in both direct headcount and contractor expenses. As
a result, consulting services actually generated fairly decent positive margins
compared to many prior higher-revenue quarters.
Revenues
in year 2007 of $50.0 million were down 4% from 2006 revenues of $52.0 million,
due primarily to declines in consulting revenues, which were down 48%.
Maintenance revenues were down 8%, while license revenues up 38%. The most
significant change was the year-over-year decline in consulting revenues, which
was because our customers purchased existing versions of our
products. However, on a more positive note, we released new version
of our product in the second half of 2007.
The
following table represents our liquidity at December 31, 2007 and 2006 (dollars
in thousands):
|
December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Cash
and cash equivalents
|
$ | 53,973 | $ | 37,003 | ||||
|
Restricted
cash, current portion
|
$ | 20 | $ | 997 | ||||
|
Restricted
cash, net of current portion
|
$ | 1,000 | $ | 1,000 | ||||
|
Working
capital
|
$ | 40,494 | $ | 18,955 | ||||
|
Working
capital ratio
|
2.80 | 1.63 | ||||||
Cash
Provided By (Used For) Operating Activities
Cash flow
from operating activities was $14.6 million for fiscal 2007. Net cash
provided by operating activities in this period consisted primarily of $16.3
million in operating profit generated from sales margin improvement and
company-wide cost reduction efforts. Also impacting cash flows from operations
in fiscal 2007 was cash collected from accounts receivable of $2.2 million,
offset by payment of $2.8 million of accounts payable and accrued expenses and a
$6.3 million reduction in unearned revenue accounts.
Cash flow
from operating activities was $16.0 million for fiscal 2006. Net cash
provided by operating activities in 2006 was primarily due to the $12.3 million
profit (excluding restructuring credit) generated from sales margin improvement
and our company-wide cost reduction efforts. In addition, we recognized a $3.4
million restructuring credit resulting from our effort of subleasing the excess
facilities. Also impacting cash flows from operations in fiscal 2006 was an
additional $5.3 million in collection of accounts receivable and unearned
revenue and deferred maintenance, partially offset by a decrease in accounts
payable and accrued expenses of $4.3 million.
Net cash
used in operating activities in 2005 was primarily due to $25.0 million of lease
and buyout payments associated with long-term lease obligations from agreements
signed during fiscal 2004. Also impacting cash flows from operations in fiscal
2005 was a $2.0 million reversal of income tax accruals, a decrease in accounts
payable and accrued expenses of $7.0 million, a decrease in the restructuring
accrual of $26.9 million (mostly related to the settlement of long-term lease
obligations), a decrease in unearned revenue and deferred maintenance of $3.9
million and a gain of $11.3 million on revaluation of embedded derivatives
related to the Notes and the related warrants, partially offset by $9.4 million
of amortization of discount and revaluation of the Notes, a loss on debt
extinguishment of $7.0 million and a decrease in accounts receivable of $2.4
million.
|
Cash
Provided By Investing Activities
|
Cash
provided by investing activities in fiscal 2007 was $542,000, primarily as a
result of transferring restricted cash to cash equivalents of $977,000. Cash
provided by investing activities in fiscal 2006 was $180,000, primarily as a
result of sales of cost-method investments of $426,000 and offset by capital
expenditures of $246,000. Cash provided by investing activities in fiscal 2005
was $23.8 million, primarily as a result of transfers from restricted cash and
proceeds from dividends received related to equity investments.
Capital
expenditures were $517,000 for fiscal 2007, $246,000 for fiscal 2006, and
$142,000 for fiscal 2005. Our capital expenditures substantially consist of
purchases of operating resources to manage our operations and included computer
hardware and software, office furniture and fixtures and leasehold
improvements.
Cash
Provided By (Used For) Financing Activities
Cash
provided by financing activities was $2.0 million in fiscal 2007,
primarily due to issuance of common stock in relation to option and warrant
exercises. Cash provided by financing activities was $15.9 million in
fiscal 2006. In November 2006, we closed the rights offering, which provided
$15.8 million in net proceeds after issuance costs. Cash used for financing
activities in fiscal 2005 was $23.2 million, primarily due to the repayment of
borrowings under our bank line of credit and Notes payments.
Leases
and Other Contractual Obligations
We lease
our headquarters and other facilities under non-cancelable operating lease
agreements expiring 2012. Under the terms of the agreements, we are required to
pay lease costs, property taxes, insurance, and normal maintenance
costs.
We expect
to incur significant operating expenses for the foreseeable future in order to
execute our business plan. A summary of total future minimum lease payments as
of December 31, 2007, under non-cancelable operating lease agreements is as
follows (in millions):
|
Operating
|
||||
|
Leases
|
||||
|
Years
Ending December 31,
|
||||
|
2008
|
$ | 2.0 | ||
|
2009
|
1.8 | |||
|
2010
|
1.3 | |||
|
2011
|
1.1 | |||
|
2012
|
0.5 | |||
|
Total
minimum lease payments
|
$ | 6.7 | ||
As of
December 31, 2007, we have accrued $1.3 million of estimated future facilities
costs as a restructuring accrual. This accrual includes the above minimum lease
payments that are related to excess space under lease and certain lease related
allowances, fees and expenses, partially offset by estimated future sublease
income (See Note 8 in the Notes to Consolidated Financial
Statements).
Additional Factors That May Affect
Future Liquidity
The
following table summarizes our contractual obligations as of December 31, 2007
and the effect such obligations are expected to have on our liquidity and cash
flows in future years. Restricted cash represents the collateral for our letter
of credit.
|
Less
Than
|
1-3 | 4-5 |
Over
|
|||||||||||||||||
|
Total
|
1 Year
|
Years
|
Years
|
5 Years
|
||||||||||||||||
|
(In
millions)
|
||||||||||||||||||||
|
Letter
of credit
|
$ | 1.0 | $ | - | $ | - | $ | 1.0 | $ | - | ||||||||||
We
anticipate that future operating expenses and cash payments under operating
leases will constitute a material use of our existing cash resources. As a
result, our net cash flows will depend heavily on the level of future revenues,
and our ability to manage infrastructure costs.
Quarterly
Results of Operations
The
following tables set forth certain unaudited Consolidated Statement of
Operations data for the eight quarters ended December 31, 2007, as well as
that data expressed as a percentage of our total revenues for the periods
indicated.
This data
has been derived from unaudited Consolidated Financial Statements that, in the
opinion of management, include all adjustments consisting only of normal
recurring adjustments, necessary for a fair presentation of such information
when read in conjunction with the Consolidated Financial Statements and Notes
thereto.
The
unaudited quarterly information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included in this
Form 10-K. We believe that period-to-period comparisons of our
financial results are not necessarily meaningful and should not be relied upon
as an indication of future performance.
|
Three
Months Ended
|
||||||||||||||||||||||||||||||||
|
Dec 31,
|
Sep 30,
|
Jun 30,
|
Mar 31,
|
Dec 31,
|
Sep 30,
|
Jun 30,
|
Mar 31,
|
|||||||||||||||||||||||||
|
2007
|
2007
|
2007
|
2007
|
2006
|
2006
|
2006
|
2006
|
|||||||||||||||||||||||||
|
(In
thousands)
|
||||||||||||||||||||||||||||||||
|
(Unaudited)
|
||||||||||||||||||||||||||||||||
|
Statement
of Operations Data:
|
||||||||||||||||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||||||||||||||
|
Software
licenses
|
$ | 4,620 | $ | 5,280 | $ | 5,494 | $ | 5,733 | $ | 3,956 | $ | 4,750 | $ | 3,627 | $ | 2,882 | ||||||||||||||||
|
Services
|
6,629 | 7,476 | 7,774 | 7,012 | 9,090 | 8,835 | 9,102 | 9,742 | ||||||||||||||||||||||||
|
Total
revenues
|
11,249 | 12,756 | 13,268 | 12,745 | 13,046 | 13,585 | 12,729 | 12,624 | ||||||||||||||||||||||||
|
Cost
of revenues:
|
||||||||||||||||||||||||||||||||
|
Cost
of software licenses
|
8 | 3 | 22 | 12 | 32 | 22 | 142 | 62 | ||||||||||||||||||||||||
|
Cost
of services
|
2,251 | 2,102 | 2,215 | 2,393 | 2,173 | 2,729 | 3,496 | 4,058 | ||||||||||||||||||||||||
|
Total
cost of revenues
|
2,259 | 2,105 | 2,237 | 2,405 | 2,205 | 2,751 | 3,638 | 4,120 | ||||||||||||||||||||||||
|
Gross
profit
|
8,990 | 10,651 | 11,031 | 10,340 | 10,841 | 10,834 | 9,091 | 8,504 | ||||||||||||||||||||||||
|
Operating
expenses:
|
||||||||||||||||||||||||||||||||
|
Research
and development
|
2,247 | 2,283 | 2,483 | 2,655 | 2,708 | 2,766 | 2,405 | 2,631 | ||||||||||||||||||||||||
|
Sales
and marketing
|
2,383 | 1,898 | 1,781 | 2,069 | 2,529 | 1,761 | 1,982 | 2,381 | ||||||||||||||||||||||||
|
General
and administrative
|
2,042 | 1,705 | 1,479 | 1,067 | 613 | 2,429 | 3,239 | 1,738 | ||||||||||||||||||||||||
|
Goodwill
impairment
|
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
Restructuring
(credits), charges
|
(195 | ) | 260 | 306 | 278 | (1,966 | ) | (1,878 | ) | (15 | ) | 490 | ||||||||||||||||||||
|
Business
combination charges
|
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
Total
operating expenses
|
6,477 | 6,146 | 6,049 | 6,069 | 3,884 | 5,078 | 7,611 | 7,240 | ||||||||||||||||||||||||
|
Operating
income
|
2,513 | 4,505 | 4,982 | 4,271 | 6,957 | 5,756 | 1,480 | 1,264 | ||||||||||||||||||||||||
| Other income (expense), net | 3,419 | 538 | 3,688 | (6,711 | ) | 248 | (163 | ) | 335 | (227 | ) | |||||||||||||||||||||
|
Income
taxes (expense) benefit
|
(60 | ) | 419 | (230 | ) | (56 | ) | (185 | ) | (228 | ) | (65 | ) | (156 | ) | |||||||||||||||||
|
Net
income (loss)
|
$ | 5,872 | $ | 5,462 | $ | 8,440 | $ | (2,496 | ) | $ | 7,020 | $ | 5,365 | $ | 1,750 | $ | 881 | |||||||||||||||
|
Basic
net income (loss) per share
|
$ | 0.05 | $ | 0.05 | $ | 0.08 | $ | (0.02 | ) | $ | 0.09 | $ | 0.08 | $ | 0.03 | $ | 0.02 | |||||||||||||||
|
Diluted
net income (loss) per share
|
$ | 0.05 | $ | 0.05 | $ | 0.08 | $ | (0.02 | ) | $ | 0.09 | $ | 0.08 | $ | 0.03 | $ | 0.02 | |||||||||||||||
|
Shares
used in computing basic net income (loss) per share
|
108,648 | 108,253 | 107,424 | 106,667 | 80,878 | 69,489 | 69,151 | 42,958 | ||||||||||||||||||||||||
|
Shares
used in computing diluted net income (loss) per share
|
111,896 | 111,577 | 111,035 | 106,667 | 80,878 | 69,489 | 69,151 | 43,068 | ||||||||||||||||||||||||
As a
Percent of Revenue
|
Three
Months Ended
|
||||||||||||||||||||||||||||||||
|
Dec
31,
|
Sep
30,
|
Jun
30,
|
Mar
31,
|
Dec
31,
|
Sep
30,
|
Jun
30,
|
Mar
31,
|
|||||||||||||||||||||||||
|
2007
|
2007
|
2007
|
2007
|
2006
|
2006
|
2006
|
2006
|
|||||||||||||||||||||||||
|
(Unaudited)
|
||||||||||||||||||||||||||||||||
|
Statement
of Operations Data:
|
||||||||||||||||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||||||||||||||
|
Software
licenses
|
41 | % | 41 | % | 41 | % | 45 | % | 30 | % | 35 | % | 28 | % | 23 | % | ||||||||||||||||
|
Services
|
59 | 59 | 59 | 55 | 70 | 65 | 72 | 77 | ||||||||||||||||||||||||
|
Total
revenues
|
100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | ||||||||||||||||||||||||
|
Cost
of revenues:
|
||||||||||||||||||||||||||||||||
|
Cost
of software licenses
|
- | - | - | - | - | - | 1 | - | ||||||||||||||||||||||||
|
Cost
of services
|
20 | 16 | 17 | 19 | 17 | 20 | 27 | 32 | ||||||||||||||||||||||||
|
Total
cost of revenues
|
20 | 16 | 17 | 19 | 17 | 20 | 28 | 32 | ||||||||||||||||||||||||
|
Gross
profit
|
80 | 84 | 83 | 81 | 83 | 80 | 72 | 68 | ||||||||||||||||||||||||
|
Operating
expenses:
|
||||||||||||||||||||||||||||||||
|
Research
and development
|
20 | 18 | 19 | 21 | 21 | 20 | 19 | 21 | ||||||||||||||||||||||||
|
Sales
and marketing
|
21 | 15 | 13 | 16 | 19 | 13 | 16 | 19 | ||||||||||||||||||||||||
|
General
and administrative
|
18 | 13 | 11 | 8 | 5 | 18 | 25 | 14 | ||||||||||||||||||||||||
|
Goodwill
impairment
|
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
Restructuring
(credits), charges
|
(2 | ) | 2 | 2 | 2 | (15 | ) | (14 | ) | - | 4 | |||||||||||||||||||||
|
Business
combination charges
|
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
Total
operating expenses
|
57 | 48 | 45 | 47 | 30 | 37 | 60 | 58 | ||||||||||||||||||||||||
|
Operating
income
|
23 | 36 | 38 | 34 | 53 | 43 | 12 | 10 | ||||||||||||||||||||||||
|
Other
income (expense), net
|
30 | 8 | 26 | (53 | ) | - | (3 | ) | 2 | (3 | ) | |||||||||||||||||||||
|
Net
income (loss)
|
53 | % | 44 | % | 64 | % | (19 | )% | 53 | % | 40 | % | 14 | % | 7 | % | ||||||||||||||||
Our quarterly operating results have
fluctuated in the past and may fluctuate significantly in the future as a result
of a variety of factors, many of which are outside of our control. It is likely
that our operating results in one or more future quarters may be below the
expectations of securities analysts and investors. In that event, the trading
price of our common stock almost certainly would decline.
RECENT
ACCOUNTING PRONOUNCEMENTS
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combination ("SFAS
141R"), which replaces FASB Statement No. 141. SFAS 141R establishes principles
and requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill acquired. The Statement
also establishes disclosure requirements which will enable users to evaluate the
nature and financial effects of the business combination. SFAS 141R is to be
applied prospectively to business combinations for which the acquisition date is
on or after an entity's fiscal year that begins after December 15, 2008. We are
currently evaluating the potential impact, if any, of the adoption of SFAS 141R
on our Consolidated Financial Statements.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51 ("SFAS 160"), which establishes accounting and reporting standards
for ownership interests in subsidiaries held by parties other than the parent,
the amount of consolidated net income attributable to the parent and to the
noncontrolling interest, changes in a parent's ownership interest and the
valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated. The Statement also establishes reporting requirements that
provide sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling
owners. SFAS 160 is effective as of the beginning of an entity's fiscal
year that begins after December 15, 2008. We are currently evaluating the
potential impact, if any, of the adoption of SFAS 160 on our Consolidated
Financial Statements.
In
February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities ("SFAS 159"). SFAS No. 159 permits the
measurement of many financial instruments and certain other items at fair value.
Entities may choose to measure eligible items at fair value at specified
election dates, reporting unrealized gains and losses on such items at each
subsequent reporting period. The objective of SFAS No. 159 is to provide
entities with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. It is intended to expand the use of fair
value measurement. SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007. We are currently evaluating what effect, if any, the adoption
of SFAS No. 159 will have on our Consolidated Financial Statements.
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
("SFAS 157").
SFAS 157 establishes a framework for measuring the fair value of assets and
liabilities. This framework is intended to provide increased consistency in how
fair value determinations are made under various existing accounting standards
which permit, or in some cases require, estimates of fair market value.
SFAS 157 is effective for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years. Earlier application is
encouraged, provided that the reporting entity has not yet issued financial
statements for that fiscal year, including any financial statements for an
interim period within that fiscal year. We are currently evaluating what effect,
if any, the adoption of SFAS 157 will have on our Consolidated Financial
Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Our
exposure to market risk for changes in interest rates relates primarily to our
investment portfolio. We had no derivative financial instruments as of
December 31, 2007 and 2006. We place our investments in instruments that
meet high credit quality standards and the amount of credit exposure to any one
issue, issuer and type of instrument is limited.
Cash
and Cash Equivalents, and Restricted Cash
We
consider all debt and equity securities with remaining maturities of three
months or less at the date of purchase to be cash equivalents. Short-term cash
investments consist of debt and equity securities that have a remaining maturity
of less than one year as of the date of the balance sheet. Cash and cash
equivalents that serve as collateral for financial instruments such as letters
of credit are classified as restricted cash. Restricted cash in which the
underlying instrument has a term of greater than twelve months from the balance
sheet date are classified as non-current.
Management
determines the appropriate classification of cash investments at the time of
purchase and evaluates such designation as of each balance sheet date. All cash
investments to date have been classified as available-for-sale and carried at
fair value with related unrealized gains or losses reported as other
comprehensive income (loss), net of tax. Total realized gains during fiscal
years 2007 and 2006 were 1,906,000 and $1,064,000, respectively. Our cash and
cash equivalents, and restricted cash consisted of the following as of
December 31, 2007 and 2006 (in thousands):
|
Classified
on Consolidated Balance Sheet as:
|
||||||||||||||||||||||||||||
| Restricted | ||||||||||||||||||||||||||||
|
Purchase/
|
Gross
|
Gross
|
Cash
and
|
Restricted
|
Cash
|
|||||||||||||||||||||||
|
Amortized
|
Unrealized
|
Unrealized
|
Aggregate
|
Cash
|
Cash,
|
Non-
|
||||||||||||||||||||||
|
Cost
|
Gains
|
Losses
|
Fair
Value
|
Equivalents
|
Current
|
Current
|
||||||||||||||||||||||
|
As
of December 31, 2007:
|
||||||||||||||||||||||||||||
|
Cash
and certificates of deposits
|
$ | 14,249 | $ | - | $ | - | $ | 14,249 | $ | 13,229 | $ | 20 | $ | 1,000 | ||||||||||||||
|
Money
market
|
40,744 | - | - | 40,744 | 40,744 | - | - | |||||||||||||||||||||
|
Total
|
$ | 54,993 | $ | - | $ | - | $ | 54,993 | $ | 53,973 | $ | 20 | $ | 1,000 | ||||||||||||||
|
As
of December 31, 2006:
|
||||||||||||||||||||||||||||
|
Cash
and certificates of deposits
|
$ | 17,827 | $ | - | $ | - | $ | 17,827 | $ | 15,830 | $ | 997 | $ | 1,000 | ||||||||||||||
|
Money
market
|
21,173 | - | - | 21,173 | 21,173 | - | - | |||||||||||||||||||||
|
Total
|
$ | 39,000 | $ | - | $ | - | $ | 39,000 | $ | 37,003 | $ | 997 | $ | 1,000 | ||||||||||||||
Concentrations
of Credit Risk
Financial
instruments that potentially subject us to concentrations of credit risk consist
primarily of cash and cash equivalents and accounts receivable. We place our
cash and cash equivalents with high-quality institutions. Our management
performs ongoing credit evaluations of our customers and requires certain of
these customers to provide security deposits or letters of credit.
Cash
deposits in foreign countries of approximately $14.2 million are subject to
local banking laws and may bear higher or lower risk than cash deposited in the
United States. As part of our cash and investment management processes, we
perform periodic evaluations of the credit standing of the financial
institutions we use and we have not sustained any credit losses from instruments
held at these financial institutions. From time to time, our financial
instruments maintained in our foreign subsidiaries may be subject to political
risks or instability that may arise in foreign countries where we
operate.
At
December 31, 2007 and 2006, one customer accounted for 20% and 13% of our
accounts receivable balance, respectively. For the years ended December 31,
2007, 2006 and 2005, no customer accounted for 10% or more of our total
revenues.
Fair
Value of Financial Instruments
Our
financial instruments consist of cash equivalents, accounts receivable, accounts
payable and debt. We do not have any derivative financial instruments. We
believe the reported carrying amounts of our financial instruments approximates
fair value, based upon the short maturity of cash equivalents, accounts
receivable and payable, and based on the current rates available to us on
similar debt issues.
Foreign
Currency
We
license our products and maintain significant operations in foreign countries.
Fluctuations in the value of foreign currencies, principally the Euro, British
Pound and Japanese Yen, relative to the United States dollar have impacted our
operating results in the past and may do so in the future. We expect that
international licenses, maintenance and consulting revenues will continue to
account for a significant portion of our total revenues in the future. We pay
the expenses of our international operations in local currencies and do not
currently engage in hedging transactions with respect to such
obligations.
Equity
Investments
Our
equity investments consist of equity investments in public and non-public
companies that are accounted for under either the cost method of accounting or
the equity method of accounting. Equity investments are accounted for under the
cost method of accounting when we have a minority interest and do not have the
ability to exercise significant influence. These investments are classified as
available for sale and are carried at fair value when readily determinable
market values exist or at cost when such market values do not exist. Adjustments
to fair value are recorded as a component of other comprehensive income unless
the investments are considered permanently impaired in which case the adjustment
is recorded as a component of other income (expense), net in the Consolidated
Statement of Operations. Equity investments are accounted for under the equity
method of accounting when we have a minority interest and have the ability to
exercise significant influence. These investments are classified as available
for sale and are carried at cost with periodic adjustments to carrying value for
equity in net income (loss) of the equity investee. Such adjustments are
recorded as a component of other income, net. Any decline in value of our
investments, which is other than a temporary decline, is charged to earnings
during the period in which the impairment occurs. These investments were
liquidated in 2005 and a net gain of $17,000 was recorded. In 2006, we received
approximately $426,000 cash related to the investments we made in the past.
There was no net gain or loss in 2007. Those investments were
accounted for under the lower of cost or market method and were written off in
prior years. The gain is reported under "Other Income (Expense), net" in the
accompanying Consolidated Statements of Operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
following Consolidated Financial Statements and the related notes thereto of
BroadVision, Inc. and the Reports of Independent Registered Public
Accounting Firms are filed as a part of this Form 10-K.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
BroadVision,
Inc.
We have
audited the accompanying consolidated balance sheets of BroadVision, Inc. and
its subsidiaries as of December 31, 2007 and 2006, the related statements of
operations, stockholders' equity (deficit) and cash flows for the years then
ended, and the financial statement schedules as of and for the years ended
December 31, 2007 and 2006 listed in the accompanying index at item 15(a) 2. We
also have audited BroadVision, Inc.'s internal control over financial reporting
as of December 31, 2007, based on criteria established in Internal Control --
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). BroadVision Inc.'s management is responsible for
these financial statements and financial statement schedules, for maintaining
effective internal control over financial reporting, and for its assessment of
the effectiveness of internal control over financial reporting, included in the
accompanying Management's Report on Internal Control Over Financial Reporting.
Our responsibility is to express an opinion on these financial statements and
financial statement schedules and an opinion on the Company's internal control
over financial reporting based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for
our opinions.
A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of BroadVision, Inc. as of December
31, 2007 and 2006, and the results of its operations and its cash flows for the
years then ended in conformity with U.S. generally accepted accounting
principles. In addition, in our opinion, the financial statement schedules as of
and for the years ended December 31, 2007 and 2006 listed in the index appearing
under Item 15(a)(2) presents fairly, in all material respects, the
information set forth therein when read in conjunction
with the related consolidated financial statements. Also in our
opinion, BroadVision, Inc. maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2007, based on
criteria established in Internal Control -- Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
/s/
Odenberg, Ullakko, Muranishi & Co. LLP
San
Francisco, California
February
19, 2008
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors and Stockholders of
BroadVision, Inc.:
We have audited the accompanying consolidated balance
sheet of BroadVision, Inc. (the "Company")
and its subsidiaries as of December 31, 2005 and the related consolidated
statements of operations, stockholders' equity (deficit) and comprehensive
income (loss), and cash flows for the year then ended. We have also audited the
financial statement schedule as of and for the year ended December
31,2005 listed in the accompanying index at item 15(a) 2. These financial
statements and financial statement schedule are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our
audit.
We conducted our audit in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. We were not engaged to perform an audit of
the company's internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purposes of expressing an opinion on the effectiveness of the
company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the consolidated financial position of
BroadVision, Inc. at December 31, 2005 and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of
America. Also, in our opinion, the financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein as of
and for the year ended December 31,
2005.
/s/ STONEFIELD JOSEPHSON, INC.
Irvine, California
May 26, 2006
BROADVISION, INC.
AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(In
thousands, except par value amounts)
|
December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 53,973 | $ | 37,003 | ||||
|
Accounts
receivable, net of reserves of $585 and $1,141 as of December 31,
2007 and 2006, respectively
|
7,614 | 10,106 | ||||||
|
Restricted
cash
|
20 | 997 | ||||||
|
Prepaids
and other
|
1,410 | 1,108 | ||||||
|
Total current assets
|
63,017 | 49,214 | ||||||
|
Property
and equipment, net
|
688 | 1,144 | ||||||
|
Restricted
cash, net of current portion
|
1,000 | 1,000 | ||||||
|
Goodwill
|
25,066 | 25,066 | ||||||
|
Other
assets
|
541 | 518 | ||||||
|
Total
assets
|
$ | 90,312 | $ | 76,942 | ||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 1,359 | $ | 1,249 | ||||
|
Accrued
expenses
|
6,386 | 10,538 | ||||||
|
Warrant
liability
|
4,195 | 1,610 | ||||||
|
Unearned
revenue
|
2,857 | 6,278 | ||||||
|
Deferred
maintenance
|
7,726 | 10,584 | ||||||
|
Total current liabilities
|
22,523 | 30,259 | ||||||
|
Other
non-current liabilities
|
3,024 | 3,429 | ||||||
|
Total liabilities
|
25,547 | 33,688 | ||||||
|
Stockholders'
equity:
|
||||||||
|
Convertible
preferred stock, $0.0001 par value; 1,000 shares authorized as of December
31, 2007 and 10,000 shares authorized as of December 31, 2006; none issued
and outstanding
|
- | - | ||||||
|
Common
stock, $0.0001 par value; 280,000 shares authorized and 108,929 shares
issued and outstanding as of December 31, 2007; 2,000,000 shares
authorized and 106,523 shares issued and outstanding as of December 31,
2006
|
10 | 10 | ||||||
|
Additional
paid-in capital
|
1,257,132 | 1,253,135 | ||||||
|
Accumulated
other comprehensive income
|
16 | 168 | ||||||
|
Accumulated
deficit
|
(1,192,393 | ) | (1,210,059 | ) | ||||
|
Total stockholders' equity
|
64,765 | 43,254 | ||||||
|
Total
liabilities and stockholders' equity
|
$ | 90,312 | $ | 76,942 | ||||
The
accompanying notes are an integral part of these Consolidated Financial
Statements
BROADVISION, INC.
AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In
thousands, except per share amounts)
|
Years
Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Revenues:
|
||||||||||||
|
Software
licenses
|
$ | 21,127 | $ | 15,215 | $ | 14,721 | ||||||
|
Services
|
28,891 | 36,769 | 45,400 | |||||||||
|
Total revenues
|
50,018 | 51,984 | 60,121 | |||||||||
|
Cost
of revenues:
|
||||||||||||
|
Cost
of (credit for) software licenses
|
45 | 258 | (38 | ) | ||||||||
|
Cost
of services
|
8,961 | 12,456 | 21,931 | |||||||||
|
Total cost of revenues
|
9,006 | 12,714 | 21,893 | |||||||||
|
Gross
profit
|
41,012 | 39,270 | 38,228 | |||||||||
|
Operating
expenses:
|
||||||||||||
|
Research
and development
|
9,668 | 10,510 | 13,831 | |||||||||
|
Sales
and marketing
|
8,131 | 8,653 | 16,208 | |||||||||
|
General
and administrative
|
6,293 | 8,019 | 9,479 | |||||||||
|
Goodwill
impairment
|
- | - | 31,368 | |||||||||
|
Restructuring
charges (credits), net
|
649 | (3,369 | ) | (462 | ) | |||||||
|
Business
combination charges
|
- | - | 2,817 | |||||||||
|
Total operating expenses
|
24,741 | 23,813 | 73,241 | |||||||||
|
Operating
income (loss)
|
16,271 | 15,457 | (35,013 | ) | ||||||||
|
Other
income (expense):
|
||||||||||||
|
Interest
income (expense), net
|
1,906 | 638 | (10,094 | ) | ||||||||
|
(Expense)
income from derivatives
|
(3,147 | ) | (1,333 | ) | 11,346 | |||||||
|
Loss
on debt extinguishment
|
- | - | (6,967 | ) | ||||||||
|
Other
income (expense), net
|
2,175 | 888 | (849 | ) | ||||||||
|
Total other income (expense)
|
934 | 193 | (6,564 | ) | ||||||||
|
Income
(loss) before income taxes
|
17,205 | 15,650 | (41,577 | ) | ||||||||
|
Income
taxes benefit (expense)
|
73 | (634 | ) | 2,611 | ||||||||
|
Net income (loss)
|
$ | 17,278 | $ | 15,016 | $ | (38,966 | ) | |||||
|
Basic
net income (loss) per share
|
$ | 0.16 | $ | 0.23 | $ | (1.14 | ) | |||||
|
Diluted
net income (loss) per share
|
$ | 0.16 | $ | 0.23 | $ | (1.14 | ) | |||||
|
Shares
used in computing basic net income (loss) per share
|
107,755 | 65,734 | 34,228 | |||||||||
|
Shares
used in computing diluted net income (loss) per share
|
110,746 | 65,734 | 34,228 | |||||||||
The
accompanying notes are an integral part of these Consolidated Financial
Statements
BROADVISION, INC.
AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
AND
COMPREHENSIVE INCOME (LOSS)
(In
thousands)
|
Common
Stock
|
|
|
|
|
||||||||||||||||||||||||
|
|
|
Accumulated
|
|
|
Total
|
|||||||||||||||||||||||
|
|
|
Additional
|
Other
|
|
|
Stockholders'
|
||||||||||||||||||||||
|
|
|
Paid-in
|
Comprehensive
|
Accumulated
|
Comprehensive
|
Equity
|
||||||||||||||||||||||
|
|
Shares
|
Amount
|
Capital
|
Income
(Loss)
|
Deficit
|
Income
(Loss)
|
(Deficit)
|
|||||||||||||||||||||
|
Balances as of December 31,
2004
|
33,951 | $ | 3 | $ | 1,214,619 | $ | (172 | ) | $ | (1,186,109 | ) | $ | 28,341 | |||||||||||||||
|
Comprehensive
loss:
|
||||||||||||||||||||||||||||
|
Net loss
|
- | - | - | - | (38,966 | ) | $ | (38,966 | ) | (38,966 | ) | |||||||||||||||||
|
Foreign currency
translations
|
- | - | - | 265 | - | 265 | 265 | |||||||||||||||||||||
|
Total comprehensive
loss
|
$ | (38,701 | ) | |||||||||||||||||||||||||
|
Issuance of common stock under
employee stock purchase plan
|
516 | - | 512 | - | - | 512 | ||||||||||||||||||||||
|
Issuance of common stock from
exercise of options
|
55 | - | 125 | - | - | 125 | ||||||||||||||||||||||
|
Balances as of December 31,
2005
|
34,522 | 3 | 1,215,256 | 93 | (1,225,075 | ) | (9,723 | ) | ||||||||||||||||||||
|
Comprehensive
income:
|
||||||||||||||||||||||||||||
|
Net income
|
- | - | - | - | 15,016 | $ | 15,016 | 15,016 | ||||||||||||||||||||
|
Foreign currency
translations
|
- | - | - | 75 | - | 75 | 75 | |||||||||||||||||||||
|
Total comprehensive
income
|
$ | 15,091 | ||||||||||||||||||||||||||
|
Exchange of debt to common
stock
|
34,500 | 3 | 20,698 | - | - | 20,701 | ||||||||||||||||||||||
|
Stock-based
compensation
|
- | - | 950 | - | - | 950 | ||||||||||||||||||||||
|
Issuance of common stock under
employee stock purchase plan
|
931 | - | 383 | - | - | 383 | ||||||||||||||||||||||
|
Issuance of common stock from
rights offering, net of issuance costs
|
36,380 | 4 | 15,822 | - | - | 15,826 | ||||||||||||||||||||||
|
Issuance of common stock from
exercise of options
|
190 | - | 26 | - | - | 26 | ||||||||||||||||||||||
|
Balances as of December 31,
2006
|
106,523 | 10 | 1,253,135 | 168 | (1,210,059 | ) | 43,254 | |||||||||||||||||||||
| Cumulative-effect adjustments from the adoption of FIN No.48 (Note 6) | - | - | - | - | 388 | 388 | ||||||||||||||||||||||
| Adjusted Balance as of December 31, 2006 | 106,523 | 10 | 1,253,135 | 168 | (1,209,671 | ) | 43,642 | |||||||||||||||||||||
|
Comprehensive
income:
|
||||||||||||||||||||||||||||
|
Net income
|
- | - | - | - | 17,278 | $ | 17,278 | 17,278 | ||||||||||||||||||||
|
Foreign currency
translations
|
- | - | - | (152 | ) | - | (152 | ) | (152 | ) | ||||||||||||||||||
|
Total comprehensive
income
|
$ | 17,126 | ||||||||||||||||||||||||||
|
Stock-based
compensation
|
- | 1,447 | - | - | 1,447 | |||||||||||||||||||||||
|
Issuance of common stock from
restricted stocks awards
|
11 | - | - | - | - | - | ||||||||||||||||||||||
|
Issuance of common stock under
employee stock purchase plan
|
1,146 | - | 863 | - | - | 863 | ||||||||||||||||||||||
|
Issuance of common stock from
warrants exercise
|
341 | - | 1,066 | - | - | 1,066 | ||||||||||||||||||||||
|
Issuance of common stock from
exercise of options
|
908 | - | 621 | - | - | 621 | ||||||||||||||||||||||
|
Balances as of December 31,
2007
|
108,929 | $ | 10 | $ | 1,257,132 | $ | 16 | $ | (1,192,393 | ) | $ | 64,765 | ||||||||||||||||
The
accompanying notes are an integral part of these Consolidated Financial
Statements
BROADVISION, INC.
AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
|
Years
Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
income (loss)
|
$ | 17,278 | $ | 15,016 | $ | (38,966 | ) | |||||
|
Adjustments
to reconcile net income (loss) to net cash provided by (used for)
operating activities:
|
||||||||||||
|
Depreciation
and amortization
|
969 | 1,385 | 1,231 | |||||||||
|
Stock-based
compensation expense
|
1,447 | 950 | - | |||||||||
| Provision for (reversal of) receivable reserves | 248 | 487 | (678 | ) | ||||||||
|
Amortization
of prepaid royalties
|
7 | 36 | 70 | |||||||||
|
Gain
on cost method investments
|
- | (426 | ) | (1,117 | ) | |||||||
|
(Gain)
loss on sale or abandonment of property and equipment
|
(78 | ) | 51 | 117 | ||||||||
|
Goodwill
impairment
|
- | - | 31,368 | |||||||||
|
Loss
on debt extinguishment
|
- | - | 6,967 | |||||||||
|
Restructuring
charge (credit)
|
649 | (3,369 | ) | - | ||||||||
|
Loss
(gain) on revaluation of embedded derivatives and warrants
|
3,147 | 1,333 | (11,346 | ) | ||||||||
|
Amortization
of discount and revaluation of convertible notes
|
- | - | 9,422 | |||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Accounts
receivable
|
2,244 | 2,047 | 2,408 | |||||||||
|
Prepaids
and other
|
(304 | ) | 787 | 248 | ||||||||
|
Other
non-current assets
|
(27 | ) | 607 | 228 | ||||||||
|
Accounts
payable and accrued expenses
|
(2,828 | ) | (4,272 | ) | (6,970 | ) | ||||||
|
Restructuring
accrual
|
(1,877 | ) | (1,323 | ) | (26,908 | ) | ||||||
|
Unearned
revenue and deferred maintenance
|
(6,278 | ) | 3,274 | (3,921 | ) | |||||||
|
Other
non-current liabilities
|
(6 | ) | (530 | ) | (54 | ) | ||||||
|
Net cash provided by (used for) operating activities
|
14,591 | 16,053 | (37,901 | ) | ||||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Purchase
of property and equipment
|
(517 | ) | (246 | ) | (142 | ) | ||||||
|
Proceeds
from sale of assets
|
82 | - | 26 | |||||||||
|
Proceeds
from sale of cost method investments
|
- | 426 | 590 | |||||||||
|
Transfer from
restricted cash
|
977 | - | 22,259 | |||||||||
|
Proceeds
from dividends on equity investments
|
- | - | 1,101 | |||||||||
|
Net cash provided by investing activities
|
542 | 180 | 23,834 | |||||||||
|
Cash
flows from financing activities:
|
||||||||||||
| Proceeds from issuance of common stock, net | 1,484 | 409 | 637 | |||||||||
| Proceeds from issuance of common stock from warrant exercised | 505 | - | - | |||||||||
|
Proceeds
from bank line of credit and term debt borrowings
|
- | - | 35,000 | |||||||||
|
Repayments
of bank line of credit and term debt borrowings
|
- | (389 | ) | (55,638 | ) | |||||||
|
Repayment
of convertible debt
|
- | - | (3,199 | ) | ||||||||
|
Proceeds
from rights offering, net
|
- | 15,826 | - | |||||||||
|
Net cash provided by (used for) financing activities
|
1,989 | 15,846 | (23,200 | ) | ||||||||
|
Effect
of exchange rates on cash and cash equivalents
|
(152 | ) | 75 | 265 | ||||||||
|
Net
increase (decrease) in cash and cash equivalents
|
16,970 | 32,154 | (37,002 | ) | ||||||||
|
Cash
and cash equivalents, beginning of year
|
37,003 | 4,849 | 41,851 | |||||||||
|
Cash
and cash equivalents, end of year
|
$ | 53,973 | $ | 37,003 | $ | 4,849 | ||||||
|
Supplemental
cash flows disclosures:
|
||||||||||||
|
Cash
paid for interest
|
$ | - | $ | 364 | $ | 873 | ||||||
|
Cash
paid (refunded) for income taxes
|
$ | 1 | $ | 502 | $ | (445 | ) | |||||
|
Supplemental
information of noncash financing and investing activities:
|
||||||||||||
|
Exchange
of convertible debt to common stock
|
$ | - | $ | 20,535 | $ | - | ||||||
|
Conversion
of accrued interest to common stock
|
$ | - | $ | 166 | $ | - | ||||||
|
Retirement
of fully depreciated property and equipment
|
$ | 13,598 | $ | 21,556 | $ | - | ||||||
|
Cumulative-effect
adjustments from the adoption of FIN No.48
|
$ | 388 | $ | - | $ | - | ||||||
|
Conversion
of warrant liability to equity
|
$ | 561 | $ | - | $ | - | ||||||
The
accompanying notes are an integral part of these Consolidated Financial
Statements
BROADVISION, INC.
AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note 1---Organization
and Summary of Significant Accounting Policies
Nature
of Business
BroadVision, Inc.
(collectively with its subsidiaries, "BroadVision" or "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.
In June
2006, William Meyer resigned as our Chief Financial Officer, a position Mr.
Meyer had held since April 2003. Dr. Pehong Chen, our Chief Executive Officer
served as Chief Financial Officer since Mr. Meyer's resignation on an interim
basis until Dr. Shin-Yuan Tzou was appointed to the
position in January 2008. Most recently, Dr. Tzou served as our Chief of Staff
and the Regional General Manager for the Asia-Pacific-Japan region. Dr. Tzou has
been with us since 1995.
Principles
of Consolidation
The
accompanying Consolidated Financial Statements include the accounts of our
wholly-owned subsidiaries and us. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of Consolidated Financial Statements in conformity with U.S.
generally accepted accounting principles requires management to make certain
assumptions and estimates that affect reported amounts of assets and liabilities
as of the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. On an ongoing basis, we evaluate our
estimates, including those related to doubtful accounts, stock-based
compensation, investments, goodwill and intangible assets, income taxes and
restructuring, as well as contingencies and litigation. We base our estimates on
historical experience and on various other assumptions that we believe are
reasonable, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates using different
assumptions or conditions. We believe the following critical accounting policies
reflect the more significant judgments and estimates used in the preparation of
our Consolidated Financial Statements.
Revenue
Recognition
Overview
Our
revenue consists of fees for licenses of our software products, maintenance,
consulting services and customer training. We generally charge fees for licenses
of our software products either based on the number of persons using the
product or based on the number of CPUs on which the product is installed.
Licenses for software for which fees are charged based upon the number of
persons using the product include licenses for development use and licenses for
use by registered users of the customer's website (deployment use). Licenses for
software for which fees are charged on a per-CPU basis differentiate between
development and deployment usage. Our revenue recognition policies comply with
the provisions of Statement of Position ("SOP") No. 97-2, Software Revenue Recognition
("SOP 97-2"), as amended by SOP No. 98-9, Software Revenue Recognition, With
Respect to Certain Transactions ("SOP 98-9"), and Staff Accounting
Bulletin ("SAB") 104, Revenue
Recognition ("SAB 104"). We apply the separation
criteria in Emerging Issues Task Force ("EITF"), "Revenue Arrangements with Multiple
Deliverables" ("EITF 00-21") to determine whether our arrangements with
multiple deliverables should be treated as separate units of accounting. EITF
00-21 indicates that revenue recognized for any multiple-element contract is to
be allocated to each element of the arrangement based on the relative fair value
of each element. The determination of the fair value of each element is based on
our analysis of objective evidence from comparable sales of the individual
element.
Software
License Revenue
We
license our products through our direct sales force and indirectly through
resellers and Application Service Providers ("ASP"). In general, software
license revenues are recognized when a non-cancelable license agreement has been
signed and the customer acknowledges an unconditional obligation to pay, the
software product has been delivered, there are no uncertainties surrounding
product acceptance, the fees are fixed and determinable and collection is
reasonably assured. Delivery is considered to have occurred when title and risk
of loss have been transferred to the customer, which generally occurs when media
containing the licensed programs is provided to a common carrier. In case of
electronic delivery, delivery occurs when the customer is given access to the
licensed programs. For products that cannot be used without a licensing key, the
delivery requirement is met when the licensing key is made available to the
customer. If collectibility is not reasonably assured, revenue is recognized
when the fee is collected. Subscription-based license revenues are recognized
ratably over the subscription period. We enter into reseller arrangements that
typically provide for sublicense fees payable to us based upon a percentage of
list prices. We do not grant resellers the right of return.
We
recognize revenue using the residual method pursuant to the requirements of SOP
97-2, as amended by SOP 98-9. Revenues recognized from multiple-element software
arrangements are allocated to each element of the arrangement based on the fair
values of the elements, such as licenses for software products, maintenance,
consulting services or customer training. The determination of fair value is
based on vendor-specific objective evidence, which is specific to us. We limit
our assessment of objective evidence for each element to either the price
charged when the same element is sold separately or the price established by
management having the relevant authority to do so, for an element not yet sold
separately. If evidence of fair value of all undelivered elements exists but
evidence does not exist for one or more delivered elements, then revenue is
recognized using the residual method. Under the residual method, the fair value
of the undelivered elements is deferred and the remaining portion of the
arrangement fee is recognized as revenue.
We record
unearned revenue for software license agreements when cash has been received
from the customer and the agreement does not qualify for revenue recognition
under our revenue recognition policy. We record accounts receivable for software
license agreements when the agreement qualifies for revenue recognition but cash
or other consideration has not been received from the customer.
Services
Revenue
Consulting
services revenues and customer training revenues are recognized as such services
are performed.
Maintenance
revenues, which include revenues bundled with software license agreements that
entitle the customers to technical support and future unspecified enhancements
to our products, are deferred and recognized ratably over the related agreement
period, generally twelve months.
Our
consulting services, which consist of consulting, maintenance and training, are
delivered through the BroadVision Global Services ("BVGS") organization. The
services that we provide are not essential to the functionality of the software.
We record reimbursement from our customers for out-of-pocket expenses as an
increase to services revenues.
Cash,
Cash Equivalents and Restricted Cash
We
consider all debt and equity securities with remaining maturities of three
months or less at the date of purchase to be cash equivalents. Short-term cash
investments consist of debt and equity securities that have a remaining maturity
of less than one year as of the date of the balance sheet. Cash and cash
equivalents that serve as collateral for financial instruments such as letters
of credit are classified as restricted cash. Restricted cash in which the
underlying instrument has a term of greater than twelve months from the balance
sheet date are classified as non-current. Letter of credit of $1.0 million
secured by an equal amount of restricted cash is available to the landlord
securing certain facilities leases as more fully described in Note
7.
Management
determines the appropriate classification of cash investments at the time of
purchase and evaluates such designation as of each balance sheet date. All cash
investments to date have been classified as available-for-sale and carried at
fair value with related unrealized gains or losses reported as other
comprehensive income (loss), net of tax. Total realized gains during fiscal
years 2007 and 2006 were $1,906,000 and $1,064,000, respectively, and are
included in other income in the accompanying Consolidated Statements of
Operations.
Our cash and cash equivalents, and
restricted cash consisted of the following as of December 31, 2007 and 2006
(in thousands):
|
Classified
on Consolidated Balance Sheet as:
|
||||||||||||||||||||||||||||
| Restricted | ||||||||||||||||||||||||||||
|
Purchase/
|
Gross
|
Gross
|
Cash
and
|
Restricted
|
Cash
|
|||||||||||||||||||||||
|
Amortized
|
Unrealized
|
Unrealized
|
Aggregate
|
Cash
|
Cash,
|
Non-
|
||||||||||||||||||||||
|
Cost
|
Gains
|
Losses
|
Fair
Value
|
Equivalents
|
Current
|
Current
|
||||||||||||||||||||||
|
As
of December 31, 2007:
|
||||||||||||||||||||||||||||
|
Cash
and certificates of deposits
|
$ | 14,249 | $ | - | $ | - | $ | 14,249 | $ | 13,229 | $ | 20 | $ | 1,000 | ||||||||||||||
|
Money
market
|
40,744 | - | - | 40,744 | 40,744 | - | - | |||||||||||||||||||||
|
Total
|
$ | 54,993 | $ | - | $ | - | $ | 54,993 | $ | 53,973 | $ | 20 | $ | 1,000 | ||||||||||||||
|
As
of December 31, 2006:
|
||||||||||||||||||||||||||||
|
Cash
and certificates of deposits
|
$ | 17,827 | $ | - | $ | - | $ | 17,827 | $ | 15,830 | $ | 997 | $ | 1,000 | ||||||||||||||
|
Money
market
|
21,173 | - | - | 21,173 | 21,173 | - | - | |||||||||||||||||||||
|
Total
|
$ | 39,000 | $ | - | $ | - | $ | 39,000 | $ | 37,003 | $ | 997 | $ | 1,000 | ||||||||||||||
Research
and Development and Software Development Costs
Statement
of Financial Accounting Standards ("SFAS") No. 86, Accounting for the Cost of Computer
Software to be Sold, Leased or Otherwise Marketed, requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on our product development
process, technological feasibility is established upon the completion of a
working model. To date, costs incurred by us 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 expense in the period incurred.
Advertising
Costs
Advertising
costs are expensed as incurred. Advertising expense, which is included in sales
and marketing expense, amounted to $146,000, $33,000 and $68,000 in 2007, 2006
and 2005, respectively.
Prepaid
Royalties
Prepaid
royalties relating to purchased software to be incorporated and sold with our
software products are amortized as a cost of software licenses either on a
straight-line basis over the remaining term of the royalty agreement or on the
basis of projected product revenues, whichever results in greater
amortization.
Receivable
Reserves
Occasionally,
our customers experience financial difficulty after we record 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 invoice date. If
the financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional reserves may be
required. Losses from customer receivables in the three-year period ended
December 31, 2007, have not been significant. If all efforts to collect a
receivable fail, and the receivable is considered uncollectible, the receivable
would be written off against the receivable reserve.
Concentrations
of Credit Risk
Financial
instruments that potentially subject us to concentrations of credit risk consist
primarily of cash and cash equivalents and accounts receivable. We place our
cash and cash equivalents with high-quality institutions. Our management
performs ongoing credit evaluations of our customers and requires certain of
these customers to provide security deposits or letters of credit.
Cash
deposits in foreign countries of approximately $14.2 million and $9.0 million on
December 31, 2007 and 2006, 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.
As of
December 31, 2007 and 2006, one customer accounted for 20% and 13% of our
accounts receivable balance, respectively. For the years ended December 31,
2007, 2006 and 2005, no customer accounted for 10% or more of our total
revenues.
Restructuring
Through
December 31, 2007, we have approved certain restructuring plans to, among
other things, reduce our workforce and consolidate facilities. Restructuring and
asset impairment charges were taken to align our cost structure with changing
market conditions and to create a more efficient organization. Our restructuring
charges are comprised primarily of: (1) lease termination costs and/or
costs associated with permanently vacating and sub-leasing our facilities;
(2) other incremental costs incurred as a direct result of the
restructuring plan; (3) impairment costs related to certain long-lived
assets abandoned, and (4) severance and benefits termination costs related
to the reduction of our workforce. We account for each of these costs in
accordance with SAB 100, Restructuring and Impairment
Charges.
We
account for severance and benefits termination costs in accordance with EITF
94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(Including Certain Costs Incurred in a Restructuring) ("EITF 94-3"), for
exit or disposal activities initiated on or prior to December 31, 2002.
Accordingly, we record the liability related to these termination costs when the
following conditions have been met: (i) management with the appropriate
level of authority approves a termination plan that commits us to such plan and
establishes the benefits the employees will receive upon termination;
(ii) the benefit arrangement is communicated to the employees in sufficient
detail to enable the employees to determine the termination benefits;
(iii) the plan specifically identifies the number of employees to be
terminated, their locations and their job classifications; and (iv) the
period of time to implement the plan does not indicate changes to the plan are
likely. The termination costs recorded by us are not associated with nor do they
benefit continuing activities. We account for severance and benefits termination
costs for exit or disposal activities initiated after December 31, 2002 in
accordance with SFAS 146, Accounting For Costs Associated with
Exit Activities ("SFAS 146"). SFAS 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
and measured initially at fair value only when the liability is incurred. This
differs from EITF 94-3, which required that a liability for an exit cost be
recognized at the date of an entity's commitment to an exit plan.
Prior to
the adoption on January 1, 2003 of SFAS 146, we accounted for the
costs associated with lease termination and/or abandonment in accordance with
EITF 88-10, Costs Associated
with Lease Modification or Termination ("EITF 88-10"). Accordingly, we
recorded the costs associated with lease termination and/or abandonment when the
leased property has no substantive future use or benefit to us. Under EITF
88-10, we record the liability associated with lease termination and/or
abandonment as the sum of the total remaining lease costs and related exit
costs, less probable sublease income. Under SFAS 146, we record a liability for
lease termination and/or abandonment cost initially at fair value on the
cease-use date of that facility. We account for costs related to long-lived
assets abandoned in accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, and, accordingly, charges to expense the
net carrying value of the long-lived assets when we cease to use the
assets.
Inherent
in the estimation of the costs related to our restructuring efforts are
assessments related to the most likely expected outcome of the significant
actions to accomplish the restructuring. In determining the charge related to
the restructuring, the majority of estimates made by management related to the
charge for excess facilities. In determining the charge for excess facilities,
we were required to estimate future sublease income, future net operating
expenses of the facilities, and brokerage commissions, among other expenses. The
most significant of these estimates related to the timing and extent of future
sublease income in which to reduce our lease obligations. We based our estimates
of sublease income, in part, on the opinions of independent real estate experts,
current market conditions and rental rates, an assessment of the time period
over which reasonable estimates could be made, the status of negotiations with
potential subtenants, and the location of the respective facility, among other
factors.
We have
recorded restructuring charges at the low-end of a range of assumptions modeled
for restructuring charges in accordance with SFAS No.5, Accounting for Contingencies
("SFAS 5").
Adjustments to the facilities accrual will be required if actual lease exit
costs or sublease income differ from amounts currently expected. We will review
the status of restructuring activities on a quarterly basis and, if appropriate,
record changes to our restructuring obligations in current operations based on
management's most current estimates.
Property
and Equipment
Property
and equipment are stated at cost and depreciated on a straight-line basis over
their estimated useful lives (generally two years for software, three years for
computer equipment and four years for furniture and fixtures). Leasehold
improvements are amortized over the lesser of the remaining life of the lease
term or their estimated useful lives.
Maintenance
and repairs are charged to operations as incurred. When assets are retired or
otherwise disposed of, the cost and accumulated depreciation and amortization
are removed from the accounts and any resulting gain or loss is reflected in
operations in the period realized.
Valuation
of Long-Lived Assets
We
adopted SFAS No. 142, Goodwill and Other Intangible
Assets ("SFAS 142"), on January 1, 2002. Pursuant to SFAS 142,
we are required to test our goodwill for impairment upon adoption and annually
or more often if events or changes in circumstances indicate that the asset
might be impaired. SFAS No. 142 provides for a two-step approach to
determining whether and by how much goodwill has been impaired. The first step
requires a comparison of the fair value of us to our net book value. If the fair
value is greater, then no impairment is deemed to have occurred. If the fair
value is less, then the second step must be completed to determine the amount,
if any, of actual impairment (Note 3).
Fair
Value of Financial Instruments
The fair
value of cash and cash equivalents, investments, accounts receivable and
accounts payable for all periods presented approximates their respective
carrying amounts due to the short-term nature of these balances.
Employee
Stock Benefit Plans
2006 Equity Incentive Plan:
At our 2006 annual meeting on August 8, 2006, our stockholders approved the
adoption of our 2006 Equity Incentive Plan (the "Equity Plan"), under which
3,500,000 shares of common stock are reserved for issuance. Our 1996 Equity
Incentive Plan (the "Prior Equity Plan") was terminated and replaced by the
Equity Plan. Under the Equity Plan, the Board of Directors may grant incentive
or nonqualified stock options at prices not less than 100% of the fair market
value of 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
25% of the total number of shares subject to options will become exercisable per
year. These options generally expire ten years after the grant date. When an
employee option is exercised prior to vesting, any unvested shares so purchased
are subject to repurchase by us at the original purchase price of the stock upon
termination of employment. Our right to repurchase lapses at a minimum rate of
20% per year over five years from the date the option was granted or, for new
employees, the date of hire. Such right is exercisable only within 90 days
following termination of employment. During the years ended December 31, 2007,
2006, and 2005, no shares were repurchased since no options were exercised prior
to vesting. We may grant options from plans not approved by security holders.
The "2000 Non-Officer Plan" is our only plan that has not been approved by our
stockholders. In addition, we have granted options outside of the
plans, pursuant to arrangements that have not been approved by our
stockholders.
2000 Non-Officer Plan: In
February 2000, we adopted our 2000 Non-Officer Plan under which 6,000,000 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, 2006,
we had 1,520,006 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. The Board of Directors has authorized sequential one-year offerings
beginning on July 1 of each year and extending until June 30 of the following
year. Commencing on the first day of the fiscal year that begins on
January 1, 2004 and ending on (and including) the first day of the fiscal year
that begins on January 1, 2014 (each such day, a "Calculation Date"), our
Purchase Plan's reserved shares can be increased by a number equal to the lesser
of (i) one and one-half percent (1.5%) of the shares of Common Stock outstanding
on each such Calculation Date (rounded down to the nearest whole share); or (ii)
eight hundred thousand (800,000) shares of Common Stock.
As of
December 31, 2007 we had 1,869,348 shares available for issuance under the
Purchase Plan. The Purchase Plan permits eligible employees to purchase common
stock with a value equivalent to a percentage of the employee's earnings, not to
exceed the lesser of 15% of the employee's earnings or $25,000, at a price equal
to the lesser of 85% of the fair market value of the common stock on the date of
the offering or the date of purchase. Upon adoption of SFAS No. 123 (revised
2004), Share-Based
Payment ("SFAS 123R") (effective January 1, 2006), we began recording
stock-based compensation expense related to the fair value of the employee
purchase rights in our Consolidated Statements of Operations.
Stock-Based
Compensation
Effective
January 1, 2006, we adopted the fair value recognition provisions of SFAS 123R,
using the modified-prospective transition method. Under the fair value
recognition provisions of SFAS 123R, share-based compensation cost is estimated
at the grant date based on the fair value of the award and is recognized as
expense, net of estimated pre-vesting forfeitures, ratably over the vesting
period of the award. In addition, the adoption of SFAS 123R requires additional
accounting related to the income tax effects and disclosure regarding the cash
flow effects resulting from share-based payment arrangements. In January 2005,
the SEC issued SAB No. 107 Share-Based Payment, which
provides supplemental implementation guidance for SFAS 123R. Calculating
share-based compensation expense requires the input of highly subjective
assumptions, including the expected term of the share-based awards, stock price
volatility, dividend yield, risk free interest rates, and pre-vesting
forfeitures. The assumptions used in calculating the fair value of stock-based
awards represent our best estimates, but these estimates involve inherent
uncertainties and the application of management judgment. As a result, if
factors change and we use different assumptions, our share-based compensation
expense could be materially different in the future. In addition, we are
required to estimate the expected pre-vesting forfeiture rate and only recognize
expense for those shares expected to vest. If our actual forfeiture rate is
materially different from our estimate, our share-based compensation expense
could be significantly different from what we have recorded in the current
period. The total amount of stock-based compensation expense recognized during
the year ended December 31, 2007 and 2006 are as the following:
|
Year Ended December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Cost of
services
|
$ | 266,735 | $ | 160,428 | ||||
|
Research and
development
|
567,041 | 381,664 | ||||||
|
Sales and
marketing
|
319,145 | 229,906 | ||||||
|
General and
administrative
|
294,166 | 178,150 | ||||||
| $ | 1,447,087 | $ | 950,147 | |||||
On
November 10, 2005, the FASB issued FASB Staff Position No. FAS 123R-3 "Transition Election Related to
Accounting for Tax Effects of Share-Based Payment Awards" ("FSP 123R-3").
We adopted the alternative transition method provided in the FASB Staff Position
for calculating the tax effects of stock-based compensation pursuant to SFAS
123R in the fourth quarter of fiscal 2006. The alternative transition method
includes simplified methods to establish the beginning balance of the additional
paid-in capital pool (APIC pool) related to the tax effects of employee
stock-based compensation, and to determine the subsequent impact on the APIC
pool and Consolidated Statements of Cash Flows of the tax effects of employee
stock-based compensation awards that are outstanding upon adoption of SFAS 123R.
The adoption did not have a material impact on our consolidated results of
operations and financial condition.
The fair
value of each option award is estimated on the date of grant using the
Black-Scholes option valuation model based on the assumptions noted in the
following table. The expected term of options represents the period that our
stock-based awards are expected to be outstanding based on the simplified method
provided in SAB 107. The risk-free interest rate for periods related to the
expected life of the options is based on the U.S. Treasury yield curve in effect
at the time of grant. The expected volatility is based on historical
volatilities of 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. During the year ended December 31, 2007 and December 31, 2006,
we used a forfeiture rate of 9% and 11%, respectively, based on an analysis of
historical data as we reasonably approximate the currently anticipated rate of
forfeiture for granted and outstanding options that have not vested. The
following assumptions were used to determine stock-based compensation during the
year ended December 31, 2007 and December 31, 2006:
|
For
the Year Ended
|
||||||||
|
December
31, 2007
|
December
31, 2006
|
|||||||
|
Weighted
average volatility
|
96 | % | 84 | % | ||||
|
Expected
dividends
|
0 | % | 0 | % | ||||
|
Expected
term (in years)
|
6.00 | 6.00 | ||||||
|
Risk
free interest rate
|
4.20 | % | 4.79 | % | ||||
|
Forfeiture
rate
|
9 | % | 11 | % | ||||
Employee
Stock Purchase Plan
|
Years
Ended December 31,
|
|||||||||||||||
| 2007 | 2006 | 2005 | |||||||||||||
|
Expected
volatility
|
90 |
%
|
107 |
%
|
84 |
%
|
|||||||||
|
Weighted
average volatility
|
89 |
%
|
106 |
%
|
89 |
%
|
|||||||||
|
Risk-free
interest rate
|
5 |
%
|
5 |
%
|
4 |
%
|
|||||||||
|
Expected
life (in years)
|
1 |
year
|
1 |
year
|
1 |
year
|
|||||||||
|
Expected
dividend yield
|
- |
%
|
- |
%
|
- |
%
|
|||||||||
The
weighted-average fair value of the purchase rights granted in the years ended
December 31, 2007, 2006, and 2005, was $0.78, $0.22, and $0.82,
respectively.
In
anticipation of the reporting requirements under SFAS 123R, our Board of
Directors on November 29, 2005 unanimously approved accelerating the
vesting of the following out-of-the-money, unvested stock options held by
current employees, including executive officers, and members of the Board of
Directors. The acceleration applied only to those options with an exercise price
of $1.13 per share or higher. The closing market price of our common stock on
November 28, 2005, the last full trading day before the date of the
acceleration, was $0.72 per share.
|
Aggregate
|
||||||||
|
Number
of
|
||||||||
|
Common
Shares
|
Weighted | |||||||
|
Issuable
Under
|
Average
|
|||||||
|
Accelerated
Stock
|
Exercise
Price
|
|||||||
|
Options
|
per
Share
|
|||||||
|
Total
Non-Employee Directors
|
122,181 | $ | 2.98 | |||||
|
Total
Named Executive Officers
|
391,886 | 2.87 | ||||||
|
Total
Directors and Named Executive Officers
|
514,067 | 2.89 | ||||||
|
Total
All Other Employees
|
610,707 | 2.97 | ||||||
|
Total
|
1,124,774 | 2.94 | ||||||
The
decision to accelerate vesting of these options was made to avoid recognizing
compensation cost in our statements of operations as required under the
provisions of SFAS 123R, which was effective as of January 1, 2006.
Further
details related to our Employee Stock Benefit Plans and our adoption of SFAS
123R are provided in Note 9 Stockholders' Equity.
Prior to
January 1, 2006, we accounted for share-based payments to our employees and
non-employee members of our Board of Directors under the recognition and
measurement provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees,
and related guidance, as permitted by SFAS 123, Accounting for Stock-Based
Compensation ("SFAS 123"), and amended by SFAS 148, Accounting for Stock-Based
Compensation-Transition and Disclosure ("SFAS
148"). We did not
recognize any significant share-based employee compensation costs in our
consolidated statements of operations prior to January 1, 2006, as options
granted to employees and non-employee members of the board of directors
generally had an exercise price equal to the fair value of the underlying common
stock on the date of grant. As required by SFAS 148, prior to the adoption of
SFAS 123R, we provided pro forma disclosure of net income (loss) applicable to
common stockholders as if the fair-value-based method defined in SFAS 123 had
been applied to employee stock options and purchase rights. In the pro forma
information for periods prior to 2006, we accounted for pre-vesting forfeitures
as they occurred. Our operating results for prior periods have not been
restated. The following table illustrates the effect on net income (loss) per
share applicable to common shareholders as if we had applied the fair value
recognition provisions of SFAS 123 to share-based compensation for the year
ended December 31, 2005 (in thousands, except per share amounts):
|
Year Ended December
31, 2005
|
||||
|
Net income (loss), as
reported
|
$ | (38,966 | ) | |
|
Add: Stock-based compensation
(income) expense included in reported net income (loss), net of related
tax effects
|
- | |||
|
Deduct: Total stock-based employee
compensation expense determined under fair value based method for all
awards, net of related tax effects
|
(2,666 | ) | ||
|
Pro forma net income
(loss)
|
$ | (41,632 | ) | |
|
Net income (loss) per
share:
|
||||
|
Basic --as
reported
|
$ | (1.14 | ) | |
|
Basic --pro
forma
|
$ | (1.22 | ) | |
|
Diluted --as
reported
|
$ | (1.14 | ) | |
|
Diluted --pro
forma
|
$ | (1.22 | ) | |
We
account for equity instruments issued to non-employees in accordance with the
provisions of SFAS 123 and EITF 96-18, Accounting for Equity Instruments
that are Issued to Other than Employees for Acquiring, or in Conjunction with
Selling Goods or Services.
For the
year ended at December 31, 2005, the fair value of each option grant was
estimated on the date of grant using the Black-Scholes option-pricing model with
no expected dividends and the following weighted-average
assumptions:
|
Year
Ended December 31, 2005
|
|||||
|
Expected
life
|
7.40 |
years
|
|||
|
Risk-free
interest rate
|
4.12 |
%
|
|||
|
Volatility
|
84.00 |
%
|
|||
Earnings
Per Share Information
Basic
income (loss) per share is computed using the weighted-average number of shares
of common stock outstanding, less shares subject to repurchase. Diluted income
(loss) per share is computed using the weighted-average number of shares of
common stock outstanding and, when dilutive, common equivalent shares from
outstanding stock options and warrants using the treasury stock method. The
following table sets forth the basic and diluted net income (loss) per share
computational data for the periods presented (in thousands, except per share
amounts):
|
Years
Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Net
income (loss)
|
$ | 17,278 | $ | 15,016 | $ | (38,966 | ) | |||||
|
Weighted-average
common shares outstanding used to compute basic income (loss) per
share
|
107,755 | 65,734 | 34,228 | |||||||||
|
Weighted-average
common equivalent shares from outstanding common stock options and
warrants
|
2,991 | - | - | |||||||||
|
Total
weighted-average common and common equivalent shares outstanding used to
compute diluted loss per share
|
110,746 | 65,734 | 34,228 | |||||||||
|
Basic
income (loss) per share
|
$ | 0.16 | $ | 0.23 | $ | (1.14 | ) | |||||
|
Diluted
income (loss) per share
|
$ | 0.16 | $ | 0.23 | $ | (1.14 | ) | |||||
In the
years ended December 31, 2007 and 2006, 4,502,432 and 11,916,000 common
shares, respectively, issuable upon the exercise of stock options and warrants
were excluded from the above earnings per share calculations as their effect was
anti-dilutive. In addition, in the year ended December 31, 2005, approximately
5.6 million common shares issuable upon conversion of the Notes were excluded
from the above earnings per share calculation, as their effect was
anti-dilutive.
Foreign
Currency Transactions
During
fiscal 2004, we changed the functional currencies of all foreign subsidiaries
from the U.S. dollar to the local currency of the respective countries. Assets
and liabilities of these subsidiaries are translated into U.S. dollars at the
balance sheet date. Income and expense items are translated at average exchange
rates for the period. Foreign exchange gains and losses resulting from the
remeasurement of foreign currency assets and liabilities are included as other
income (expense) in the Consolidated Statements of Operations. During
2006, we determined that one of our foreign subsidiaries' operations had
substantially ceased and was effectively liquidated, and as a result, we wrote
off $51,000 of related cumulative translation adjustment which was recorded as a
charge to the interest and other income, net in the accompanying Statements of
Operations. For the years ended December 31, 2007, 2006, and 2005,
translation (loss) gain was ($152,000), $75,000, and $265,000, respectively, and
is included in the Comprehensive income (loss) account in the Consolidated
Statement of Stockholder's Equity.
Comprehensive
Income (Loss)
Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss),
which consists of unrealized gains and losses on available-for-sale securities
and cumulative translation adjustments. Total comprehensive income (loss) is
presented in the accompanying Consolidated Statement of Stockholders' Equity
(Deficit). Total accumulated other comprehensive income (loss) is displayed as a
separate component of Consolidated Statement of Stockholder's Equity (Deficit)
in the accompanying Consolidated Balance Sheets. The accumulated balances for
each classification of other comprehensive income (loss) consist of the
following, net of taxes (in thousands):
|
Foreign
|
Accumulated
|
|||||||
|
|
Currency
|
Other
|
||||||
|
Translation
|
Comprehensive
|
|||||||
|
and Other
|
Income
(Loss)
|
|||||||
|
Balance, December 31,
2004
|
$ | (172 | ) | $ | (172 | ) | ||
|
Net change during the
year
|
265 | 265 | ||||||
|
Balance, December 31,
2005
|
93 | 93 | ||||||
|
Net change during the
year
|
75 | 75 | ||||||
|
Balance, December 31,
2006
|
168 | 168 | ||||||
|
Net change during the
year
|
(152 | ) | (152 | ) | ||||
|
Balance, December 31,
2007
|
$ | 16 | $ | 16 | ||||
Income
Taxes
Income
taxes are computed using an asset and liability approach in accordance with SFAS
No. 109, Accounting for Income
Taxes, which requires the recognition of taxes payable or refundable for
the current year and deferred tax assets and liabilities for the future tax
consequences of events that have been recognized in our Consolidated Financial
Statements or tax returns. The measurement of current and deferred tax assets
and liabilities is based on provisions of the enacted tax law; the effects of
future changes in tax laws or rates are not anticipated. The measurement of
deferred tax assets is reduced, if necessary, by the amount of any tax benefits
that, based on available evidence, is not expected to be realized.
We
analyze our deferred tax assets with regard to potential realization. We have
established a valuation allowance on our deferred tax assets to the extent that
management has determined that it is more likely than not that some portion or
all of the deferred tax asset will not be realized based upon the uncertainty of
their realization. We have considered estimated future taxable income and
ongoing prudent and feasible tax planning strategies in assessing the amount of
the valuation allowance.
Segment
and Geographic Information
We
operate in one segment, electronic commerce business solutions. Our chief
operating decision maker is considered to be our Chief Executive Officer
("CEO"). The CEO reviews financial information presented on a consolidated basis
accompanied by disaggregated information about revenues by geographic region and
by product for purposes of making operating decisions and assessing financial
performance.
Reclassifications
Certain
prior period account balances have been reclassified to conform to the current
period presentation.
Recent
Accounting Pronouncements
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations ("SFAS
141R"), which replaces FASB Statement No. 141. SFAS 141R establishes principles
and requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any non
controlling interest in the acquire and the goodwill acquired. The Statement
also establishes disclosure requirements which will enable users to evaluate the
nature and financial effects of the business combination. SFAS 141R is to be
applied perspectively to business combinations for which the acquisition date is
on or after an entity's fiscal year that begins after December 15, 2008. We will
assess the impact of SFAS 141R if and when a future acquisition
occurs.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51 ("SFAS 160"), which establishes accounting and reporting standards
for ownership interests in subsidiaries held by parties other than the parent,
the amount of consolidated net income attributable to the parent and to the
noncontrolling interest, changes in a parent's ownership interest and the
valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated. The Statement also establishes reporting requirements that
provide sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners. SFAS 160
is effective as of the beginning of an entity's fiscal year that begins after
December 15, 2008. We are currently evaluating the potential impact, if any, of
the adoption of SFAS 160 on our Consolidated Financial Statements.
In
February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities ("SFAS 159"). SFAS No. 159 permits the
measurement of many financial instruments and certain other items at fair value.
Entities may choose to measure eligible items at fair value at specified
election dates, reporting unrealized gains and losses on such items at each
subsequent reporting period. The objective of SFAS No. 159 is to provide
entities with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. It is intended to expand the use of fair
value measurement. SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007. We are currently evaluating what effect, if any, the adoption
of SFAS No. 159 will have on our Consolidated Financial Statements.
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
("SFAS 157").
SFAS 157 establishes a framework for measuring the fair value of assets and
liabilities. This framework is intended to provide increased consistency in how
fair value determinations are made under various existing accounting standards
which permit, or in some cases require, estimates of fair market value.
SFAS 157 is effective for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years. Earlier application is
encouraged, provided that the reporting entity has not yet issued financial
statements for that fiscal year, including any financial statements for an
interim period within that fiscal year. We are currently evaluating what effect,
if any, the adoption of SFAS 157 will have on our Consolidated Financial
Statements.
Note 2---Property
and Equipment
Property
and equipment consisted of the following (in thousands):
|
December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Furniture
and fixtures
|
$ | 654 | $ | 795 | ||||
|
Computer
and software
|
5,359 | 14,547 | ||||||
|
Leasehold
improvements
|
1,296 | 5,007 | ||||||
| 7,309 | 20,349 | |||||||
|
Less
accumulated depreciation and amortization
|
(6,621 | ) | (19,205 | ) | ||||
|
Total
property and equipment, net
|
$ | 688 | $ | 1,144 | ||||
Depreciation
and amortization expense for the years ended December 31, 2007, 2006, and
2005 was $1.0 million, $1.4 million, and $1.2 million, respectively. In 2007, we
retired $13.6 million in property and equipment and wrote off $13.6 million
in accumulated related depreciation. In 2007, we received $82,000 in
proceeds from the sale of fixed assets and recorded a gain on sale or
abandonment of property and equipment of $78,000. In 2006, we retired
$21.6 million in property and equipment and wrote off $21.5 million
in accumulated related depreciation.
Note 3---Goodwill
In the
quarter ended September 30, 2005, we recognized a goodwill impairment charge of
$13.2 million as an estimated impairment in accordance with the requirements of
SFAS 142. As of September 30, 2005, we performed Step 1 under the provisions of
SFAS 142 by determining that we have a single reporting unit and then comparing
our net book value to our market capitalization based upon the quoted market
price of our stock. Based upon the results of Step 1 and as permitted under SFAS
142, we estimated the impairment charge under Step 2 by estimating the fair
value of all other assets and liabilities of the reporting unit. Subsequent to
the issuance of our third quarter financial statements, we completed Step 2 and
recorded an adjustment to the original estimate (recognized an additional
impairment charge) of $18.2 million in the quarter ended December 31, 2005.
Further, as of December 31, 2007 and 2006, we performed a goodwill impairment
analysis under Step 1. Because the fair value was determined to be greater than
book value, Step 2 under SFAS 142 was not required, and therefore no additional
impairment was necessary at December 31, 2007 and 2006.
The
process of evaluating the potential impairment of goodwill is highly subjective
and requires significant judgment. In estimating the fair value, we made
estimates and judgments about future revenues and cash flows. Our forecasts were
based on assumptions that are consistent with the plans and estimates we are
using to manage the business. Changes in these estimates could change our
conclusion regarding impairment of goodwill and potentially result in a non-cash
goodwill impairment charge in future periods.
From 2000
through 2007, we have amortized and written off $742.0 million of the $767.0
million goodwill incurred as a result of a statutory merger involving a
stock-for-stock exchange with another company.
Note 4---Accrued
Expenses
Accrued
expenses consisted of the following (in thousands):
|
December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Employee
benefits
|
$ | 1,076 | $ | 961 | ||||
|
Commissions
and bonuses
|
656 | 885 | ||||||
|
Sales
and other taxes
|
1,245 | 2,000 | ||||||
|
Income
tax and tax contingency reserves
|
427 | 1,378 | ||||||
|
Restructuring
|
439 | 1,272 | ||||||
|
Customer
advances
|
288 | 654 | ||||||
|
Royalty
|
1,376 | 2,482 | ||||||
|
Other
|
879 | 906 | ||||||
|
Total
accrued expenses
|
$ | 6,386 | $ | 10,538 | ||||
Note 5---Other
Non-Current Liabilities
Other
non-current liabilities consist of the following (in thousands):
|
December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Restructuring
|
$ | 895 | $ | 1,290 | ||||
|
Deferred
maintenance and unearned revenue
|
1,481 | 1,739 | ||||||
|
Other
|
648 | 400 | ||||||
|
Total
other non-current liabilities
|
$ | 3,024 | $ | 3,429 | ||||
Note 6---Income
Taxes
The
components of (expense) benefit for income taxes are as follows (in
thousands):
|
Years Ended
December 31,
|
||||||||||||
|
|
2007
|
2006
|
2005
|
|||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | 440 | $ | (350 | ) | $ | 660 | |||||
|
State
|
(61 | ) | (75 | ) | (10 | ) | ||||||
|
Foreign
|
(306 | ) | (209 | ) | 1,961 | |||||||
|
Total
current
|
73 | (634 | ) | 2,611 | ||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
- | - | - | |||||||||
|
State
|
- | - | - | |||||||||
|
Total
deferred
|
- | - | - | |||||||||
|
Income tax benefit
(expense)
|
$ | 73 | $ | (634 | ) | $ | 2,611 | |||||
The
differences between the (expense) benefit for income taxes computed at the
federal statutory rate of 35% and our actual income tax (expense) benefit for
the periods presented are as follows (in thousands):
| Years Ended December 31, | ||||||||||||
|
|
2007
|
2006
|
2005
|
|||||||||
|
Expected income tax (expense)
benefit
|
$ | (6,022 | ) | $ | (5,744 | ) | $ | 14,552 | ||||
|
Expected state income taxes
(expense) benefit, net of federal tax benefit
|
(39 | ) | (49 | ) | 662 | |||||||
|
Research and development
credit
|
89 | - | - | |||||||||
|
Foreign
taxes
|
(894 | ) | (209 | ) | (264 | ) | ||||||
|
Change in valuation
allowance
|
7,116 | 5,941 | (575 | ) | ||||||||
|
Stock based compensation and
warrant revaluation
|
(1,039 | ) | (91 | ) | 0 | |||||||
|
True-ups
|
261 | - | - | |||||||||
|
Reserve
release
|
424 | - | - | |||||||||
|
Foreign loss not
benefited
|
- | (584 | ) | (952 | ) | |||||||
|
Utilization of foreign net
operating loss carryforwards
|
- | - | 913 | |||||||||
|
Non-deductible goodwill and
intangible amortization
|
- | - | (10,806 | ) | ||||||||
|
Tax credits and other permanent
items
|
199 | 114 | - | |||||||||
|
Other
|
(22 | ) | (12 | ) | (919 | ) | ||||||
|
Income tax (expense)
benefit
|
$ | 73 | $ | (634 | ) | $ | 2,611 | |||||
The
individual components of our deferred tax assets and liabilities are as follows
(in thousands):
|
December 31,
|
||||||||
|
|
2007
|
2006
|
||||||
|
Deferred tax
assets:
|
||||||||
|
Depreciation and
amortization
|
$ | 2,111 | $ | 3,602 | ||||
|
Accrued, allowance and
others
|
2,967 | 4,751 | ||||||
|
Capitalized research and
development
|
1,846 | 2,430 | ||||||
|
Net operating
losses
|
206,477 | 211,331 | ||||||
|
Tax credits
|
6,547 | 13,946 | ||||||
|
Unrealized loss on marketable
securities
|
1,589 | 1,589 | ||||||
|
Total deferred tax
assets
|
221,537 | 237,649 | ||||||
|
Less: valuation
allowance
|
(221,537 | ) | (237,649 | ) | ||||
|
Net deferred tax
assets
|
$ | - | $ | - | ||||
We have
provided a valuation allowance for all of our deferred tax assets as of
December 31, 2007 and 2006, due to the uncertainty regarding their future
realization. The total valuation allowance decreased $14,457,000 from
December 31, 2006 to December 31, 2007 and decreased $5,356,000 from
December 31, 2005 to December 31, 2006, respectively, due primarily to
utilization of net operating loss carryovers. As of December 31, 2007, we
had federal and state net operating loss ("NOL") carryforwards of approximately
$551,275,000 and $156,249,000, net of Section 382 of the Internal Revenue Code
("IRC") limitations respectively, available to offset future regular and
alternative minimum taxable income. The NOL did not include a deduction from
stock based compensation for which a benefit would be recorded in additional
paid-in capital when realized. In addition, we had federal and state research
and development credit carryforwards of approximately $4,290,000 and $2,854,000
as of December 31, 2007 and 2006, respectively, available to offset future tax
liabilities. Our federal net operating loss and tax credit carryforwards expire
in the tax years 2008 through 2022, if not utilized. The state net operating
loss carryforwards expire in the tax years 2008 through 2022. The state research
and development credits can be carried forward indefinitely.
Federal
and state tax laws impose substantial restrictions on the utilization of net
operating loss and credit carryforwards in the event of an "ownership change"
for tax purposes, as defined in IRC Section 382. Based on an IRC Section 382
study completed in February 2007, we determined that there were ownership
changes during year 1998. Consequently, a portion of our tax carryforwards will
expire before they can be fully utilized. Therefore, in 2007, we reduced our
reported available federal NOL carryforwards by approximately $5.3
million.
Effective
January 1, 2007, we adopted Financial Accounting Standards Interpretation, or
FIN No.48, Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No.109.
Fin No. 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of uncertain tax positions taken
or expected to be taken in our income tax return, and also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. FIN No. 48 utilizes a two-step approach for
evaluating uncertain tax positions accounted for in accordance with SFAS No.
109, Accounting for Income
Taxes ("SFAS No. 109"). Step one, Recognition, requires us to determine
if the weight of available evidence indicates that a tax position is more likely
than not to be sustained upon audit, including resolution of related appeals or
litigation processes, if any. Step two, Measurement, is based on the largest
amount of benefit, which is more likely than not to be realized on ultimate
settlement. The cumulative effect of adopting FIN No. 48 on January 1, 2007 is
recognized as a change in accounting principle, recorded as an adjustment to the
opening balance of retained earnings on the adoption date.
As a
result of the implementation of FIN No. 48, we recognized a decrease in the
liability in the amount of $388,000 for unrecognized tax benefits related to tax
positions taken in prior periods. This is reflected as a change in accounting
principle, as an adjustment to opening retained earnings. Additionally, we
reclassified $160,000 from current taxes payable to long-term taxes payable as
FIN No. 48 specifies that tax positions for which the timing of the ultimate
resolution is uncertain should be recognized as long-term
liabilities.
Upon
adoption of FIN No. 48, our policy to include interest and penalties related to
unrecognized tax benefits within our provision for (benefit from) income taxes
did not change.
Our total
amount of unrecognized tax benefits as of January 1, 2007 (adoption date) and
December 31, 2007 were $2,248,000 and $1,860,000, respectively. Also, our total
amount of unrecognized tax benefits that, if recognized, would affect its
effective tax rate were $548,000 and $160,000 as of January 1, 2007 and December
31, 2007, respectively.
The tax
years 1993 to 2006 remain open in several jurisdictions, none of which have
individual significance.
|
Balance at January 1,
2007
|
$ | 2,248,000 | ||
|
Additions based on tax positions
related to the current year
|
- | |||
|
Additions for tax positions of
prior years
|
- | |||
|
Reductions for tax positions of
prior years
|
(388,000 | ) | ||
|
Settlements
|
- | |||
|
Balance at December 31,
2007
|
$ | 1,860,000 |
Note 7---Commitments
and Contingencies
Warranties
and Indemnification
We
provide a warranty to our 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, 2007 and December 31,
2006.
Our
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. Accordingly, we have not recorded any liabilities for these agreements
as of December 31, 2007 and 2006, respectively.
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 either December 31, 2007
or December 31, 2006. 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 2012. 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 millions):
|
Operating
|
||||
|
Leases
|
||||
|
Years
Ending December 31,
|
||||
|
2008
|
$ | 2.0 | ||
|
2009
|
1.8 | |||
|
2010
|
1.3 | |||
|
2011
|
1.1 | |||
|
2012
|
0.5 | |||
|
Total
minimum lease payments
|
$ | 6.7 | ||
These
future minimum lease payments exclude approximately $3.1 million of
sublease income to be received under non-cancelable sublease agreements. As of
December 31, 2007, we have accrued $1.3 million of estimated future facilities
costs as a restructuring accrual.
Rent
expense for the years ended December 31, 2007, 2006 and 2005 was $1,598,000,
$2,315,000, and $3,187,000, respectively.
Standby
Letter of Credit Commitments
Commitments
totaling $1.0 million as of December 31, 2007 and $2.0 million as of
December 31, 2006, in the form of standby letters of credit, were issued on our
behalf from financial institutions, in favor of our various landlords to secure
obligations under our facility leases.
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 8---Restructuring
The following
table summarizes the restructuring accrual activity recorded during the
three-years ended December 31, 2007 (in thousands):
|
Severance
|
Facilities/
|
|||||||||||
|
and
|
Excess
|
|||||||||||
|
Benefits
|
Assets
|
Total
|
||||||||||
|
Accrual
balances, December 31, 2004
|
$ | 824 | $ | 33,339 | $ | 34,163 | ||||||
|
Restructuring
charges (credits)
|
1,006 | (1,468 | ) | (462 | ) | |||||||
|
Cash
payments
|
(1,414 | ) | (25,032 | ) | (26,446 | ) | ||||||
|
Accrual
balances, December 31, 2005
|
416 | 6,839 | 7,255 | |||||||||
|
Restructuring charges
(credits)
|
348 | (3,717 | ) | (3,369 | ) | |||||||
|
Cash
payments
|
(417 | ) | (907 | ) | (1,324 | ) | ||||||
|
Accrual balances,
December 31, 2006
|
347 | 2,215 | 2,562 | |||||||||
|
Restructuring (credits)
charges
|
(347 | ) | 996 | 649 | ||||||||
|
Cash
payments
|
- | (1,877 | ) | (1,877 | ) | |||||||
|
Accrual
balances, December 31,
2007
|
$ | - | $ | 1,334 | $ | 1,334 | ||||||
The
severance and benefits accrual for each period includes severance, payroll taxes
and COBRA benefits related to restructuring plans implemented prior to the
balance sheet date. The facilities/excess assets accrual for each period
included future minimum lease payments, fees and expenses, net of estimated
sublease income and planned company occupancy, and related leasehold improvement
amounts payable subsequent to the balance sheet date for which the provisions of
EITF 94-3 or SFAS 146, as applicable, were satisfied. See further
discussion below. In determining estimated future sublease income, the following
factors were considered, among others: opinions of independent real estate
experts, current market conditions and rental rates, an assessment of the time
period over which reasonable estimates could be made, the status of negotiations
with potential subtenants, and the location of the respective
facilities.
In
September 2006, we decided not to exercise a $4.5 million buy-out option for a
50,000 square foot lease for 66 months from January 1, 2007 through June 30,
2012 at Pacific Shores Center. We instead decided to occupy a portion of the new
space and sub-lease the remaining excess space. As noted above, in January 2007,
we moved into our new worldwide headquarters at Pacific Shores Center, occupying
approximately 27,000 square feet of office facilities used for research and
development, technical support, sales, marketing, consulting, training and
administration. We subleased approximately 22,500 square feet effective on
January 8, 2007.
The
nature of the charges and credits in 2007 were as follows:
|
l
|
Severance and
benefits -- In 2007, we have reversed these severance accruals
due to the expiration of the relevant statute of limitations. This
resulted into a reversal of the related accrual of
$347,000.
|
|
l
|
Facilities/excess
assets -- During 2007, one of the leases located in Redwood
City, California expired. We incurred an asset retirement obligation of
$40,000 before returning the property to the
landlord.
|
The
nature of the charges and credits in 2006 were as follows:
|
l
|
Severance and
benefits -- During the year ended December 31, 2006, we
recorded $348,000 in severance charges related to the approved Work
Reduction Plan. Due to this strict European labor law we were not able to
recognize severance charges for three employees until
2006.
|
|
l
|
Facilities/excess
assets -- During the year ended December 31, 2006, we
recorded a facilities-related restructuring credit of $3.7 million.
In the third quarter of 2006, we did not exercise a $4.5 million option to
buy out the residual lease obligation entered in 2004 and the buyout
option expired. Therefore, we reversed the 2004 accrual in the third
quarter of 2006. In the fourth quarter of 2006, we subleased 22,500 square
feet of excess space and adjusted the restructuring accrual accordingly.
We made cash payments of $0.9 million during the year ended
December 31, 2006 related to these
agreements.
|
The
nature of the charges and credits in 2005 were as follows:
|
l
|
Severance and benefits ---
On June 29, 2005, our Board of Directors approved a business
restructuring plan, primarily consisting of headcount reductions, designed
to adjust expenses to a level more consistent with anticipated revenues.
The reduction included approximately 63 employees, or 22% of our
workforce. We recorded severance charges of approximately $1.1 million in
the year ended December 31, 2005, related to workforce reductions as a
component of our restructuring plans executed during the
year.
|
|
l
|
Facilities/excess assets
--- During the year ended December 31, 2005, we recorded a
facilities-related restructuring credit of $1.5 million. During the third
and fourth quarters of 2004 and the first quarter of 2005, we reached
agreements with certain landlords to extinguish future real estate
obligations. In addition, we entered into subleases in 2005 in excess of
those anticipated. We made cash payments of $25.0 million during the
twelve months ended December 31, 2005 related to buyout agreements. We
have a letter of credit of $2.0 million secured by equal amount of
restricted cash to the landlord securing facilities
leases.
|
As a
component of the settlement of one of the previous leases, we have a residual
lease obligation beginning in 2007 of approximately $9.0 million. We would
have made an additional cash payment of $4.5 million had we exercised an
option to terminate this residual real estate obligation prior to the
commencement of the lease term (January 2007). This option to terminate the
residual lease obligation is accounted for in accordance with SFAS 146 and
is a part of the restructuring credit of $24.6 million recorded in fiscal
2004. As discussed above, in the third quarter of 2006, we did not exercise
the $4.5 million option to buy out the residual lease obligation, and the
buy-out option expired. In connection with one of the buyout transactions, we
issued to the landlord a five-year warrant to purchase approximately 700,000
shares of our common stock at an exercise price of $5.00 per share, exercisable
beginning in August 2005. See Note 9.
As of
December 31, 2007, the total restructuring accrual of $1.3 million
consisted of the following (in millions):
|
Non-
|
||||||||||||
|
Current
|
Current
|
Total
|
||||||||||
|
Severance
and termination
|
$ | - | $ | - | $ | - | ||||||
|
Excess
facilities
|
0.5 | 0.8 | 1.3 | |||||||||
|
Total
|
$ | 0.5 | $ | 0.8 | $ | 1.3 | ||||||
We no
longer have excess facilities related to restructured or abandoned leased
space.
The
following table summarizes the activity related to the restructuring plans
initiated after January 1, 2003, and accounted for in accordance with
FAS 146 (in thousands):
|
Amounts
|
Amounts
|
|||||||||||||||||||
|
Charged to
|
Reversed to
|
|||||||||||||||||||
|
Accrued
|
Restructuring
|
Restructuring
|
Amounts
|
Accrued
|
||||||||||||||||
|
Restructuring
|
Costs and
|
Costs and
|
Paid or
|
Restructuring
|
||||||||||||||||
|
Costs,
Beginning
|
Other
|
Other
|
Written Off
|
Costs,
Ending
|
||||||||||||||||
|
Year Ended December 31,
2007:
|
||||||||||||||||||||
|
Lease cancellations and
commitments
|
$ | 77 | $ | 126 | $ | - | $ | (195 | ) | $ | 8 | |||||||||
|
Termination payments to employees
and related costs
|
- | - | - | - | - | |||||||||||||||
|
Write-off on disposal of assets
and related costs
|
- | - | - | - | - | |||||||||||||||
| $ | 77 | $ | 126 | $ | - | $ | (195 | ) | $ | 8 | ||||||||||
|
Year Ended December 31,
2006:
|
||||||||||||||||||||
|
Lease cancellations and
commitments
|
$ | 4,188 | $ | 389 | $ | (4,500 | ) | - | $ | 77 | ||||||||||
|
Termination payments to employees
and related costs
|
105 | 348 | - | (453 | ) | - | ||||||||||||||
| $ | 4,293 | $ | 737 | $ | (4,500 | ) | $ | (453 | ) | $ | 77 | |||||||||
|
Year Ended December 31,
2005:
|
||||||||||||||||||||
|
Lease cancellations and
commitments
|
$ | 21,824 | $ | (821 | ) | $ | - | $ | (16,815 | ) | $ | 4,188 | ||||||||
|
Termination payments to employees
and related costs
|
365 | 1,006 | - | (1,266 | ) | 105 | ||||||||||||||
| $ | 22,189 | $ | 185 | $ | - | $ | (18,081 | ) | $ | 4,293 | ||||||||||
The
following table summarizes the activity related to the restructuring plans
initiated prior to January 1, 2003, and accounted for in accordance with
EITF 94-3 (in thousands):
|
|
Amounts
|
Amounts
|
|
|
||||||||||||||||
|
|
Accrued
|
Charged to
|
Reversed to
|
Amounts
|
|
|||||||||||||||
|
|
Restructuring
|
Restructuring
|
Restructuring
|
Paid or
|
Accrued
|
|||||||||||||||
|
|
Costs,
|
Costs and
|
Costs and
|
Written
|
Restructuring
|
|||||||||||||||
|
|
Beginning
|
Other
|
Other
|
Off
|
Costs,
Ending
|
|||||||||||||||
|
Year Ended December 31,
2007:
|
||||||||||||||||||||
|
Lease cancellations and
commitments
|
$ | 2,138 | $ | 870 | $ | - | $ | (1,682 | ) | $ | 1,326 | |||||||||
|
Termination payments to employees
and related costs
|
347 | - | (347 | ) | - | - | ||||||||||||||
|
Write-off on disposal of assets
and related costs
|
- | - | - | - | - | |||||||||||||||
|
|
$ | 2,485 | $ | 870 | $ | (347 | ) | $ | (1,682 | ) | $ | 1,326 | ||||||||
|
Year Ended December 31,
2006:
|
||||||||||||||||||||
|
Lease cancellations and
commitments
|
$ | 2,651 | $ | 394 | $ | - | $ | (907 | ) | $ | 2,138 | |||||||||
|
Termination payments to employees
and related costs
|
311 | - | - | 36 | 347 | |||||||||||||||
| $ | 2,962 | $ | 394 | - | $ | (871 | ) | $ | 2,485 | |||||||||||
|
Year Ended December 31,
2005:
|
||||||||||||||||||||
|
Lease cancellations and
commitments
|
$ | 11,515 | $ | - | $ | (647 | ) | $ | (8,217 | ) | $ | 2,651 | ||||||||
|
Termination payments to employees
and related costs
|
459 | - | - | (148 | ) | 311 | ||||||||||||||
|
|
$ | 11,974 | $ | - | $ | (647 | ) | $ | (8,365 | ) | $ | 2,962 | ||||||||
Note 9---Stockholders'
Equity
Convertible
Preferred Stock
As of
December 31, 2007, 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
In
November 2004, we entered into a definitive agreement for the private placement
of the $16.0 million in aggregate principal amount of senior subordinated
secured convertible notes (the "Notes") that were convertible, at the holders'
option, into common stock at a conversion price of $2.76 per share. The Notes
bore interest at a rate of six percent per annum, and we were originally
obligated to repay the principal amount of the initial $16.0 million of notes in
15 equal monthly installments of $1.1 million beginning in June 2005. In
November 2005, Dr. Pehong Chen, our Chief Executive Officer and largest
stockholder, acquired all Notes then outstanding. Including interest, the Notes
represented $15.5 million in debt obligations as of December 15, 2005. In order
to relieve us from the liquidity challenges presented by the Notes, Dr. Chen
agreed to cancel all amounts owed under the Notes in exchange for 34,500,000
shares of BroadVision common stock, at an effective price per share of $0.45, a
25% discount to the December 20, 2005 closing price of BroadVision common stock,
and $180,000 in cash that represented the portion of the accrued interest on the
Notes that was not paid in stock. That exchange was completed in March 2006 and
was reported as an increase in additional paid-in capital of approximately $20.7
million.
In
February 2006, we announced a subscription rights offering to existing
stockholders to sell a total of 178 million shares, or 5.9 shares for each share
of BroadVision common stock held as of the record date of December 20, 2005, at
effective price per share of $0.45. The primary purpose of the rights offering
was to allow the holders of BroadVision common stock an opportunity to further
invest in BroadVision in order to maintain their proportionate interest in
BroadVision common stock, at the same price per share as the conversion price
afforded to Dr. Chen in the Notes conversion. Dr. Chen waived any right to
participate in the rights offering.
Our
rights offering expired on November 28, 2006. Eligible participants exercised
rights to purchase approximately 36.4 million shares, resulting in $15.8 million
in net proceeds for us. Then we reduced our total number of
authorized shares of common stock from 2,000,000,000 to 280,000,000 in February
2007. We deregistered the shares not sold in the rights offering and subject to
the registration statement we filed in connection with the rights
offering.
As of
December 31, 2007, we had reserved 8,644,396 common shares for future issuance
upon the exercise of stock options and warrants.
Our CEO
has options to purchase 1,704,444 shares of common stock at a
weighted average exercise price of $38.60 per share. The table below is a
summary of shares granted through December 31, 2007:
|
Vesting
|
||||||||||||||||
|
Options
|
Options
|
Period
|
||||||||||||||
|
Date
Granted
|
Granted
|
Price
|
Vested
|
(Months)
|
||||||||||||
|
06/23/1999
|
500,000 | $ | 60.00 | 500,000 | 60 | |||||||||||
|
05/25/2001
|
500,000 | 66.51 | 500,000 | 48 | ||||||||||||
|
11/27/2001
|
4,444 | 35.01 | 4,444 | 24 | ||||||||||||
|
02/19/2002
|
55,555 | 18.63 | 55,555 | 48 | ||||||||||||
|
10/30/2002
|
644,445 | 2.16 | 644,445 | 48 | ||||||||||||
|
Totals
|
1,704,444 | 1,704,444 | ||||||||||||||
Activity
in the Equity Plan is as follows:
|
Years Ended
December 31,
|
||||||||||||||||||||||||||||||||
|
|
2007
|
2006
|
2005
|
|||||||||||||||||||||||||||||
|
|
|
Weighted-
|
Weighted-
|
Aggregate
|
|
Weighted-
|
|
Weighted-
|
||||||||||||||||||||||||
|
|
|
Average
|
Average
|
Intrinsic
|
|
Average
|
|
Average
|
||||||||||||||||||||||||
|
|
Options
|
Exercise
|
Remaining
|
Value
|
Options
|
Exercise
|
Options
|
Exercise
|
||||||||||||||||||||||||
| Price | Contractual | Price | Price | |||||||||||||||||||||||||||||
| (000's) | Term | (000's) | (000's) | |||||||||||||||||||||||||||||
|
Outstanding at beginning of
period
|
6,239 | $ | 13.48 | 3,765 | $ | 23.48 | 4,876 | $ | 21.93 | |||||||||||||||||||||||
|
Granted
|
599 | 1.70 | 3,880 | 0.59 | 422 | 2.18 | ||||||||||||||||||||||||||
|
Exercised
|
(788 | ) | 0.60 | (46 | ) | 0.57 | (26 | ) | 1.50 | |||||||||||||||||||||||
|
Forfeited
|
(138 | ) | 0.70 | (387 | ) | 0.57 | (1,507 | ) | 13.24 | |||||||||||||||||||||||
|
Expired
|
(66 | ) | 26.58 | (973 | ) | 6.41 | - | - | ||||||||||||||||||||||||
|
Outstanding at end of
period
|
5,846 | 14.16 | 6.41 | $ | 3,326,701 | 6,239 | 13.48 | 3,765 | 23.48 | |||||||||||||||||||||||
|
Options exercisable at end of
period
|
4,831 | $ | 16.89 | 5.88 | $ | 2,616,658 | 3,910 | $ | 21.15 | 3,748 | $ | 23.49 | ||||||||||||||||||||
|
Option vested and expected to vest
at end of period
|
5,775 | $ | 14.31 | 6.38 | $ | 3,301,812 | ||||||||||||||||||||||||||
|
Weighted-average fair value of
options granted during the period
|
$ | 1.33 | $ | 0.34 | $ | 0.70 | ||||||||||||||||||||||||||
|
Aggregate Intrinsic
Value:
|
||||||||||||||||||||||||||||||||
|
Options
exercised
|
$ | 1,303,996 | $ | 9,855 | ||||||||||||||||||||||||||||
|
Options
exercisable
|
$ | 2,616,658 | $ | 249,438 | ||||||||||||||||||||||||||||
We
granted 144,000 shares of fully vested restricted stock to the non-employee
members of our Board of Directors in March 2006, and recorded a stock-based
compensation expense of $82,060. We granted 23,319 shares of restricted stock to
the non-employee members of our Board of Directors in June 2007, and recorded a
stock-based compensation expense of $28,541. These 23,319 shares of
restricted stock will vest over a one-year period measured from the date of the
annual meeting of stockholders held in June 2007, 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 June 2007 annual
meeting, so long as each board member continues to serve as a member of our
board of directors on such vesting date.
The
following table summarizes stock options outstanding under the Equity Plan as of
December 31, 2007:
|
|
Outstanding
|
|
|
|
|||||||||||||||||||||||||||
| Weighted- | |||||||||||||||||||||||||||||||
|
|
Average
|
|
|
|
|||||||||||||||||||||||||||
|
|
Remaining
|
Weighted
|
Exercisable
|
Weighted
|
|||||||||||||||||||||||||||
|
Options
|
Contractual
|
Exercise
|
Options
|
Exercise
|
|||||||||||||||||||||||||||
| Range of Exercise Prices | (000's) | Life in Years | Price | (000's) | Price | ||||||||||||||||||||||||||
| $ | 0.57 | - | $ | 0.57 | 2,333 | 8.17 | $ | 0.57 | 1,982 | $ | 0.57 | ||||||||||||||||||||
| 0.63 | - | 1.90 | 809 | 8.49 | 1.22 | 319 | 1.16 | ||||||||||||||||||||||||
| 2.10 | - | 2.21 | 862 | 5.96 | 2.17 | 688 | 2.16 | ||||||||||||||||||||||||
| 2.35 | - | 35.01 | 737 | 5.10 | 11.76 | 737 | 11.76 | ||||||||||||||||||||||||
| 35.25 | - | 66.51 | 1,093 | 2.43 | 62.29 | 1,093 | 62.29 | ||||||||||||||||||||||||
| 80.09 | - | 252.00 | 10 | 2.49 | 132.65 | 10 | 132.65 | ||||||||||||||||||||||||
| 282.38 | - | 282.38 | 1 | 2.40 | 282.38 | 1 | 282.37 | ||||||||||||||||||||||||
| $ | 299.81 | - | $ | 299.81 | 1 | 2.58 | 299.81 | 1 | 300 | ||||||||||||||||||||||
| 5,846 | 6.41 | $ | 14.16 | 4,831 | $ | 16.89 | |||||||||||||||||||||||||
We grant
options outside of our Equity Plan (2000 Non-Officer Plan and Non-Plan Grants).
The terms of these options are generally identical to those granted under our
Equity Plan. A summary of options granted outside of the plan is presented
below:
|
Years Ended
December 31,
|
||||||||||||||||||||||||||||||||
|
|
2007
|
2006
|
2005
|
|||||||||||||||||||||||||||||
|
|
|
Weighted-
|
Weighted
|
Aggregate
|
|
Weighted-
|
|
Weighted-
|
||||||||||||||||||||||||
|
|
|
Average
|
Average
|
Intrinsic
|
|
Average
|
|
Average
|
||||||||||||||||||||||||
|
|
Options
|
Exercise
|
Remaining
|
Value
|
Options
|
Exercise
|
Options
|
Exercise
|
||||||||||||||||||||||||
| Price | Contractual | Price | Price | |||||||||||||||||||||||||||||
| (000's) | Term | (000's) | (000's) | |||||||||||||||||||||||||||||
|
Outstanding at beginning of
period
|
765 | $ | 9.70 | 588 | $ | 16.70 | 1,151 | $ | 17.69 | |||||||||||||||||||||||
|
Granted
|
- | - | 432 | 0.53 | 3 | 2.10 | ||||||||||||||||||||||||||
|
Exercised
|
(120 | ) | 1.26 | - | - | (28 | ) | 1.50 | ||||||||||||||||||||||||
|
Forfeited
|
- | - | (93 | ) | 0.57 | (141 | ) | 2.14 | ||||||||||||||||||||||||
|
Expired
|
(23 | ) | 18.96 | (162 | ) | 15.74 | (397 | ) | 27.73 | |||||||||||||||||||||||
|
Outstanding at end of
period
|
622 | 11.02 | 6.39 | $ | 454,759 | 765 | 9.70 | 588 | 16.70 | |||||||||||||||||||||||
|
Options exercisable at end of
period
|
565 | $ | 12.09 | 6.20 | $ | 380,860 | 495 | $ | 14.72 | 588 | $ | 16.70 | ||||||||||||||||||||
|
Option vested and expected to vest
at end of period
|
621 | $ | 11.04 | 6.39 | $ | 453,441 | ||||||||||||||||||||||||||
|
Weighted-average fair value of
options granted during the period
|
$ | - | $ | 0.30 | $ | 0.42 | ||||||||||||||||||||||||||
|
Aggregate Intrinsic
Value:
|
||||||||||||||||||||||||||||||||
|
Options
exercised
|
$ | 171,595 | $ | - | ||||||||||||||||||||||||||||
|
Options
exercisable
|
$ | 380,860 | $ | 14,175 | ||||||||||||||||||||||||||||
The
following table summarizes stock options, granted outside the Equity Plan (2000
Non-Officer Plan and non-plan grants), outstanding as of December 31,
2007:
|
Outstanding
|
|||||||||||||||||||||||||||||||
|
Weighted-
|
|||||||||||||||||||||||||||||||
|
Average
|
|||||||||||||||||||||||||||||||
|
Remaining
|
Weighted
|
Exercisable
|
Weighted
|
||||||||||||||||||||||||||||
|
Options
|
Contractual
|
Exercise
|
Options
|
Exercise
|
|||||||||||||||||||||||||||
| Range of Exercise Prices | (000's) | Life in Years | Price | (000's) | Price | ||||||||||||||||||||||||||
| $ | 0.46 | - | $ | 0.46 | 140 | 8.39 | $ | 0.46 | 111 | $ | 0.46 | ||||||||||||||||||||
| 0.48 | - | 0.50 | 40 | 8.47 | 0.49 | 30 | 0.49 | ||||||||||||||||||||||||
| 0.57 | - | 0.57 | 127 | 8.17 | 0.57 | 109 | 0.57 | ||||||||||||||||||||||||
| 1.50 | - | 1.50 | 210 | 4.81 | 1.50 | 210 | 1.50 | ||||||||||||||||||||||||
| 2.10 | - | 60.00 | 78 | 4.63 | 17.89 | 78 | 17.89 | ||||||||||||||||||||||||
| 64.44 | - | 97.37 | 10 | 1.63 | 87.46 | 10 | 87.46 | ||||||||||||||||||||||||
| 241.88 | - | 241.88 | 16 | 2.30 | 241.88 | 16 | 241.88 | ||||||||||||||||||||||||
| $ | 381.94 | - | $ | 381.94 | 1 | 2.09 | 381.93 | 1 | 381.93 | ||||||||||||||||||||||
| 622 | 6.39 | $ | 11.02 | 565 | $ | 12.09 | |||||||||||||||||||||||||
As of
December 31, 2007, total unrecognized compensation cost related to unvested
stock options was $857,000, which is expected to be recognized over the
remaining weighted-average vesting periods of 0.64 year. During the year
ended December 31, 2007 and 2006, we have received cash of $1,484,000 and
$409,000, respectively from the exercise of stock options and employee stock
purchases.
Warrants
Effective
January 1, 2007, we adopted Financial Accounting Standards Board ("FASB") Staff
Position No. EITF 00-19-2, Accounting for Registration Payment
Arrangements ("FSP"). This FSP addresses how to account for registration
payment arrangements and clarifies that a financial instrument subject to a
registration payment arrangement should be accounted for in accordance with
other generally accepted accounting principles ("GAAP") without regard to the
contingent obligation to transfer consideration pursuant to the registration
payment arrangement. This accounting pronouncement further clarifies that a
liability for liquidated damages resulting from registration payment obligations
should be recorded in accordance with SFAS No. 5, Accounting for Contingencies
("SFAS No. 5"), when the payment of liquidated damages becomes probable
and can be reasonably estimated. We do not believe that we have any SFAS No. 5
contingencies as of December 31, 2007 relating to our registration payment
arrangements, nor do we believe that there is a material impact on our
Consolidated Financial Statements as a result of implementing this
FSP.
As of
December 31, 2007, the following warrants to purchase our common stock were
outstanding (dollars in thousands, except per share data):
|
Shares
at
|
Fair
Value at
|
|||||||||||||||||||
|
December 31,
|
Price
per
|
December 31,
|
||||||||||||||||||
|
Description
|
2007
|
2006
|
Share
|
2007
|
2006
|
|||||||||||||||
|
Issued
to landlord in real estate buyout transaction in August
2004
|
700,000 | 700,000 | $ | 5.00 | $ | 167 | $ | 79 | ||||||||||||
|
Issued
to convertible debenture investors in November 2004
|
3,865,811 | 4,206,811 | 1.48 | 4,028 | 1,531 | |||||||||||||||
|
Others
issued in connection with revenue transactions in 1997 and
2000
|
620 | 4,798 |
Various
|
- | - | |||||||||||||||
|
Total
|
4,566,431
|
4,911,609 | 2.04 | $ | 4,195 | $ | 1,610 | |||||||||||||
The
warrant issued in connection with the real estate transaction has a term of five
years, and is exercisable beginning in August 2005. The warrant issued in
connection with the convertible debentures also has a term of five years and is
exercisable beginning in May 2005. Under an anti-dilution provision of the
debt warrants and as triggered by the debt to equity exchange of the Notes and
the rights offering, the debt warrant was reissued in March 2006 and November
2006, respectively.
In
accordance with EITF 00-19 Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company's Own Stock, the warrants
have been included as a short-term liability and were originally valued at fair
value on the date of issuance. During year 2007, we recorded charges related to
the change in fair value of the warrants of approximately $3.1 million. During
year 2007, certain convertible debenture investors exercised 341,000 warrants to
purchase an equivalent number of Company common shares for total cash proceeds
of $505,000. During year 2006, we recorded charges related to the
change in fair value of the warrants of approximately $1.3 million. During year
2005, we recorded credits related to the change in fair value of the warrants of
approximately $4.6 million. These amounts are included as a component of Other
Income (Expense), net, in the accompanying Consolidated Statement of Operations.
If the warrants are exercised prior to their termination, their carrying value
will be transferred to stockholders' equity.
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 50% of their annual compensation, subject to
certain limitations. The Plan allows for discretionary contributions by us. We
made no contributions during the three years ended December 31,
2007.
Note 11---Geographic,
Segment and Significant Customer Information
We
operate in one segment, electronic business commerce 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):
|
Years
Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Software
licenses
|
$ | 21,127 | $ | 15,215 | $ | 14,720 | ||||||
|
Services
|
6,204 | 12,099 | 19,095 | |||||||||
|
Maintenance
|
22,687 | 24,670 | 26,306 | |||||||||
|
Total
revenues
|
$ | 50,018 | $ | 51,984 | $ | 60,121 | ||||||
We sell
our products and provide services worldwide through a direct sales force and
through a channel of independent distributors, value-added resellers ("VARs")
and Application Service Providers ("ASPs"). In addition, the sales of our
products are promoted through independent professional consulting organizations
known as systems integrators. we provide services worldwide through our
BroadVision Global Services Organization and indirectly through distributors,
VARs, ASPs, and systems integrators. We currently operate in three primary
geographical territories, Americas, Europe and Asia/Pacific.
Disaggregated
financial information regarding our products and services and geographic
revenues is as follows (in thousands):
|
Years
Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Revenues:
|
||||||||||||
|
Americas
|
$ | 31,714 | $ | 30,976 | $ | 34,328 | ||||||
|
Europe
|
12,092 | 14,530 | 20,228 | |||||||||
|
Asia/Pacific
|
6,212 | 6,478 | 5,565 | |||||||||
|
Total
Company
|
$ | 50,018 | $ | 51,984 | $ | 60,121 | ||||||
During
the years ended December 31, 2007, 2006 and 2005, no customer accounted for
10% or more of our revenues.
The
following represents property and equipment and goodwill (long-lived assets) by
geographic region (in thousands):
|
December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Long-Lived
Assets:
|
||||||||
|
Americas
|
$ | 25,581 | $ | 26,025 | ||||
|
Europe
|
62 | 104 | ||||||
|
Asia/Pacific
|
111 | 81 | ||||||
|
Total
Company
|
$ | 25,754 | $ | 26,210 | ||||
Note 12---Related
Party Transactions
In June
2007, we executed a software license agreement with a third party in which Dr.
Pehong Chen, our CEO and largest stockholder, is a board member. The total
contract value is $132,000. For the year ended December 31, 2007,
$112,000 was recognized as revenue. We have received payment of $126,000 for the
contract as of December 31, 2007. We incurred $50,000 in direct costs
and expenses relating to this contract.
In 2006,
we executed a consulting agreement with a third party in which the CEO is a
passive owner and convertible note holder. The total contract value is $365,000.
For the year ended December 31, 2006, we recognized $365,000 as revenue. We
received payment for the entire contract in the third quarter of 2006. We
incurred $99,000 in costs and expenses relating to this contract.
Note 13---Quarterly
Results of Operations (Unaudited)
The
following tables set forth certain unaudited Consolidated Statement of
Operations data for the eight quarters ended December 31, 2007, as well as
that data expressed as a percentage of total revenues for the periods
indicated.
This data
has been derived from unaudited Consolidated Financial Statements that, in the
opinion of management, include all adjustments consisting only of normal
recurring adjustments, necessary for a fair presentation of such information
when read in conjunction with the Consolidated Financial Statements and Notes
thereto. We believe that period-to-period comparisons of our
financial results are not necessarily meaningful and should not be relied upon
as an indication of future performance.
|
Three
Months Ended
|
||||||||||||||||||||||||||||||||
|
Dec 31,
|
Sep 30,
|
Jun 30,
|
Mar 31,
|
Dec 31,
|
Sep 30,
|
Jun 30,
|
Mar 31,
|
|||||||||||||||||||||||||
|
2007
|
2007
|
2007
|
2007
|
2006
|
2006
|
2006
|
2006
|
|||||||||||||||||||||||||
|
(In
thousands)
|
||||||||||||||||||||||||||||||||
|
(Unaudited)
|
||||||||||||||||||||||||||||||||
|
Statement
of Operations Data:
|
||||||||||||||||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||||||||||||||
|
Software
licenses
|
$ | 4,620 | $ | 5,280 | $ | 5,494 | $ | 5,733 | $ | 3,956 | $ | 4,750 | $ | 3,627 | $ | 2,882 | ||||||||||||||||
|
Services
|
6,629 | 7,476 | 7,774 | 7,012 | 9,090 | 8,835 | 9,102 | 9,742 | ||||||||||||||||||||||||
|
Total
revenues
|
11,249 | 12,756 | 13,268 | 12,745 | 13,046 | 13,585 | 12,729 | 12,624 | ||||||||||||||||||||||||
|
Cost
of revenues:
|
||||||||||||||||||||||||||||||||
|
Cost
of software licenses
|
8 | 3 | 22 | 12 | 32 | 22 | 142 | 62 | ||||||||||||||||||||||||
|
Cost
of services
|
2,251 | 2,102 | 2,215 | 2,393 | 2,173 | 2,729 | 3,496 | 4,058 | ||||||||||||||||||||||||
|
Total
cost of revenues
|
2,259 | 2,105 | 2,237 | 2,405 | 2,205 | 2,751 | 3,638 | 4,120 | ||||||||||||||||||||||||
|
Gross
profit
|
8,990 | 10,651 | 11,031 | 10,340 | 10,841 | 10,834 | 9,091 | 8,504 | ||||||||||||||||||||||||
|
Operating
expenses:
|
||||||||||||||||||||||||||||||||
|
Research
and development
|
2,247 | 2,283 | 2,483 | 2,655 | 2,708 | 2,766 | 2,405 | 2,631 | ||||||||||||||||||||||||
|
Sales
and marketing
|
2,383 | 1,898 | 1,781 | 2,069 | 2,529 | 1,761 | 1,982 | 2,381 | ||||||||||||||||||||||||
|
General
and administrative
|
2,042 | 1,705 | 1,479 | 1,067 | 613 | 2,429 | 3,239 | 1,738 | ||||||||||||||||||||||||
|
Goodwill
impairment
|
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
Restructuring
(credits), charges
|
(195 | ) | 260 | 306 | 278 | (1,966 | ) | (1,878 | ) | (15 | ) | 490 | ||||||||||||||||||||
|
Business
combination charges
|
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||
|
Total
operating expenses
|
6,477 | 6,146 | 6,049 | 6,069 | 3,884 | 5,078 | 7,611 | 7,240 | ||||||||||||||||||||||||
|
Operating
income
|
2,513 | 4,505 | 4,982 | 4,271 | 6,957 | 5,756 | 1,480 | 1,264 | ||||||||||||||||||||||||
| Other income (expense), net | 3,419 | 538 | 3,688 | (6,711 | ) | 248 | (163 | ) | 335 | (227 | ) | |||||||||||||||||||||
|
Income
taxes (expense) benefit
|
(60 | ) | 419 | (230 | ) | (56 | ) | (185 | ) | (228 | ) | (65 | ) | (156 | ) | |||||||||||||||||
|
Net
income (loss)
|
$ | 5,872 | $ | 5,462 | $ | 8,440 | $ | (2,496 | ) | $ | 7,020 | $ | 5,365 | $ | 1,750 | $ | 881 | |||||||||||||||
|
Basic
net income (loss) per share
|
$ | 0.05 | $ | 0.05 | $ | 0.08 | $ | (0.02 | ) | $ | 0.09 | $ | 0.08 | $ | 0.03 | $ | 0.02 | |||||||||||||||
|
Diluted
net income (loss) per share
|
$ | 0.05 | $ | 0.05 | $ | 0.08 | $ | (0.02 | ) | $ | 0.09 | $ | 0.08 | $ | 0.03 | $ | 0.02 | |||||||||||||||
|
Shares
used in computing basic net income (loss) per share
|
108,648 | 108,253 | 107,424 | 106,667 | 80,878 | 69,489 | 69,151 | 42,958 | ||||||||||||||||||||||||
|
Shares
used in computing diluted net income (loss) per share
|
111,896 | 111,577 | 111,035 | 106,667 | 80,878 | 69,489 | 69,151 | 43,068 | ||||||||||||||||||||||||
BroadVision's
quarterly operating results have fluctuated in the past and may fluctuate
significantly in the future as a result of a variety of factors, many of which
are outside of our control. It is likely that our operating results in one or
more future quarters may be below the expectations of securities analysts and
investors. In that event, the trading price of our common stock almost certainly
would decline.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On
November 29, 2005, BDO Seidman, LLP ("BDO") delivered to us a letter dated
November 28, 2005 stating that it had resigned as our independent
registered public accounting firm. On January 20, 2006, we engaged
Stonefield Josephson, Inc. ("Stonefield Josephson") as our independent
registered public accounting firm.
On
October 13, 2006, the Audit Committee of our Board of Directors approved the
replacement of Stonefield Josephson as our independent registered public
accounting firm, and we advised Stonefield Josephson of its dismissal on October
14, 2006. The report of Stonefield Josephson on our Consolidated Financial
Statements for the year ended December 31, 2005 did not contain any adverse
opinion or a disclaimer of opinion, nor was it qualified or modified as to
uncertainty, audit scope or accounting principles.
During
the year ended December 31, 2005 and through October 14, 2006, there were no
disagreements with Stonefield Josephson on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of Stonefield
Josephson, would have caused it to make reference thereto in its report on the
financial statements for such periods, except as follows. During the course of
the preparation of our financial statements for the year ended December 31,
2005, there were two disagreements between Stonefield Josephson and our
management, both of which were resolved to Stonefield Josephson's satisfaction
prior to the issuance of the financial statements. These two matters concerned
the appropriate accounting for (i) the embedded derivatives related to the
convertible debt arrangements we entered into in November 2004 and (ii) the
transactions we effected pursuant to the Debt Conversion Agreement we entered
into in December 2005. The Audit Committee of our Board of Directors
subsequently discussed these matters with Stonefield Josephson and our
management and was satisfied with the resolution of the matters.
On
October 16, 2006, we engaged the independent registered public accounting firm
Odenberg, Ullakko, Muranishi & Co. LLP ("OUM") as our new independent
accountants. Prior to the engagement of OUM, including the two most recent
fiscal years through October 16, 2006, neither we nor anyone acting on our
behalf consulted with OUM regarding (i) either the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on our financial statements, and neither
a written report was provided to us or oral advice was provided that OUM
concluded was an important factor considered by us in reaching a decision as to
the accounting, auditing or financial reporting issue or (ii) any matter that
was either the subject of a disagreement, as that term is defined in Item
304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of
Regulation S-K, or a reportable event, as that term is defined in Item
304(a)(1)(v) of Regulation S-K. The Audit Committee of our Board of Directors
approved the engagement of OUM as our independent registered public accounting
firm on October 13, 2006.
ITEM 9A. CONTROLS AND PROCEDURES
|
(a)
|
Evaluation
of Disclosure Controls and
Procedures
|
As
previously reported in our Annual Report on Form 10-K, as of December 31,
2006, we identified one material weakness in our internal control over financial
reporting. This material weakness related to insufficient number of
experienced personnel in our accounting and finance organization had been fully
remediated as of December 31, 2007.
An
evaluation as of December 31, 2007 was carried out under the supervision and
with the participation of our management, including our Chief Executive Officer
and our Chief Financial Officer, of the effectiveness of the design and
operation of our "disclosure controls and procedures," which are defined under
SEC rules as controls and other procedures of a company that are designed to
ensure that information required to be disclosed by a company in the reports
that it files under the Securities Exchange Act of 1934, as amended, (Exchange
Act) is recorded, processed, summarized and reported within required time
periods. Based upon that evaluation, our Chief Executive Officer and our Chief
Financial Officer concluded that our disclosure controls and procedures were
effective as of December 31, 2007.
(b)
Management's Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f). Our internal control system is designed to provide reasonable
assurance regarding the preparation and fair presentation of financial
statements for external purposes in accordance with generally accepted
accounting principles. All internal control systems, no matter how well
designed, have inherent limitations and can provide only reasonable assurance
that the objectives of the internal control system are met.
Under the
supervision and with the participation of our management, including our Chief
Executive Officer and our Chief Financial Officer, we conducted an evaluation of
the effectiveness of our internal control over financial reporting, based on
criteria established in Internal Control¡XIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
only one material weakness in internal control over financial reporting as of
December 31, 2006 that we previously reported had been fully remediated as of
December 31, 2007. Based on our evaluation, we concluded that our
internal control over financial reporting was effective as of December 31,
2007.
Our
independent registered public accounting firm, Odenberg, Ullakko, Muranishi
& Co. LLP, has audited our Consolidated Financial Statements for two years
ended December 31, 2007 included in this Annual Report on Form 10-K and has
issued a report on the effectiveness of our internal control over financial
reporting as of December 31, 2007.
(c)
Changes in Internal Control over Financial Reporting
Our
management, including our Chief Executive Officer and Chief Financial Officer,
has evaluated any changes in our internal control over financial reporting that
occurred during the quarter ended December 31, 2007, and has concluded that
there was no change during such quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
Not
applicable.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERANCE
The
information required by this Item is incorporated by reference to sections of
our Definitive Proxy Statement to be filed with the SEC pursuant to Regulation
14A in connection with the Annual Meeting of Stockholders to be held in June
2008 (the Proxy Statement) under the sections captioned "Proposal 1 -- Election
of Directors", "Executive Compensation", "Information about the Board of
Directors -- Code of Business Conduct and Ethics", "Board Committees and
Meetings" and "Section 16(a) Beneficial Ownership Reporting
Compliance".
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item
is incorporated by reference to the Proxy Statement under the sections captioned
"Executive Compensation", "Compensation Committee Interlocks and Insider
Participation", "Compensation Committee Report" and "Overview of Director
Compensation and Procedures".
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 under the sections captioned "Security Ownership of Certain Beneficial
Owners and Management" and "Equity Compensation Plan Information".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
The
information required by this Item is incorporated by reference to the Proxy
Statement under the sections captioned "Certain Relationships and Related Party
Transactions" and "Information about the Board of Directors".
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
information required by this Item is incorporated by reference to the Proxy
Statement under the section captioned "Public Accounting Fees and
Services".
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The
following documents are filed as a part of this Report.
1. Consolidated Financial
Statements. The following Consolidated Financial Statements 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, 2007 and 2006
Consolidated
Statements of Operations for each of the three years in the period ended
December 31, 2007
Consolidated
Statements of Stockholders' Equity and Comprehensive Income (Loss) for each of
the years in the three-year period ended December 31, 2007
Consolidated
Statements of Cash Flows for each of the three years in the period ended
December 31, 2007
Notes to
Consolidated Financial Statements
2. Financial Statement Schedule.
Attached to this Annual Report on Form 10-K.
Schedule II---Valuation
and Qualifying Accounts
3. Exhibits. The exhibits listed on the
accompanying Index to Exhibits immediately following the consolidated financial
statement schedule are filed as part of, or incorporated by reference into, this
Annual Report on Form 10-K.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in Redwood City, State of
California, on this 21st day of
February 2008.
BROADVISION, INC.
|
|
By:
|
/s/ PEHONG CHEN | |
| Pehong Chen | |||
| Chairman of the Board, President, and Chief Executive Officer | |||
POWER
OF ATTORNEY
KNOW ALL
MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Pehong Chen to sign any amendments to this Annual
Report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that the said attorney-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
||
|
/s/ Pehong
Chen
|
February
21, 2008
|
|||
|
Pehong
Chen
|
Chairman
of the Board, President, Chief Executive Officer, and (Principal Executive
Officer)
|
|||
|
/s/ Shin-yuan
Tzou
|
||||
|
Shin-Yuan
Tzou
|
Chief
Financial Officer
(Principal
Financial and Accounting Officer)
|
February
21, 2008
|
||
|
/s/ Francois
Stieger
|
February
21, 2008
|
|||
|
Francois
Stieger
|
Director
|
|||
|
/s/ James
D. Dixon
|
February
21, 2008
|
|||
|
James
D. Dixon
|
Director
|
|||
|
/s/
Robert Lee
|
February
21, 2008
|
|||
|
Robert
Lee
|
Director
|
BROADVISION, INC.
AND SUBSIDIARIES
SCHEDULE
II---VALUATION AND QUALIFYING ACCOUNTS
(In
thousands)
|
Charged
|
||||||||||||||||
|
Balance
at
|
(Credited)
to
|
Balance
at
|
||||||||||||||
|
Beginning
of
|
Costs
and
|
End
of
|
||||||||||||||
|
Period
|
Expenses
|
Deductions(1)
|
Period
|
|||||||||||||
|
Receivable
reserves:
|
||||||||||||||||
|
Year
Ended December 31, 2007
|
$ | 1,141 | $ | 248 | $ | (804 | ) | $ | 585 | |||||||
|
Year
Ended December 31, 2006
|
$ | 731 | $ | 487 | $ | (77 | ) | $ | 1,141 | |||||||
|
Year
Ended December 31, 2005
|
$ | 1,409 | $ | (598 | ) | $ | (80 | ) | $ | 731 | ||||||
BROADVISION, INC.
ANNUAL REPORT ON FORM 10-K DECEMBER 31, 2007
INDEX
TO EXHIBITS
|
Exhibit
|
Description
|
|
|
3.1(1)
|
Amended
and Restated Certificate of Incorporation.
|
|
|
3.2(6)
|
Certificate
of Amendment of Certificate of Incorporation.
|
|
|
3.3(16)
|
Amended
and Restated Bylaws.
|
|
|
3.4(20)
|
Certificate
of Amendment of Certificate of Incorporation.
|
|
|
4.1(1)
|
References
are hereby made to Exhibits 3.1, 3.2, and 3.4.
|
|
|
4.2(18)
|
Registration
Rights Agreement dated November 10, 2004 among the company and
certain investors listed on Exhibit A thereto.
|
|
|
4.3(14)
|
Registration
Rights Agreement dated March 8, 2006, between the company and Honu
Holdings LLC.
|
|
|
10.1(8)(a)
|
Equity
Incentive Plan as amended through May 1, 2002 (the "Equity Incentive
Plan").
|
|
|
10.2(1)(a)
|
Form
of Incentive Stock Option under the Equity Incentive Plan.
|
|
|
10.3(1)(a)
|
Form
of Nonstatutory Stock Option under the Equity Incentive
Plan.
|
|
|
10.4(1)(a)
|
Form
of Nonstatutory Stock Option (Performance-Based).
|
|
|
10.5(8)(a)
|
1996
Employee Stock Purchase Plan as amended May 1, 2002 (the "Employee
Stock Purchase Plan").
|
|
|
10.6(1)(a)
|
Employee
Stock Purchase Plan Offering (Initial Offering).
|
|
|
10.7(1)(a)
|
Employee
Stock Purchase Plan Offering (Subsequent Offering).
|
|
|
10.8(1)(b)
|
Terms
and Conditions dated January 1, 1995 between IONA
Technologies LTD and the company.
|
|
|
10.9(2)(a)
|
Employee
Stock Purchase Plan Offering (2007 Offering).
|
|
|
10.10(5)
|
BroadVision, Inc.
Change in Control Severance Benefit Plan, established effective March 26,
2007.
|
|
|
10.11(11)
|
Lease
Termination Agreement with The Board of Trustees of The Leland Stanford
Junior University.
|
|
|
10.12(3)(a)
|
2000
Non-Officer Equity Incentive Plan.
|
|
|
10.13(4)(b)
|
Independent
Software Vendor Agreement dated June 30, 1998 between the company and
IONA Technologies, PLC, as amended.
|
|
|
10.14(7)
|
Form
of Indemnity Agreement between the company and each of its directors and
executive officers.
|
|
|
10.15(9)
|
Offer
letter dated March 4, 2003 by and between the company and William
Meyer.
|
|
|
10.16(10)
|
BroadVision, Inc.
Change in Control Severance Benefit Plan, established effective
May 22, 2003.
|
|
|
10.17(10)
|
BroadVision, Inc.
Executive Severance Benefit Plan, established effective May 22,
2003.
|
|
|
10.18(13)
|
Assignment
and Assumption of Master Lease, Partial Termination of Master Lease and
Assignment and Assumption of Subleases, dated July 7, 2004, between
Pacific Shores Investors, LLC and the company.
|
|
|
10.19(13)
|
Warrant
to Purchase up to 700,000 share of common stock, dated July 7, 2004,
issued to Pacific Shores Investors, LLC.
|
|
|
10.20(13)
|
Triple
Net Space Lease, dated as of July 7, 2004, between Pacific Shores
Investors, LLC and the company.
|
|
|
10.21(14)
|
Securities
Purchase Agreement dated as of November 10, 2004.
|
|
|
10.22(16)
|
Agreement
to Restructure Lease and To Assign Subleases dated as of October 1,
2004 between VEF III Funding, LLC and the company.
|
|
|
10.23(17)
|
Amendment
No. 5 to IONA Independent Software Vendor Agreement dated
December 20, 2004, between IONA Technologies, Inc. and the
company.
|
|
|
10.24(15)
|
Debt
Conversion Agreement dated as of December 20, 2005, between the company
and Honu Holdings, LLC
|
|
|
10.25(12)
|
2006
Equity Incentive Plan
|
|
|
10.26(19)
|
Agreement
to Assign Lease and Sublease dated as of January 8, 2007 between the company
and Dexterra, Inc.
|
|
|
21.1
|
Subsidiaries
of the company.
|
|
|
23.1
|
Consent
of Stonefield Josephson, Inc.
|
|
|
23.2
|
Consent
of Odenberg, Ullakko, Muranishi & Co. LLP, an independent registered
public accounting firm
|
|
|
24.1
|
Power
of Attorney, pursuant to which amendments to this Annual Report on
Form 10-K may be filed, is included on the signature pages
hereto.
|
|
|
31.1
|
Certification
of the Chief Executive Officer of the company.
|
|
|
31.2
|
Certification
of the Chief Financial Officer of the company.
|
|
|
32.1
|
Certification
of the Chief Executive Officer and Chief Financial Officer of the company
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
(1) Incorporated
by reference to the company's Registration Statement on Form S-1
filed on April 19, 1996 as amended by Amendment No. 1 filed on
May 9, 1996, Amendment No. 2 filed on May 29, 1996 and
Amendment No. 3 filed on June 17,
1996.
|
|
|
(2) Incorporated
by reference to the company's Registration Statement on Form S-8
filed on August 29, 2007.
|
|
|
(3) Incorporated
by reference to the company's Registration Statement on Form S-8
filed on October 15, 2003.
|
|
|
(4) Incorporated
by reference to the company's Form 10-Q for the quarter ended
June 30, 2001 filed on August 14,
2001.
|
|
|
(5)
Incorporated by reference to the company's Current Report on Form 8-K
filed on March 30, 2007.
|
|
|
(6) Incorporated
by reference to the company's Proxy Statement filed on May 14,
2002.
|
|
|
(7) Incorporated
by reference to the company's Form 10-Q for the quarter ended
September 30, 2002 filed on November 14,
2002.
|
|
|
(8) Incorporated
by reference to the company's Registration Statement on Form S-8
filed on August 1, 2002.
|
|
|
(9) Incorporated
by reference to the company's Form 10-Q for the quarter ended
March 31, 2003 filed on May 14,
2003.
|
|
|
(10)
Incorporated by reference to the company's Form 10-Q for the quarter
ended June 30, 2003 filed on August 14,
2003.
|
|
|
(11)
Incorporated by reference to the company's Current Report on Form 8-K
filed on November 09, 2007.
|
|
|
(12)
Incorporated by reference to the company's Registration Statement on Form
S-8 filed on November 6, 2006.
|
|
|
(13)
Incorporated by reference to the company's Current Report on Form 8-K
filed on August 9, 2004.
|
|
|
(14)
Incorporated by reference to the company's Current Report on Form 8-K
filed on November 10, 2004.
|
|
|
(15) Incorporated
by reference to the company's Current Report on Form 8-K filed on December
22, 2005.
|
|
|
(16)
Incorporated by reference to the company's Current Report on Form 8-K
filed on November 19, 2004.
|
|
|
(17)
Incorporated by reference to the company's Current Report on Form 8-K
filed on December 23, 2004.
|
|
|
(18)
Incorporated by reference to the company's Current Report on Form 8-K
filed on February 1, 2005.
|
|
(19)
Incorporated by reference to the company's Current Report on Form 8-K
filed on January 10, 2007.
|
|
|
|
(20)
Incorporated by reference to the company's Form 10-K for the fiscal
year ended December 31, 2006 filed on March 27,
2007.
|
(a)
Represents a management contract or compensatory plan or
arrangement.
(b)
Confidential treatment requested.
~64~