sv1
As filed with the Securities and
Exchange Commission on February 3, 2006
Registration
No. 333-
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BroadVision, Inc.
(Exact name of Registrant as
specified in its charter)
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Delaware
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7371
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94-3184303
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code number)
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(I.R.S. Employer
Identification Number)
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585 Broadway
Redwood City, CA 94063
(650) 261-5100
(Address, including zip code,
and telephone number,
including area code, of
Registrants principal executive offices)
Pehong Chen
President and Chief Executive
Officer
BroadVision, Inc.
585 Broadway
Redwood City, CA 94063
(650) 261-5100
(Name, address, including zip
code, and telephone number,
including area code, of agent
for service)
Copies to:
Kenneth L. Guernsey
Virginia C. Edwards
Peter H. Werner
Cooley Godward
llp
101
California St., Fifth Floor
San Francisco,
California 94111
(415)
693-2000
Approximate date of commencement of proposed sale to the
public: From time to time after the registration
statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
CALCULATION
OF REGISTRATION FEE
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Proposed Maximum
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Proposed Maximum
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Amount of
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Title of Each Class of
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Amount to
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Offering
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Aggregate
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Registration
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Securities to be
Registered
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be Registered(1)
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Price Per Share
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Offering Price
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Fee(2)
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Common stock, par value
$0.0001 per share
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167,677,290 shares
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$0.45
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$75,454,781
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$8,074
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Subscription Rights(3)
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167,677,290 shares
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N/A
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N/A
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$0(4)
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(1)
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Pursuant to Rule 416 of the Securities Act of 1933, there
are also being registered an indeterminate number of additional
shares of common stock as may become offered, issuable or sold
to prevent dilution resulting from stock splits, stock dividends
or similar transactions.
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(2)
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Calculated in accordance with Rule 457(o) of the Securities
Act of 1933.
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(3)
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Consisting of 28,553,695 rights, each of which evidences the
right to subscribe for 5.87235 shares of BroadVision common
stock.
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(4)
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No consideration will be received by BroadVision upon
distribution of the subscription rights. No registration fee is
required for the registration of subscription rights pursuant to
Rule 457(g) of the Securities Act.
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The registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The
information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities and we are not soliciting offers to buy these
securities in any jurisdiction where the offer or sale is not
permitted.
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SUBJECT TO COMPLETION, DATED
FEBRUARY 3, 2006
PROSPECTUS
167,677,290 Shares
Common Stock
We are distributing to our stockholders, at no charge,
non-transferable subscription rights to purchase up to an
aggregate of 167,677,290 shares of BroadVision common stock
at a cash subscription price of $0.45 per share. Each
stockholder will receive one subscription right for each share
of BroadVision common stock owned of record on December 20,
2005. Each subscription right will entitle the holder to
purchase 5.87235 shares of BroadVision common stock,
rounded down in the aggregate to the nearest whole number. We
refer to this as the basic subscription privilege.
Each subscription right will carry with it an over-subscription
privilege for shares that are not otherwise purchased through
the exercise of the basic subscription privilege.
The subscription rights will expire if they are not exercised by
5:00 p.m. Pacific Time on March 3, 2006, the expected
expiration date of the rights offering. We, in our sole
discretion, may extend the period for exercising the
subscription rights. Subscription rights that are not exercised
by the expiration date of the rights offering will expire and
will have no value. You should carefully consider whether or not
to exercise your subscription rights before the expiration date.
We estimate that the net proceeds from the sale of
167,677,290 shares of BroadVision common stock that we
propose to sell in the rights offering would be approximately
$75.0 million, or $0.45 per share after deducting
estimated offering expenses payable by us, if all shares are
sold.
Investing in BroadVision common stock involves risks. You
should consider carefully the risk factors beginning on
page 4 before deciding whether to exercise your
subscription rights.
BroadVision common stock trades on the NASDAQ National Market
under the symbol BVSN. On February 1, 2006, the
last reported sale price for BroadVision common stock was
$0.52 per share.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus
is ,
2006
TABLE OF
CONTENTS
References in this prospectus to we, us
and our refer to BroadVision, Inc. and its
subsidiaries. BroadVision, BroadVision
One-To-One,
iGuide, Interleaf and Interleaf Xtreme are our
U.S. registered trademarks. Our common law trademarks
(designated by
tm)
in the United States and other countries include BroadVision
Commerce, BroadVision Content, BroadVision Deployment,
BroadVision eMarketing, BroadVision Multi-Touchpoint,
BroadVision Portal, BroadVision Process, BroadVision
QuickSilver, BroadVision Search, Energizing
e-Business,
Click-to-Create,
BroadVision Command Center, BroadVision Publishing Center,
BroadVision Instant Publisher, and any of the registered marks
that are not registered in the particular country where the mark
is being used. Trademarks, service marks and trade names of
other companies appearing in this prospectus are the property of
their respective holders.
You should rely only on the information and representations
provided in this prospectus. We have not authorized anyone to
provide you with any different information or to make any
different representations in connection with any offering made
by this prospectus. This prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, in any state
where the offer or sale is prohibited. Neither the delivery of
this prospectus, nor any sale made under this prospectus shall,
under any circumstances, imply that the information in this
prospectus is correct as of any date after the date of this
prospectus.
FORWARD-LOOKING
STATEMENTS AND INDUSTRY DATA
This prospectus, including particularly the sections entitled
Prospectus Summary, Risk Factors,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and
Business, contains forward-looking statements. In
some cases, you can identify forward-looking statements by words
such as may, will, should,
expects, intends, plans,
anticipates, believes,
estimates, predicts,
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 prospectus. These statements
are only predictions based on our current expectations
i
and projections about future events, and we cannot guarantee
future results, levels of activity, performance or achievements.
Information regarding market and industry statistics contained
in the Prospectus Summary and Business
sections of this prospectus 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.
QUESTIONS &
ANSWERS ABOUT THE RIGHTS OFFERING
What is
the rights offering?
The rights offering is a distribution, at no charge, of
non-transferable subscription rights on a pro rata basis to all
of our stockholders. We are distributing subscription rights for
every share of BroadVision common stock held on
December 20, 2005, the record date. If all subscription
rights are exercised, we will issue approximately
167,677,290 shares of BroadVision common stock in the
rights offering, raising net proceeds of approximately
$75.0 million after deducting estimated offering expenses
payable by us.
What is
the purpose of the rights offering?
On November 18, 2005, our Chief Executive Officer and
largest stockholder, Dr. Pehong Chen, acquired through his
wholly owned affiliate Honu Holdings LLC, a Delaware limited
liability company (Honu), all of our outstanding
senior subordinated convertible notes (the Notes).
Including accrued interest, the Notes represented approximately
$15.5 million in debt obligations as of December 20,
2005. In order to relieve BroadVision from the liquidity
challenges presented by the Notes, Dr. Chen has agreed to
cancel all amounts owed under the Notes in exchange for
34,500,000 shares of BroadVision common stock at an
effective price per share of $0.45, representing a 25% discount
to the December 20, 2005 closing price of BroadVision
common stock of $0.60 per share. We refer to this as the
Note Conversion. In connection with the
Note Conversion, promptly following the completion of the
rights offering we expect to cancel the Notes and issue
approximately 34,500,000 new shares of common stock to
Dr. Chen that, depending on the number of shares issued in
the rights offering, will represent up to approximately 50% of
our total outstanding common stock immediately following such
issuance. Because of the highly dilutive nature of the Note
Conversion, our primary purpose for the rights offering is to
allow the holders of BroadVision common stock at the time of the
Note Conversion 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 Note Conversion.
Dr. Chen has waived any right to participate in the rights
offering. References herein to Dr. Chen include references
to Honu.
If I am a
stockholder, how does the Note Conversion affect my
ownership interest in BroadVision?
The Note Conversion will have a highly dilutive effect on
the persons who hold BroadVision common stock at the time of the
Note Conversion. For purposes of example only, if you own 1.0%
of our outstanding common stock (approximately
344,000 shares) as of the record date, our issuance of new
shares in the Note Conversion, not taking into effect this
rights offering, will reduce your ownership percentage to
approximately 0.5% of the shares outstanding immediately after
the Note Conversion. If you exercise none of your subscription
rights while all other subscription rights are exercised by
other stockholders, then your percentage ownership will be
reduced to approximately 0.15%. If you exercise your basic
subscription privilege in full and all other BroadVision
stockholders also exercise in full, your proportionate ownership
interest in BroadVision immediately after the rights offering
will be the same as it was immediately prior to the Note
Conversion. If you exercise your basic subscription privilege in
full and BroadVisions other stockholders do not all
exercise in full, your proportionate ownership interest in
BroadVision will be greater immediately following the rights
offering than it was immediately prior to the Note Conversion.
Your proportionate ownership interest will also be greater if
you exercise and receive shares pursuant to the
over-subscription privilege. If you do not exercise your
subscription rights, you will lose any value inherent in such
rights and your proportionate ownership interest in BroadVision
immediately following the rights offering will be less than it
was immediately prior to the Note Conversion.
ii
What is a
subscription right?
Each full subscription right entitles a stockholder to purchase
5.87235 shares of BroadVision common stock, rounded down in
the aggregate to the nearest whole number, at a subscription
price of $0.45 per share and carries with it a basic
subscription privilege and an over-subscription privilege.
What is
the basic subscription privilege?
The basic subscription privilege of the subscription rights
entitles you to purchase 5.87235 shares of BroadVision
common stock, rounded down in the aggregate to the nearest whole
number, at the subscription price for every subscription right
you hold.
What is
the over-subscription privilege?
The over-subscription privilege included with the subscription
rights entitles you, if you fully exercise your basic
subscription privilege, to subscribe for additional shares of
BroadVision common stock at the subscription price to the extent
that other subscription rights holders do not exercise their
subscription rights. If sufficient shares are available, we will
honor all over-subscription requests in full. If
over-subscription requests exceed the shares available, we will
allocate the available shares pro rata among those who
over-subscribed based on the number of shares subscribed for
pursuant to the basic subscription privilege. Pro
rata means in proportion to the number of shares of
BroadVision common stock that you and the other subscription
rights holders have purchased by exercising your basic
subscription privileges on your BroadVision common stock
holdings.
When does
the rights offering expire?
The rights offering expires at 5:00 p.m. Pacific Time on
March 3, 2006. We may extend the expiration date in our
sole discretion and for any reason. See The Rights
Offering Expiration Date; amendments and
termination.
Am I
required to subscribe in the rights offering?
No.
What
happens if I choose not to exercise my subscription
rights?
You will retain your current number of shares of BroadVision
common stock even if you do not exercise your subscription
rights. If you choose not to exercise your subscription rights
and other stockholders exercise any of their subscription
rights, then the percentage of BroadVision common stock that you
own will decrease.
May I
sell or transfer my subscription rights if I do not want to
purchase any shares?
No. The subscription rights are not transferable. Only you may
exercise the subscription rights that are distributed to you.
How do I
exercise my subscription rights if my shares are held in the
name of my broker, custodian bank or other nominee?
If you hold your shares in a brokerage account, custodian bank
or by another nominee, you will not receive a subscription
rights certificate. We will ask your broker, custodian bank or
other nominee to notify you of the rights offering. If you wish
to exercise your subscription rights, you will need to have your
broker, custodian bank or other nominee act for you. To indicate
your decision, you should complete and return to your broker,
custodian bank or other nominee the form entitled
Beneficial Owner Election Form. You should receive
this form from your broker, custodian bank or other nominee with
the other rights offering materials. You should contact your
broker, custodian bank or other nominee if you do not receive
this form, but you believe you are entitled to participate in
this offering.
iii
How do I
exercise my subscription rights if my shares are held in my
name?
If you hold your shares directly, you will receive a
subscription rights certificate. You may exercise your
subscription rights by completing and signing the purchase form
that appears on the back of each subscription rights
certificate. You must then send the completed and signed form,
along with payment in full of the subscription price for all
shares of BroadVision common stock to be purchased through the
basic subscription privilege and, if exercised, the
over-subscription privilege, to Computershare, the subscription
agent.
The subscription agent must receive these documents and the
subscription payment no later than the time and date the rights
offering expires.
You may also exercise your subscription rights by following the
procedures for guaranteed delivery described under The
Rights Offering Guaranteed Delivery
Procedures beginning on page 22. In this case, you
must deliver the Notice of Guaranteed Delivery and subscription
payment to the subscription agent by the time and date the
rights offering expires. You must also deliver the properly
completed subscription rights certificate to the subscription
agent no later than three business days following the time and
date the rights offering expires.
We have provided more detailed instructions on how to exercise
your subscription rights under The Rights
Offering Exercise of Subscription Rights
beginning on page 19 and with the subscription rights
certificate accompanying this prospectus.
What
should I do if I want to participate in the rights offering and
I am a stockholder in a foreign country or in the armed
services?
The subscription agent will mail subscription certificates to
you if you are a rights holder whose address is outside the
United States or if you have an army post office or a fleet post
office address. To exercise your subscription rights, you must
notify the subscription agent on or prior to 5:00 p.m.
Pacific Time on March 3, 2006, and take all other steps
that are necessary to exercise your subscription rights, on or
prior to that time. If you do not follow these procedures prior
to the expiration of the rights offering, your subscription
rights will expire.
If I
exercise my subscription rights in the rights offering, may I
cancel or change my decision?
No. All exercises of subscription rights are irrevocable.
Will I be
charged a sales commission or a fee if I exercise my
subscription rights?
We will not charge a brokerage commission or a fee to
subscription rights holders for exercising their rights.
However, if you exercise your subscription rights through a
broker or nominee, you will be responsible for any fees charged
by your broker or nominee.
If the
rights offering is not completed, will my subscription payment
be refunded to me?
Yes. The subscription agent will hold all funds it receives in
escrow until completion of the rights offering. If the rights
offering is not completed, the subscription agent will return,
without interest, all subscription payments.
What are
the United States federal income tax consequences of exercising
my subscription rights?
A holder of BroadVision common stock generally should not
recognize income or loss for federal income tax purposes in
connection with the receipt or exercise of subscription rights
in the rights offering. We urge you to consult your own tax
advisor with respect to the particular tax consequences of the
rights offering or the related share issuance to you. See
Certain United States Federal Income Tax
Consequences beginning on page 24.
Are there
risks involved in exercising my subscription rights?
Yes. A purchase of BroadVision common stock involves a high
degree of risk. You should read and carefully consider the
information set forth under Risk Factors beginning
on page 4 and the information contained elsewhere in this
prospectus. You should decide whether to subscribe for
BroadVision common stock based upon your own assessment of your
best interests.
iv
What is
the recommendation of BroadVisions board of directors
regarding the rights offering?
BroadVisions board of directors makes no recommendation as
to whether or not you should subscribe for BroadVision common
stock.
Whom
should I contact with questions?
If you have questions or need assistance, please contact William
E. Meyer, our Chief Financial Officer, at:
BroadVision, Inc.
585 Broadway
Redwood City, CA 94063
(650) 261-5100
For further assistance on how to subscribe for shares, you may
also contact the subscription agent for the rights offering by
telephone at:
Computershare Trust Company, Inc.
(800) 962-4284 x4732
v
PROSPECTUS
SUMMARY
You should read the following summary together with the
entire prospectus, including the more detailed information in
our financial statements and related notes referred to elsewhere
in this prospectus. You should carefully consider, among other
things, the matters discussed in Risk Factors.
BROADVISION,
INC.
Our
Business
We develop, market and support a suite of personalized
self-service web applications that enable organizations to unify
their
e-business
infrastructure and conduct both interactions and transactions
with employees, partners and customers. Our integrated suite of
process, commerce, portal and content solutions helps
organizations rapidly increase revenues and reduce costs. As of
September 30, 2005, we had licensed our products to more
than 1,000 customers.
Corporate
Information
We were incorporated in Delaware in May 1993 and have been a
publicly traded corporation since 1996. From 2001 to date, our
annual revenue has declined and we have incurred significant
losses and had negative cash flows from operations. As of
September 30, 2005, we had negative working capital and an
accumulated deficit of approximately $1.2 billion. The
majority of these accumulated losses to date have resulted from
non-cash charges associated with our 2000 acquisition of
Interleaf, Inc. and restructuring charges related to excess real
estate. During 2004, we entered into a series of termination
agreements to buy out of nearly all of our excess lease
obligations. In November 2004, we issued $16 million in
aggregate principal amount of senior subordinated secured
convertible notes (the Notes). In November 2005,
Dr. Pehong Chen, our Chief Executive Officer and largest
stockholder, acquired all Notes then outstanding. Dr. Chen
has 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. We expect the
conversion to occur promptly following the consummation of the
rights offering.
Our principal executive offices are located at 585 Broadway,
Redwood City, California 94063. Our telephone number is
(650) 261-5100.
Our website address is www.broadvision.com. The information on,
or that can be accessed through, our website is not part of this
prospectus.
RIGHTS
OFFERING SUMMARY
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Rights Granted |
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We have granted to each record holder of BroadVision common
stock on the record date subscription rights,
consisting of a basic subscription privilege and an
over-subscription privilege for each share of BroadVision common
stock held by such record holder. Each basic subscription
privilege will entitle the stockholder to subscribe for and
purchase 5.87235 shares of BroadVision common stock,
rounded down in the aggregate to the nearest whole number, at a
subscription price of $0.45 per share. |
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To exercise your rights, you must deliver either a properly
completed subscription rights certificate or a Notice of
Guaranteed Delivery to the subscription agent along with payment
of the applicable subscription price in immediately available
funds before 5:00 p.m. Pacific Time on March 3, 2006. |
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Securities Offered |
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We are offering shares of BroadVision common stock, the rights
of which are described below and in greater detail under the
caption Description of Capital Stock, beginning on
page 85. |
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Exercise some or all of your rights |
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You may exercise some or all of your rights, or you may choose
not to exercise any of your rights. |
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Record date |
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December 20, 2005 |
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Expiration date and time |
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The rights expire at 5:00 p.m. Pacific Time on
March 3, 2006, unless we extend the rights offering. Rights
not exercised by the expiration date will be null and void. |
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Subscription agent |
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Computershare Trust Company, Inc.
By Mail:
P. O. Box 1596
Denver, Colorado 80201
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By Hand:
350 Indiana Street, Suite 800
Golden, Colorado 80401
(800) 962-4284 x4732 |
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Reasons for the rights offering |
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Dr. Chen has agreed to cancel all amounts owed under the
Notes, which represented approximately $15.5 million in
debt obligations as of December 20, 2005, in exchange for
34,500,000 shares of BroadVision common stock at an
effective price per share of $0.45. We refer to this transaction
as the Note Conversion. We expect the
conversion to occur promptly following the consummation of the
rights offering. We are providing the subscription rights in
connection with the planned Note Conversion to allow our
stockholders to maintain the proportionate ownership interest
they held in BroadVision immediately prior to the
Note Conversion. |
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Use of proceeds |
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The net proceeds from the rights offering, if any, will be used
for general working capital purposes. |
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No board recommendation |
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Our board of directors makes no recommendation to BroadVision
stockholders regarding the exercise of rights under this
offering. Stockholders who exercise subscription rights risk the
complete loss of their investment. We refer you to the section
entitled Risk Factors beginning on page 4. |
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Non-transferability of rights |
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The rights are not transferable and may be exercised only by the
stockholder of record on the record date. |
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No revocation |
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If you exercise any rights, you are not allowed to revoke or
change your exercise or request a refund of monies paid. |
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U.S. federal income tax consequences |
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For U.S. federal income tax purposes, a stockholder may
recognize taxable income upon the receipt of rights. See
Certain United States Federal Income Tax
Consequences beginning on page 24. We urge you to
consult your own tax adviser concerning the tax consequences of
this rights offering as result of your tax situation. |
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Withdrawal, amendment and extension |
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We may withdraw, amend or extend the rights offering at any time
prior to the expiration date. If we withdraw the rights
offering, we will return all funds received in the rights
offering, without interest, to those persons who exercised their
rights and subscribed for shares in the rights offering. |
2
SUMMARY
CONSOLIDATED FINANCIAL DATA
You should read the following summary consolidated financial
data in conjunction with our consolidated financial statements
and the related notes and the sections of this prospectus
entitled, Selected Financial Data and
Managements Discussion and Analysis of Financial
Condition and Results of Operations. The summary
consolidated financial data as of and for the years ended
December 31, 2002, 2003 and 2004 is derived from our
audited consolidated financial statements included in the back
of this prospectus. The summary consolidated financial data for
the nine months ended September 30, 2004 and as of and for
the nine months ended September 30, 2005 are derived from
our unaudited consolidated financial statements included in the
back of this prospectus. The unaudited consolidated financial
statements include, in the opinion of management, all
adjustments, consisting only of normal, recurring adjustments,
that management considers necessary for a fair statement of the
results of those periods. These historical results are not
necessarily indicative of results to be expected in any future
period and the results for the nine months ended
September 30, 2005 should not be considered indicative of
results expected for the full fiscal year ended
December 31, 2005.
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Year Ended
December 31,
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Nine Months Ended
September 30,
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2002
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2003
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2004
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2004
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2005
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(In thousands, except per share
amounts)
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(Unaudited)
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Consolidated Statement of
Operations Data:
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Total revenues
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$
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115,898
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$
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88,081
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$
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78,004
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$
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58,241
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$
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45,958
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Operating (loss) income
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(154,908
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)
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(37,931
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)
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20,366
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20,815
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(17,847
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)
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Net (loss) income
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$
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(170,522
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$
|
(35,471
|
)
|
|
$
|
20,635
|
|
|
$
|
21,021
|
|
|
$
|
(14,532
|
)
|
Net (loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share
|
|
$
|
(5.32
|
)
|
|
$
|
(1.08
|
)
|
|
$
|
0.62
|
|
|
$
|
0.63
|
|
|
$
|
(0.43
|
)
|
Diluted (loss) earnings per share
|
|
$
|
(5.32
|
)
|
|
$
|
(1.08
|
)
|
|
$
|
0.60
|
|
|
$
|
0.61
|
|
|
$
|
(0.43
|
)
|
Shares used in
computation basic (loss) earnings per share
|
|
|
32,036
|
|
|
|
32,800
|
|
|
|
33,539
|
|
|
|
33,459
|
|
|
|
34,159
|
|
Shares used in
computation diluted (loss) earnings per share
|
|
|
32,036
|
|
|
|
32,800
|
|
|
|
34,321
|
|
|
|
34,322
|
|
|
|
34,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31,
|
|
As of September 30,
|
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
|
(In thousands)
|
|
(Unaudited)
|
|
Consolidated Balance Sheet
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
77,386
|
|
|
$
|
78,776
|
|
|
$
|
41,851
|
|
|
$
|
6,066
|
|
Working capital (deficiency)
|
|
|
5,616
|
|
|
|
748
|
|
|
|
(18,136
|
)
|
|
|
(30,160
|
)
|
Total assets
|
|
|
240,136
|
|
|
|
195,082
|
|
|
|
144,653
|
|
|
|
67,443
|
|
Debt and capital leases, less
current portion
|
|
|
1,945
|
|
|
|
969
|
|
|
|
7,443
|
|
|
|
|
|
Accumulated deficit
|
|
|
(1,169,204
|
)
|
|
|
(1,204,675
|
)
|
|
|
(1,184,040
|
)
|
|
|
(1,198,572
|
)
|
Total stockholders equity
|
|
|
41,633
|
|
|
|
7,950
|
|
|
|
30,410
|
|
|
|
16,480
|
|
3
RISK
FACTORS
You should carefully consider the following factors, together
with the other information contained in this prospectus, before
exercising subscription rights or purchasing the BroadVision
common stock we are offering. An investment in BroadVision
common stock involves a high degree of risk and may not be
appropriate for investors who cannot afford to lose their entire
investment.
Risks
Relating to the Rights Offering
As a
holder of BroadVision common stock, you may suffer significant
dilution of your percentage ownership of BroadVision common
stock and the percentage ownership of our Chief Executive
Officer and largest stockholder may increase
dramatically.
The Note Conversion will have a highly dilutive effect on
the holders of BroadVision common stock. If you do not fully
exercise your subscription rights and other stockholders
exercise their subscription rights to a greater extent that you
do, your proportionate voting and ownership interest will be
further reduced and the percentage that your original shares
represent of our expanded equity after exercise of the
subscription rights will be diluted. For example, if you own
1.0% of our outstanding common stock (approximately
344,000 shares) on the record date, our issuance of new
shares in the Note Conversion will reduce your ownership
percentage to approximately 0.5% of the shares outstanding
immediately after the Note Conversion. If you exercise none
of your subscription rights while all other subscription rights
are exercised by other stockholders, then your percentage
ownership will be reduced to approximately 0.15%. The magnitude
of the reduction of your percentage ownership will depend upon
the extent to which you participate in the rights offering.
Assuming no stockholder exercises its subscription rights, and
assuming we issue 34,500,000 shares to Dr. Chen
promptly following the consummation of the rights offering in
the Note Conversion, Dr. Chens percentage ownership
in BroadVision common stock will increase from approximately 22%
to approximately 61%.
The
subscription price per share is not an indication of our value,
and you may not be able to sell shares purchased upon the
exercise of your subscription rights at a price equal to or
greater than the subscription price.
The subscription price per share does not necessarily bear any
relationship to the value of our assets, operations, cash flows,
earnings, financial condition or any other established criteria
for value. As a result, you should not consider the subscription
price as an indication of the current value of our company or
BroadVision common stock. We cannot assure you that you will be
able to sell shares purchased in this offering at a price equal
to or greater than the subscription price.
The
rights offering may cause the price of BroadVision common stock
to decrease immediately, and this decrease may
continue.
The subscription price per share of $0.45 equaled approximately
75% of the closing price of BroadVision common stock on the
NASDAQ National Market on December 20, 2005. This discount,
along with the number of shares we propose to issue and
ultimately will issue if the rights offering is completed, may
result in an immediate decrease in the market value of
BroadVision common stock. This decrease may continue after the
completion of the rights offering. On February 1, 2006, the
closing price of BroadVision common stock was $0.52 per share.
If you
exercise your subscription rights, you may not revoke the
exercise of your subscription rights even if there is a decline
in BroadVision common stock prior to the expiration date of the
subscription period, and you may be unable to sell any shares
you purchase at a profit.
The public trading market price of BroadVision common stock may
decline after you elect to exercise your subscription rights. If
that occurs, you may have committed to buy shares of common
stock at a price above the prevailing market price and you may
not revoke or change your exercise rights. Moreover, we cannot
assure you that following the exercise of your subscription
rights you will be able to sell your shares of common stock at a
price equal to or greater than the subscription price.
4
Your
ability to sell shares of BroadVision common stock purchased in
the rights offering may be delayed by the time required to
deliver the stock certificates.
Until shares are delivered upon expiration of the rights
offering, you may not be able to sell the shares of BroadVision
common stock that you purchase in the rights offering.
Certificates representing shares of BroadVision common stock
purchased will be delivered as soon as practicable after
expiration of the rights offering.
You
may not revoke the exercise of your subscription rights even if
we decide to extend the expiration date of the subscription
period.
We may, in our sole discretion, extend the expiration date of
the subscription period. During any potential extension of time,
BroadVision common stock price may decline below the
subscription price and result in a loss on your investment upon
the exercise of rights to acquire shares of BroadVision common
stock. If the expiration date is extended after you send in your
subscription forms and payment, you still may not revoke or
change your exercise of rights.
You
will not receive interest on subscription funds returned to
you.
If we cancel the rights offering, neither we nor the
subscription agent will have any obligation with respect to the
subscription rights except to return, without interest, any
subscription payments to you.
The
subscription rights are not transferable, and there is no market
for the subscription rights.
You may not sell, give away or otherwise transfer your
subscription rights. The subscription rights are only
transferable by operation of law. Because the subscription
rights are non-transferable, there is no market or other means
for you to directly realize any value associated with the
subscription rights. You must exercise your subscription rights
and acquire additional shares of BroadVision common stock to
realize any value.
Because
we may terminate the offering, your participation in the
offering is not assured.
Once you exercise your subscription rights, you may not revoke
the exercise for any reason unless we amend the offering. If we
decide to terminate the offering, we will not have any
obligation with respect to the subscription rights except to
return any subscription payments, without interest.
If you
do not act promptly and follow subscription instructions, your
subscription rights may be rejected.
Stockholders who desire to purchase shares in the rights
offering must act promptly to ensure that all required forms and
payments are actually received by the subscription agent prior
to 5:00 p.m. Pacific Time on March 3, 2006, the
expiration date of the rights offering. If you fail to complete
and sign the required subscription forms, send an incorrect
payment amount, or otherwise fail to follow the subscription
procedures that apply to your desired transaction, the
subscription agent may, depending on the circumstances, reject
your subscription or accept it to the extent of the payment
received. Neither we nor our subscription agent undertakes to
contact you concerning, or attempt to correct, an incomplete or
incorrect subscription form or payment. We have the sole
discretion to determine whether a subscription exercise properly
follows the subscription procedures.
Risks
related to our business
There
is uncertainty as to whether we will be able to continue our
business as a going concern, and we may need additional
near-term financing.
We face liquidity challenges. We currently expect to be able to
fund our short-term working capital and operating resource
expenditure requirements, for at least the next twelve months,
from our existing cash and cash equivalents and short-term
investment resources, our anticipated cash flows from operations
and anticipated cash flows from subleases. However, we could
experience unforeseen circumstances, such as a worsening
economic downturn, an inability to close the Note Conversion and
cancel the Notes, difficulties in retaining customers and/or key
employees due to the termination of the Merger Agreement or
other factors, lease settlements and less than anticipated cash
inflows from operations, invested assets, and subleases that may
increase our use of available cash
5
or our need to obtain additional financing. We may find it
necessary to obtain additional equity or debt financing due to
the factors listed above, 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 such equity
securities may have rights, preferences or privileges senior to
those of the holders of BroadVision common stock. There can be
no assurance that additional financing will be available on
acceptable terms, if at all. If adequate funds are not available
or are not available on acceptable terms, we may be unable to
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
have a history of losses and our future profitability on a
quarterly or annual basis is uncertain, which could have a
harmful effect on our business and the value of BroadVision
common stock.
Since 2000, we have incurred substantial net operating losses
and have not achieved positive cash flows from operations. For
the year ended December 31, 2004 we had a net loss, before
a gain related to a real estate transaction, of
$2.9 million. As of September 30, 2005, we had an
accumulated deficit of approximately $1.2 billion.
Given our planned operating and capital expenditures, for the
foreseeable future we expect our results of operations to
fluctuate, and during this period we may incur losses
and/or
negative cash flows. If our revenue does not increase or if we
fail to maintain our expenses at an amount less than our
projected revenue, we will not be able to achieve or sustain
operating profitability on a consistent basis, if at all. We are
continuing efforts to reduce and control our expense structure.
We believe strict cost containment and expense reductions are
essential to achieving positive cash flow and profitability. A
number of factors could preclude us from successfully bringing
costs and expenses in line with our revenues, including
unplanned uses of cash, the inability to accurately forecast
business activities and further deterioration of our revenues.
If we are not able to effectively reduce our costs and achieve
an expense structure commensurate with our business activities
and revenues, we may have inadequate levels of cash for
operations or for capital requirements, which could
significantly harm our ability to operate our business.
Our failure to operate profitably or control negative cash flows
on a quarterly or annual basis could harm our business and the
value of BroadVision common stock. If the negative cash flow
continues, our liquidity and ability to operate our business
would be severely and adversely impacted. Additionally, our
ability to raise financial capital may be hindered due to our
operational losses and negative cash flows, reducing our
operating flexibility.
We
have recently engaged a new independent registered public
accounting firm, which may result in the expenditure of
additional resources and a delay in the completion of our
year-end audit.
On November 29, 2005, BDO Seidman, LLP (BDO)
delivered to us a letter dated November 28, 2005 stating
that it had resigned as our independent registered public
accounting firm. On January 20, 2006, we engaged Stonefield
Josephson, Inc. as our independent registered public accounting
firm. We may need to expend additional resources in connection
with engaging a new accounting firm that was previously
unfamiliar with our financial statements and our company. The
amount of additional resources we expend in connection with the
engagement of a new accounting firm may be material both in
terms of monetary cost and additional demands on our senior
management and members of our finance team.
In addition, the timing of our engagement of Stonefield
Josephson as our new accounting firm may result in a delay in
the audit of our financial statements for the year ended
December 31, 2005. Such a delay may result in the untimely
filing of our Annual Report on
Form 10-K,
which could have an adverse effect on our stock price.
6
Our
management identified three material weaknesses in the
effectiveness of our internal control over financial reporting
as of December 31, 2004 and we cannot assure you that
additional material weaknesses will not be discovered in the
future.
Our management assessed the effectiveness of our internal
control over financial reporting as of December 31, 2004,
and this assessment identified the following three material
weaknesses:
1. Two senior accounting managers in our finance
department, with a combined ten years of experience working for
us, resigned during the fourth quarter of 2004, and we failed to
either hire adequate replacements or adequately train and
supervise our existing accounting staff to ensure that the
absence of the senior accounting managers would not negatively
impact our controls over financial reporting.
2. Management reviews of key account reconciliations failed
to detect inconsistencies between amounts stated in the
reconciliations of the respective accounts and the general
ledger. These failures are also attributed to inadequate
staffing and training, as further described in the preceding
paragraph.
3. Our procedures for reviewing the accuracy of maintenance
contract data were inadequate and could result in a failure to
detect and correct keypunch or other errors or omissions.
We believe we have sufficiently remediated the identified
material weaknesses. However, the market for skilled accounting
personnel is competitive and we may have difficulty in retaining
our staff due to (1) our efforts to restructure our
operations by reducing our workforce and other cost containment
activities and (2) the uncertainty created by the recent
execution and subsequent termination of our merger agreement
with an affiliate of Vector Capital Corporation. Our inability
to staff the department with competent personnel with sufficient
training may affect our internal controls over financial
reporting to the extent that we may not be able to prevent or
detect material misstatements. Inferior internal control could
also cause investors to lose confidence in our reported
financial information, which could have a negative effect on the
trading price of BroadVision common stock.
Our
business currently depends on revenue related to our BroadVision
Self-Service Suite, and if the market does not increasingly
accept this product and related products and services, our
revenue may continue to decline.
We generate our revenue from licenses of the BroadVision
Self-Service Suite, including process, commerce, portal and
content management and related products and services. We expect
that these products, and future upgraded versions, will continue
to account for a large portion of our revenue in the foreseeable
future. Our future financial performance will depend on
increasing acceptance of our current product and on the
successful development, introduction and customer acceptance of
new and enhanced versions of our products. If new and future
versions and updates of our products and services do not gain
market acceptance when released commercially, or if we fail to
deliver the product enhancements and complementary third party
products that customers want, demand for our products and
services, and our revenue, may decline.
If we
are unable to keep pace with the rapid technological changes in
online commerce and communication, our products and services may
fail to be competitive.
Our products and services may fail to be competitive if we do
not maintain or exceed the pace of technological developments in
Internet commerce and communication. Failure to be competitive
could cause our revenue to decline. The information services,
software and communications industries are characterized by
rapid technological change, changes in customer requirements,
frequent new product and service introductions and enhancements
and evolving industry standards and practices. The introduction
of products and services embodying new technologies and the
emergence of new industry standards and practices can render
existing products and services obsolete. Our future success will
depend, in part, on our ability to:
|
|
|
|
|
develop leading technologies;
|
|
|
|
enhance our existing products and services;
|
|
|
|
develop new products and services that address the increasingly
sophisticated and varied needs of our prospective
customers; and
|
7
|
|
|
|
|
respond to technological advances and emerging industry
standards and practices on a timely and cost-effective basis.
|
Our
sales and product implementation cycles are lengthy and subject
to delay, which make it difficult to predict our quarterly
results.
Our sales and product implementation cycles generally span
months. Delays in customer orders or product implementations,
which are difficult to predict, can affect the timing of revenue
recognition and adversely affect our quarterly operating
results. Licensing our products is often an enterprise-wide
decision by prospective customers. The importance of this
decision requires that we engage in a lengthy sales cycle with
prospective customers. A successful sales cycle may last up to
nine months or longer. Our sales cycle is also affected by a
number of other factors, some of which we have little or no
control over, including the volatility of the overall software
market, the business condition and purchasing cycle of each
prospective customer, and the performance of our technology
partners, systems integrators and resellers. The implementation
of our products can also be time and resource intensive, and
subject to unexpected delays. Delays in either product sales or
implementations could cause our operating results to vary
significantly from quarter to quarter.
Because
our quarterly operating results are volatile and difficult to
predict, our quarterly operating results in one or future
periods are likely to fluctuate significantly, which could cause
our stock price to decline if we fail to meet the expectations
of securities analysts or investors.
Our quarterly operating results have varied significantly in the
past and are likely to continue to vary significantly in the
future. For example, in the quarters ended March 31, 2005,
June 30, 2005 and September 30, 2005, our revenues
declined 22%, 23% and 18%, respectively, as compared to the
previous fiscal year quarters. In the quarters ended
June 30, 2004, September 30, 2004 and
December 31, 2004, our revenues declined 8%, 7% and 15%,
respectively, as compared to the same quarterly periods in the
prior fiscal year. If our revenues, operating results, earnings
or future projections are below the levels expected of
securities analysts or investors, our stock price is likely to
decline.
We expect to continue to experience significant fluctuations in
our results of operations due to a variety of factors, some of
which are outside of our control, including:
|
|
|
|
|
introduction of products and services and enhancements by us and
our competitors;
|
|
|
|
competitive factors that affect our pricing;
|
|
|
|
market acceptance of new products;
|
|
|
|
the mix of products sold by us;
|
|
|
|
changes in our pricing policies or our competitors;
|
|
|
|
changes in our sales incentive plans;
|
|
|
|
the budgeting cycles of our customers;
|
|
|
|
customer order deferrals in anticipation of new products or
enhancements by us or our competitors or because of
macro-economic conditions;
|
|
|
|
nonrenewal of our maintenance agreements, which generally
automatically renew for one-year terms unless earlier terminated
by either party upon
90-days
notice;
|
|
|
|
product life cycles;
|
|
|
|
changes in strategy;
|
|
|
|
seasonal trends;
|
|
|
|
the mix of distribution channels through which our products are
sold;
|
|
|
|
the mix of international and domestic sales;
|
8
|
|
|
|
|
the rate at which new sales people become productive;
|
|
|
|
changes in the level of operating expenses to support projected
growth;
|
|
|
|
increase in the amount of third party products and services that
we use in our products or resell with royalties attached;
|
|
|
|
fluctuations in the recorded value of outstanding common stock
warrants that will be based upon changes to the underlying
market value of BroadVision common stock;
|
|
|
|
the timing of receipt and fulfillment of significant orders; and
|
|
|
|
costs associated with litigation, regulatory compliance and
other corporate events such as operational reorganizations.
|
As a result of these factors, we believe that
quarter-to-quarter
comparisons of our revenue and operating results are not
necessarily meaningful, and that these comparisons are not
accurate indicators of future performance. Because our staffing
and operating expenses are based on anticipated revenue levels,
and because a high percentage of our costs are fixed, small
variations in the timing of the recognition of specific revenue
could cause significant variations in operating results from
quarter to quarter. If we are unable to adjust spending in a
timely manner to compensate for any revenue shortfall, any
significant revenue shortfall would likely have an immediate
negative effect on our operating results. If our operating
results in one or more future quarters fail to meet the
expectations of securities analysts or investors, we would
expect to experience an immediate and significant decline in the
trading price of our stock.
Because
a significant portion of our sales activity occurs at the end of
each fiscal quarter, delays in a relatively small number of
license transactions could adversely affect our quarterly
operating results.
A significant proportion, generally over 40%, of our sales are
concentrated in the last month of each fiscal quarter. Gross
margins are high for our license transactions. Customers and
prospective customers may use these conditions in an attempt to
obtain more favorable terms. While we endeavor to avoid making
concessions that could result in lower margins, the negotiations
often result in delays in closing license transactions. Small
delays in a relatively small number of license transactions
could have a significant impact on our reported operating
results for that quarter.
We
have substantially modified our business and operations and will
need to manage and support these changes effectively in order
for our business plan to succeed.
We substantially expanded then contracted our business and
operations since our inception in 1993. We grew from 652
employees at the end of 1999 to 2,412 employees at the end of
2000 and then reduced our numbers to 1,102 at the end of 2001,
449 at the end of 2002, 367 at the end of 2003 and 337 at the
end of 2004. On June 29, 2005, our Board of Directors
approved a business restructuring plan, which included a
reduction in headcount by an additional 63 employees. On
December 31, 2005, we had 182 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 $156 million of future obligations. The
management of the expansion and later reduction of our
operations has taken a considerable amount of our
managements attention during the past several years. As we
manage our business to introduce and support new products, we
will need to continue to monitor our workforce and make
appropriate changes as necessary. If we are unable to support
past and implement future changes effectively, we may have to
divert additional resources away from executing our business
plan and toward internal administration. If our expenses
significantly outpace our revenues, we may have to make
additional changes to our management systems and our business
plan may not succeed.
9
Modifications
to our business and operations may not result in a reduced cost
structure as anticipated and may otherwise adversely impact our
productivity.
Since 2000, we have substantially modified our business and
operations in order to reduce our cost structure. These
modifications included closing facilities, reducing liability
for idle lease space and reducing our employee headcount, while
maintaining sales efforts and providing continuing customer
support by reallocating the workload among continuing employees.
We may not realize anticipated reductions in our cost structure,
which will delay or prevent us from achieving sustained
profitability. In addition, these modifications may result in
lower revenues as a result of the decreased headcount in our
sales and marketing and professional services groups, or other
adverse impacts on productivity that we did not anticipate.
We are
dependent on direct sales personnel and third-party distribution
channels to achieve revenue growth.
To date, we have sold our products primarily through our direct
sales force. Our ability to achieve significant revenue growth
in the future largely will depend on our success in recruiting,
training and retaining sufficient direct sales personnel and
establishing and maintaining relationships with distributors,
resellers and systems integrators. Our products and services
require a sophisticated sales effort targeted at the senior
management of our prospective customers. New hires as well as
employees of our distributors, resellers and systems integrators
require training and take time to achieve full productivity. Our
recent hires may not become as productive as necessary, and we
may be unable to hire and retain sufficient numbers of qualified
individuals in the future. We have entered into strategic
alliance agreements with partners, under which partners have
agreed to resell and support our current BroadVision product
suite. These contracts are generally terminable by either party
upon 30 days notice of an uncured material breach or
for convenience upon 90 days notice prior to the end
of any annual term. Termination of any of these alliances could
harm our expected revenues. We may be unable to expand our other
distribution channels, and any expansion may not result in
revenue increases. If we fail to maintain and expand our direct
sales force or other distribution channels, our revenues may not
grow or they may decline.
Competition
with resellers could limit our sales opportunities and
jeopardize these relationships.
We sell products through resellers and third-party systems
integrators. In some instances, we target our direct selling
efforts toward markets that are also served by some of these
resellers. This competition may adversely impact our revenue by
limiting our ability to sell our products and services directly
in these markets and jeopardizing, or resulting in termination
of, these relationships.
Failure
to maintain relationships with third-party systems integrators
could harm our ability to achieve our business
plan.
Our relationships with third-party systems integrators who
deploy our products have been a key factor in our overall
business strategy, particularly because many of our current and
prospective customers rely on integrators to develop, deploy and
manage their online marketplaces. Our efforts to manage our
relationships with systems integrators may not succeed, which
could harm our ability to achieve our business plan due to a
variety of factors, including:
|
|
|
|
|
Systems integrators may not view their relationships with us as
valuable to their own businesses. The related arrangements
typically may be terminated by either party with limited notice
and in some cases are not covered by a formal agreement.
|
|
|
|
Under our business model, we often rely on our system
integrators employees to perform implementations. If we
fail to work together effectively, or if these parties perform
poorly, our reputation may be harmed and deployment of our
products may be delayed or inadequate.
|
|
|
|
Systems integrators may attempt to market their own products and
services rather than ours.
|
|
|
|
Our competitors may have stronger relationships with our systems
integrators than us and, as a result, these integrators may
recommend a competitors products and services over ours.
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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, which
could impair our overall growth.
We derive a significant portion of our revenue from our
operations outside North America. In the twelve months ended
December 31, 2004, approximately 52% of our revenues were
derived from international sales. If we are unable to manage or
grow our existing international operations, we may not generate
sufficient revenue required to establish and maintain these
operations, which could slow our overall growth and impair our
operating margins.
As we rely heavily on our operations outside of North America,
we are subject to significant risks of doing business
internationally, including:
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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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Our international sales growth will be limited if we are unable
to establish additional foreign operations, expand international
sales channel management and support, hire additional personnel,
customize products for local markets and develop relationships
with international service providers, distributors and system
integrators. Even if we are able to successfully expand our
international operations, we may not succeed in maintaining or
expanding international market demand for our products.
Current
and potential competitors could make it difficult for us to
acquire and retain customers now and in the
future.
The market for our products is intensely competitive. We expect
competition in this market to persist and increase in the
future. If we fail to compete successfully with current or
future competitors, we may be unable to attract and retain
customers. Increased competition could also result in price
reductions for our products and lower profit margins and reduced
market share, any of which could harm our business, results of
operations and financial condition.
Many of our competitors have significantly greater financial,
technical, marketing and other resources, greater name
recognition, a broader range of products and a larger installed
customer base, any of which could provide them with a
significant competitive advantage. In addition, new competitors,
or alliances among existing and future competitors, may emerge
and rapidly gain significant market share. Some of our
competitors, particularly established software vendors, may also
be able to provide customers with products and services
comparable to ours at lower or at aggressively reduced prices in
an effort to increase market share or as part of a broader
software package they are selling to a customer. We may be
unable to match competitors prices or price reductions,
and we may fail to win customers that choose to purchase an
information technology solution as part of a broader software
and services package. As a result, we may be unable to compete
successfully with current or new competitors.
11
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
todays web business. We also hold a U.S. patent,
issued in November 1996, acquired as part of the Interleaf
acquisition on the elements of the extensible electronic
document processing system for creating new classes of active
documents. Although we hold these patents, they may not provide
an adequate level of intellectual property protection. In
addition, litigation may be necessary in the future to enforce
our intellectual property rights, to protect our trade secrets,
or to determine the validity and scope of the proprietary rights
of others. It is also possible that third parties may claim we
have infringed their patent, trademark, copyright or other
proprietary rights. Claims may be made for indemnification
resulting from allegations of infringement. Intellectual
property infringement claims may be asserted against us as a
result of the use by third parties of our products. Claims or
litigation, with or without merit, could result in substantial
costs and diversions of resources, either of which could harm
our business.
We also rely on copyright, trademark, service mark, trade secret
laws and contractual restrictions to protect our proprietary
rights in products and services. We have registered
BroadVision, iGuide, BroadVision
Self-Service Suite, BroadVision Process,
BroadVision Commerce, Broadvision
Portal, BroadVision Content and
Interleaf as trademarks in the United States and in
other countries. It is possible that our competitors or other
companies will adopt product names similar to these trademarks,
impeding our ability to build brand identity and possibly
confusing customers.
As a matter of company policy, we enter into confidentiality and
assignment agreements with our employees, consultants and
vendors. We also control access to and distribution of our
software, documents and other proprietary information.
Notwithstanding these precautions, it may be possible for an
unauthorized third party to copy or otherwise obtain and use our
software or other proprietary information or to develop similar
software independently. Policing unauthorized use of our
products will be difficult, particularly because the global
nature of the Internet makes it difficult to control the
ultimate destination or security of software and other
transmitted data. The laws of other countries may afford us
little or no effective protection of our intellectual property.
A
breach of the encryption technology that we use could expose us
to liability and harm our reputation, causing a loss of
customers.
If any breach of the security technology embedded in our
products were to occur, we would be exposed to liability and our
reputation could be harmed, which could cause us to lose
customers. A significant barrier to online commerce and
communication is the secure exchange of valuable and
confidential information over public networks. We rely on
encryption and authentication technology, including Open SSL and
public key cryptography technology featuring the major
encryption algorithms RC2 and MDS, to provide the security and
authentication necessary to effect the secure exchange of
confidential information. Advances in computer capabilities, new
discoveries in the field of cryptography or other events or
developments could cause a breach of the RSA or other algorithms
that we use to protect customer transaction data.
The
loss or malfunction of technology licensed from third parties
could delay the introduction of our products and
services.
We rely in part on technology that we license from third
parties, including relational database management systems from
Oracle and Sybase, Informix object request broker software from
IONA Technologies PLC, and database access technology from Rogue
Wave Software. The loss or malfunction of any of these
technology licenses could harm our business. We integrate or
sublicense this technology with internally developed software to
perform key functions. For example, our products and services
incorporate data encryption and authentication technology
licensed from Open SSL. Third-party technology licenses might
not continue to be available to us on commercially reasonable
terms, or at all. Moreover, the licensed technology may contain
defects that we cannot control. Problems with our technology
licenses could cause delays in introducing our products or
services until equivalent technology, if available, is
identified, licensed and integrated. Delays in introducing our
products and services could adversely affect our results of
operations.
12
Our
executive officers, key employees and highly skilled technical
and managerial personnel are critical to our business, and they
may not remain with us in the future.
Our performance substantially depends on the performance of our
executive officers and key employees. We also rely on our
ability to retain and motivate qualified personnel, especially
our management and highly skilled development teams. The loss of
the services of any of our executive officers or key employees,
particularly our founder and Chief Executive Officer,
Dr. Pehong Chen, could cause us to incur increased
operating expenses and divert senior management resources in
searching for replacements. The loss of their services also
could harm our reputation if our customers were to become
concerned about our future operations. We do not carry key
person life insurance policies on any of our employees.
Our future success also depends on our continuing ability to
identify, hire, train and retain other highly qualified
technical and managerial personnel. Competition for these
personnel is intense, especially in the Internet industry. We
have in the past experienced, and may continue to experience,
difficulty in hiring and retaining sufficient numbers of highly
skilled employees. The significant downturn in our business
environment has had and may continue to have a negative impact
on our operations and, together with the uncertainty created by
the recent execution and subsequent termination of our merger
agreement with an affiliate of Vector Capital Corporation. 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.
13
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
BroadVision
common stock is likely to be delisted from the NASDAQ Stock
Market in March 2006 due to failure to maintain a minimum bid
price of $1.00 per share.
The trading price of BroadVision common stock on the NASDAQ
National Market has been less than $1.00 per share since
July 26, 2005. Under the listing rules of the NASDAQ Stock
Market, if the trading price of BroadVision common stock remains
below $1.00 per share for a period of 30 consecutive
business days, BroadVision common stock will become subject to
delisting. As a result, we received notice on September 7,
2005 that BroadVision common stock is subject to delisting from
the NASDAQ Stock Market. The receipt of this notice commenced a
period of 180 calendar days within which the trading price of
BroadVision common stock must be at least $1.00 per share
for at least 10 consecutive business days, or longer in some
circumstances, in order to avoid delisting at the end of the
180-day
period.
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 $0.43 per share to $9.05 per
share between January 1, 2004 and February 1, 2006. On
February 1, 2006 the closing price of BroadVision common
stock was $0.52 per share. Our stock price is subject to
wide fluctuations in response to a variety of factors, including:
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quarterly variations in operating results;
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announcements of technological innovations;
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announcements of new software or services by us or our
competitors;
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changes in financial estimates by securities analysts;
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general economic conditions; or
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other events or factors that are beyond our control.
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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 publics 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 companys 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
managements attention and resources.
14
USE OF
PROCEEDS
The net proceeds to us from this rights offering will depend on
the number of shares that are purchased. If all of the
subscription rights offered by this prospectus are exercised,
then we will receive approximately $75.0 million after
deducting estimated offering expenses payable by us. We
currently intend to use the net proceeds from the rights
offering for general working capital purposes.
PRICE
RANGE OF COMMON STOCK
BroadVision common stock is quoted on the NASDAQ National Market
under the symbol BVSN. The following table shows
high and low sale prices per share of BroadVision common stock
as reported on the NASDAQ National Market:
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2006 Fiscal Year
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High
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Low
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First Quarter (through
February 1, 2006)
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$
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0.55
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$
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0.46
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2005 Fiscal Year
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High
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Low
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Fourth Quarter
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$
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0.82
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$
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0.43
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Third Quarter
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1.37
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0.81
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Second Quarter
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1.86
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1.13
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First Quarter
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2.77
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1.65
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2004 Fiscal Year
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High
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Low
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Fourth Quarter
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$
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3.20
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$
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2.05
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Third Quarter
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4.35
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2.10
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Second Quarter
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6.87
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2.92
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First Quarter
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9.05
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4.28
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2003 Fiscal Year
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High
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Low
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Fourth Quarter
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$
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4.50
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$
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3.60
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Third Quarter
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7.69
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3.75
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Second Quarter
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6.95
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4.52
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First Quarter
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5.71
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4.14
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As of January 31, 2006, there were 1,988 holders of
record of BroadVision common stock. On February 1, 2006,
the last sale price reported on the NASDAQ National Market for
BroadVision common stock was $0.52 per share.
DIVIDEND
POLICY
We have never declared or paid any cash dividends on BroadVision
common stock. In addition, the terms of our existing loans, as
well as our Silicon Valley Bank Commercial Credit facility,
restrict our ability to pay dividends. We currently intend to
retain any future earnings to support operations and to finance
the growth and development of our business, and we do not
anticipate paying any cash dividends on BroadVision common stock
in the foreseeable future.
15
THE
RIGHTS OFFERING
Before exercising any subscription rights, you should read
carefully the information set forth under Risk
Factors on page 4.
Background
On November 18, 2005, our Chief Executive Officer and
largest stockholder, Dr. Pehong Chen, acquired all of our
outstanding senior subordinated convertible notes (the
Notes). Including accrued interest, the Notes
represented approximately $15.5 million in debt obligations
as of December 20, 2005. In order to relieve BroadVision
from the liquidity challenges presented by the Notes,
Dr. Chen has agreed to cancel all amounts owed under the
Notes in exchange for 34,500,000 shares of BroadVision
common stock at an effective price per share of $0.45,
representing a 25% discount to the December 20, 2005
closing price of BroadVision common stock of $0.60 per
share. We refer to this as the Note Conversion.
In connection with the Note Conversion, promptly following
the completion of the rights offering we expect to cancel the
Notes and issue approximately 34,500,000 new shares of common
stock to Dr. Chen, which, depending on the number of shares
issued in the rights offering, will represent up to
approximately 50% of our total outstanding common stock
immediately following such issuance. Because of the highly
dilutive nature of the Note Conversion, our primary purpose
for the rights offering is to allow the holders of BroadVision
common stock on December 20, 2006, the date on which the
Note Conversion agreement was executed and the record date for
the rights offering, 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
Note Conversion. Dr. Chen has waived any right to
participate in the rights offering.
The
subscription rights
We will distribute to each holder of BroadVision common stock on
the record date, December 20, 2005, at no charge, one
non-transferable subscription right for each share of
BroadVision common stock owned. If all subscription rights are
exercised, we will sell a total of approximately
167,677,290 shares of BroadVision common stock. The
subscription rights will be evidenced by non-transferable
subscription rights certificates. Although we will distribute
subscription rights to each holder of BroadVision common stock
as of the record date, Dr. Chen, on behalf of himself and
his affiliates, has waived any subscription privileges in order
to enhance the subscription privileges of our other common
stockholders.
Each subscription right will allow you to purchase
5.87235 shares of BroadVision common stock, rounded down to
the nearest whole number, at the subscription price of
$0.45 per share. If you elect to exercise your basic
subscription privilege in full, you will also be entitled to
subscribe, at the subscription price, for additional shares of
BroadVision common stock in connection with your
over-subscription privilege to the extent that other
stockholders do not exercise their basic subscription privileges
in full. If the number of shares available after satisfaction of
all basic subscriptions is insufficient to satisfy fully all
elections to exercise the over-subscription privilege, we will
allocate the excess shares pro rata among those
over-subscribing. We will base the pro rata allocation on the
number of shares subscribed for pursuant to the basic
subscription privilege. The opportunity to exercise the
over-subscription privilege is available to all subscription
rights holders on the same terms.
If you hold your shares in a brokerage account or by a custodian
bank or other nominee, you will not receive a subscription
rights certificate, and your subscription rights must be
exercised through the broker, custodian bank or other nominee.
The following describes the rights offering in general and
assumes (unless specifically provided otherwise) that you are a
record holder of BroadVision common stock. If you hold your
shares in a brokerage account or by a custodian bank or other
nominee, please contact your broker, custodian bank or other
nominee to participate in the rights offering.
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If you hold your shares directly, you will receive a
non-transferable subscription rights certificate. As a holder of
subscription rights you will be entitled to two subscription
privileges: (1) a basic subscription privilege and
(2) an over-subscription privilege. These privileges are
described below.
We will not issue fractional shares in the rights offering, but
rather will round down any fractional shares to the nearest
whole share. For example, if you exercise 100 subscription
rights, you will receive 587 shares of BroadVision common
stock, instead of the 587.235 shares of BroadVision common
stock you would have received without rounding.
Your purchase of shares of BroadVision common stock pursuant to
the rights offering is not conditioned upon the subscription of
any minimum number of shares by you and the other holders of the
subscription rights.
Before exercising any subscription rights, you should read
the information set forth under Risk Factors
beginning on page 4 carefully.
Expiration
date; amendments and termination
You may exercise the basic subscription privilege and the
over-subscription privilege at any time before 5:00 p.m.
Pacific Time on March 3, 2006, the expiration date for the
rights offering. We may, in our sole discretion, extend the time
for exercising the subscription rights. If the commencement of
the rights offering is delayed for a period of time, the
expiration date of the rights offering will be similarly
extended. If we elect to extend the date the subscription rights
expire, we will issue a press release announcing the extension
before the first NASDAQ National Market trading day after the
most recently announced expiration date.
We reserve the right, in our sole discretion, to amend,
terminate or modify the terms of the rights offering. If we
terminate the rights offering, all affected subscription rights
will expire without value and we will as soon as practicable
return all of your subscription payments to you, without
interest or deduction.
If you do not exercise your subscription rights before the time
they expire, then your subscription rights will be null and
void. We will not be obligated to honor your exercise of
subscription rights if the subscription agent receives the
documents relating to your exercise after the time they expire,
regardless of when you transmitted the documents, except when
you have timely transmitted the documents pursuant to the
guaranteed delivery procedures described below.
Subscription
rights
Your subscription rights entitle you to the basic subscription
privilege and the over-subscription privilege.
Basic Subscription Privilege. With the basic
subscription privilege, you may purchase 5.87235 shares of
BroadVision common stock, rounded down in the aggregate to the
nearest whole number, per subscription right, upon delivery of
the required documents and payment of the subscription price of
$0.45 per share, before the time the subscription rights
expire. You are not required to exercise all of your
subscription rights unless you wish to purchase shares under
your over-subscription privilege. We will deliver to the record
holders who purchase shares in the rights offering certificates
representing the shares purchased with a holders basic
subscription privilege as soon as practicable after the rights
offering has expired.
Over-Subscription Privilege. In addition to
your basic subscription privilege, you may subscribe for
additional shares of BroadVision common stock, upon delivery of
the required documents and payment of the subscription price of
$0.45 per share before the time the subscription rights
expire, if you exercised your basic subscription privilege in
full and other holders of subscription rights do not exercise
their basic subscription privileges in full.
Pro Rata Allocation. If there are not enough
shares to satisfy all subscriptions pursuant to the exercise of
the over-subscription privilege, we will allocate the remaining
shares pro rata (subject to the elimination of fractional
shares) among those over-subscribing. Pro rata means in
proportion to the number of shares you and the other holders
have purchased by exercising the basic subscription privileges.
If there is a pro rata allocation of the remaining shares and
the pro-ration results in the allocation to you of a greater
number of shares than you subscribed for pursuant to the
over-subscription privilege, then we will allocate to you only
the number of shares for which you
17
subscribed. We will allocate the remaining shares among all
other holders exercising their over-subscription privilege.
Full Exercise of the Basic Subscription
Privilege. You may exercise the over-subscription
privilege only if you exercise your basic subscription privilege
in full. To determine if you have fully exercised your basic
subscription privilege, we will consider only the basic
subscription privileges held by you in the same capacity. For
example, suppose you were granted subscription rights for shares
of BroadVision common stock you own individually and shares of
BroadVision common stock you own collectively with your spouse.
If you wish to exercise your over-subscription privilege with
respect to the subscription rights you own individually, but not
with respect to subscription rights you own collectively with
your spouse, you only need to exercise your basic subscription
privilege with respect to your individually owned subscription
rights. You do not have to subscribe for any shares under the
basic subscription privilege owned collectively with your spouse
to exercise your individual over-subscription privilege.
When you complete the portion of the subscription rights
certificate to exercise your over-subscription privilege, you
will be representing and certifying that you have fully
exercised your basic subscription privilege as to shares of
BroadVision common stock you hold in that capacity. You must
exercise your over-subscription privilege at the same time you
exercise your basic subscription privilege in full.
If you own your shares of BroadVision common stock through your
bank, broker or other nominee holder who will exercise your
over-subscription privilege on your behalf, the nominee holder
will be required to certify to us and the subscription agent:
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the number of shares held on the record date on your behalf;
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the number of subscription rights you exercised under your basic
subscription privilege;
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that your entire basic subscription privilege held in the same
capacity has been exercised in full; and
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the number of shares of common stock you subscribed for pursuant
to the over-subscription privilege.
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Your nominee holder must also disclose to us certain other
information received from you.
If you exercise fewer than all of the subscription rights
evidenced by your subscription rights certificate by so
indicating on your subscription rights certificate, the
subscription agent will, if you so request, issue to you a new
rights certificate evidencing the unexercised subscription
rights. A new subscription rights certificate will be issued to
you according to your instructions upon the partial exercise of
subscription rights only if the subscription agent receives a
properly endorsed subscription rights certificate no later than
the fifth business day prior to the expiration date of the
rights offering. After that date no new subscription rights
certificates will be issued. Accordingly, after such date if you
exercise less than all of your subscription rights you will lose
the power to exercise your remaining subscription rights.
Return of Excess Payment. If you exercised
your over-subscription privilege and are allocated less than all
of the shares of BroadVision common stock for which you wished
to subscribed, your excess payment for shares that were not
allocated to you will be returned to you by mail, without
interest or deduction, as soon as practicable after the
expiration date of the rights offering. We will deliver to the
record holders who purchase shares in the rights offering
certificates representing the shares of BroadVision common stock
that were purchased as soon as practicable after the expiration
date of the rights offering and after all pro rata allocations
and adjustments have been completed.
Transferability of Subscription Rights. You
may not transfer your subscription rights. Only you may exercise
your subscription rights.
Subscription Price. To exercise your
subscription rights, you must pay in cash the subscription price
of $0.45 per share of BroadVision common stock.
Record
date
The record date for the rights offering is December 20,
2005.
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Subscription
agent
We have appointed Computershare Trust Company, Inc. as
subscription agent for the rights offering. We will pay the fees
and expenses of the subscription agent. We also have agreed to
indemnify the subscription agent from certain liabilities that
it may incur in connection with the rights offering.
Computershares telephone number is (800) 962-4284 x4732.
Exercise
of subscription rights
You may exercise your subscription rights by delivering the
following to the subscription agent at or before 5:00 p.m.
Pacific Time on March 3, 2006, the expiration date of the
rights offering:
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your properly completed and executed subscription rights
certificate evidencing those subscription rights with any
required signature guarantees or other supplemental
documentation; and
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your payment in full of the subscription price for each share of
BroadVision common stock subscribed for under your basic
subscription privilege and over-subscription privilege.
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If you are a beneficial owner of shares of BroadVision common
stock whose shares are registered in the name of a broker,
custodian bank or other nominee, you should instruct your
broker, custodian bank or other nominee to exercise your
subscription rights and deliver all documents and payment on
your behalf prior to 5:00 p.m. Pacific Time on
March 3, 2006, the expiration date of the rights offering.
Your subscription rights will not be considered exercised unless
the subscription agent receives from you, your broker, custodian
or nominee, as the case may be, all of the required documents
and your full subscription price payment prior to 5:00 p.m.
Pacific Time on March 3, 2006, the expiration date of the
rights offering.
Once you exercise your subscription rights, you cannot revoke
your subscription. In order to exercise your subscription
rights, you must exercise them before they expire.
Method of
payment
Your payment of the subscription price must be made in
U.S. dollars for the full number of shares of BroadVision
common stock for which you are subscribing by either:
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check or bank draft drawn upon a U.S. bank or postal,
telegraphic or express money order payable to Computershare, as
subscription agent; or
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wire transfer of immediately available funds to the account
maintained by the subscription agent for such purpose at
Colorado Business Bank, 15710 W Colfax Avenue, Golden, Colorado
80401 (marked: BroadVision, Inc. Subscription).
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Receipt
of Payment
Your payment of the subscription price will be deemed to have
been received by the subscription agent only upon:
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clearance of any uncertified check;
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receipt by the subscription agent of any certified check or bank
draft drawn upon a U.S. bank or any postal, telegraphic or
express money order; or
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receipt of collected funds in the subscription agents
account designated above.
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Clearance
of uncertified checks
You should note that funds paid by uncertified personal checks
may take at least five business days to clear. If you wish to
pay the subscription price by an uncertified personal check, we
urge you to make payment sufficiently in advance of the time the
subscription rights expire to ensure that your payment is
received and clears by that time. We urge you to consider using
a certified or cashiers check, money order or wire
transfer of funds to avoid missing the opportunity to exercise
your subscription rights.
19
Delivery
of subscription materials and payment
You should deliver the subscription rights certificate and
payment of the subscription price, as well as any Nominee Holder
Certifications, Notices of Guaranteed Delivery and DTC
Participant Over-Subscription Forms,
if by mail, hand or overnight courier to:
Computershare Trust Company, Inc.
By mail:
P. O. Box 1596
Denver, Colorado 80201
By hand:
350 Indiana Street, Suite 800
Golden, Colorado 80401
Attn: John Harmann
You may call the subscription agent at (800) 962-4284 x4732.
Your delivery to another address or by any method other than as
set forth above will not constitute valid delivery.
Calculation
of subscription rights exercised
If you do not indicate the number of subscription rights being
exercised, or do not forward full payment of the total
subscription price for the number of subscription rights that
you indicate are being exercised, then you will be deemed to
have exercised the basic subscription privilege with respect to
the maximum number of subscription rights that may be exercised
for the aggregate subscription price payment you delivered to
the subscription agent. If your aggregate subscription price
payment is greater than the amount you owe for your
subscription, you will be deemed to have exercised the full
basic subscription privilege and the over-subscription privilege
to purchase the maximum number of shares of BroadVision common
stock with your overpayment. If we do not apply your full
subscription price payment to your purchase of shares of
BroadVision common stock, we will return the excess amount to
you by mail without interest or deduction as soon as practicable
after the expiration date of the rights offering.
Your
funds will be held by the subscription agent until shares of
BroadVision common stock are issued
The subscription agent will hold your payment of the
subscription price in a segregated account with other payments
received from holders of subscription rights until we issue to
you your shares of BroadVision common stock upon completion of
the rights offering.
If you exercised your over-subscription privilege and are
allocated less than all of the shares of BroadVision common
stock for which you wished to subscribe, the excess funds you
paid for shares of BroadVision common stock that are not
allocated to you will be returned by mail without interest or
deduction as soon as practicable after the expiration date of
the subscription rights.
Medallion
guarantee may be required
Your signature on each subscription rights certificate must be
guaranteed by an eligible institution (a member firm of a
registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. or a commercial
bank or trust company having an office or correspondent in the
United States), subject to standards and procedures adopted by
the subscription agent, unless
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your subscription rights certificate provides that the shares of
BroadVision common stock you subscribed for are to be delivered
to you as record holder of those subscription rights; or
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you are an eligible institution.
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Notice to
beneficial holders
If you are a broker, a trustee or a depositary for securities
that held shares of BroadVision common stock for the account of
others as of the record date of December 20, 2005 (a
nominee record holder), you should notify the
respective beneficial owners of such shares of the subscription
rights as soon as possible to find out such beneficial
owners intentions with respect to exercising their
subscription rights. You should obtain instructions from the
beneficial owner with respect to the subscription rights, as set
forth in the instructions we have provided to you for your
distribution to beneficial owners. If the beneficial owner so
instructs, you should complete the appropriate subscription
rights certificates and submit them to the subscription agent
with the proper payment. If you hold shares of BroadVision
common stock for the account(s) of more than one beneficial
owner, you may exercise the number of subscription rights to
which all such beneficial owners in the aggregate otherwise
would have been entitled had they been direct record holders of
BroadVision common stock on the record date, provided that you,
as a nominee record holder, make a proper showing to the
subscription agent by submitting the form entitled Nominee
Holder Certification that we will provide to you with your
rights offering materials. If you did not receive this form, you
should contact the subscription agent to request a copy.
Beneficial
owners
If you are a beneficial owner of shares of BroadVision common
stock or will receive your subscription rights through a broker,
custodian bank or other nominee, we will ask your broker,
custodian bank or other nominee to notify you of the rights
offering. If you wish to exercise your subscription rights, you
will need to have your broker, custodian bank or other nominee
act for you. If you hold certificates of BroadVision common
stock directly and would prefer to have your broker, custodian
bank or other nominee act for you, you should contact your
nominee and request it to effect the transactions for you. To
indicate your decision with respect to your subscription rights,
you should complete and return to your broker, custodian bank or
other nominee the form entitled Beneficial Owner Election
Form. You should receive this form from your broker,
custodian bank or other nominee with the other rights offering
materials. If you wish to obtain a separate subscription rights
certificate, you should contact the nominee as soon as possible
and request that a separate subscription rights certificate be
issued to you. You should contact your broker, custodian bank or
other nominee if you do not receive this form, but you believe
you are entitled to participate in the rights offering. We are
not responsible if you do not receive the form from your broker,
custodian bank or nominee or if you receive it without
sufficient time to respond.
Instructions
for completing your subscription rights certificate
You should read and follow the instructions accompanying the
subscription rights certificates carefully. If you want to
exercise your subscription rights, you must send your
subscription rights certificates to the subscription agent.
You should not send the subscription rights certificates to
BroadVision. We can not guarantee that any subscription
rights certificates sent to BroadVision will be forwarded to the
subscription agent.
You are responsible for the method of delivery of your
subscription rights certificate(s) with your subscription price
payment to the subscription agent. If you send your
subscription rights certificate(s) and subscription price
payment by mail, we recommend that you send them by registered
mail, properly insured, with return receipt requested. You
should allow a sufficient number of days to ensure delivery to
the subscription agent and clearance of payment prior to the
time the subscription rights expire. Because uncertified
personal checks may take at least five business days to clear,
we strongly urge you to pay, or arrange for payment, by means of
certified or cashiers check, money order or wire transfer
of funds.
Determinations
regarding the exercise of your subscription rights
We will decide all questions concerning the timeliness,
validity, form and eligibility of your exercise of subscription
rights. Our decisions will be final and binding. We, in our sole
discretion, may waive any defect or irregularity, or permit a
defect or irregularity to be corrected within such time as we
may determine. We will not be required to make uniform
determinations in all cases. We may reject the exercise of any
of your subscription rights because of any defect or
irregularity. Your subscription will not be deemed to have been
received or accepted until all irregularities have been waived
by us or cured by you within such time as we decide, in our sole
discretion.
21
Neither we nor the subscription agent will be under any duty to
notify you of a defect or irregularity in connection with your
submission of subscription rights certificates. We will not be
liable for failing to give you such notice. We reserve the right
to reject your exercise of subscription rights if your exercise
is not in accordance with the terms of the rights offering or in
proper form. We will also not accept your exercise of
subscription rights if our issuance of shares of BroadVision
common stock pursuant to your exercise could be deemed unlawful
or materially burdensome.
Regulatory
limitation
We will not be required to issue shares of BroadVision common
stock pursuant to the rights offering to you if, in our opinion,
you would be required to obtain prior clearance or approval from
any state or federal regulatory authorities to own or control
such shares if, at the time the subscription rights expire, you
have not obtained such clearance or approval.
Guaranteed
delivery procedures
If you wish to exercise your subscription rights, but you do not
have sufficient time to deliver the subscription rights
certificates evidencing your subscription rights to the
subscription agent on or before the time the subscription rights
expire, you may exercise your subscription rights by the
following guaranteed delivery procedures:
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deliver to the subscription agent on or prior to the rights
offering expiration date your subscription price payment in full
for each share of BroadVision common stock you subscribed for
under your basic subscription privilege and your
over-subscription privilege (in the manner set forth in
Exercise of Subscription Rights
beginning on page 19);
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deliver to the subscription agent on or prior to the rights
offering expiration date the form entitled Notice of
Guaranteed Delivery, substantially in the form provided
with the Instructions as to Use of BroadVision, Inc.
Subscription Rights Certificates distributed with your
subscription rights certificates; and
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deliver the properly completed subscription rights certificate
evidencing the subscription rights being exercised and the
related nominee holder certification, if applicable, with any
required signature guarantee, to the subscription agent within
three NASDAQ National Market trading days following the date the
Notice of Guaranteed Delivery was delivered to the subscription
agent.
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Your Notice of Guaranteed Delivery must be substantially in the
form provided with the Instructions as to Use of BroadVision,
Inc. Subscription Rights Certificates distributed to you with
your subscription rights certificate. Your Notice of Guaranteed
Delivery must come from an eligible institution (a member firm
of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. or a commercial
bank or trust company having an office or correspondent in the
United States).
In your Notice of Guaranteed Delivery you must state:
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your name;
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the number of subscription rights represented by your
subscription rights certificates, the number of shares of
BroadVision common stock you are subscribing for pursuant to the
basic subscription privilege and the number of the shares of
BroadVision common stock, if any, you are subscribing for
pursuant to the over-subscription privilege; and
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your guarantee that you will deliver to the subscription agent
any subscription rights certificates evidencing the subscription
rights you are exercising within three NASDAQ National Market
trading days following the date the subscription agent receives
your Notice of Guaranteed Delivery.
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You may deliver the Notice of Guaranteed Delivery to the
subscription agent in the same manner as the subscription rights
certificate at the address set forth in
Delivery of Subscription Materials and
Payment beginning on page 20. You may alternatively
transmit the Notice of Guaranteed Delivery to the subscription
agent by facsimile transmission at (303) 262-0606.
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The subscription agent will send you additional copies of the
form of Notice of Guaranteed Delivery if you need them. Please
call the subscription agent at (800) 962-4284 to request any
copies of the form of Notice of Guaranteed Delivery.
Questions
about exercising subscription rights
You may direct any questions or require assistance regarding the
method of exercising your subscription rights, additional copies
of this prospectus, the Instructions as to the Use of
BroadVision, Inc. Subscription Rights Certificates, the Nominee
Holder Certification, the Notice of Guaranteed Delivery or other
subscription documents referred to herein, to Computershare at
the following telephone number and address.
350 Indiana Street, Suite 800
Golden, Colorado 80401
Attn: John Harmann
(800) 962-4284 x4732
No
revocation
Once you have exercised your basic subscription privilege
and/or
over-subscription privilege, you may not revoke your exercise.
Subscription rights not exercised prior to the expiration date
of the rights offering will expire and will have no value.
Procedures
for DTC participants
We expect that your exercise of your basic subscription
privilege and your over-subscription privilege may be made
through the facilities of The Depository Trust Company
(DTC). If your subscription rights are held of
record through DTC, you may exercise your basic subscription
privilege and your over-subscription privilege by instructing
DTC to transfer your subscription rights from your account to
the account of the subscription agent, together with
certification as to the aggregate number of subscription rights
you are exercising and the number of shares of BroadVision
common stock you are subscribing for under your basic
subscription privilege and your over-subscription privilege, if
any, and your subscription price payment for each share of
BroadVision common stock that you subscribed for pursuant to
your basic subscription privilege and your over-subscription
privilege.
Determination
of subscription price
Our board of directors chose the $0.45 per share
subscription price in order to provide you with the opportunity
to acquire shares of BroadVision common stock at the same price
afforded to Dr. Chen in connection with the
Note Conversion.
The $0.45 per share subscription price should not be
considered an indication of the actual value of BroadVision or
of BroadVision common stock. We cannot assure you that the
market price of BroadVision common stock will not decline during
or after the rights offering. We also cannot assure you that you
will be able to sell shares of common stock purchased during the
rights offering at a price equal to or greater than
$0.45 per share. We urge you to obtain a current quote for
BroadVision common stock before exercising your subscription
rights. On February 1, 2006, the closing price of
BroadVision common stock was $0.52 per share. BroadVision common
stock is traded on the NASDAQ National Market under the symbol
BVSN.
No
recommendations to subscription rights holders
An investment in shares of BroadVision common stock must be made
according to each investors evaluation of its own best
interests and after considering all of the information in this
prospectus, including the Risk Factors section of
this prospectus. None of our board of directors, our officers or
any other person are making any recommendations as to whether or
not you should exercise your subscription rights. You should
make your decision based on your own assessment of your best
interests.
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Non-U.S. and
certain other stockholders
The subscription agent will mail subscription certificates to
you if you are a rights holder whose address is outside the
United States or if you have an army post office or a fleet post
office address. To exercise your subscription rights, you must
notify the subscription agent on or prior to 5:00 p.m.
Pacific Time on March 3, 2006, and take all other steps
that are necessary to exercise your subscription rights, on or
prior to that time. If you do not follow these procedures prior
to the expiration of the rights offering, your subscription
rights will expire.
Issuance
of common stock
The subscription agent will issue to you certificates
representing shares of BroadVision common stock you purchase
pursuant to the rights offering as soon as practicable after the
time the subscription rights expire.
Your payment of the subscription price will be retained by the
subscription agent, and will not be delivered to us, until your
subscription is accepted and you are issued your stock
certificates. We will not pay you any interest on funds paid to
the subscription agent, regardless of whether such funds are
applied to the subscription price or returned to you. You will
have no rights as a stockholder of BroadVision with respect to
shares of BroadVision common stock subscribed for until
certificates representing such shares are issued to you. Unless
otherwise instructed in the subscription rights certificates,
your certificates for shares issued pursuant to your exercise of
subscription rights will be registered in your name.
If the rights offering is not completed for any reason, the
subscription agent will as soon as practicable return, without
interest, all funds received by it.
Shares of
common stock outstanding after the rights offering
As of January 31, 2006 there were 34,522,130 shares of
BroadVision Common Stock outstanding. Assuming we issue all of
the shares of BroadVision common stock offered in the rights
offering, approximately 236,699,420 million shares of
BroadVision common stock will be issued and outstanding after
the expiration of the rights offering and following the issuance
of 34,500,000 shares in connection with the Note Conversion.
Other
matters
We are not making the rights offering in any state or other
jurisdiction in which it is unlawful to do so. We will not sell
or accept an offer to purchase BroadVision common stock from you
if you are a resident of any such state or other jurisdiction.
We may delay the commencement of the rights offering in certain
states or other jurisdictions in order to comply with the laws
of such states or other jurisdictions. We do not expect that
there will be any changes in the terms of the rights offering.
However, we may decide, in our sole discretion, not to modify
the terms of the rights offering as may be requested by certain
states or other jurisdictions. If that happens and you are a
resident of that state, you will not be eligible to participate
in the rights offering.
CERTAIN
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of certain United States
federal income tax consequences of the rights offering to
holders of BroadVision common stock that hold such stock as a
capital asset for United States federal income tax purposes.
This discussion is based on laws, regulations, rulings and
decisions in effect on the date hereof, all of which are subject
to change (possibly with retroactive effect) and to differing
interpretations. This discussion applies only to holders that
are U.S. persons and does not address all aspects of United
States federal income taxation that may be relevant to holders
in light of their particular circumstances or to holders who may
be subject to special tax treatment under the Internal Revenue
Code, including, without limitation, holders of our warrants,
holders who are dealers in securities or foreign currency,
foreign persons, insurance companies, tax-exempt organizations,
banks, financial institutions, broker-dealers, holders who hold
common stock as part of a hedge, straddle, conversion or other
risk reduction transaction, or who acquired common stock
pursuant to the exercise of compensatory stock options or
otherwise as compensation.
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Moreover, this summary does not address the tax consequences of
the rights offering under state, local or foreign tax laws.
ACCORDINGLY, YOU SHOULD CONSULT YOUR OWN TAX ADVISORS TO
DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE RIGHTS OFFERING
TO YOU.
Issuance
of the subscription rights
If you hold BroadVision common stock on the record date, you
should not recognize taxable income upon the receipt of the
subscription rights.
In general, a distribution by a corporation to its stockholders
of subscription rights to acquire stock of the distributing
corporation is not taxable. An exception to this general rule
applies in the case of a distribution which constitutes a
disproportionate distribution with respect to any class or
classes of stock of the corporation. A distribution of stock
rights constitutes a disproportionate distribution if it is a
part of a distribution or a series of distributions (including
deemed distributions) that has the effect of (1) the
receipt of property (including cash) by some stockholders and
(2) an increase in the proportionate interests of other
stockholders in the assets or earnings and profits of the
distributing corporation.
The distribution of the subscription rights to all stockholders
except Dr. Chen should not constitute a disproportionate
distribution taxable as a dividend since (1) the
Note Conversion was made with the expectation of promptly
thereafter making the distribution of subscription rights to the
remaining stockholders, and the subscription rights may be
exercised on the same economic terms as the private placement,
(2) there is a single class of stock outstanding, and
(3) there has not been nor is there expected to be any
property distributions to any stockholder in connection with the
distribution of subscription rights.
We intend to treat the distribution of subscription rights as a
nontaxable distribution. If the Internal Revenue Service were to
take a contrary position with respect to this matter, by deeming
the distribution of subscription rights to constitute a taxable
distribution, a person receiving a right would recognize a
dividend, taxable as ordinary income, in an amount equal to the
fair market value of the right received, but only to the extent
of our current and accumulated earnings and profits, if any. To
the extent the deemed distribution exceeds such current and
accumulated earnings and profits, any excess would be treated
first as a nontaxable recovery of adjusted tax basis in your
BroadVision common stock with respect to which the right was
distributed and then as gain from the sale or exchange of your
BroadVision common stock. Your tax basis in a right received in
a taxable distribution would equal the fair market value of the
right as of the date of distribution of the right. Your holding
period in the right would begin on the day following the date of
distribution of the right.
The following discussion assumes that the distribution of the
subscription rights will be treated as a nontaxable distribution.
Basis and
holding period of the subscription rights
Generally, if you hold BroadVision common stock on the record
date, your basis in the subscription rights you receive will be
zero. If, however, (1) the fair market value of the
subscription rights on the date we issue the subscription rights
is 15% or more of the fair market value (on that same date) of
BroadVision common stock, or (2) you properly elect under
Section 307 of the Internal Revenue Code in your federal
income tax return to allocate part of the basis of your
BroadVision common stock to the subscription rights, then your
basis in your shares of BroadVision common stock will be
allocated between your BroadVision common stock and the
subscription rights in proportion to the fair market values of
each on the date we issue the subscription rights. We have not
obtained an independent appraisal of the valuation of the
subscription rights and, therefore, each stockholder
individually must determine how Internal Revenue Code
Section 307 will apply in that stockholders
particular situation.
The holding period of your subscription rights will include your
holding period (as of the date of issuance) of the BroadVision
common stock with respect to which we distributed the
subscription rights to you.
Expiration
of the subscription rights
If your basis in your subscription rights is zero, and you allow
your subscription rights to expire unexercised, you will not
recognize any gain or loss.
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If you have a basis in your subscription rights and you allow
your subscription rights to expire unexercised, you will
recognize a loss equal to the basis of those subscription
rights. Any loss you recognize on the expiration of your
subscription rights will be a capital loss if the BroadVision
common stock obtainable by you upon exercise of the subscription
rights would be a capital asset.
Exercise
of the subscription rights, basis and holding period of acquired
shares
You will not recognize any gain or loss upon the exercise of
your subscription rights. Your basis in each share of
BroadVision common stock you acquire through exercise of your
subscription rights will equal the sum of the subscription price
you paid to exercise your subscription rights and your basis, if
any, in the subscription rights. Your holding period for the
BroadVision common stock you acquire through exercise of your
subscription rights will begin on the date you exercise your
subscription rights.
Sale or
exchange of common stock
If you sell or exchange shares of BroadVision common stock, you
will generally recognize gain or loss on the transaction. The
gain or loss you recognize will be equal to the difference
between the amount you realize on the transaction and your basis
in the shares you sell. Such gain or loss generally will be
capital gain or loss so long as you held the shares as a capital
asset at the time of the sale or exchange. Gain or loss from a
capital asset held for more than one year will generally be
taxable as long term capital gain or loss.
Information
reporting and backup withholding
You may be subject to backup withholding with respect to the
rights offering. However, you will not be subject to backup
withholding if you: (1) are a corporation or fall within
certain other exempt categories and, when required, demonstrate
that fact; or (2) provide a correct taxpayer identification
number and certify under penalties of perjury that your taxpayer
identification number is correct and that you are not subject to
backup withholding because you previously failed to report all
dividends and interest income.
Any amount withheld under these rules will be credited against
your federal income tax liability. We may require you to
establish your exemption from backup withholding or make other
arrangements with respect to the payment of backup withholding.
THIS SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY. YOU
SHOULD CONSULT YOUR OWN TAX ADVISORS REGARDING THE CONSEQUENCES
OF THE RIGHTS OFFERING TO YOUR PARTICULAR TAX SITUATION,
INCLUDING STATE AND LOCAL INCOME AND OTHER TAX LAWS.
PLAN OF
DISTRIBUTION
We are making the rights offering directly to you, the holders
of BroadVision common stock. We have not employed any brokers,
dealers or underwriters in connection with the rights offering
and will not pay any underwriting commissions, fees or discounts
in connection with the rights offering. Some of our directors or
officers may assist in the rights offering. These individuals
will not receive any commissions or compensation other than
their normal directors fees or employment compensation.
We will bear all costs, expenses and fees in connection with the
rights offering. We will pay the subscription agent a fee of
approximately $12,000 and reimburse the subscription agent for
certain expenses incurred in connection with the rights
offering. We estimate that our total expenses in connection with
the rights offering, including fees to the subscription agent,
will be approximately $295,000.
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SELECTED
CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial
data in conjunction with our consolidated financial statements
and the related notes, included elsewhere in this prospectus,
and Managements Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere in
this prospectus. The selected consolidated statement of
operations data for the years ended December 31, 2002, 2003
and 2004 and the selected consolidated balance sheet data as of
December 31, 2003 and 2004 are derived from the audited
consolidated financial statements that are included elsewhere in
this prospectus. The selected consolidated financial data as of
and for the nine months ended September 30, 2004 and
September 30, 2005 are derived from our unaudited
consolidated financial statements that are included elsewhere in
this prospectus. The selected consolidated statements of
operations data for the years ended December 31, 2000 and
2001 and the selected consolidated balance sheet data as of
December 31, 2000, 2001 and 2002 are derived from our
audited consolidated financial statements not included in this
prospectus. The unaudited consolidated financial statements
include, in the opinion of management, all adjustments,
consisting only of normal, recurring adjustments, that
management considers necessary for a fair statement of the
results of those periods. The historical results are not
necessarily indicative of the results of operations to be
expected in any future periods and the results for the nine
months ended September 30, 2005 are not necessarily
indicative of results to be expected for the full fiscal year
ended December 31, 2005.
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Nine Months Ended
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Years Ended
December 31,
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September 30,
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2000
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2001
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2002
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2003
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2004
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2004
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2005
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(In thousands, except per share
data)
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(Unaudited)
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Consolidated Statement of
Operations Data:
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|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses
|
|
$
|
250,838
|
|
|
$
|
101,480
|
|
|
$
|
40,483
|
|
|
$
|
30,230
|
|
|
$
|
26,883
|
|
|
$
|
19,591
|
|
|
$
|
10,941
|
|
Services
|
|
|
164,661
|
|
|
|
146,943
|
|
|
|
75,415
|
|
|
|
57,851
|
|
|
|
51,121
|
|
|
|
38,650
|
|
|
|
35,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
415,499
|
|
|
|
248,423
|
|
|
|
115,898
|
|
|
|
88,081
|
|
|
|
78,004
|
|
|
|
58,241
|
|
|
|
45,958
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of software licenses
|
|
|
7,827
|
|
|
|
9,895
|
|
|
|
8,144
|
|
|
|
2,561
|
|
|
|
1,303
|
|
|
|
1,147
|
|
|
|
(137
|
)
|
Cost of services
|
|
|
119,391
|
|
|
|
97,639
|
|
|
|
38,898
|
|
|
|
25,708
|
|
|
|
24,978
|
|
|
|
18,970
|
|
|
|
17,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
127,218
|
|
|
|
107,534
|
|
|
|
47,042
|
|
|
|
28,269
|
|
|
|
26,281
|
|
|
|
20,117
|
|
|
|
17,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
288,281
|
|
|
|
140,889
|
|
|
|
68,856
|
|
|
|
59,812
|
|
|
|
51,723
|
|
|
|
38,124
|
|
|
|
28,860
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
51,621
|
|
|
|
78,677
|
|
|
|
41,432
|
|
|
|
21,067
|
|
|
|
18,024
|
|
|
|
13,997
|
|
|
|
11,337
|
|
Sales and marketing
|
|
|
167,415
|
|
|
|
139,799
|
|
|
|
48,918
|
|
|
|
26,394
|
|
|
|
27,340
|
|
|
|
20,365
|
|
|
|
13,819
|
|
General and administrative
|
|
|
28,088
|
|
|
|
42,311
|
|
|
|
16,288
|
|
|
|
9,790
|
|
|
|
9,538
|
|
|
|
7,152
|
|
|
|
7,526
|
|
Litigation settlement costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,250
|
|
|
|
|
|
|
|
|
|
|
|
977
|
|
Goodwill and intangible amortization
|
|
|
187,855
|
|
|
|
211,216
|
|
|
|
3,548
|
|
|
|
886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge for acquired in-process
technology
|
|
|
10,100
|
|
|
|
6,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charge (credit)
|
|
|
|
|
|
|
153,284
|
|
|
|
110,449
|
|
|
|
35,356
|
|
|
|
(23,545
|
)
|
|
|
(24,205
|
)
|
|
|
(150
|
)
|
Impairment of assets
|
|
|
|
|
|
|
|
|
|
|
3,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill and other
intangibles
|
|
|
|
|
|
|
336,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
445,079
|
|
|
|
968,084
|
|
|
|
223,764
|
|
|
|
97,743
|
|
|
|
31,357
|
|
|
|
17,309
|
|
|
|
46,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(156,798
|
)
|
|
|
(827,195
|
)
|
|
|
(154,908
|
)
|
|
|
(37,931
|
)
|
|
|
20,366
|
|
|
|
20,815
|
|
|
|
(17,847
|
)
|
Other, net
|
|
|
18,217
|
|
|
|
(6,928
|
)
|
|
|
(8,011
|
)
|
|
|
2,899
|
|
|
|
(40
|
)
|
|
|
347
|
|
|
|
812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(138,581
|
)
|
|
|
(834,123
|
)
|
|
|
(162,919
|
)
|
|
|
(35,032
|
)
|
|
|
20,326
|
|
|
|
21,162
|
|
|
|
(17,035
|
)
|
Income tax provision
|
|
|
23,048
|
|
|
|
2,136
|
|
|
|
7,603
|
|
|
|
439
|
|
|
|
309
|
|
|
|
(141
|
)
|
|
|
2,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(161,629
|
)
|
|
$
|
(836,259
|
)
|
|
$
|
(170,522
|
)
|
|
$
|
(35,471
|
)
|
|
$
|
20,635
|
|
|
$
|
21,021
|
|
|
$
|
(14,532
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Years Ended
December 31,
|
|
|
September 30,
|
|
|
|
2000
|
|
|
2001
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2004
|
|
|
2005
|
|
|
|
(In thousands, except per share
data)
|
|
|
(Unaudited)
|
|
|
Net (loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share
|
|
$
|
(5.60
|
)
|
|
$
|
(27.20
|
)
|
|
$
|
(5.32
|
)
|
|
$
|
(1.08
|
)
|
|
$
|
0.62
|
|
|
$
|
0.63
|
|
|
$
|
(0.43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share
|
|
$
|
(5.60
|
)
|
|
$
|
(27.20
|
)
|
|
$
|
(5.32
|
)
|
|
$
|
(1.08
|
)
|
|
$
|
0.60
|
|
|
$
|
0.61
|
|
|
$
|
(0.43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in
computation basic (loss) earnings per share
|
|
|
28,864
|
|
|
|
30,748
|
|
|
|
32,036
|
|
|
|
32,800
|
|
|
|
33,539
|
|
|
|
33,459
|
|
|
|
34,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in
computation diluted (loss) earnings per share
|
|
|
28,864
|
|
|
|
30,748
|
|
|
|
32,036
|
|
|
|
32,800
|
|
|
|
34,321
|
|
|
|
34,322
|
|
|
|
34,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31,
|
|
|
As of
September 30,
|
|
|
|
2000
|
|
|
2001
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2004
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
(Unaudited)
|
|
|
Consolidated Balance Sheet
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
153,137
|
|
|
$
|
75,758
|
|
|
$
|
77,386
|
|
|
$
|
78,776
|
|
|
$
|
41,851
|
|
|
$
|
28,144
|
|
|
|
6,066
|
|
Working capital (deficiency)
|
|
|
217,998
|
|
|
|
97,114
|
|
|
|
5,616
|
|
|
|
748
|
|
|
|
(18,136
|
)
|
|
|
(19,583
|
)
|
|
|
(30,160
|
)
|
Total assets
|
|
|
1,143,024
|
|
|
|
392,417
|
|
|
|
240,136
|
|
|
|
195,082
|
|
|
|
144,653
|
|
|
|
128,466
|
|
|
|
67,443
|
|
Debt and capital leases, less
current portion
|
|
|
3,897
|
|
|
|
2,922
|
|
|
|
1,945
|
|
|
|
969
|
|
|
|
7,443
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(162,423
|
)
|
|
|
(998,682
|
)
|
|
|
(1,169,204
|
)
|
|
|
(1,204,675
|
)
|
|
|
(1,184,040
|
)
|
|
|
(1,183,654
|
)
|
|
|
(1,198,572
|
)
|
Total stockholders equity
|
|
|
1,009,298
|
|
|
|
203,147
|
|
|
|
41,633
|
|
|
|
7,950
|
|
|
|
30,410
|
|
|
|
30,755
|
|
|
|
16,480
|
|
28
MANAGEMENTS
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
included elsewhere in this prospectus. 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 prospectus, particularly in 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
BroadVision solutions help customers rapidly increase revenues
and reduce costs by moving interactions and transactions to
personalized self service via the web. Our integrated
self-service application suite including
process, commerce, portal and content offers
rich functionality out of the box, and is easily configured for
each customers
e-business
environment.
Over 1,000 customers including U.S. Air
Force, Lockheed Martin, Netikos, Circuit City, Iberia L.A.E. and
Vodafone have licensed BroadVision solutions to
power and personalize their mission-critical web initiatives.
Worldwide demand for enterprise software has declined
significantly over the past several years. The decline in
venture capital spending has resulted in fewer new companies
with funding to, among other things, build an on-line business.
Established companies have scaled back, delayed or cancelled
web-based initiatives. As a result of these reasons and others,
in particular the selling challenges created by our
deteriorating financial condition, we have seen significant
declines in our revenue over the past four fiscal years.
Our objective is to further our position as a global supplier of
web-based, self-service applications. This will require us to
continue to build in new functionality to 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, maintenance, consulting services and customer
training. We generally charge fees for licenses of our software
products either based on the number of persons registered to use
the product or based on the number of CPUs on the machine on
which the product is installed. Payment terms are generally
thirty days from the date the products are delivered or the
services are provided.
From 2001 to date, we have incurred significant losses and
negative cash flows from operations. In fiscal year 2004, we
entered into a series of agreements to terminate significant
excess lease obligations that were contributing to that negative
cash flow. Under the terms of these agreements, we have incurred
an obligation to pay $45 million, and our future cash
outflows will be reduced by over $4 million per quarter. We
believe that these transactions are an important step towards
our goal of generating consistent positive cash flows, although
we make no assurance about our ability to generate positive cash
flows in future periods.
We strive to anticipate changes in the demand for our services
and aggressively manage our labor force appropriately. Through
our thorough budgeting process, cross-functional management
participates in the planning, reviewing and managing of our
business plans. This process is intended to allow us to adjust
our cost structures to changing market needs, competitive
landscapes and economic factors. Our emphasis on cost control
helps us manage our margins even if revenues generated fall
short of what we anticipated.
29
Background
and Recent Events
During the third and fourth quarters of 2004, we reached
agreements with certain landlords to extinguish approximately
$155.0 million of future real estate obligations. We made
cash payments of $20.7 million in 2004 and
$23.1 million in the first nine months of 2005. In
addition, we issued to one of the landlords a five-year warrant
to purchase approximately 700,000 shares of BroadVision
common stock at an exercise price of $5.00 per share, which
became exercisable in August 2005. As a component of the
settlement of one of the previous leases, we have a residual
lease obligation beginning in 2007 of approximately
$9.1 million. We may make an additional cash payment of
$4.5 million if we exercise an option to terminate this
residual real estate obligation prior to the lease term, which
commences in January 2007. This option to terminate the residual
lease obligation, discounted to net present value, is accounted
for in accordance with SFAS 146 and is part of the current
restructuring accrual as of September 30, 2005.
In November 2004, we entered into a definitive agreement for the
private placement of up to $20.0 million of senior secured
convertible notes (the Notes) to five institutional
investors. Under the terms of the definitive agreement, we
issued an initial $16.0 million of Notes that were
convertible, at the holders option, into common stock at a
conversion price of $2.76 per share. The Notes bear
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, which began in June 2005.
Under the terms of the Notes, the holders had the right to
increase the Companys monthly principal repayment
obligation to $2.1 million as of December 2005 due to our
cash balances falling below certain defined levels as of
September 30, 2005. This increase, if invoked, would have
had the effect of requiring us to repay the principal amount in
eight installments through June 2006. Certain principal payments
that were due in the quarter ended September 30, 2005 were
deferred at the election of the investors for a period of
eighteen months under the terms of the Notes. Payments of future
principal and interest could have been made in either cash or,
upon satisfaction of various conditions set forth in the Notes,
shares of BroadVision common stock. However, because we did not
satisfy the conditions required to make payments in stock, we
were required to use cash to satisfy our payment obligations
under the Notes.
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.
On July 25, 2005, we entered into an Agreement and Plan of
Merger (the Merger Agreement) with Bravo Holdco
(Bravo Holdco), a newly formed exempted company with
limited liability incorporated under the laws of the Cayman
Islands and wholly owned subsidiary of Vector Capital
Corporation (Vector), and Bravo Merger Sub, LLC, a
newly formed Delaware limited liability company and wholly owned
subsidiary of Bravo Holdco. Under the terms of the Merger
Agreement, the holders of shares of BroadVision common stock
that were outstanding immediately prior to the consummation of
the merger (the Merger) were to receive $0.84 in
cash for each share of common stock at the time of the
consummation of the Merger. The consummation of the Merger was
conditioned upon, among other things, the adoption of the Merger
Agreement by the holders of a majority of the outstanding shares
of BroadVision common stock and other closing conditions. A
proxy card and proxy statement describing the terms of the
Merger Agreement were mailed in September 2005 to stockholders
of record as of September 16, 2005, with a special meeting
date set for October 12, 2005. Although over 90% of the
shares voting were in favor of the Merger Agreement, we
adjourned the special meeting several times in an effort to
secure a quorum.
On September 7, 2005, we received notice from the NASDAQ
Stock Market that BroadVision common stock is subject to
delisting from the NASDAQ Stock Market if BroadVision common
stock price does not close above $1.00 per share for at
least 10 consecutive days within the 180 calendar day period
commencing on September 7, 2005. On January 27, 2006,
the closing price of BroadVision common stock was $0.47 per
share.
As of September 30, 2005, the Company recognized a goodwill
impairment charge of $13.2 million in accordance with the
requirements of SFAS No. 142. Subsequent to
September 30, 2005, the Company has experienced a
significant decline in the trading price of its common stock and
hence in the Companys market capitalization. In applying
the accounting requirements for recognizing and measuring an
impairment loss under
30
SFAS No. 142, the Company uses the quoted market price
of the Companys stock (market capitalization) as the basis
for determining the fair value of the Company (the reporting
unit) and then allocates the fair value of the reporting unit to
all of the assets and liabilities of that unit in order to
determine the implied fair value of goodwill. Because of the
significant decline in the trading price and market
capitalization of the Company subsequent to September 30,
2005, the Company anticipates recording a significant additional
non-cash charge for the impairment of goodwill in the
three-month period ending December 31, 2005. The amount of
the impairment charge will be determined based upon a number of
factors, including the fair value of the Companys assets
and liabilities at December 31, 2005.
In October 2005, we inadvertently did not make timely payment of
the third quarter interest payment due under the Notes of
approximately $201,000 that was due on October 1, 2005.
Lack of timely payment became an event of default on
October 8, 2005 after non-payment continued for a period of
over five business days. We made the third quarter interest
payment promptly after discovery of the nonpayment, on
October 14, 2005. The event of default permitted each
noteholder to require us to redeem 120% of all or any portion of
the amounts outstanding under the applicable Note by delivering
to us notice of such redemption, which redemption is required
under the Notes to be paid within five business days after
receipt of such redemption notice. If all of the noteholders had
elected such redemption, we would have been obligated to pay
within five business days after receipt of such election
approximately $15.5 million in unpaid principal and
interest. The accelerated repayment of all or any significant
portion of such amount would have left us with insufficient
working capital to conduct our business, and we did not have
sufficient cash to meet such an accelerated repayment obligation.
On October 25, 2005, we entered into an agreement with the
noteholders under which the noteholders agreed not to require
redemption of the Notes, including the 20% premium payable
thereunder, prior to November 16, 2005.
On October 29, 2005, Vector informed the Company that
Vector Capital III, L.P. (Vector III), an
entity affiliated with Vector, had entered into transfer
agreements with the noteholders pursuant to which
Vector III agreed to acquire all of the issued and
outstanding Notes. On November 9, 2005, Vector III
notified us that it had completed its purchase of the Notes.
On November 18, 2005, we and Vector announced mutual
termination of the Merger Agreement due to the difficulty of
securing a quorum for the stockholder vote. In connection with
the termination and pursuant to the Merger Agreement, we made a
$989,666 expense reimbursement payment to a Vector subsidiary on
January 17, 2006. In the three month period ended
December 31, 2005, we anticipate recording a charge of
approximately $1.8 million for costs associated with the
proposed merger and the termination of the Merger Agreement.
Concurrently with the termination of the Merger Agreement, our
Chief Executive Officer and largest stockholder, Dr. Pehong
Chen, acquired all of the Notes from Vector III. Including
interest the Notes represented $15.5 million in debt
obligations as of December 15, 2005. In order to relieve
BroadVision from the liquidity challenges presented by the
Notes, Dr. Chen has agreed to cancel all amounts owed under
the Notes in exchange for 34,500,000 shares of BroadVision
common stock at an effective price per share of $0.45,
representing a 25% discount to the December 20, 2005
closing price of BroadVision common stock of $0.60 per
share. In connection with the Note Conversion, promptly
following the completion of the rights offering we expect to
cancel the Notes and issue approximately 34,500,000 new shares
of common stock to Dr. Chen that, depending on the number
of shares issued in the rights offering, will represent up to
approximately 50% of our total outstanding common stock
immediately following such issuance. Because of the highly
dilutive nature of the Note Conversion, our primary purpose
for the rights offering is to allow the holders of BroadVision
common stock at the time of the Note Conversion 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 Note Conversion.
Dr. Chen has waived any right to participate in the rights
offering.
We have various credit facilities with a commercial lender,
which include term debt in the form of notes payable, a
revolving line of credit and an equipment line of credit. In
June 2005, we entered into a renewed and amended loan and
security agreement with the lender. The agreement requires us to
maintain certain levels of unrestricted cash and cash
equivalents (excluding equity investments), and to maintain
certain levels on deposit with the lender. At December 31,
2004, $20.0 million was outstanding under the line of
credit. As of September 30, 2005,
31
there was no outstanding balance on the line of credit.
Borrowings under the line of credit are collateralized by all of
our assets and bear interest at the banks prime rate.
Interest is due monthly and principal is due at the expiration
in February 2006. As of July 1, 2005, under the renewed and
amended agreement, the requirements we must meet in order to
access the credit facility became more stringent. We were not in
compliance with these new requirements as of September 30,
2005, and we expect that we will be unable to meet the new
requirements in future periods. Further, due to the
Companys default under its convertible debentures
described above, the term debt is also in default, and the
entire balance of $503,000 at September 30, 2005 is
classified as currently due.
Critical
Accounting Policies, Judgments and Estimates
This managements discussion and analysis of our financial
condition and results of operations is based upon our condensed
consolidated financial statements, which have been prepared in
accordance with generally accepted accounting principles in the
United States of America. In preparing these financial
statements, we are required to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosures of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates,
including those related to doubtful accounts, product returns,
investments, goodwill and intangible assets, income taxes and
restructuring, as well as contingencies and litigation. We base
our estimates on historical experience and on various other
assumptions that we believe are reasonable, the results of which
form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates using
different assumptions or conditions. We believe the following
critical accounting policies reflect the more significant
judgments and estimates used in the preparation of our
consolidated financial statements.
Basis
of Presentation Going Concern
Uncertainty
The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities in the
normal course of business. We face liquidity challenges. At
September 30, 2005, our current liabilities exceeded our
current assets by approximately $30 million (negative
working capital) resulting in a working capital ratio of less
than 0.4 to 1.0. We currently do not have any additional
financing arrangement in place from which to borrow additional
funds as may be required to meet our near term cash
requirements. Although the current holder of the Notes has
agreed to cancel all amounts owed under the Notes as described
below, we may fail to complete that transaction. If this were to
occur, and if we are not able to obtain financing sufficient to
fully repay the notes upon such demand, we would be forced to
seek protection under the bankruptcy laws. These matters raise
substantial doubt about our ability to continue in existence as
a going concern. The Companys ability to continue as a
going concern is dependent upon the Companys ability to
obtain sufficient financing to fully repay the Notes on
favorable terms, obtain additional financing as may be required
to meet any short term cash requirements, and ultimately to
achieve profitable operations. No adjustments to the carrying
values or classification of the assets and liabilities in the
accompanying financial statements have been made to take account
of this uncertainty.
As referenced above in Recent Events, on
November 18, 2005 we and Vector announced the mutual
termination of the Merger Agreement and Dr. Chen acquired
the outstanding Notes. In order to relieve us from the liquidity
challenges presented by the Notes, Dr. Chen has agreed to
cancel all amounts owed under the Notes in exchange for
34,500,000 shares of BroadVision common stock at an
effective price per share of $0.45, representing a 25% discount
to the December 20, 2005 closing price of BroadVision
common stock of $0.60 per share. The Note Conversion is
expected to occur promptly following the consummation of the
rights offering.
We currently expect to be able to fund our short-term working
capital and operating resource expenditure requirements, for at
least the next twelve months, from our existing cash and cash
equivalents and short-term investment resources, our anticipated
cash flows from operations and anticipated cash flows from
subleases. However, we could experience unforeseen
circumstances, such as a worsening economic downturn, an
inability to close the Note Conversion and cancel the Notes,
difficulties in retaining customers and/or key employees due to
the termination of the Merger Agreement or other factors, lease
settlements and less than anticipated cash inflows from
operations, invested assets, and subleases that may increase our
use of available cash or our need to obtain additional
financing. We may find it necessary to obtain additional equity
or debt financing due to the factors listed above, in
32
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 such equity
securities may have rights, preferences or privileges senior to
those of the holders of BroadVision common stock. There can be
no assurance that additional financing will be available on
acceptable terms, if at all. If adequate funds are not available
or are not available on acceptable terms, we may be unable to
develop our products, take advantage of future opportunities or
respond to competitive pressures or unanticipated requirements,
which could have a material adverse effect on our business,
financial condition and future operating results.
Revenue
Recognition
Overview Our revenue consists of fees
for licenses of our software products, maintenance, consulting
services and customer training. We generally charge fees for
licenses of our software products either based on the number of
persons registered to use the product or based on the number of
CPUs on the machine on which the product is installed. Licenses
for software whereby fees charged are based upon the number of
persons registered to use the product are differentiated between
licenses for development use and licenses for use in deployment
of the customers website. Licenses for software whereby
fees charged are on a per-CPU basis do not differentiate between
development and deployment usage. Our revenue recognition
policies comply with the provisions of Statement of Position
(SOP)
No. 97-2,
Software Revenue Recognition, as amended;
SOP No. 98-9,
Software Revenue Recognition, With Respect to Certain
Transactions and SAB 104, Revenue Recognition.
Software License Revenue We license our
products through our direct sales force and indirectly through
resellers. In general, software license revenues are recognized
when a non-cancelable license agreement has been signed and the
customer acknowledges an unconditional obligation to pay, the
software product has been delivered, there are no uncertainties
surrounding product acceptance, the fees are fixed and
determinable and collection is considered probable. Delivery is
considered to have occurred when title and risk of loss have
been transferred to the customer, which generally occurs when
media containing the licensed programs is provided to a common
carrier. In case of electronic delivery, delivery occurs when
the customer is given access to the licensed programs. For
products that cannot be used without a licensing key, the
delivery requirement is met when the licensing key is made
available to the customer. If collectibility is not considered
probable, revenue is recognized when the fee is collected.
Subscription-based license revenues are recognized ratably over
the subscription period. We enter into reseller arrangements
that typically provide for sublicense fees payable to the us
based upon a percentage of list price. We do not grant resellers
the right of return.
We recognize revenue using the residual method pursuant to the
requirements of
SOP No. 97-2,
as amended by
SOP No. 98-9.
Revenues recognized from multiple-element software arrangements
are allocated to each element of the arrangement based on the
fair values of the elements, such as licenses for software
products, maintenance, consulting services or customer training.
The determination of fair value is based on objective evidence,
which is specific to us. We limit its assessment of objective
evidence for each element to either the price charged when the
same element is sold separately or the price established by
management having the relevant authority to do so, for an
element not yet sold separately. If evidence of fair value of
all undelivered elements exists but evidence does not exist for
one or more delivered elements, then revenue is recognized using
the residual method. Under the residual method, the fair value
of the undelivered elements is deferred and the remaining
portion of the arrangement fee is recognized as revenue.
We record unearned revenue for software license agreements when
cash has been received from the customer and the agreement does
not qualify for revenue recognition 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
33
that entitle the customers to technical support and future
unspecified enhancements to our products, are deferred and
recognized ratably over the related agreement period, generally
twelve months.
Our consulting services, which consist of consulting,
maintenance and training, are delivered through the BroadVision
Global Services (BVGS) organization. Services that
we provide are not essential to the functionality of the
software. We record reimbursement from our customers for
out-of-pocket
expenses as an increase to services revenues.
Allowances
and Reserves
Occasionally, our customers experience financial difficulty
after we record the revenue but before we are paid. We maintain
allowances for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments.
Our normal payment terms are 30 to 90 days from invoice
date. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.
Research
and Development and Software Development Costs
Under the criteria set forth in the Statement of Financial
Accounting Standards (SFAS) No. 86, Accounting for the
Cost of Computer Software to be Sold, Leased or Otherwise
Marketed, development costs incurred in the research and
development of new software products are expensed as incurred
until technological feasibility in the form of a working model
has been established at which time such costs are capitalized
and recorded at the lower of unamortized cost or net realizable
value. The costs incurred subsequent to the establishment of a
working model but prior to general release of the product have
not been significant. To date, the Company has not capitalized
any costs related to the development of software for external
use.
Prepaid
Royalties
Prepaid royalties relating to purchased software to be
incorporated and sold with the Companys 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.
Impairment
Assessments
We adopted SFAS 142 on January 1, 2002. Pursuant to
SFAS 142, we are required to test its goodwill for
impairment upon adoption and annually or more often if events or
changes in circumstances indicate that the asset might be
impaired. While there was no accounting charge to record upon
adoption, we concluded that, as of September 30, 2005,
based on the existence of impairment indicators, including a
decline in its market value, we would be required to test
goodwill for impairment. SFAS No. 142 provides for a
two-step approach to determining whether and by how much
goodwill has been impaired. Since we have only one reporting
unit for purposes of applying SFAS No. 142, the first
step requires a comparison of the fair value of BroadVision to
our net book value. If the fair value is greater, then no
impairment is deemed to have occurred. If the fair value is
less, then the second step must be completed to determine the
amount, if any, of actual impairment. We have completed the
first step and have determined that our net book value at
September 30, 2005 exceeded our fair value on that date,
and as a result, we have begun the process of determining the
fair values of our identifiable tangible and intangible assets
and liabilities for purposes of determining the implied fair
value of our goodwill and any resulting goodwill impairment. We
have not completed step two of this impairment analysis due to
the limited time period from the first indication of potential
impairment to the date of this filing and the complexities
involved in estimating the fair values of certain assets and
liabilities, in particular, long-lived tangible and intangible
assets (including intangible assets that have not previously
been recorded in our financial statements). SFAS 142
provides that in circumstances in which step two of the
impairment analysis has not been completed, a company should
recognize an estimated impairment charge to the extent that a
company determines that it is probable that an impairment loss
has occurred and such impairment loss can be reasonably
estimated using the guidance provided in SFAS 5. Based on
the foregoing, we have recognized a goodwill impairment charge
of $13.2 million at September 30, 2005, which
represents our preliminary estimate of the probable goodwill
impairment based on the fair value analysis completed to date.
We
34
have used the quoted market price of BroadVision common stock
(market capitalization) as a basis for determining the fair
value of the reporting unit. We expect to complete step two of
the impairment analysis in early 2006 and, to the extent that
the completed analysis indicates additional goodwill impairment
in excess of managements preliminary estimate, we will
recognize such additional impairment as appropriate.
Subsequent to September 30, 2005, we experienced a
significant decline in the trading price of BroadVision common
stock and hence our market capitalization. In applying the
accounting requirements for recognizing and measuring an
impairment loss under SFAS No. 142, we use the quoted
market price of BroadVision stock (market capitalization) as the
basis for determining our fair value (the reporting unit) and
then allocate the fair value of the reporting unit to all of the
assets and liabilities of that unit in order to determine the
implied fair value of goodwill. Because of the significant
decline in our trading price and market capitalization
subsequent to September 30, 2005, we anticipate recording a
significant additional non-cash charge for the impairment of
goodwill in the three-month period ending December 31,
2005. The amount of the impairment charge will be determined
based upon a number of factors, including the fair value of our
assets and liabilities at December 31, 2005.
Deferred
Tax Assets
We analyze our deferred tax assets with regard to potential
realization. We have established a valuation allowance on our
deferred tax assets to the extent that we determined that it is
more likely than not that some portion or all of the deferred
tax assets will not be realized based upon the uncertainty of
their realization. We have considered estimated future taxable
income and ongoing prudent and feasible tax planning strategies
in assessing the amount of the valuation allowance.
Accounting
for Stock-Based Compensation
We apply APB 25 and related interpretations when accounting
for our stock option and stock purchase plans. In accordance
with APB 25, we apply the intrinsic value method in
accounting for employee stock options. Accordingly, we generally
recognize no compensation expense with respect to stock-based
awards to employees.
During the three months ended March 31, 2004, we recorded
compensation income of $15,000 as a result of granting common
stock to a third party consultant. These charges were calculated
based upon the market value of the underlying stock.
We have determined pro forma information regarding net loss and
net loss per share as if we had accounted for employee stock
options under the fair value method as required by
SFAS 123. The fair value of these stock-based awards to
employees was estimated using the Black-Scholes option pricing
model. Had compensation cost for our stock option plan and
employee stock purchase plan been determined consistent with
SFAS 123, our reported net
35
income (loss) and net income (loss) per share would have been
changed to the amounts indicated below (in thousands, except per
share data, unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
Years Ended
December 31,
|
|
|
September 30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2004
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Net income (loss) as reported
|
|
$
|
(170,522
|
)
|
|
$
|
(35,471
|
)
|
|
$
|
20,635
|
|
|
$
|
21,021
|
|
|
$
|
(14,532
|
)
|
Add: Stock-based compensation
(income) expense included in reported net loss, net of related
tax effects
|
|
|
846
|
|
|
|
342
|
|
|
|
(19
|
)
|
|
|
(15
|
)
|
|
|
|
|
Deduct: Total stock-based employee
compensation expense determined under fair value based method
for all awards, net of related tax effects
|
|
|
(47,979
|
)
|
|
|
(9,275
|
)
|
|
|
(4,545
|
)
|
|
|
(6,020
|
)
|
|
|
(1,668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss)
|
|
$
|
(217,655
|
)
|
|
$
|
(44,404
|
)
|
|
$
|
16,071
|
|
|
$
|
14,986
|
|
|
$
|
(16,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic as reported
|
|
$
|
(5.32
|
)
|
|
$
|
(1.08
|
)
|
|
$
|
0.62
|
|
|
$
|
0.63
|
|
|
$
|
(0.43
|
)
|
Basic pro forma
|
|
$
|
(6.80
|
)
|
|
$
|
(1.35
|
)
|
|
$
|
0.48
|
|
|
$
|
0.45
|
|
|
$
|
(0.47
|
)
|
Diluted as
reported
|
|
$
|
(5.32
|
)
|
|
$
|
(1.08
|
)
|
|
$
|
0.60
|
|
|
$
|
0.61
|
|
|
$
|
(0.43
|
)
|
Diluted pro forma
|
|
$
|
(6.80
|
)
|
|
$
|
(1.35
|
)
|
|
$
|
0.47
|
|
|
$
|
0.44
|
|
|
$
|
(0.47
|
)
|
Reverse
Stock Splits
On July 24, 2002, we announced that our Board of Directors
had approved a
one-for-nine
reverse split of BroadVision common stock. The reverse split was
effective as of 8:00 p.m. Eastern Daylight Time on
July 29, 2002. Each nine shares of outstanding Broad Vision
common stock automatically converted into one share of common
stock. BroadVision common stock began trading on a post-split
basis at the opening of trading on the Nasdaq National Market on
July 30, 2002.
The accompanying consolidated financial statements and related
financial information contained herein have been retroactively
restated to give effect for the July 2002 reverse split.
Restructuring
Charges
Through September 30, 2005, we have approved restructuring
plans to, among other things, reduce our workforce and
consolidate facilities. Restructuring and asset impairment
charges were taken to align our cost structure with changing
market conditions and to create a more efficient organization.
Our restructuring charges are comprised primarily of:
(1) severance and benefits termination costs related to the
reduction of our workforce; (2) lease termination costs
and/or costs
associated with permanently vacating our facilities;
(3) other incremental costs incurred as a direct result of
the restructuring plan; and (4) impairment costs related to
certain long-lived assets abandoned. We account for each of
these costs in accordance with SAB 100, Restructuring
and Impairment Charges.
Severance and Termination Costs. We
account for severance and benefits termination costs as follows:
|
|
|
|
|
For exit or disposal activities initiated on or prior to
December 31, 2002, we account for costs in accordance with
EITF Issue
No. 94-3,
Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (Including Certain
Costs Incurred in a Restructuring). Accordingly, we record
the liability related to these termination costs when the
following conditions have been met: (1) management with the
appropriate level of authority approves a termination plan that
commits us to such plan and establishes the benefits the
employees will receive upon termination; (2) the benefit
arrangement is communicated to the employees in sufficient
detail to enable the employees to determine the termination
benefits; (3) the plan specifically identifies the number
of employees to be terminated, their locations and
|
36
|
|
|
|
|
their job classifications; and (4) the period of time to
implement the plan does not indicate changes to the plan are
likely.
|
|
|
|
|
|
For exit or disposal activities initiated after
December 31, 2002, we account for costs in accordance with
SFAS No. 146, Accounting For Costs Associated with
Exit Activities (SFAS 146). SFAS 146
requires that a liability for a cost associated with an exit or
disposal activity be recognized and measured initially at fair
value only when the liability is incurred. This differs from
EITF 94-3,
which required that a liability for an exit cost be recognized
at the date of an entitys commitment to an exit plan.
|
Excess Facilities Costs. We account for
excess facilities costs as follows:
|
|
|
|
|
For exit or disposal activities initiated on or prior to
December 31, 2002, we account for lease termination
and/or
abandonment costs in accordance with EITF Issue
No. 88-10,
Costs Associated with Lease Modification or Termination.
Accordingly, we recorded the costs associated with lease
termination
and/or
abandonment when the leased property had no substantive future
use or benefit to us.
|
|
|
|
For exit or disposal activities initiated after
December 31, 2002, we account for lease termination
and/or
abandonment costs in accordance with SFAS 146, which
requires that a liability for such costs be recognized and
measured initially at fair value on the cease use date of the
facility.
|
Severance and termination costs and excess facilities costs we
record under these provisions are not associated with nor do
they benefit continuing activities.
Inherent in the estimation of the costs related to our
restructuring efforts are assessments related to the most likely
expected outcome of the significant actions to accomplish the
restructuring. In determining the charges related to the
restructurings to date, the majority of estimates made by
management have related to charges for excess facilities. In
determining the charges for excess facilities, we were required
to estimate future sublease income, future net operating
expenses of the facilities, and brokerage commissions, among
other expenses. The most significant of these estimates have
related to the timing and extent of future sublease income 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 managements 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.
As mentioned above, we have based our excess facilities accrual,
in part, upon estimates of future sublease income. We have used
the following factors, among others, in making such estimates:
opinions of independent real estate experts, current market
conditions and rental rates, an assessment of the time period
over which reasonable estimates could be made, the status of
negotiations with potential subtenants, and the location of the
respective facilities. We recorded the low-end of a range of
assumptions modeled for restructuring charges, in accordance
with SFAS 5. Adjustments to the facilities accrual will be
required if actual sublease income differs from amounts
currently expected. We will review the status of restructuring
activities on a quarterly basis and, if appropriate, record
changes to our restructuring obligations in current operations
based on managements most current estimates.
37
Legal
Matters
Our current estimated range of liability related to pending
litigation is based on claims for which it is probable that a
liability has been incurred and we can estimate the amount and
range of loss. We have recorded the minimum estimated liability
related to those claims, where there is a range of loss. Because
of the uncertainties related to both the determination of the
probability of an unfavorable outcome and the amount and range
of loss in the event of an unfavorable outcome, we are unable to
make a reasonable estimate of the liability that could result
from the remaining pending litigation. As additional information
becomes available, we will assess the potential liability
related to its pending litigation and revise our estimates, if
necessary. Such revisions in our estimates of the potential
liability could materially impact our results of operations and
financial position.
On June 10, 2004, MetLife filed a complaint in the Superior
Court of the State of California, County of Los Angeles, naming
us as a defendant. The complaint alleged that we were liable for
unlawful detainer of premises leased from the plaintiff. The
plaintiff thereafter filed a First Amended Complaint alleging
that we no longer held possession of the premises but was in
breach of the lease. In February 2005, MetLife reached agreement
with us and executed documents regarding a settlement of the
pending lawsuit under which we will pay MetLife an aggregate of
$1.9 million in consideration for termination of the lease,
dismissal of the lawsuit and in full settlement of approximately
$3.1 million of past and future lease obligations. The
three installment payments were made in February 2005, May 2005
and September 2005.
On July 28, 2005, our representatives received copies of
four complaints relating to purported class action lawsuits,
each filed by an alleged holder of shares of BroadVision common
stock and each filed in California Superior Court for the county
of San Mateo. These complaints are captioned Gary
Goberville, et al., vs. Pehong Chen, et al., Civ
448490, Cookie Schwartz, et al., vs. BroadVision, Inc.,
et al. , Civ 448516, Leon Kotovich, et al., vs.
BroadVision, Inc., et al., Civ 448518 and Anthony
Noblett, et al., vs. BroadVision, Inc., et al., Civ
448519. Each claim names our directors and BroadVision, Inc. as
defendants, and each alleges that the director defendants
violated their fiduciary duties to stockholders by, among other
things, failing to maximize our value and ignoring, or failing
to adequately protect against, certain purported conflicts of
interest. Each complaint seeks, among other things, injunctive
relief and damages in an unspecified amount. On
September 21, plaintiff Goberville filed an amended
complaint alleging that defendants caused materially misleading
information regarding a proposed merger to be disseminated to
the Companys stockholders. On October 20, 2005, the
Court ordered consolidation of the four pending actions pursuant
to the parties stipulation. In light of the termination of
the Merger Agreement with an affiliate of Vector Capital
Corporation on December 2, 2005, the plaintiffs in the four
above entitled actions agreed to dismiss, without prejudice,
their complaints against our directors and BroadVision, Inc. on
December 9, 2005.
38
Three and
Nine Months Ended September 30, 2005 compared to Three and
Nine Months Ended September 30, 2004 (unaudited)
Statement
of Operations as a Percent of Total Revenues
The following table sets forth certain items reflected in our
consolidated statements of operations expressed as a percent of
total revenues for the three and nine months ended
September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2004
|
|
|
2005
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses
|
|
|
27
|
%
|
|
|
22
|
%
|
|
|
34
|
%
|
|
|
24
|
%
|
Services
|
|
|
73
|
|
|
|
78
|
|
|
|
66
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
100
|
|
|
|
100
|
|
|
|
100
|
|
|
|
100
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of software licenses
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
Cost of services
|
|
|
37
|
|
|
|
40
|
|
|
|
33
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
39
|
|
|
|
41
|
|
|
|
35
|
|
|
|
37
|
|
Gross profit
|
|
|
61
|
|
|
|
59
|
|
|
|
65
|
|
|
|
63
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
27
|
|
|
|
22
|
|
|
|
24
|
|
|
|
25
|
|
Sales and marketing
|
|
|
35
|
|
|
|
21
|
|
|
|
35
|
|
|
|
30
|
|
General and administrative
|
|
|
14
|
|
|
|
15
|
|
|
|
12
|
|
|
|
16
|
|
Business combination costs
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
2
|
|
Restructuring charge (credit)
|
|
|
(148
|
)
|
|
|
2
|
|
|
|
(42
|
)
|
|
|
|
|
Impairment of goodwill and other
intangibles
|
|
|
|
|
|
|
94
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
(73
|
)
|
|
|
161
|
|
|
|
29
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
134
|
|
|
|
(102
|
)
|
|
|
36
|
|
|
|
(39
|
)
|
Other (expense) income, net
|
|
|
1
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
2
|
|
Earnings (loss) before provision
for income taxes
|
|
|
136
|
|
|
|
(107
|
)
|
|
|
36
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results
of Operations for the Three and Nine Months ended
September 30, 2005 versus 2004
Revenues
Total revenues decreased 18% during the three months
ended September 30, 2005 to $14.1 million as compared
to $17.2 million for the three months ended
September 30, 2004. Total revenues decreased 22% during the
nine months ended September 30, 2005 to $46.0 million
as compared to $58.2 million for the nine months ended
September 30, 2004. A summary of our revenues by geographic
region is as follows (dollars in thousands, unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
|
%
|
|
|
Services
|
|
|
%
|
|
|
Total
|
|
|
%
|
|
|
Three Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
2,111
|
|
|
|
45
|
%
|
|
$
|
7,159
|
|
|
|
57
|
%
|
|
$
|
9,270
|
|
|
|
54
|
%
|
Europe
|
|
|
1,884
|
|
|
|
41
|
|
|
|
4,250
|
|
|
|
34
|
|
|
|
6,134
|
|
|
|
36
|
|
Asia Pacific
|
|
|
659
|
|
|
|
14
|
|
|
|
1,161
|
|
|
|
9
|
|
|
|
1,820
|
|
|
|
10
|
|
Total
|
|
$
|
4,654
|
|
|
|
100
|
%
|
|
$
|
12,570
|
|
|
|
100
|
%
|
|
$
|
17,224
|
|
|
|
100
|
%
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
|
%
|
|
|
Services
|
|
|
%
|
|
|
Total
|
|
|
%
|
|
|
September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
1,724
|
|
|
|
55
|
%
|
|
$
|
6,528
|
|
|
|
60
|
%
|
|
$
|
8,252
|
|
|
|
59
|
%
|
Europe
|
|
|
830
|
|
|
|
26
|
|
|
|
3,529
|
|
|
|
32
|
|
|
|
4,359
|
|
|
|
31
|
|
Asia Pacific
|
|
|
580
|
|
|
|
19
|
|
|
|
886
|
|
|
|
8
|
|
|
|
1,466
|
|
|
|
10
|
|
Total
|
|
$
|
3,134
|
|
|
|
100
|
%
|
|
$
|
10,943
|
|
|
|
100
|
%
|
|
$
|
14,077
|
|
|
|
100
|
%
|
Nine Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
6,711
|
|
|
|
34
|
%
|
|
$
|
21,061
|
|
|
|
54
|
%
|
|
$
|
27,772
|
|
|
|
48
|
%
|
Europe
|
|
|
10,598
|
|
|
|
54
|
|
|
|
14,612
|
|
|
|
38
|
|
|
|
25,210
|
|
|
|
43
|
|
Asia Pacific
|
|
|
2,282
|
|
|
|
12
|
|
|
|
2,977
|
|
|
|
8
|
|
|
|
5,259
|
|
|
|
9
|
|
Total
|
|
$
|
19,591
|
|
|
|
100
|
%
|
|
$
|
38,650
|
|
|
|
100
|
%
|
|
$
|
58,241
|
|
|
|
100
|
%
|
September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
5,430
|
|
|
|
50
|
%
|
|
$
|
20,518
|
|
|
|
59
|
%
|
|
$
|
25,948
|
|
|
|
57
|
%
|
Europe
|
|
|
3,814
|
|
|
|
35
|
|
|
|
11,874
|
|
|
|
34
|
|
|
|
15,688
|
|
|
|
34
|
|
Asia Pacific
|
|
|
1,697
|
|
|
|
15
|
|
|
|
2,625
|
|
|
|
7
|
|
|
|
4,322
|
|
|
|
9
|
|
Total
|
|
$
|
10,941
|
|
|
|
100
|
%
|
|
$
|
35,017
|
|
|
|
100
|
%
|
|
$
|
45,958
|
|
|
|
100
|
%
|
We operate in a competitive industry. There have been declines
in both the technology industry and in general economic
conditions since the beginning of 2001. These declines may
continue. Financial comparisons discussed herein may not be
indicative of future performance.
Software license revenues decreased 33% during the three
months ended September 30, 2005 to $3.1 million as
compared to $4.7 million for the three months ended
September 30, 2004. Software license revenue decreased 44%
during the nine months ended September 30, 2005 to
$10.9 million as compared to $19.6 million for the
nine months ended September 30, 2004. License revenue in
all areas declined due to softening demand for enterprise
software applications and to the selling challenges created by
our deteriorating financial condition.
Services revenues consisting of consulting revenues,
customer training revenues and maintenance revenues decreased
13% during the three months ended September 30, 2005 to
$10.9 million as compared to $12.6 million for the
three months ended September 30, 2004. Services revenues
decreased 9% during the nine months ended September 30,
2005 to $35.0 million as compared to $38.7 million for
the nine months ended September 30, 2004. The decrease in
service revenues was primarily attributable to lower maintenance
revenue. Maintenance revenues decreased 14% for the three months
ended September 30, 2005 to $6.5 million as compared
to $7.6 million for the three months ended
September 30, 2004. Maintenance revenues decreased 14% for
the nine months ended September 30, 2005 to
$20.3 million as compared to $23.5 million for the
nine months ended September 30, 2004. Maintenance revenue
decreased due to a decline in customer licenses and certain
existing customers declining the renewal of annual maintenance
services.
40
Cost of
Revenues
Cost of software license revenues includes the 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 licensed 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. A summary of our cost of revenues is as follows
(dollars in thousands, unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2004
|
|
|
%
|
|
|
2005
|
|
|
%
|
|
|
2004
|
|
|
%
|
|
|
2005
|
|
|
%
|
|
|
Cost of software licenses(1)
|
|
$
|
256
|
|
|
|
6
|
%
|
|
$
|
106
|
|
|
|
3
|
%
|
|
$
|
1,147
|
|
|
|
6
|
%
|
|
$
|
(137
|
)
|
|
|
−1
|
%
|
Cost of services(2)
|
|
|
6,391
|
|
|
|
51
|
|
|
|
5,641
|
|
|
|
52
|
|
|
|
18,970
|
|
|
|
49
|
|
|
|
17,235
|
|
|
|
49
|
|
Total cost of revenues(3)
|
|
|
6,647
|
|
|
|
39
|
|
|
|
5,747
|
|
|
|
41
|
|
|
|
20,117
|
|
|
|
35
|
|
|
|
17,098
|
|
|
|
37
|
|
|
|
|
(1) |
|
Percentages are calculated based on total software license
revenues for the period indicated |
|
(2) |
|
Percentages are calculated based on total services revenues for
the period indicated |
|
(3) |
|
Percentages are calculated based on total revenues for the
period indicated |
Cost of (credit for) software licenses decreased in
absolute dollar terms during the three months ended
September 30, 2005 to $106,000 as compared to $256,000 for
the three months ended September 30, 2004. The cost of
software licenses decreased during the nine months ended
September 30, 2005 to $(137,000) as compared to $1,147,000
for the nine months ended September 30, 2004. This decrease
was primarily due to the reversal of some royalty costs no
longer considered payable.
Cost of services decreased 12% in absolute dollar terms
during the three months ended September 30, 2005 to
$5.6 million as compared to $6.4 million for the three
months ended September 30, 2004. The cost of services
decreased 9% during the nine months ended September 30,
2005 to $17.2 million as compared to $19.0 million for
the nine months ended September 30, 2004. This decline was
attributable to lower consulting headcount in Europe and the
Middle East regions and lower customer support headcount in the
Americas. This was partially offset by an increase in consulting
spending in the Americas.
Operating
Expenses and Other Income, net
Operating expenses consists of the following:
|
|
|
|
|
Research and development expenses consist primarily of
salaries, employee-related benefit costs and consulting fees
incurred in association with the development of our products.
Costs incurred for the research and development of new software
products are expensed as incurred until such time that
technological feasibility, in the form of a working model, is
established at which time such costs are capitalized and
recorded at the lower of unamortized cost or net realizable
value. The costs incurred subsequent to the establishment of a
working model but prior to general release of the product have
not been significant. date, we have not capitalized any costs
related to the development of software for external use.
|
|
|
|
Sales and marketing expenses consist primarily of
salaries, employee-related benefit costs, commissions and other
incentive compensation, travel and entertainment and marketing
program-related expenditures such as collateral materials, trade
shows, public relations, advertising, and creative services.
|
|
|
|
General and administrative expenses consist primarily of
salaries, employee-related benefit costs, provisions and credits
related to uncollectible accounts receivable and professional
service fees.
|
|
|
|
Restructuring charges represent costs incurred to
restructure company 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.
|
41
A summary of operating expenses is set forth in the following
table. The percentage of expenses is calculated based on total
revenues (dollars in thousands, unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2004
|
|
|
%(1)
|
|
|
2005
|
|
|
%(1)
|
|
|
2004
|
|
|
%(1)
|
|
|
2005
|
|
|
%(1)
|
|
|
Research and development
|
|
$
|
4,600
|
|
|
|
27
|
%
|
|
$
|
3,095
|
|
|
|
22
|
%
|
|
$
|
13,997
|
|
|
|
24
|
%
|
|
$
|
11,337
|
|
|
|
25
|
%
|
Sales and marketing
|
|
|
6,020
|
|
|
|
35
|
|
|
|
2,948
|
|
|
|
21
|
|
|
|
20,365
|
|
|
|
35
|
|
|
|
13,819
|
|
|
|
30
|
|
General and administrative
|
|
|
2,335
|
|
|
|
13
|
|
|
|
2,162
|
|
|
|
15
|
|
|
|
7,152
|
|
|
|
12
|
|
|
|
7,526
|
|
|
|
16
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
13,198
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
13,198
|
|
|
|
29
|
|
Restructuring charges
|
|
|
(25,454
|
)
|
|
|
(142
|
)
|
|
|
245
|
|
|
|
2
|
|
|
|
(24,205
|
)
|
|
|
(42
|
)
|
|
|
(150
|
)
|
|
|
|
|
Business combination charge
|
|
|
|
|
|
|
|
|
|
|
977
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
977
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
(12,499
|
)
|
|
|
(73
|
)
|
|
$
|
22,625
|
|
|
|
161
|
|
|
$
|
17,309
|
|
|
|
30
|
|
|
$
|
46,707
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Expressed as a percent of total revenues for the period indicated |
Research and development expenses decreased 33% during
the three months ended September 30, 2005 to
$3.1 million as compared to $4.6 million for the three
months ended September 30, 2004. The decrease in research
and development expenses was primarily attributable to reduced
headcount as a result of layoffs, natural attrition and lower
overhead allocations.
Research and development decreased 19% during the nine months
ended September 30, 2005 to $11.3 million as compared
to $14.0 million for the nine months ended
September 30, 2004. The decrease for the nine month period
was primarily attributable to lower depreciation costs for fully
depreciated assets and headcount reductions as a result of our
cost-cutting efforts.
Sales and marketing expenses decreased 51% during the
three months ended September 30, 2005 to $2.9 million
as compared to $6.0 million for the three months ended
September 30, 2004. Sales and marketing decreased 32%
during the nine months ended September 30, 2005 to
$13.8 million as compared to $20.4 million for the
nine months ended September 30, 2004. The decreases were
primarily attributable to turnover in the sales organization
combined with lower commissions on lower license revenue.
General and administrative expenses decreased 7% during
the three months ended September 30, 2005 to
$2.2 million as compared to $2.3 million for the three
months ended September 30, 2004. General and administrative
expenses increased 5% during the nine months ended
September 30, 2005 to $7.5 million as compared to
$7.2 million for the nine months ended September 30,
2004. The increase was primarily attributable to a $676,000
reduction of sales reserves in the three months
September 30, 2004 compared to a reduction of $218,000
recorded in the same period in 2005
Restructuring charges. Through
September 30, 2005, we have approved restructuring plans
to, among other things, reduce its workforce and consolidate
facilities. Restructuring and asset impairment charges were
taken to align our cost structure with changing market
conditions and to create a more efficient organization. Our
restructuring charges are comprised primarily of:
(i) severance and benefits termination costs related to the
reduction of our workforce; (ii) lease termination costs
and/or costs
associated with permanently vacating our facilities;
(iii) other incremental costs incurred as a direct result
of the restructuring plan; and (iv) impairment costs
related to certain long-lived assets abandoned. We account for
each of these costs in accordance with SAB 100.
42
As of September 30, 2005, the total restructuring accrual
of $8.0 million consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Non-Current
|
|
|
Total
|
|
|
Severance and Termination
|
|
$
|
0.7
|
|
|
$
|
|
|
|
$
|
0.7
|
|
Excess Facilities
|
|
|
5.4
|
|
|
|
1.9
|
|
|
|
7.3
|
|
Total
|
|
$
|
6.1
|
|
|
$
|
1.9
|
|
|
$
|
8.0
|
|
We estimate that the $0.7 million severance and termination
accrual will be nearly paid in full by December 31, 2005.
We expect to pay the excess facilities amounts related to
restructured or abandoned leased space as follows (in millions):
|
|
|
|
|
|
|
Total Future
|
|
|
|
Minimum
|
|
Years Ending
December 31,
|
|
Payments
|
|
|
2005
|
|
$
|
0.4
|
|
2006
|
|
|
5.2
|
|
2007
|
|
|
0.7
|
|
2008
|
|
|
0.6
|
|
2009 and thereafter (through
October 2010)
|
|
|
0.4
|
|
Total minimum facilities payments
|
|
$
|
7.3
|
|
The following table summarizes the activity related to the
restructuring plans initiated subsequent to December 31,
2002, and accounted for in accordance with SFAS 146 (in
thousands, unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
Restructuring
|
|
|
|
|
|
Accrued
|
|
|
|
Costs
|
|
|
Costs
|
|
|
Amounts Paid
|
|
|
Restructuring
|
|
|
|
Beginning
|
|
|
and Other
|
|
|
or Written Off
|
|
|
Costs, Ending
|
|
|
Three Months Ended
September 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease cancellations and commitments
|
|
$
|
12,394
|
|
|
$
|
9,643
|
|
|
$
|
(340
|
)
|
|
$
|
21,697
|
|
Termination payments to employees
and related costs
|
|
|
164
|
|
|
|
582
|
|
|
|
(175
|
)
|
|
|
571
|
|
Write-off on disposal of assets
and related costs
|
|
|
9,289
|
|
|
|
(1,193
|
)
|
|
|
(8,096
|
)
|
|
|
|
|
|
|
$
|
21,847
|
|
|
$
|
9,032
|
|
|
$
|
(8,611
|
)
|
|
$
|
22,268
|
|
Three Months Ended
September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease cancellations and commitments
|
|
$
|
3,964
|
|
|
$
|
(61
|
)
|
|
$
|
175
|
|
|
$
|
4,078
|
|
Termination payments to employees
and related costs
|
|
|
655
|
|
|
|
443
|
|
|
|
(775
|
)
|
|
|
323
|
|
|
|
$
|
4,619
|
|
|
$
|
382
|
|
|
$
|
(600
|
)
|
|
$
|
4,401
|
|
Nine Months Ended
September 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease cancellations and commitments
|
|
$
|
11,894
|
|
|
$
|
9,643
|
|
|
$
|
160
|
|
|
$
|
21,697
|
|
Termination payments to employees
and related costs
|
|
|
242
|
|
|
|
1,058
|
|
|
|
(729
|
)
|
|
|
571
|
|
Write-off on disposal of assets
and related costs
|
|
|
9,789
|
|
|
|
(1,193
|
)
|
|
|
(8,596
|
)
|
|
|
|
|
|
|
$
|
21,925
|
|
|
$
|
9,508
|
|
|
$
|
(9,165
|
)
|
|
$
|
22,268
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
Restructuring
|
|
|
|
|
|
Accrued
|
|
|
|
Costs
|
|
|
Costs
|
|
|
Amounts Paid
|
|
|
Restructuring
|
|
|
|
Beginning
|
|
|
and Other
|
|
|
or Written Off
|
|
|
Costs, Ending
|
|
|
Nine Months Ended
September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease cancellations and commitments
|
|
$
|
21,824
|
|
|
$
|
(838
|
)
|
|
$
|
(16,908
|
)
|
|
$
|
4,078
|
|
Termination payments to employees
and related costs
|
|
|
365
|
|
|
|
975
|
|
|
|
(1,017
|
)
|
|
|
323
|
|
|
|
$
|
22,189
|
|
|
$
|
137
|
|
|
$
|
(17,925
|
)
|
|
$
|
4,401
|
|
The following table summarizes the activity related to the
restructuring plans initiated on or prior to December 31,
2002, and accounted for in accordance with
EITF 94-3
(in thousands, unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
Restructuring
|
|
|
|
|
|
Accrued
|
|
|
|
Costs,
|
|
|
Costs
|
|
|
Amounts Paid
|
|
|
Restructuring
|
|
|
|
Beginning
|
|
|
and Other
|
|
|
or Written Off
|
|
|
Costs, Ending
|
|
|
Three Months Ended
September 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease cancellations and commitments
|
|
$
|
71,707
|
|
|
$
|
(34,477
|
)
|
|
$
|
(23,629
|
)
|
|
$
|
13,601
|
|
Termination payments to employees
and related costs
|
|
|
429
|
|
|
|
|
|
|
|
|
|
|
|
429
|
|
Write-off on disposal of assets
and related costs
|
|
|
1,486
|
|
|
|
(9
|
)
|
|
|
(115
|
)
|
|
|
1,362
|
|
|
|
$
|
73,622
|
|
|
$
|
(34,486
|
)
|
|
$
|
(23,744
|
)
|
|
$
|
15,392
|
|
Three Months Ended
September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease cancellations and commitments
|
|
$
|
6,326
|
|
|
$
|
(137
|
)
|
|
$
|
(2,930
|
)
|
|
$
|
3,259
|
|
Termination payments to employees
and related costs
|
|
|
422
|
|
|
|
|
|
|
|
(70
|
)
|
|
|
352
|
|
|
|
$
|
6,748
|
|
|
$
|
(137
|
)
|
|
$
|
(3,000
|
)
|
|
$
|
3,611
|
|
Nine Months Ended
September 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease cancellations and commitments
|
|
$
|
81,143
|
|
|
$
|
(33,704
|
)
|
|
$
|
(33,838
|
)
|
|
$
|
13,601
|
|
Termination payments to employees
and related costs
|
|
|
429
|
|
|
|
|
|
|
|
|
|
|
|
429
|
|
Write-off on disposal of assets
and related costs
|
|
|
1,883
|
|
|
|
(9
|
)
|
|
|
(512
|
)
|
|
|
1,362
|
|
|
|
$
|
83,455
|
|
|
$
|
(33,713
|
)
|
|
$
|
(34,350
|
)
|
|
$
|
15,392
|
|
Nine Months Ended
September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease cancellations and commitments
|
|
$
|
11,515
|
|
|
$
|
(287
|
)
|
|
$
|
(7,969
|
)
|
|
$
|
3,259
|
|
Termination payments to employees
and related costs
|
|
|
459
|
|
|
|
|
|
|
|
(107
|
)
|
|
|
352
|
|
|
|
$
|
11,974
|
|
|
$
|
(287
|
)
|
|
$
|
(8,076
|
)
|
|
$
|
3,611
|
|
44
Restructuring charges (credits) consisted of the following (in
thousands, unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2004
|
|
|
2005
|
|
|
Facilities
|
|
$
|
(26,036
|
)
|
|
$
|
(198
|
)
|
|
$
|
(25,263
|
)
|
|
$
|
(1,125
|
)
|
Severance and other
|
|
|
582
|
|
|
|
443
|
|
|
|
1,058
|
|
|
|
975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(25,454
|
)
|
|
$
|
245
|
|
|
$
|
(24,205
|
)
|
|
$
|
(150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The excess facilities credit for the three and nine months ended
September 30, 2005 related primarily to an adjustment of
$175,000 and $1.2 million, respectively, to fair value of
the warrant issued to a previous landlord as part of a lease
settlement in 2004. The excess facilities charge for the three
months ended September 30, 2004, primarily related to the
settlements reached between the us and certain landlords for
elimination of future lease obligations (see Note 6 of the
Notes to Condensed Consolidated Financial Statements). The
severance and termination costs for both periods reflect
adjusted severance, payroll taxes and COBRA benefits related to
restructuring plans implemented prior to the end of the period.
The Company recorded these charges at the low-end of a range of
assumptions modeled for the restructuring charges, in accordance
with SFAS 5. Adjustments to the restructuring accruals will
be made in future periods, if necessary, based upon the then
current actual events and circumstances.
Interest (expense) income, net for the three months ended
September 30, 2005 was an expense of $1.0 million as
compared to income of $77,000 for the three months ended
September 30, 2004. Interest (expense) income, net for the
nine months ended September 30, 2005 was an expense of
$2.8 million as compared to income of $288,000 for the nine
months ended September 30, 2004. Interest expense increased
in the three and nine months ended September 30, 2005 due
to the outstanding convertible notes issued in November 2004.
Interest income has declined
year-over-year
due to lower cash balances and lower interest rates being earned
on invested funds.
Other (expense) income, net, for the three months ended
September 30, 2005 was a net income of $220,000 as compared
to income of $238,000 for the three months ended
September 30, 2004. Other (expense) income, net for the
nine months ended September 30, 2005 was an income of
$3.6 million as compared to income of $59,000 for the nine
months ended September 30, 2004. The increase in income in
the three and nine months ended September 30, 2005 was
primarily due to recognition of a gain of $523,000 and
$3.0 million, respectively, on the revaluing of common
stock warrants for warrants issued in connection with the
convertible note offering in November 2004 to fair value as of
September 30, 2005, partially offset by $320,000 and
$800,000 of convertible note filing penalties incurred in the
three and nine months ended September 30, 2005,
respectively, due to delays in achieving effectiveness of a
registration statement related to the common stock underlying
the notes.
Income Taxes. During the three months ended
September 30, 2005, we recorded a tax benefit of $540,000
as compared to a tax provision of $11,000 for three months ended
September 30, 2004. During the nine months ended
September 30, 2005, we recorded a tax benefit of
$2.5 million as compared to a provision of $141,000 during
the nine months ended September 30, 2004. The tax benefit
for the three and nine months ended September 30, 2005 was
primarily due to the settlement of or adjustment to income tax
accruals, mostly related to foreign jurisdictions. For the three
and nine months ended September 30, 2004, the tax
provisions related to estimates for income taxes to be paid in
our foreign jurisdictions.
45
Year
Ended December 31, 2004 compared to the Year Ended
December 31, 2003 compared to the Year Ended
December 31, 2002.
Statement
of Operations as a Percent of Total Revenues
The following table sets forth certain items reflected in our
consolidated statements of operations expressed as a percent of
total revenues for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses
|
|
|
35
|
%
|
|
|
34
|
%
|
|
|
34
|
%
|
Services
|
|
|
65
|
|
|
|
66
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
100
|
|
|
|
100
|
|
|
|
100
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of software licenses
|
|
|
7
|
|
|
|
3
|
|
|
|
2
|
|
Cost of services
|
|
|
34
|
|
|
|
29
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
41
|
|
|
|
32
|
|
|
|
34
|
|
Gross profit
|
|
|
59
|
|
|
|
68
|
|
|
|
66
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
36
|
|
|
|
24
|
|
|
|
23
|
|
Sales and marketing
|
|
|
42
|
|
|
|
30
|
|
|
|
35
|
|
General and administrative
|
|
|
14
|
|
|
|
11
|
|
|
|
12
|
|
Litigation settlement costs
|
|
|
|
|
|
|
5
|
|
|
|
|
|
Goodwill and intangible
amortization
|
|
|
3
|
|
|
|
1
|
|
|
|
|
|
Restructuring charge
|
|
|
95
|
|
|
|
40
|
|
|
|
(30
|
)
|
Impairment of assets
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
193
|
|
|
|
111
|
|
|
|
40
|
|
Operating income (loss)
|
|
|
(134
|
)
|
|
|
(43
|
)
|
|
|
26
|
|
Other (expense) income, net
|
|
|
(7
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for
income taxes
|
|
|
(141
|
)
|
|
|
(40
|
)
|
|
|
26
|
|
Provision for income taxes
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(147
|
)
|
|
|
(40
|
)
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results
of Operations for the Years ended December 31, 2004 as
compared to 2003 and 2002
Revenues
A summary of our revenues by geographic region is as follows
(dollars in thousands, unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
%
|
|
|
Services
|
|
|
%
|
|
|
Total
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Year Ended December 31,
2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
23,988
|
|
|
|
59
|
|
|
$
|
46,137
|
|
|
|
61
|
|
|
$
|
70,125
|
|
|
|
61
|
|
Europe
|
|
|
14,658
|
|
|
|
36
|
|
|
|
24,853
|
|
|
|
33
|
|
|
|
39,511
|
|
|
|
34
|
|
Asia/Pacific
|
|
|
1,837
|
|
|
|
5
|
|
|
|
4,425
|
|
|
|
6
|
|
|
|
6,262
|
|
|
|
5
|
|
Total
|
|
$
|
40,483
|
|
|
|
100
|
%
|
|
$
|
75,415
|
|
|
|
100
|
%
|
|
$
|
115,898
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
%
|
|
|
Services
|
|
|
%
|
|
|
Total
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Year Ended December 31,
2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
14,435
|
|
|
|
48
|
|
|
$
|
30,700
|
|
|
|
53
|
|
|
$
|
45,135
|
|
|
|
51
|
|
Europe
|
|
|
11,725
|
|
|
|
39
|
|
|
|
23,733
|
|
|
|
41
|
|
|
|
35,458
|
|
|
|
40
|
|
Asia/Pacific
|
|
|
4,070
|
|
|
|
13
|
|
|
|
3,418
|
|
|
|
6
|
|
|
|
7,488
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,230
|
|
|
|
100
|
|
|
$
|
57,851
|
|
|
|
100
|
|
|
$
|
88,081
|
|
|
|
100
|
|
Year Ended December 31,
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
9,545
|
|
|
|
36
|
%
|
|
$
|
27,733
|
|
|
|
54
|
%
|
|
$
|
37,278
|
|
|
|
48
|
%
|
Europe
|
|
|
13,894
|
|
|
|
52
|
|
|
|
19,427
|
|
|
|
38
|
|
|
|
33,321
|
|
|
|
43
|
|
Asia/Pacific
|
|
|
3,444
|
|
|
|
12
|
|
|
|
3,961
|
|
|
|
8
|
|
|
|
7,405
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
26,883
|
|
|
|
100
|
|
|
$
|
51,121
|
|
|
|
100
|
|
|
$
|
78,004
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues for the year ended December 31, 2004 were
$78.0 million, down $10.1 million, or 11%, from the
prior year. This decline consisted of a decrease in software
license revenue of $3.4 million, or 11%, and a decrease in
services revenue of $6.7 million, or 12%.
The fiscal 2004 decrease in software license revenues is
primarily attributable to continued weakness in the information
technology market due to economic uncertainties throughout 2004.
The decrease in services revenue consisted of decreases in both
maintenance and support and consulting services revenue. These
decreases were a result of a corresponding decline in software
license revenues and of weak economic conditions over the past
fiscal year.
Total revenues for the year ended December 31, 2003 were
$88.1 million, down $27.8 million, or 24%, on a
year-over-year
basis. This decline consisted of a decrease in software license
revenue of $10.3 million, or 25%, and a decrease in
services revenue of $17.6 million, or 23%.
The fiscal 2003 decrease in software license revenues is
primarily attributable to continued weakness in the information
technology market due to economic uncertainties throughout 2003.
The decrease in services revenue consisted of decreases in both
maintenance and support ($2.9 million) and consulting
services revenue ($14.7 million). These decreases were a
result of a corresponding decline in software license revenues
and of weak economic conditions during the fiscal year.
Cost of
Revenues
Cost of software licenses includes the 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,
|
|
|
|
2002
|
|
|
%
|
|
|
2003
|
|
|
%
|
|
|
2004
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Cost of software licenses(1)
|
|
$
|
8,144
|
|
|
|
20
|
%
|
|
$
|
2,561
|
|
|
|
8
|
%
|
|
$
|
1,303
|
|
|
|
5
|
%
|
Cost of services(2)
|
|
|
38,898
|
|
|
|
52
|
|
|
|
25,708
|
|
|
|
44
|
|
|
|
24,978
|
|
|
|
49
|
|
Total cost of revenues(3)
|
|
|
47,042
|
|
|
|
41
|
|
|
|
28,269
|
|
|
|
32
|
|
|
|
26,281
|
|
|
|
34
|
|
|
|
|
(1) |
|
Percentage is calculated based on total software license
revenues for the period indicated. |
|
(2) |
|
Percentage is calculated based on total services revenues for
the period indicated. |
|
(3) |
|
Percentage is calculated based on total revenues for the period
indicated. |
47
Cost of software licenses for the year ended December 31,
2004, decreased $1.3 million, or 49%, on a year over year
basis. Cost of software licenses as a percent of license
revenues was 5% in 2004 as compared to 8% in 2003. The decrease
in absolute dollars is a result of decreased license revenues.
Cost of services for the year ended December 31, 2004
decreased $0.7 million, or 3%, on a
year-over-year
basis. Cost of services as a percent of services revenues was
49% in 2004 as compared to 44% in 2003. The decreases in
absolute dollar terms during 2004 as compared to 2003 were the
result of reductions in consulting headcount and third-party
consultant costs that occurred during the 2004 fiscal year. The
increase as a percent of services revenue is due to higher
outsourcing costs, due in part to turnover in senior project
positions.
Cost of software licenses for the year ended December 31,
2003 decreased $5.6 million, or 69%, on a
year-over-year
basis. Cost of software licenses as a percent of license
revenues was 8% in 2003 as compared to 20% in 2002. The decrease
in absolute dollars is a result of decreased license revenues,
including revenue generated from our products that embed or
include third-party products. During the fourth quarter of
fiscal year 2002, we recorded a provision of $3.2 million
related to prepaid royalties for software we no longer intended
to utilize.
Cost of services for the year ended December 31, 2003
decreased $13.2 million, or 34%, on a
year-over-year
basis. Cost of services as a percent of services revenues was
44% in 2003 as compared to 52% in 2002. The decreases in
absolute dollar terms and as a percentage of revenue during 2003
as compared to 2002 were the result of reductions in consulting
headcount and third-party consultant costs that occurred during
the 2002 fiscal year.
For the year ended December 31, 2002, cost of software
licenses decreased $1.8 million, or 18%, on a
year-over-year
basis. Cost of software licenses as a percent of license
revenues was 20% in 2002 as compared to 10% in 2001. The
decrease in absolute dollars
year-over-year
is a result of decreased license revenues and resulting decrease
in revenues with associated third party royalties. The increases
in the 2002 fiscal year from the 2001 fiscal year as a
percentage of license revenue is due primarily to a
$3.2 million write-off of pre-paid royalties recorded in
the fourth quarter of fiscal 2002 related to software we no
longer intend to utilize.
Cost of services during 2002 decreased $58.7 million, or
60%, on a
year-over-year
basis. Cost of services as a percent of services revenues was
52% in 2002 as compared to 66% in 2001. The decreases in cost of
services in absolute dollar terms and as a percentage of revenue
during 2002 as compared to 2001 were the result of reductions in
consulting headcount and third-party consultant costs that
occurred during the 2002 fiscal year.
The number of total consulting employees was 77 as of
December 31, 2004, 98 as of December 31, 2003 and 170
as of December 31, 2002.
Operating
Expenses
Operating expenses consists of the following:
Research and development expenses consist primarily of salaries,
employee-related benefit costs and consulting fees incurred in
association with the development of our products. Costs incurred
for the research and development of new software products are
expensed as incurred until such time that technological
feasibility, in the form of a working model, is established at
which time such costs are capitalized and recorded at the lower
of unamortized cost or net realizable value. The costs incurred
subsequent to the establishment of a working model but prior to
general release of the product have not been significant. To
date, we have not capitalized any costs related to the
development of software for external use.
|
|
|
|
|
Sales and marketing expenses consist primarily of salaries,
employee-related benefit costs, commissions and other incentive
compensation, travel and entertainment and marketing
program-related expenditures such as collateral materials, trade
shows, public relations, advertising, and creative services.
|
|
|
|
General and administrative expenses consist primarily of
salaries, employee-related benefit costs, provisions and credits
related to uncollectible accounts receivable and professional
service fees.
|
|
|
|
Litigation settlement costs consist of costs incurred to settle
pending or threatened litigation matters.
|
|
|
|
Goodwill and intangible amortization represents costs to
amortize goodwill and other intangible assets, generally on a
straight-line basis. As described in Note 4 in the Notes to
Consolidated Financial Statements,
|
48
|
|
|
|
|
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 which does not meet the
criteria of a recognizable intangible asset as defined by
SFAS 142.
|
|
|
|
|
|
Charge for acquired in process technology consists of costs of
technology acquired in business combinations that are
immediately expensed under Accounting Principles Bulletin (APB)
Opinion No. 16, Business Combinations, which
was in effect at the time of the acquisition.
|
|
|
|
Restructuring charges represent costs incurred to restructure
company operations. These charges, including charges for excess
facilities, severance and certain non-cash items, were recorded
under the provisions of ETIF 94-3, and SFAS. 146.
|
|
|
|
Impairment of assets represents charges for the impairment of
physical assets considered a portion of on-going operations.
|
|
|
|
Impairment of goodwill and other intangibles represents charges
for the impairment of goodwill and other intangible assets.
|
A summary of operating expenses is set forth in the following
table. The percentage of expenses is calculated based on total
revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2002
|
|
|
%
|
|
|
2003
|
|
|
%
|
|
|
2004
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Research and development
|
|
$
|
41,432
|
|
|
|
36
|
%
|
|
$
|
21,067
|
|
|
|
24
|
%
|
|
$
|
18,024
|
|
|
|
23
|
%
|
Sales and marketing
|
|
|
48,918
|
|
|
|
42
|
|
|
|
26,394
|
|
|
|
30
|
|
|
|
27,340
|
|
|
|
35
|
|
General and administrative
|
|
|
16,288
|
|
|
|
14
|
|
|
|
9,790
|
|
|
|
11
|
|
|
|
9,538
|
|
|
|
12
|
|
Litigation settlement costs
|
|
|
|
|
|
|
|
|
|
|
4,250
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
Goodwill and intangible
amortization
|
|
|
3,548
|
|
|
|
3
|
|
|
|
886
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Restructuring (credit) charge
|
|
|
110,449
|
|
|
|
95
|
|
|
|
35,356
|
|
|
|
40
|
|
|
|
(23,545
|
)
|
|
|
(30
|
)
|
Impairment of assets
|
|
|
3,129
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
223,764
|
|
|
|
193
|
|
|
$
|
97,743
|
|
|
|
111
|
|
|
$
|
31,357
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense)
|
|
$
|
4,130
|
|
|
|
4
|
|
|
$
|
803
|
|
|
|
1
|
|
|
$
|
(227
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
$
|
(12,141
|
)
|
|
|
(10
|
)
|
|
$
|
2,096
|
|
|
|
2
|
|
|
$
|
187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development. Research and
development expenses decreased $3.0 million, or 14%, in
2004 compared to 2003, and $20.4 million, or 49%, in 2003
compared to 2002. The decreases in both years were primarily
attributable to reductions in staffing levels resulting in
decreased salary and salary related costs, as well as other
cost-cutting efforts taken as part of our restructuring plan,
such as consolidation of facilities.
Sales and marketing. Sales and marketing
expenses increased $1.0 million, or 4%, in 2004 compared to
2003, and decreased $22.5 million, or 46%, in 2003 compared
to 2002. Sales and marketing expenses increased in 2004 due to
the launch of our latest product, BroadVision Process. In 2003,
sales and marketing expenses decreased primarily due to
decreased salary expense as a result of reductions in force,
decreased variable compensation due to lower revenues, and
decreased facility, travel and marketing program costs as a
result of various cost-cutting actions.
General and administrative. General and
administrative expenses decreased $250,000, or 3%, in 2004
compared to 2003, and $6.5 million, or 40%, in 2003
compared to 2002. The decreases in both years were primarily
attributable to decreases in salary expenses as a result of
reductions in force, professional services expenses as a result
of cost cutting measures, reserves of accounts receivable due to
better than expected collection efforts and declining accounts
receivable balances, and continued facilities consolidations.
Litigation settlement costs. During the third
quarter of 2003, we settled outstanding litigation which
resulted in a charge of $4.3 million. The settlement
involved payments for past royalties and certain legal expenses
and
49
license fees that were due and payable in future periods. These
payments did not have a material effect on our business,
financial condition or results of operations.
Goodwill and intangible amortization. On
April 14, 2000, we acquired all of the outstanding commons
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.
Restructuring charge. We approved
restructuring plans to, among other things, reduce our workforce
and consolidate facilities. These restructuring and asset
impairment charges were taken to align our cost structure with
changing market conditions and to create a more efficient
organization. In fiscal 2004, we reached agreement with several
landlords to extinguish approximately $155.0 million of
obligations related to excess facility leases, which contributed
to a pre-tax net restructuring credit during the year of
$23.5 million. Pretax charges of $35.4 million and
$110.4 million were recorded during the years ended
December 31, 2003 and 2002, respectively. For each period,
we recorded the low-end of a range of assumptions modeled for
the restructuring charges, in accordance with
SFAS No. 5, Accounting for Contingencies.
Adjustments to the restructuring reserves will be made in future
periods, if necessary, based upon the then current actual events
and circumstances.
The following table summarizes the restructuring accrual
activity recorded during the three-years ended December 31,
2004 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
Facilities/
|
|
|
|
|
|
|
and Benefits
|
|
|
Excess Assets
|
|
|
Total
|
|
|
Accrual balances,
December 31, 2001
|
|
$
|
930
|
|
|
$
|
89,859
|
|
|
$
|
90,789
|
|
Restructuring charges
|
|
|
8,707
|
|
|
|
101,742
|
|
|
|
110,449
|
|
Cash payments
|
|
|
(8,026
|
)
|
|
|
(78,019
|
)
|
|
|
(86,045
|
)
|
Non-cash portion
|
|
|
(107
|
)
|
|
|
(18,891
|
)
|
|
|
(18,998
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual balances,
December 31, 2002
|
|
|
1,504
|
|
|
|
94,691
|
|
|
|
96,195
|
|
Restructuring charges
|
|
|
1,509
|
|
|
|
33,847
|
|
|
|
35,356
|
|
Cash payments
|
|
|
(2,342
|
)
|
|
|
(23,829
|
)
|
|
|
(26,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual balances,
December 31, 2003
|
|
|
671
|
|
|
|
104,709
|
|
|
|
105,380
|
|
Restructuring charges (credits)
|
|
|
1,114
|
|
|
|
(24,659
|
)
|
|
|
(23,545
|
)
|
Cash payments
|
|
|
(961
|
)
|
|
|
(46,711
|
)
|
|
|
(47,672
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual balances,
December 31, 2004
|
|
$
|
824
|
|
|
$
|
33,339
|
|
|
$
|
34,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The severance and benefits accrual for each period included
severance, payroll taxes and COBRA benefits related to
restructuring plans implemented prior to the balance sheet date.
The facilities/excess assets accrual for each period included
future minimum lease payments, fees and expenses, net of
estimated sublease income and our planned occupancy, and related
leasehold improvement amounts payable subsequent to the balance
sheet date for which the provisions of
EITF 94-3
or SFAS 146, as applicable, were satisfied. See further
discussion below. In determining estimated future sublease
income, the following factors were considered, among others:
opinions of independent real estate experts, current market
conditions and rental rates, an assessment of the time period
over which reasonable estimates could be made, the status of
negotiations with potential subtenants, and the location of the
respective facilities.
The nature of the charges and credits in 2004 is as follows:
Severance and benefits We recorded a
charge of $1.1 million during the twelve months ended
December 31, 2004, related to workforce reductions as a
component of our restructuring plans executed during the year.
We estimate that the accrual as of December 31, 2004, will
be paid in full by December 31, 2005.
Facilities/excess assets During the
twelve months ended December 31, 2004, we recorded a
facilities-related restructuring credit of $24.6 million.
During the third and fourth quarters of 2004, we reached
agreements with certain landlords to extinguish approximately
$155.0 million of future real estate obligations. We made
cash
50
payments of $19.0 million during the third quarter and
$1.7 million during the fourth quarter, and, as of
December 31, 2004, we are obligated to make additional cash
payments of $21.9 million in fiscal 2005. Standby letters
of credit of $21.9 million were issued on our behalf from
financial institutions as of December 31, 2004, in favor of
the landlords to secure the fiscal 2005 payments. Accordingly,
$21.9 million, along with additional letters of credit
securing other long-term leases of $2.3 million, has been
included in restricted cash in the accompanying Consolidated
Balance Sheets at December 31, 2004. We also transferred
ownership of certain furniture, fixtures, and leasehold
improvements with a net book value of $8.5 million to the
previous landlords.
As a component of the settlement of one of the previous leases,
we have a residual lease obligation beginning in 2007 of
approximately $9.1 million. We may make an additional cash
payment of $4.5 million if we exercise an option to
terminate this residual real estate obligation prior to the
commencement of the lease term (January 2007). This option to
terminate the residual lease obligation is accounted for in
accordance with SFAS 146 and is a part of the facilities
related restructuring credit of $24.6 million recorded in
fiscal 2004.
In connection with one of the buyout transactions, we issued to
the landlord a five-year warrant to purchase approximately
700,000 shares of BroadVision common stock at an exercise
price of $5.00 per share, exercisable beginning in August
2005. See Note 9 of Notes to Consolidated Financial
Statements.
As of December 31, 2004, $2.8 million of estimated
future sublease income is netted against the restructuring
accrual.
The nature of the charges in 2003 is as follows:
Severance and benefits The
$1.5 million charge in fiscal 2003 related to workforce
reductions as a component of our restructuring plans executed
during the year.
Facilities/excess assets During the
twelve months ended December 31, 2003, we recorded a
facilities-related restructuring charge of $33.8 million.
This charge related to our revisions of estimates with respect
to the planned future occupancy and anticipated future
subleases. These revisions were necessary due to a reduction in
planned future BroadVision space needs and a further decline in
the market for commercial real estate. We estimated future
sublease timing and rates based upon current market indicators
and information obtained from a third party real estate expert.
The nature of the charges in 2002 is as follows:
A pre-tax charge of $110.4 million was recorded during
fiscal 2002 to provide for restructuring actions and other
related items. We recorded the low-end of a range of assumptions
modeled for the restructuring charges, in accordance with
SFAS No. 5, Accounting for Contingencies. The
high-end of the range was estimated at $117.8 million for
the charge related to fiscal 2002.
Severance and benefits We recorded a
charge of approximately $8.7 million during fiscal year
ended December 31, 2002 for restructuring-related severance
and benefit costs. Included in the $8.7 million is $107,000
of non-cash charges related to a one-time compensation charge
taken as a result of granting certain terminated employees
extended vesting of stock options beyond the standard vesting
schedule for terminated employees. The compensation charge was
calculated using the Black-Scholes option pricing model.
Approximately $817,000 of severance and benefits related costs
remained accrued as of December 31, 2001 as a result of our
2001 restructuring plan. Approximately $8.0 million of
severance and benefits and other costs had been paid out during
fiscal 2002 and the remaining $1.0 million of severance,
payroll taxes and COBRA benefits was paid through
December 31, 2003. Our restructuring plan included plans to
terminate the employment of approximately 430 employees in North
and South America and approximately 95 employees throughout
Europe and Asia/Pacific during the first three quarters of
fiscal 2002, impacting all of our departments. The employment of
approximately 525 employees was terminated during fiscal year
2002. As a result of these reductions, we expected annual salary
savings of approximately $44.6 million.
Facilities/excess assets During fiscal
year 2002, we revised our estimates and expectations with
respect to our facilities disposition efforts due to further
consolidation and abandonment of additional facilities and to
account for changes in estimates used in our 2001 restructuring
plan based upon actual events and circumstances. Total lease
termination costs include the impairment of related assets,
remaining lease liabilities and brokerage fees offset by
51
estimated sublease income. The estimated costs of abandoning
these leased facilities, including estimated sublease income,
were based on market information analyses provided by a
commercial real estate brokerage firm we retained. Based on the
factors above, a facilities/excess assets charge of
$101.7 million was recorded during fiscal year 2002.
As of December 31, 2004, the total restructuring accrual of
$34.2 million consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Non-Current
|
|
|
Total
|
|
|
Severance and Termination
|
|
$
|
0.9
|
|
|
$
|
|
|
|
$
|
0.9
|
|
Excess Facilities
|
|
|
25.4
|
|
|
|
7.9
|
|
|
|
33.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
26.3
|
|
|
$
|
7.9
|
|
|
$
|
34.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We estimate that the severance and termination accrual will be
paid in full by December 31, 2005. We expect to pay the
excess facilities amounts related to restructured or abandoned
leased space as follows (in millions):
|
|
|
|
|
|
|
Total Future
|
|
|
|
Minimum Lease
|
|
Years Ending
December 31,
|
|
Payments
|
|
|
2005
|
|
$
|
25.4
|
|
2006
|
|
|
6.0
|
|
2007
|
|
|
0.9
|
|
2008
|
|
|
0.5
|
|
2009 and thereafter (through
October 2010)
|
|
|
0.5
|
|
|
|
|
|
|
Total minimum facilities payments
|
|
$
|
33.3
|
|
|
|
|
|
|
Of this excess facilities accrual, $21.9 million relates to
payments due in fiscal 2005 under lease termination agreements,
and $11.4 million relates to future minimum lease payments,
fees and expenses, net of estimated sublease income and our
planned occupancy. Certain long-term future minimum lease
payments were converted into short-term buyout obligations
subsequent to December 31, 2004. See Note 12.
Activity related to the restructuring plans prior to
January 1, 2003 is accounted for in accordance with
EITF 94-3.
Activity after January 1, 2003 is accounted for in
accordance with SFAS 146, with the exception of amounts
that were the result of changes in assumptions to restructuring
plans that were initiated prior to January 1, 2003.
52
The following table summarizes the activity related to the
restructuring plans initiated after January 1, 2003, and
accounted for in accordance with SFAS 146, for the twelve
months ended December 31, 2004 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
Restructuring
|
|
|
Amounts
|
|
|
Accrued
|
|
|
|
Restructuring
|
|
|
Costs and
|
|
|
Paid or
|
|
|
Restructuring
|
|
|
|
Costs, Beginning
|
|
|
Other
|
|
|
Written Off
|
|
|
Costs, Ending
|
|
|
Year Ended December 31,
2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease cancellations and commitments
|
|
$
|
|
|
|
$
|
21,683
|
|
|
$
|
|
|
|
$
|
21,683
|
|
Termination payments to employees
and related costs
|
|
|
|
|
|
|
1,535
|
|
|
|
(1,293
|
)
|
|
|
242
|
|
Write-off on disposal of assets
and related costs
|
|
|
|
|
|
|
515
|
|
|
|
(515
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
23,733
|
|
|
$
|
(1,808
|
)
|
|
$
|
21,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease cancellations and commitments
|
|
$
|
21,683
|
|
|
$
|
9,594
|
|
|
$
|
(9,453
|
)
|
|
$
|
21,824
|
|
Termination payments to employees
and related costs
|
|
|
242
|
|
|
|
1,114
|
|
|
|
(991
|
)
|
|
|
365
|
|
Write-off on disposal of assets
and related costs
|
|
|
|
|
|
|
(1,193
|
)
|
|
|
1,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,925
|
|
|
$
|
9,515
|
|
|
$
|
(9,251
|
)
|
|
$
|
22,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the activity related to the
restructuring plans initiated prior to January 1, 2003, and
accounted for in accordance with
EITF 94-3
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
|
|
|
Amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease cancellations and commitments
|
|
$
|
89,859
|
|
|
$
|
82,851
|
|
|
$
|
|
|
|
$
|
(78,019
|
)
|
|
$
|
94,691
|
|
Termination payments to employees
and related costs
|
|
|
817
|
|
|
|
7,644
|
|
|
|
|
|
|
|
(7,036
|
)
|
|
|
1,425
|
|
Write-off on disposal of assets
and related costs
|
|
|
113
|
|
|
|
19,954
|
|
|
|
|
|
|
|
(19,988
|
)
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
90,789
|
|
|
$
|
110,449
|
|
|
$
|
|
|
|
$
|
(105,043
|
)
|
|
$
|
96,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease cancellations and commitments
|
|
$
|
94,691
|
|
|
$
|
11,649
|
|
|
$
|
|
|
|
$
|
(23,314
|
)
|
|
$
|
83,026
|
|
Termination payments to employees
and related costs
|
|
|
1,425
|
|
|
|
41
|
|
|
|
|
|
|
|
(1,037
|
)
|
|
|
429
|
|
Write-off on disposal of assets
and related costs
|
|
|
79
|
|
|
|
(41
|
)
|
|
|
(26
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
96,195
|
|
|
$
|
11,649
|
|
|
$
|
(26
|
)
|
|
$
|
(24,363
|
)
|
|
$
|
83,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease cancellations and commitments
|
|
$
|
83,026
|
|
|
$
|
(32,584
|
)
|
|
$
|
|
|
|
$
|
(38,927
|
)
|
|
$
|
11,515
|
|
Termination payments to employees
and related costs
|
|
|
429
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off on disposal of assets
and related costs
|
|
|
|
|
|
|
(477
|
)
|
|
|
|
|
|
|
477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
83,455
|
|
|
$
|
(33,061
|
)
|
|
$
|
|
|
|
$
|
(38,420
|
)
|
|
$
|
11,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of assets. During the first quarter
of 2002, we engaged a third party firm to conduct a physical
inventory of our computer hardware assets located in North
America. We conducted an internal physical inventory on computer
hardware assets located outside of North America. The objective
of the physical inventory was to verify the amount and location
of our computer hardware. As a result of the findings of the
physical inventory and related reconciliation with our asset
records, we recorded an asset impairment charge of approximately
$2.3 million net book value related to computer hardware
during the first quarter of fiscal 2002. During the third
quarter of 2002, we conducted an additional review of remaining
computer and communication related assets not reviewed during
the first quarter inventory and recorded an asset impairment
charge of $853,000 as a result of the findings of our inventory
and related reconciliation with our asset records. During fiscal
2003, we recorded asset impairments of approximately $515,000 in
connection with our restructuring plan, which is included in our
restructuring charge recorded in our Statement of Operations.
Impairment of goodwill and other intangible
assets. We determined, as of December 31,
2004, that the fair value exceeded our net book value and no
impairment of goodwill and other intangible assets was required.
Changes in our estimates about future revenues and cash flows
could change our conclusion regarding impairment of goodwill and
potentially result in a non-cash goodwill impairment charge, for
all or a portion of the goodwill balance at December 31,
2004.
Other
Income (Expense), net
Other income (expense), net, consists of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2002
|
|
|
%
|
|
|
2003
|
|
|
%
|
|
|
2004
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Interest income (expense), net
|
|
$
|
4,130
|
|
|
|
4
|
|
|
$
|
803
|
|
|
|
1
|
|
|
$
|
(227
|
)
|
|
|
0
|
|
Other income (expense), net
|
|
|
(12,141
|
)
|
|
|
(10
|
)
|
|
|
2,096
|
|
|
|
2
|
|
|
|
187
|
|
|
|
0
|
|
Interest income (expense), net, decreased $1.0 million in
2004 as compared to 2003, as our cash balance decreased and we
issued convertible debt, which had the effect of increasing the
interest expense. Other income, net, decreased by
$1.9 million, or 91%, in 2004 as compared to 2003 as a
result of higher foreign currency translation gains during 2003
that did not recur in 2004. In September 2004, we sold our
interest in the partnership agreement for approximately $576,000
in cash and recorded a loss of approximately $230,000, which is
included in Other income (expense), net.
Interest income decreased $3.3 million, or 81%, in 2003
compared to 2002. The decrease in 2003 was attributable to
decreased cash balances from 2002 to 2003 and lower market
interest rates earned on invested cash. Other income (expense),
net, for the 2003 fiscal year was $2.1 million as compared
to net expense of $12.1 million in 2002. The main reason
for the 2003 change was due to realized losses on cost method
investments in 2002 that did not recur in 2003 in other expense.
54
Income
Taxes
We recorded income tax (benefits) provisions of ($309,000),
$439,000, and $7.6 million for the years ended
December 31, 2004, 2003 and 2002, respectively. For the
year ended December 31, 2004, the tax benefit relates
primarily to the income tax reserves decreasing during the
fiscal year. The tax expense, excluding the portion of the tax
benefit, relates to foreign withholding taxes and state income
taxes. For the year ended December 31, 2003, the tax
expense mainly relates to foreign withholding taxes and state
income taxes. For the year ended December 31, 2002,
$6.3 million of the $7.6 million relates to a
valuation provision for our deferred tax asset recorded in the
second quarter of fiscal 2002.
The tax expense, excluding the deferred tax asset valuation
provision, mainly relates to foreign withholding taxes and state
income taxes.
Liquidity
and Capital Resources
Background
and Overview
The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities in the
normal course of business. We face liquidity challenges. At
September 30, 2005, our current liabilities exceeded our
current assets by approximately $30 million (negative
working capital) resulting in a working capital ratio of less
than 0.4 to 1.0. We currently do not have any additional
financing arrangement in place from which to borrow additional
funds as may be required to meet our near term cash
requirements. Although the current holder of the Notes has
agreed to cancel all amounts owed under the Notes as described
below, we may fail to complete that transaction. If this were to
occur, and if we are not able to obtain financing sufficient to
fully repay the notes upon such demand, we would be forced to
seek protection under the bankruptcy laws. These matters raise
substantial doubt about our ability to continue in existence as
a going concern. The Companys ability to continue as a
going concern is dependent upon the Companys ability to
obtain sufficient financing to fully repay the Notes on
favorable terms, obtain additional financing as may be required
to meet any short term cash requirements, and ultimately to
achieve profitable operations. No adjustments to the carrying
values or classification of the assets and liabilities in the
accompanying financial statements have been made to take account
of this uncertainty.
On November 18, 2005 we and Vector announced the mutual
termination of the Merger Agreement and Dr. Chen, through
Honu, acquired the outstanding Notes. In order to relieve us
from the liquidity challenges presented by the Notes,
Dr. Chen has agreed to cancel all amounts owed under the
Notes in exchange for 34,500,000 shares of BroadVision
common stock at an effective price per share of $0.45,
representing a 25% discount to the December 20, 2005
closing price of BroadVision common stock of $0.60 per
share. The Note Conversion is expected to occur promptly
following the consummation of the rights offering.
We currently expect to be able to fund our short-term working
capital and operating resource expenditure requirements, for at
least the next twelve months, from our existing cash and cash
equivalents and short-term investment resources, our anticipated
cash flows from operations and anticipated cash flows from
subleases. However, we could experience unforeseen
circumstances, such as a worsening economic downturn, an
inability to close the Note Conversion and cancel the Notes,
difficulties in retaining customers and/or key employees due to
the termination of the Merger Agreement or other factors, lease
settlements and less than anticipated cash inflows from
operations, invested assets, and subleases that may increase our
use of available cash or our need to obtain additional
financing. We may find it necessary to obtain additional equity
or debt financing due to the factors listed above, 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 such equity
securities may have rights, preferences or privileges senior to
those of the holders of BroadVision common stock. There can be
no assurance that additional financing will be available on
acceptable terms, if at all. If adequate funds are not available
or are not available on acceptable terms, we may be unable to
55
develop our products, take advantage of future opportunities or
respond to competitive pressures or unanticipated requirements,
which could have a material adverse effect on our business,
financial condition and future operating results.
As of September 30, 2005, cash, cash equivalents, and
restricted cash and investments totaled $8.1 million, which
represents a decrease of $58.0 million as compared to a
balance of $66.1 million on December 31, 2004. This
decrease was primarily attributable to net cash used for
operations, payment of lease settlement obligations and payments
of debt related obligations during the nine months ended
September 30, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
December 31, 2004
|
|
|
2005
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Cash and cash equivalents
|
|
$
|
41,851
|
|
|
$
|
6,066
|
|
Restricted cash
|
|
$
|
24,256
|
|
|
$
|
1,997
|
|
Working capital (deficit)
|
|
$
|
(18,136
|
)
|
|
$
|
(30,160
|
)
|
Working capital ratio
|
|
|
.82
|
|
|
|
0.38
|
|
During the third and fourth quarters of 2004, we reached
agreements with certain landlords to extinguish approximately
$155.0 million of future real estate obligations. We made
related cash payments of $20.7 million in 2004 and
$23.1 million in the first nine months of 2005. In
addition, we issued to one of the landlords a five-year warrant
to purchase approximately 700,000 shares of BroadVision
common stock at an exercise price of $5.00 per share,
exercisable beginning in August 2005. As a component of the
settlement of one of the previous leases, we have a residual
lease obligation beginning in 2007 of approximately
$9.1 million. We may make an additional cash payment of
$4.5 million if we exercise an option to terminate this
residual real estate obligation prior to the commencement of the
lease term (January 2007). This option to terminate the residual
lease obligation, discounted to net present value, is accounted
for in accordance with SFAS 146 and is part of the
non-current restructuring accrual as of September 30, 2005.
In November 2004, we entered into a definitive agreement for the
private placement of up to $20.0 million of senior secured
convertible notes to five institutional investors. Under the
terms of the definitive agreement, we issued an initial
$16.0 million of Notes that were convertible, at the
holders option, into common stock at a conversion price of
$2.76 per share. The notes bear 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, which began
in June 2005.
On May 9, 2005, by agreement between us and the holders of
a majority of the Notes, one of the agreements governing the
Notes was amended to extend by 120 days the time within
which we are required to obtain effectiveness of a registration
statement covering the resale of the shares of BroadVision
common stock that may be issued in respect of the Notes.
Unexpected delays in obtaining effectiveness of the SEC
registration statement relating to the Notes caused us to incur
additional penalty payments to the Noteholders at a rate of
$160,000 per month through August 2005 and to make
principal, interest and penalty payments in cash rather than
common stock.
In October 2005, we inadvertently did not make timely payment of
the third quarter interest payment due under the Notes of
approximately $201,000 that was due on October 1, 2005.
Lack of timely payment became an event of default on
October 8, 2005 after non-payment continued for a period of
over five business days. We made the third quarter interest
payment promptly after discovery of the nonpayment, on
October 14, 2005. The event of default permitted each
noteholder to require us to redeem 120% of all or any portion of
the amounts outstanding under the applicable Note by delivering
to us notice of such redemption, which redemption is required
under the Notes to be paid within five business days after
receipt of such redemption notice.
On October 25, 2005, we entered into an agreement with the
noteholders under which the noteholders agreed not to require
redemption of the Notes, including the 20% premium payable
thereunder, prior to November 16, 2005.
On November 18, 2005, our Chief Executive Officer and
largest stockholder, Dr. Pehong Chen, acquired all of our
outstanding Notes. Including interest the Notes represented
$15.5 million in debt obligations as of December 15,
2005. In order to relieve BroadVision from the liquidity
challenges presented by the Notes, Dr. Chen has agreed to
56
cancel all amounts owed under the Notes in exchange for
34,500,000 shares of BroadVision common stock at an
effective price per share of $0.45, representing a 25% discount
to the December 20, 2005 closing price of BroadVision
common stock of $0.60 per share. In connection with the
Note Conversion, promptly following the completion of the
rights offering we expect to cancel the Notes and issue
approximately 34,500,000 new shares of common stock to
Dr. Chen that, depending on the number of shares issued in
the rights offering, will represent up to approximately 50% of
our total outstanding common stock immediately following such
issuance. Because of the highly dilutive nature of the
Note Conversion, our primary purpose for the rights
offering is to allow the holders of BroadVision common stock at
the time of the Note Conversion 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
Note Conversion. Dr. Chen has waived any right to
participate in the rights offering.
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.
We have various credit facilities with a commercial lender which
include term debt in the form of notes payable, a revolving line
of credit and an equipment line of credit. In June 2005, we
entered into a renewed and amended loan and security agreement
with the lender. The agreement requires us to maintain certain
levels of unrestricted cash and cash equivalents (excluding
equity investments), and to maintain certain levels on deposit
with the lender. At December 31, 2004, $20.0 million,
was outstanding under the line of credit. As of
September 30, 2005, there was no outstanding balance on the
line of credit. Borrowings under the line of credit are
collateralized by all of our assets and bear interest at the
banks prime rate. Interest is due monthly and principal is
due at the expiration in February 2006. Interest is due monthly
and principal is due at the expiration in February 2006. As of
July 1, 2005, under the renewed and amended agreement, the
requirements we must meet in order to continue to access the
credit facility became more stringent. We were not in compliance
with these new requirements as of September 30, 2005, and
we expect that we will be unable to meet the new requirements in
future periods.
Commitments totaling $2.0 million and $24.3 million in
the form of standby letters of credit were issued on our behalf
from financial institutions as of September 30, 2005 and
December 31, 2004, respectively, primarily in favor of our
various landlords to secure obligations under our facility
leases. Accordingly, $2.0 million and $24.3 million
have been presented as restricted cash in the accompanying
Condensed Consolidated Balance Sheets at September 30, 2005
and December 31, 2004, respectively.
Our exposure to market risk for changes in interest rates
relates primarily to our investment portfolio. We had no
derivative financial instruments as of September 30, 2005
and December 31, 2004. We place our investments in
instruments that meet high credit quality standards and the
amount of credit exposure to any one issue, issuer and type of
instrument is limited. Our interest rate risk related to
borrowings historically has been minimal as interest expense
related to adjustable rate borrowings has been immaterial for
the three and nine months ended September 30, 2004 and 2005.
Cash
Flows for the Nine Months ended September 30,
2005
Cash
Flows from Operating Activities
Cash used for operating activities was $34.7 million for
the nine months ended September 30, 2005. The primary
reason for the net cash used by operating activities was due to
the net loss for the period as well as the payment of accrued
liabilities related to restructuring of $24.2 million.
Other significant adjustments to reconcile net income to cash
used for operating activities included the non-cash impairment
of goodwill of $13.2 million, the gain on sale of cost
method investments of $1.1 million, the non-cash release of
income tax reserves of $2.0 million, and the gain on
revaluation of warrants to fair value of $4.2 million.
Net cash used for operating activities was $38.8 million
for the nine months ended September 30, 2004. Net cash used
for operating activities for the nine month period ended
September 30, 2004 was primarily attributable to
57
the net loss of $3.5 million (before extraordinary gains
related to real estate transactions) and changes in balance
sheet accounts related to the settlement of long term lease
obligations. The accrued liabilities related to restructuring
costs for excess leased facilities decreased from
$104.7 million at December 31, 2003 to
$36.7 million as of September 30, 2004. As a result of
the settlement of future lease obligations during the third
quarter, we recorded a $26.0 million gain and paid
$19.1 million in cash to extinguish future real estate
obligations, and agreed to pay a further $18.1 million in
January 2005, and were granted an option to terminate the
remaining lease obligations for $4.5 million. Offsetting
these activities related to the lease settlements during the
period were several non-cash items, including non-cash
depreciation and amortization expense of $3.1 million, and
changes to balance sheet accounts, including a decrease in
accounts receivable of $5.0 million due to reduced
revenues, offset by a decrease in unearned revenue and deferred
maintenance of $6.1 million.
Cash
Flows from Investing Activities
Cash provided by investing activities was $21.9 million for
the nine months ended September 30, 2005 and was primarily
due to transfers from restricted cash of $20.3 million and
proceeds from dividends of $1.1 million. Cash used for
investing activities was $0.9 million for the nine months
ended September 30, 2004 and was primarily due to transfers
to restricted cash. Capital expenditures were $489,000 and
$132,000 during the nine months ended September 30, 2004
and 2005, respectively. Our capital expenditures consisted of
purchases of operating resources to manage our operations and
consisted primarily of computer hardware and software.
Cash
Flows from Financing Activities
Cash used for financing activities was $23.0 million for
the nine months ended September 30, 2005, consisting of
$20.5 million used for repayment of borrowings, net of new
borrowings, offset by $598,000 funds received for the issuance
of common stock. Net cash used in financing activities was
$11.1 million for the nine months ended September 30,
2004, consisting of $1.6 million in proceeds from the
issuance of common stock and $12.7 million used for
repayment of borrowings, net of new borrowings
Cash
Flows for the Years Ended December 31, 2004 as compared to
2003 and 2002.
Cash Used
For Operating Activities
Cash used for operating activities was $41.9 million,
$23.1 million and $99.2 million for fiscal 2004, 2003
and 2002, respectively. The primary reason for the net cash used
for operating activities in 2004 was due to buyout payments to
settle long-term lease obligations. As a result of the
settlement of future lease obligations during the third and
fourth quarters of fiscal 2004, we paid $20.7 million in
cash to extinguish future lease obligations, and we agreed to
pay a further $21.9 million in fiscal 2005. Also impacting
cash flows from operations in fiscal 2004 was a net loss of
$2.9 million (before restructuring credits related to real
estate transactions), a $1.6 million release of doubtful
accounts and reserves and a $7.0 million decline in
unearned revenue and deferred maintenance. There were also
several non-cash items, including non-cash depreciation and
amortization expense of $3.7 million, a non-cash
restructuring reversal of $24.9 million and changes to
balance sheet accounts, including a decrease in accounts
receivable, prepaid expenses and other current assets of
$5.1 million and an increase in accounts payable and
accrued expenses of $2.2 million.
The primary reason for the net cash used for operating
activities for fiscal 2003 was due to the net loss of
$35.5 million adjusted for certain non-cash items such as
depreciation expense, amortization of prepaid royalties and
amortization of intangibles. Decreases in accounts payable and
accrued expenses of $8.1 million and in unearned revenues
and deferred maintenance of $11.7 million contributed to
the use of cash, offset by decreases in other noncurrent assets
of $1.9 million, in accounts receivable of
$8.3 million and in prepaids and other of $1.6 million
and an increase in the restructuring reserves of
$7.5 million. Net cash used for operating activities for
the year ended December 31, 2002 was primarily attributed
to the net loss of $170.5 million adjusted for certain
non-cash items such as depreciation expense, amortization of
prepaid royalties, amortization of intangibles, impairment of
assets, non-cash restructuring charge, accounts receivable
reserves and provision for deferred tax asset valuation as well
as a decrease in accounts payable and accrued expenses, a
decrease in unearned revenues and
58
deferred maintenance, a decrease in other noncurrent assets,
partially offset by decreases in accounts receivable and in
prepaids and other, and an increase in the restructuring
reserves.
Cash
Provided By (Used For) Investing Activities
Cash used for investing activities in fiscal 2004 was
$3.8 million, primarily as a result of transfers to
restricted cash. Cash provided by investing activities of
$22.0 million for fiscal 2003 and $73.9 million for
fiscal 2002 primarily consisted of net sales/maturities of
investments.
Capital expenditures were $730,000 for fiscal 2004, $131,000 for
fiscal 2003 and $1.1 million for fiscal 2002. Our capital
expenditures have consisted of purchases of operating resources
to manage our operations and included computer hardware and
software, office furniture and fixtures and leasehold
improvements.
Cash
Provided By Financing Activities
Cash provided by financing activities was $8.9 million in
fiscal 2004, $2.5 million for fiscal 2003 and
$26.9 million for fiscal 2002. On November 10, 2004,
the Company entered into a definitive agreement for the private
placement of convertible debentures and a related warrant to
five institutional investors, which provided $14.9 million
in net proceeds after issuance costs. Offsetting this was a
$7.0 million reduction in bank borrowings and bank term
debt principal payments of $0.9 million in fiscal 2004. In
fiscal 2003 and 2002, cash provided by financing activities
consisted mostly of proceeds from borrowings under our line of
credit facility.
Leases
and Other Contractual Obligations
We lease our headquarters facility and our other facilities
under non-cancelable operating lease agreements expiring through
the year 2010. 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
September 30, 2005, under non-cancelable operating lease
agreements, together with amounts included in restructuring
reserves is as follows (in millions):
|
|
|
|
|
|
|
Operating
|
|
Years Ending
December 31,
|
|
Leases
|
|
|
2005
|
|
$
|
1.2
|
|
2006
|
|
|
3.2
|
|
2007
|
|
|
4.2
|
|
2008
|
|
|
2.1
|
|
2009 and thereafter
|
|
|
6.2
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
16.9
|
|
|
|
|
|
|
As of September 30, 2005, we have accrued $7.3 million
of estimated future facilities costs as a restructuring accrual.
This accrual includes the above minimum lease payments that are
related to excess and abandoned space under lease and certain
lease related allowances fees and expenses, partially offset by
estimated future sublease income (See Note 6 in the Notes
to Consolidated Financial Statements).
59
The following table summarizes our letters of credit and the
effect such letters of credit could have on our liquidity and
cash flows in future periods if the letters of credit were drawn
upon (in thousands):
|
|
|
|
|
|
|
September 30,
|
|
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
Less than 1 year
|
|
$
|
19,163
|
|
1-3 years
|
|
|
|
|
4-5 years
|
|
|
797
|
|
Over 5 years
|
|
|
1,000
|
|
|
|
|
|
|
Total
|
|
$
|
20,960
|
|
|
|
|
|
|
Restricted cash represents collateral for these letters of
credit.
During the third quarter of 2004, we reached agreements with
certain landlords to extinguish approximately $142 million
of future real estate obligations. We made cash payments of
$19.1 million during the third quarter of 2004, and
$18.1 million in the first quarter of 2005. We also
transferred ownership of certain furniture, fixtures, and
leasehold improvements with a net book value of
$8.1 million to the previous landlord. In addition, we
issued a warrant to purchase approximately 700,000 shares
of BroadVision common stock at an exercise price of
$5.00 per share exercisable after a one-year period. We
currently have a residual lease obligation beginning in 2007 and
will make a further cash payment of $4.5 million if we
exercises an option to terminate the residual real estate
obligation prior to the commencement of the lease term. This
option to terminate the residual lease obligation is accounted
for in accordance with SFAS 146 and is part of our
computation of the restructuring gain.
During October and November 2004, we reached agreements with
certain landlords to extinguish approximately $12.8 million
of future excess real estate obligations. In the aggregate, the
settlements involve current and future cash payments by us of
approximately $5.0 million through July 2005. As of
September 30, 2005, our future minimum lease obligations
were reduced to $16.9 million.
Factors
That May Affect Future Liquidity
The following table summarizes our contractual obligations as of
September 30, 2005 and the effect such obligations are
expected to have on our liquidity and cash flows in future
years. Restricted cash represents the collateral for our letters
of credit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1 year
|
|
|
1-3 years
|
|
|
4-5 years
|
|
|
Over 5 years
|
|
|
|
(In millions)
|
|
|
Letters of credit
|
|
$
|
21.0
|
|
|
$
|
19.2
|
|
|
$
|
|
|
|
$
|
0.8
|
|
|
$
|
1.0
|
|
Long-term debt
|
|
|
1.3
|
|
|
|
0.7
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
SVB Facility
|
|
|
15.0
|
|
|
|
15.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cancelable operating leases
|
|
|
22.8
|
|
|
|
11.4
|
|
|
|
10.0
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
60.1
|
|
|
$
|
46.3
|
|
|
$
|
10.6
|
|
|
$
|
2.2
|
|
|
$
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We anticipate that future operating expenses and cash payments
under operating leases, will constitute a material use of our
existing cash resources. As a result, our net cash flows will
depend heavily on the level of future revenues, our ability to
further restructure operations successfully and our ability to
manage infrastructure costs.
We currently expect to fund our short-term working capital and
operating resource expenditure requirements, for at least the
next twelve months, from our existing cash and cash equivalents
and short-term investment resources, our anticipated cash flows
from operations and anticipated cash flows from subleases.
However, we could experience unforeseen circumstances, such as a
worsening economic downturn, an inability to close the Note
Conversion and cancel the Notes, difficulties in retaining
customers and/or key employees due to the termination of the
Merger Agreement or other factors, lease settlements and less
than anticipated cash inflows from operations, invested assets,
and subleases that may increase our use of available cash or our
need to obtain additional financing. We may find it necessary to
obtain additional equity or debt financing due to the factors
listed above, in order to
60
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 such equity
securities may have rights, preferences or privileges senior to
those of the holders of BroadVision common stock. There can be
no assurance that additional financing will be available on
acceptable terms, if at all. If adequate funds are not available
or are not available on acceptable terms, we may be unable to
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.
Quarterly
Results of Operations
The following tables set forth certain unaudited consolidated
statement of operations data for the eleven quarters ended
September 30, 2005.
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 elsewhere in this prospectus. 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
|
|
|
|
Mar. 31,
|
|
|
June 30,
|
|
|
Sep. 30,
|
|
|
Dec. 31,
|
|
|
Mar. 31,
|
|
|
June 30,
|
|
|
Sep. 30,
|
|
|
Dec. 31,
|
|
|
Mar. 31,
|
|
|
June 30,
|
|
|
Sep. 30,
|
|
|
|
2003
|
|
|
2003
|
|
|
2003
|
|
|
2003
|
|
|
2004
|
|
|
2004
|
|
|
2004
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
|
(In thousands)
(Unaudited)
|
|
|
Statement of Operations
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses
|
|
$
|
7,975
|
|
|
|
6,824
|
|
|
|
5,077
|
|
|
|
10,355
|
|
|
$
|
7,840
|
|
|
$
|
7,097
|
|
|
$
|
4,654
|
|
|
$
|
7,292
|
|
|
$
|
4,416
|
|
|
$
|
3,391
|
|
|
$
|
3,314
|
|
Services
|
|
|
16,480
|
|
|
|
14,981
|
|
|
|
13,492
|
|
|
|
12,987
|
|
|
|
13,049
|
|
|
|
13,031
|
|
|
|
12,570
|
|
|
|
12,471
|
|
|
|
11,951
|
|
|
|
12,123
|
|
|
|
10,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
24,455
|
|
|
|
21,805
|
|
|
|
18,569
|
|
|
|
23,252
|
|
|
|
20,889
|
|
|
|
20,128
|
|
|
|
17,224
|
|
|
|
19,763
|
|
|
|
16,367
|
|
|
|
15,514
|
|
|
|
14,077
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of software licenses
|
|
|
388
|
|
|
|
495
|
|
|
|
666
|
|
|
|
1,012
|
|
|
|
578
|
|
|
|
313
|
|
|
|
256
|
|
|
|
156
|
|
|
|
(57
|
)
|
|
|
(186
|
)
|
|
|
106
|
|
Cost of services
|
|
|
6,558
|
|
|
|
7,177
|
|
|
|
5,915
|
|
|
|
6,058
|
|
|
|
6,277
|
|
|
|
6,302
|
|
|
|
6,391
|
|
|
|
6,008
|
|
|
|
5,980
|
|
|
|
5,614
|
|
|
|
5,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs of revenues
|
|
|
6,946
|
|
|
|
7,672
|
|
|
|
6,581
|
|
|
|
7,070
|
|
|
|
6,855
|
|
|
|
6,615
|
|
|
|
6,647
|
|
|
|
6,164
|
|
|
|
5,923
|
|
|
|
5,428
|
|
|
|
5,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
17,509
|
|
|
|
14,133
|
|
|
|
11,988
|
|
|
|
16,182
|
|
|
|
14,034
|
|
|
|
13,513
|
|
|
|
10,577
|
|
|
|
13,599
|
|
|
|
10,444
|
|
|
|
10,086
|
|
|
|
8,330
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Mar. 31,
|
|
|
June 30,
|
|
|
Sep. 30,
|
|
|
Dec. 31,
|
|
|
Mar. 31,
|
|
|
June 30,
|
|
|
Sep. 30,
|
|
|
Dec. 31,
|
|
|
Mar. 31,
|
|
|
June 30,
|
|
|
Sep. 30,
|
|
|
|
2003
|
|
|
2003
|
|
|
2003
|
|
|
2003
|
|
|
2004
|
|
|
2004
|
|
|
2004
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
|
(In thousands)
(Unaudited)
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
6,151
|
|
|
|
6,063
|
|
|
|
4,467
|
|
|
|
4,386
|
|
|
|
4,888
|
|
|
|
4,509
|
|
|
|
4,600
|
|
|
|
4,027
|
|
|
|
4,287
|
|
|
|
3,955
|
|
|
|
3,095
|
|
Sales and marketing
|
|
|
6,382
|
|
|
|
6,043
|
|
|
|
6,710
|
|
|
|
6,809
|
|
|
|
6,866
|
|
|
|
7,480
|
|
|
|
6,020
|
|
|
|
6,975
|
|
|
|
5,811
|
|
|
|
5,060
|
|
|
|
2,948
|
|
General and administrative
|
|
|
2,288
|
|
|
|
2,413
|
|
|
|
2,885
|
|
|
|
2,203
|
|
|
|
2,417
|
|
|
|
2,400
|
|
|
|
2,335
|
|
|
|
2,386
|
|
|
|
2,535
|
|
|
|
2,829
|
|
|
|
2,162
|
|
Litigation settlement costs
|
|
|
|
|
|
|
|
|
|
|
4,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and intangible amortization
|
|
|
887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charge (credit)
|
|
|
1,035
|
|
|
|
7,817
|
|
|
|
4,509
|
|
|
|
21,995
|
|
|
|
570
|
|
|
|
679
|
|
|
|
(25,454
|
)
|
|
|
660
|
|
|
|
(704
|
)
|
|
|
309
|
|
|
|
245
|
|
Impairment of assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
17,193
|
|
|
|
22,336
|
|
|
|
22,821
|
|
|
|
35,393
|
|
|
|
14,741
|
|
|
|
15,068
|
|
|
|
(12,499
|
)
|
|
|
14,048
|
|
|
|
11,929
|
|
|
|
12,153
|
|
|
|
22,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
316
|
|
|
|
(8,203
|
)
|
|
|
(10,833
|
)
|
|
|
(19,211
|
)
|
|
|
(707
|
)
|
|
|
(1,555
|
)
|
|
|
23,076
|
|
|
|
(449
|
)
|
|
|
(1,485
|
)
|
|
|
(2,067
|
)
|
|
|
(14,295
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
1,021
|
|
|
|
608
|
|
|
|
569
|
|
|
|
263
|
|
|
|
(24
|
)
|
|
|
57
|
|
|
|
315
|
|
|
|
(387
|
)
|
|
|
2,317
|
|
|
|
(777
|
)
|
|
|
(782
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,337
|
|
|
$
|
(7,595
|
)
|
|
$
|
(10,264
|
)
|
|
$
|
(18,949
|
)
|
|
$
|
(867
|
)
|
|
$
|
(1,492
|
)
|
|
$
|
23,380
|
|
|
$
|
(386
|
)
|
|
$
|
2,918
|
|
|
$
|
(2,914
|
)
|
|
$
|
(14,537
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
0.04
|
|
|
$
|
(0.23
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(0.57
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
0.70
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.09
|
|
|
$
|
(0.09
|
)
|
|
$
|
(0.42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
|
$
|
0.04
|
|
|
$
|
(0.23
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(0.57
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
0.69
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.07
|
|
|
$
|
(0.09
|
)
|
|
$
|
(0.42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic net
income (loss) per share
|
|
|
32,447
|
|
|
|
32,751
|
|
|
|
32,906
|
|
|
|
33,080
|
|
|
|
33,300
|
|
|
|
33,476
|
|
|
|
33,599
|
|
|
|
33,539
|
|
|
|
33,971
|
|
|
|
34,181
|
|
|
|
34,320
|
|
|
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|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted
net income (loss) per share
|
|
|
34,727
|
|
|
|
32,751
|
|
|
|
32,906
|
|
|
|
33,080
|
|
|
|
33,300
|
|
|
|
33,476
|
|
|
|
34,052
|
|
|
|
34,321
|
|
|
|
33,968
|
|
|
|
34,181
|
|
|
|
34,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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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 BroadVision
common stock almost certainly would decline.
Recent
Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46
(FIN 46), Consolidation of Variable Interest
Entities. FIN 46 expands upon and strengthens existing
accounting guidance that addresses when a company should include
in its financial statements the assets, liabilities and
activities of another entity. A variable interest entity is a
corporation, partnership, trust or any other legal structure
used for business purposes that either (i) does not have
equity investors with voting rights or (ii) has equity
investors that do not provide sufficient financial resources for
the entity to support its activities. FIN 46 requires a
variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the
variable interest entitys activities or is entitled to
receive a majority of the entitys residual returns or
both. The consolidation requirements of FIN 46 apply
immediately to variable interest entities created after
January 31, 2003. The consolidation requirements apply to
older entities in the first fiscal year or interim period
beginning after December 15, 2003. Disclosure requirements
apply to any financial statements issued after January 31,
2003. We do not expect the adoption of SFAS 146 to have a
material impact on our consolidated financial position, results
of operations or cash flows.
In May 2003, the FASB issued SFAS 150, Accounting for
Certain Financial Instruments with Characteristics of both
Liabilities and Equity. SFAS 150 requires that certain
financial instruments, which under previous guidance were
accounted for as equity, must now be accounted for as
liabilities.
62
The financial instruments affected include mandatorily
redeemable stock, certain financial instruments that require or
may require the issuer to buy back some of its shares in
exchange for cash or other assets and certain obligations that
can be settled with shares of stock. SFAS 150 is effective
for all financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003.
The adoption of SFAS 150 did not have a material impact on
our consolidated financial position, results of operations or
cash flows.
In December 2004, the FASB issued SFAS No. 123
(revised 2004) Share-Based Payment, or
SFAS 123R, which replaces SFAS No. 123
Accounting for Stock-Based Compensation, or
SFAS 123, and supercedes APB Opinion No. 25
Accounting for Stock Issued to Employees. SFAS 123R
requires all share-based payments to employees, including grants
of employee stock options, to be recognized in the financial
statements based on their fair values beginning with the first
interim or annual period beginning after June 15, 2005,
with early adoption encouraged. The pro forma disclosures
previously permitted under SFAS 123 no longer will be an
alternative to financial statement recognition. Under
SFAS 123R, we must determine the appropriate fair value
model to be used for valuing share-based payments, the
amortization method for compensation cost and the transition
method to be used at date of adoption. The transition methods
include prospective and retroactive adoption options. We have
not yet determined the method of adoption or the effect of
adopting SFAS 123R. We are assessing the requirements of
SFAS 123R and expect that its adoption will have a material
impact on the Companys results of operations and earnings
(loss) per share.
In December 2004, the FASB issued SFAS No. 153
(SFAS 153), Exchanges of Nonmonetary Assets, an
amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions. SFAS 153 eliminates the exception
from fair value measurement for nonmonetary exchanges of similar
productive assets in paragraph 21(b) of APB Opinion
No. 29, Accounting for Nonmonetary Transactions,
and replaces it with an exception for exchanges that do not
have commercial substance. SFAS 153 specifies that a
nonmonetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a
result of the exchange. SFAS 153 is effective for periods
beginning after June 15, 2005. We do not expect that
adoption of SFAS 153 will have a material effect on our
consolidated financial position, consolidated results of
operations, or liquidity.
Change in
Accountants
On January 20, 2006, we engaged the independent registered
public accounting firm Stonefield Josephson, Inc.
(Stonefield) as our new independent accountants.
Prior to the engagement of Stonefield, including the two most
recent fiscal years through January 20, 2006, neither we
nor anyone acting on our behalf consulted with Stonefield
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 Stonefield
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 item 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.
Our audit committee approved the engagement of Stonefield as our
independent registered public accounting firm.
On November 29, 2005, BDO delivered to us a letter dated
November 28, 2005 stating that it had resigned as our
independent registered public accounting firm. The reports of
BDO on our consolidated financial statements for the years ended
December 31, 2004 and December 31, 2003 did not
contain any adverse opinion, or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope or
accounting principles.
Quantitative
and Qualitative Disclosure 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 September 30, 2005
and December 31, 2004. We place our investments in
instruments that meet high credit quality standards and the
amount of credit exposure to any one issue, issuer and type of
instrument is limited. Our interest rate risk related to
borrowings historically has been minimal as interest expense
related to adjustable rate borrowings has been immaterial for
the three months ended September 30, 2004 and 2005.
63
During the three months ended September 30, 2005 we did not
borrow any funds on our revolving line of credit. Interest is
payable monthly at the banks prime rate with a floor
minimum of 4.25% (6.75% annually as of September 30,
2005) and any outstanding principal is due in full in
February 2006. Additionally, we have two outstanding term loans
and an equipment line of credit as of September 30, 2005.
Interest on those loans are at the banks prime rate (6.75%
as of September 30, 2005) and prime rate plus 1.25%.
Cash
and Cash Equivalents
We consider all debt and equity securities with maturities of
three months or less at the date of purchase to be cash
equivalents. Our short-term investments consist of debt and
equity securities that are classified as
available-for-sale.
Our debt securities are carried at fair value with related
unrealized gains or losses reported as other comprehensive
income (loss), net of tax.
Our cash, and cash equivalents, at cost, which approximates fair
value, consisted of the following as of September 30, 2005
(in thousands, unaudited)
|
|
|
|
|
|
|
Fair Value
|
|
|
Cash and certificates of deposits
|
|
$
|
6,556
|
|
Money market
|
|
|
1,507
|
|
|
|
|
|
|
Total cash and equivalents
|
|
$
|
8,063
|
|
Included in the table above in cash and cash equivalents are
$2.0 million of non-current restricted cash.
Our cash and cash equivalents, at cost, which approximates fair
value, consisted of the following as of December 31, 2004
(in thousands):
|
|
|
|
|
|
|
Fair Value
|
|
|
Cash and certificates of deposits
|
|
$
|
55,240
|
|
Money market
|
|
|
10,867
|
|
|
|
|
|
|
Total cash and equivalents
|
|
$
|
66,107
|
|
Included in the table above in cash and cash equivalents are
non-current restricted cash of $2.3 million.
Concentrations
of Credit Risk
Financial assets that potentially subject us to significant
concentrations of credit risk consist principally of cash, cash
equivalents, and trade accounts receivable. We maintain our cash
and cash equivalents with two separate financial institutions.
We market and sell our products throughout the world and perform
ongoing credit evaluations of our customers. We maintain
reserves for potential credit losses. For the three and six
months ended September 30, 2005, no one customer accounted
for more than 10% of total revenue or accounts receivable.
Fair
Value of Financial Instruments
Our financial instruments consist of cash equivalents, accounts
receivable, accounts payable and debt. We do not have any
derivative financial instruments. We believe the reported
carrying amounts of its financial instruments approximates fair
value, based upon the short maturity of cash equivalents,
accounts receivable and payable, and based on the current rates
available to it on similar debt issues.
Foreign
Currency
We license our products and maintain significant operations in
foreign countries. Fluctuations in the value of foreign
currencies, principally the Euro, relative to the United States
dollar have impacted our operating results in the past and may
do so in the future. We expect that international license,
maintenance and consulting revenues will continue to account for
a significant portion of our total revenues in the future. We
pay the expenses of our international operations in local
currencies and do not currently engage in hedging transactions
with respect to such obligations.
64
Equity
Investments
Our equity investments consist of investments in public and
non-public companies that are accounted for under the cost
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 condensed
consolidated statement of operations.
We had no long-term equity investments in public and non-public
companies as of September 30, 2005. There were not any
other than temporary write-down during the three and
six months ended September 30, 2005 related to long-term
equity investments.
65
Controls
and Procedures
Disclosure
Controls and Procedures
Our Chief Executive Officer and our Chief Financial Officer are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in the rules
promulgated under the Securities Exchange Act of 1934, as
amended) for our company. Based on their evaluation of our
disclosure controls and procedures (as defined in the rules
promulgated under the Securities Exchange Act of 1934), our
Chief Executive Officer and our Chief Financial Officer
concluded that our disclosure controls and procedures were not
effective as of December 31, 2004, the end of the period
covered by this report. This conclusion was based on the
identification of three material weaknesses in internal control
over financial reporting as of December 31, 2004, as
described in the following subsection.
Managements
Report on Internal Control Over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Our internal
control system was designed to provide reasonable assurance to
our management and board of directors regarding the preparation
and fair presentation of published financial statements. All
internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined
to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation.
An internal control material weakness is a significant
deficiency, or aggregation of deficiencies, that does not reduce
to a relatively low level the risk that material misstatements
in financial statements will be prevented or detected on a
timely basis by employees in the normal course of their work. An
internal control significant deficiency, or aggregation of
deficiencies, is one that could result in a misstatement of the
financial statements that is more than inconsequential.
Our management assessed the effectiveness of our internal
control over financial reporting as of December 31, 2004,
and this assessment identified three material weaknesses. These
material weaknesses, and our responsive measures, are summarized
below:
1. Two senior accounting managers in our finance
department, with a combined ten years of experience working for
us, resigned during the fourth quarter of 2004, and we failed to
either hire adequate replacements or adequately train and
supervise our existing accounting staff to ensure that the
absence of the senior accounting managers would not negatively
impact our controls over financial reporting. Further, in
February 2005, our Vice President & Corporate
Controller resigned and left the Company. Subsequent to
December 31, 2004, we have taken the following steps to
remediate this material weakness:
|
|
|
|
|
Promoted an experienced member of our finance staff to the
position of Director of Accounting overseeing all North American
general accounting activities, and initiated a search for a
qualified candidate to fill the vacated position (although we
currently have no plans to replace the Vice President &
Corporate Controller position);
|
|
|
|
Established clear responsibilities among our accounting
personnel and increased their formal interaction and
coordination;
|
|
|
|
Committed to implement a more comprehensive training program; and
|
|
|
|
Increased our chief financial officers responsibilities
for overseeing more routine accounting matters until the open
personnel position is filled.
|
As our future staffing is dependent upon filling the open
position and retaining existing employees, we are currently
unable to determine when this material weakness will be fully
remediated.
2. Management reviews of key account reconciliations failed
to detect inconsistencies between amounts stated in the
reconciliations of the respective accounts and the general
ledger. These failures are also attributed to inadequate
staffing and training, as further described in the preceding
paragraphs, and we expect that our remediation efforts
associated with our staffing and training issues also will
address this material weakness.
66
3. Our procedures for reviewing the accuracy of maintenance
contract data were inadequate and could result in a failure to
detect and correct keypunch or other errors or omissions.
Subsequent to December 31, 2004, in an effort to remediate
the risks associated with this issue, we developed a detailed
database of worldwide maintenance revenues by contract and
developed key reports from that data. The reports have been
designed to detect errors or omissions related to key
maintenance data. Further, we have trained the revenue
accounting team on how to carefully analyze the reports to
ensure that inaccuracies are detected and corrected. We believe
these steps have fully remediated this weakness.
In making its assessment of internal control over financial
reporting, management used the criteria issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework. Because of the material
weaknesses described in the preceding paragraphs, our management
believes that, as of December 31, 2004, our internal
control over financial reporting was not effective based on
those criteria.
Our independent auditors have issued an attestation report on
managements assessment of our internal control over
financial reporting. It appears below.
Changes
in Internal Control Over Financial Reporting
During the quarter ended December 31, 2004, we implemented
the following changes in our internal control over financial
reporting that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting:
|
|
|
|
|
We have developed additional procedures in the area of
monitoring compliance with regulatory tax compliance and
computations of the financial statement impact on income taxes.
|
|
|
|
The Director of Finance assumed additional responsibilities for
the administration of on-line banking systems and we have
established additional system procedures regarding terminated
employees, both in an effort to reduce the risk of unauthorized
cash transactions.
|
|
|
|
We have implemented additional policies and procedures in order
to protect computer networks and user desktop computer systems
from computer viruses.
|
|
|
|
We have prepared detailed job descriptions for all IT and
finance employees in order to achieve clearer communications
with employees on job responsibilities
|
Limitations
on the Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief
Financial Officer, does not expect that our disclosure controls
and procedures or our internal controls will prevent all error
and fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the
design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and
instances of fraud, if any, within the company have been
detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management
override of the controls. The design of any system of controls
also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that
any design will succeed in achieving its stated goals under all
potential future conditions; over time, controls may become
inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be
detected. Our disclosure controls and procedures are designed to
provide reasonable assurance of achieving their objectives.
67
Report Of
Independent Registered Public Accounting Firm
To The Board of Directors and Stockholders of BroadVision, Inc.
and Subsidiaries:
We have audited managements assessment, included in the
accompanying Managements Report on Internal Control over
Financial Reporting, that BroadVision, Inc. and Subsidiaries
(the Company) did not maintain effective internal
control over financial reporting as of December 31, 2004,
based on criteria established in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting. Our responsibility is to express an
opinion on managements assessment and an opinion on the
effectiveness of the Companys internal control over
financial reporting 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 effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinions.
A companys 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
accounting principles generally accepted in the United States of
America. A companys 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 accounting principles generally
accepted in the United States of America, 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 companys 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.
A material weakness is a control deficiency, or combination of
control deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. The
following material weaknesses have been identified and included
in managements assessment. As of December 31, 2004,
(1) the Companys accounting and finance department
was not adequately staffed, trained and supervised;
(2) managements review of account reconciliations was
not adequate to detect errors in certain account
reconciliations, and (3) the Companys procedures for
reviewing the accuracy of maintenance revenue data entered into
the Companys accounting system were not adequate to detect
keypunch or other errors or omissions. None of the foregoing
control deficiencies resulted in adjustments to the 2004 annual
or interim consolidated financial statements. However, each of
these control deficiencies results in more than a remote
likelihood that a material misstatement to the Companys
annual or interim financial statements will not be prevented or
detected. Accordingly, management has determined that each of
these control deficiencies constitutes a material weakness.
These material weaknesses were considered in determining the
nature, timing, and extent of audit tests applied in our audit
of the Companys consolidated financial statements as of
and for the year ended December 31, 2004, and this report
does not affect our report dated March 11, 2005, except for
the Basis of Presentation Going Concern
Uncertainty discussion in Note 1, as to which the date is
November 11, 2005, on those consolidated financial
statements.
68
In our opinion, managements assessment that the Company
did not maintain effective internal control over financial
reporting as of December 31, 2004, is fairly stated, in all
material respects, based on the criteria established in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Also in our opinion, because of the effects of the
material weaknesses described above on the achievement of the
objectives of the control criteria, the Company has not
maintained effective internal control over financial reporting
as of December 31, 2004, based on the criteria established
in Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We do not express an opinion or any other form of assurance on
managements statements regarding corrective actions taken
by the Company after December 31, 2004.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
accompanying consolidated balance sheets of BroadVision, Inc as
of December 31, 2004 and 2003, and the related consolidated
statements of operations, stockholders equity and
comprehensive income (loss), and cash flows for each of the
three years in the period ended December 31, 2004 and our
report dated March 11, 2005, except for the Basis of
Presentation Going Concern Uncertainty
discussion in Note 1, as to which the date is
November 11, 2005, expressed an unqualified opinion thereon.
/s/ BDO Seidman, LLP
San Jose, California
March 11, 2005, except for the Basis of
Presentation Going Concern Uncertainty
discussion in Note 1, as to which the date is
November 11, 2005
69
BUSINESS
Overview
BroadVision solutions help enable customers to rapidly increase
revenues and reduce costs by moving interactions and
transactions to personalized self-service via the web. Our
integrated self-service application
suite including portal, commerce and
process offers rich functionality out of the
box and is easily configured for each customers
e-business
environment.
Over 1,000 customers including U.S. Air
Force, Lockheed Martin, Netikos, Circuit City, Iberia L.A.E. and
Vodafone have licensed BroadVision solutions to
power and personalize their mission-critical web initiatives.
Industry
Background
E-Business
has become an integral part of doing business and organizations
are looking for ways to reduce costs, improve productivity and
increase revenues by moving more business processes online.
Achieving this goal is complicated by the proliferation of
websites and rapid acquisition of
e-business
solutions that occurred during the Internet bubble years. This
often resulted in systems that were poorly integrated into
companies overall enterprise architecture, preventing
companies from empowering end users to interact with back-end
systems to accomplish their goals.
By providing a way for enterprises to quickly assemble and
deploy web-based business processes that tap into their
resources, organizations can dramatically reduce the cost and
improve the quality of interactions between employees, customers
and business partners.
A significant number of industry analysts have highlighted the
ways in which organizations can reduce costs and improve
customer satisfaction by implementing self service model,
including online shopping and call center operations. This trend
is especially evident over the past few years at airport
check-in and photo-processing kiosks. In addition to
accelerating the response time for the consumer, web-based
self-service applications also enable organizations to collect
valuable market research data about their customers.
BroadVision
Solution
BroadVision is unique in offering a self-service solution that
tightly integrates process, portal, commerce and content
management on a single, secure, high performance framework that
also enables advanced personalization and seamless integration
to enterprise systems.
Introduced in 2004, BroadVision Process represents a new class
of application development tool that potentially makes it
possible to web-enable business processes in days, not months,
dramatically reducing development time and increasing business
agility. New processes can be deployed into existing web
environments and readily adapted in response to changing
business requirements.
The following are key capabilities of the BroadVision
self-service suite:
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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 BroadVisions 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 BroadVision applications and tools
are designed with graphical user interfaces that allow
non-technical business managers to modify business rules and
content in real time.
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Unification BroadVisions robust
self-service framework pre-integrates the technologies necessary
to deploy content-rich, process-aware, user-centric portals,
including data integration, business logic, process logic and
user experience.
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70
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All-in-one
solution BroadVision provides 90 percent
of needed functionality
out-of-the-box.
This accelerates time to value and reduces IT cost and
complexity.
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Legacy integration A comprehensive set of
application programming interfaces (APIs) allows for rapid,
seamless integration with a variety of legacy business systems
such as Oracle, PeopleSoft, SAP and custom mainframe systems.
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Secure transaction processing BroadVision
applications provide secure handling of a wide range of
commercial and financial services transactions including order
pricing and discount/incentive handling, tax computation,
shipping and handling charges, payment authorization, credit
card processing, order tracking, news and stock feeds through a
combination of built-in functionality and integration with
third-party products.
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Multi-platform availability BroadVision
applications are optimized for a variety of hardware and
software platforms including IBM AIX, Sun Solaris, Microsoft
Windows NT and Hewlett-Packards HP-UX. Supported
databases include Oracle, Sybase, Informix, IBM and Microsoft
SQL Server. Supported application servers include WebLogic,
WebSphere and SunOne. BroadVision also supports Open Source
platforms, such as Linux with Jboss and Hypersonic.
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Multilingual/Multicurrency BroadVision
applications are global ready and designed to support multiple
languages (Arabic, Chinese, Hebrew, Japanese, Korean, Slovakian,
Turkish and most Western European languages) and a wide range of
currencies, including the euro.
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Products
BroadVision
Portaltm
Connects visitors to personalized views of information,
resources and business processes stored in diverse internal and
external legacy information systems. Easy to use and manage, it
supports collaborative business processes through self-serviced
microsites.
BroadVision
Commercetm
Transacts the entire sales process from lead generation to sales
execution to customer support and allows management of B2B and
B2C channels through a single application. Delivers advanced
personalization capabilities and
easy-to-use
catalog management tools.
BroadVision
Processtm
Transforms costly, people-intensive processes and collaborations
into web-based self-service processes. Allows business analysts
and technical staff to design and deploy solutions in days, not
months, significantly reducing IT cost and accelerating time to
implementation.
BroadVision
Self-Service Extensions
The following extensions build on the core functionality of
BroadVisions self-service applications:
BroadVision
eMarketingtm
Complements BroadVision Commerce with closed-loop campaign
management. Makes it easy to segment prospects and customers and
deliver personalized, relevant and timely offers via web,
e-mail or
both. Integrated reporting automatically gathers and presents
the information organizations need to discover the marketing
approach that works best.
71
BroadVision
Shopping
Servicestm
Gives BroadVision Portal customers basic shopping cart and
checkout capabilities to sell goods or services while still
maintaining control and building value on one portal
infrastructure. It is an extension of rather than a replacement
for BroadVision Commerce.
BroadVision
Content
Servicestm
Provides a simple, direct way for non-technical users to manage
content and helps organizations deliver accurate, targeted
content in a scalable, cost-effective way. Content Services
empowers business users with
easy-to-use
content creation tools, while providing secure access controls,
role-based user interfaces and version controls.
BroadVision
QuickSilver®tm
Provides powerful features for creating and publishing lengthy,
complex documents supporting multiple output formats (including
HTML, PDF and Postscript) and automatic publishing of
personalized content to BroadVision Portal. Assemble
publications from a variety of text, graphic and database
sources, including Microsoft Word, AutoCad, Microsoft Excel and
Oracle. Includes a complete XML authoring environment.
BroadVision
Staging
Servicestm
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.
BroadVision
Searchtm
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.
Product
Bundles
BroadVision also offers the following product bundles:
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TAS (Total Agility Suite) is a risk-free introduction to
BroadVision Process. It includes a
60-day
BroadVision Process software license (Designer, Developer and
Server Editions) and the necessary training and specialized
services to develop a mutually agreed upon web-based
self-service business process. Customers purchase the bundle, or
the license expires, after the
60-day trial.
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PAS (Portal Agility Suite) is a pre-integrated product
bundle that includes BroadVision Portal, BroadVision Process and
selected BroadVision Content Services; an
all-in-one
solution that makes it easy (through BroadVision Process) to
keep pace with changing business requirements.
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CAS (Commerce Agility Suite) is a pre-integrated product
bundle that includes BroadVision Commerce, BroadVision
eMarketing, BroadVision Process and selected BroadVision content
services; an
all-in-one
commerce solution that makes it easy (through BroadVision
Process) to keep pace with changing business requirements.
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Technology
Open
Standards-Based Architecture
BroadVision solutions are built on object-oriented application
code written in J2EE programming environments, including Java
and JavaScript, and where appropriate C++, which allows
developers and system integrators to use, integrate, modify,
adapt or extend the applications with minimal impact on other
areas to create a rapidly
72
customized product that meets specific business requirements.
BroadVision Process leverages a proven open source stack at the
platform layers to reduce total cost of ownership and optimize
performance.
Support for the J2EE and CORBA standards for object-oriented
computing enables high-volume performance, flexible application
deployment and easy integration with third-party or legacy
applications. Our applications fully support XML, which is the
emerging standard for managing and exchanging data between
e-business
systems as well as for re-purposing and sending information to
wireless devices.
In addition, we use other widely accepted standards in
developing our products, including Web Services, Structured
Query Language (SQL) for accessing relational database
management systems; Common Gateway Interface (CGI) and Hypertext
Transfer Protocol (HTTP) for web access; Netscape Application
Programming Interface (NAPI) for access to Netscapes web
servers; Secure Socket Layer (SSL) for secure transmissions over
networks; and the RC2 and MD5 encryption algorithms supplied by
RSA Security.
Our applications can be operated in conjunction with relational
database management systems provided by IBM Corporation,
Informix, Microsoft, Oracle and Sybase. Supported application
servers include WebLogic, WebSphere, SunOne and JBoss.
Support
for Open Source
BroadVision Process and BroadVision Portal give organizations
the option of running on a commercially available technology
stack described above or on an open source stack. While our
commitment to commercial platforms has not changed, we recognize
that our customers are adopting Open Source as a platform
because of its total cost of ownership and runtime benefits.
Alliances
We recognize that todays organizations require an open,
partner-based approach to
e-business.
Accordingly, we have assembled a team of
best-of-breed
partners with the skills, services and value-added products
necessary to develop, market, sell and deliver the most
competitive web-based self-service solutions available.
Consulting
Partners
BroadVisions systems integration and consulting services
partners deliver strategic business solutions to companies.
These partners offer global deployment experience, strong
vertical market expertise, and process-based solutions. Our
contractual agreements with these consulting partners motivate
them to build a development expertise in BroadVisions
technology and sell our products and services to potential
customers, thus enabling us to extend the reach of our products
and/or
services.
Technology/OEM
Partners
BroadVisions 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 customers specific business and IT goals. In
addition, technology partners include distributors who are
authorized representatives that market, distribute, resell and
support BroadVisions 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
have not been significant.
Services
BroadVision provides a full spectrum of global services to
contribute to the success of our customers, including business
consulting services, implementation services, migration and
performance services and ongoing training and support.
73
Consulting
Services
BroadVision Global Services (BVGS) provides strategic services
that help customers achieve maximum business value from their
BroadVision applications and implementation services that ensure
rapid deployment. BVGS leverages a global network of certified
professionals to provide customers with high value at low cost.
Our comprehensive migration services, including migration
planning and optimization, provide a cost effective approach to
migration and protect our customers investment in critical
business applications.
Education
Services
Coursework is available for Content Managers, Technical
Developers and System Administrators through BroadVision
Education Services. Customers and partners can arrange for
on-site
programs, which keep employees at the office, or take advantage
of regularly scheduled public courses at BroadVision locations.
Support
and Maintenance Services
BroadVision offers a tiered support and maintenance program to
better serve the needs of our worldwide customer base. Standard
Support provides technical assistance during regular business
hours; Enterprise Support is designed for customers with
mission-critical environments, providing customers with access
to support experts 24 hours a day, 7 days a week; and
Personalized Support assigns a specific individual to a customer
along with other customer specified support services, including
on-site
support engineers. We have technical support centers in North
America, Europe and Asia. Under our standard maintenance
agreement, we provide telephone support and upgrade rights to
new releases, including patch releases as necessary, as well as
product enhancements.
Customers
BroadVision customers have achieved significant business value
by moving interactions and transactions to web-based self
service.
As of December 31, 2005, we had licensed our products to
over 1,000 end-user customers and partners. During each of the
years ended December 31, 2004, 2003 and 2002, no customer
accounted for more than 10% of our total revenues.
BroadVisions software is deployed in all major industry
groups, including financial services, government, healthcare,
manufacturing, retail and telecommunications. Customers include
U.S. Air Force, Lockheed Martin, Netikos, Circuit City,
Iberia L.A.E., Vodafone, Xerox, CIBC, ENI, U.S. Postal
Service, Infineon, Merck Medco, HP Shopping and KPN N.V.
Sales and
Marketing
We market our products primarily through a direct sales
organization with operations in North America, Europe and
Asia/Pacific. On December 31, 2005, our direct sales
organization included 28 sales representatives, managers and
sales support personnel.
We have sales offices located throughout the world to support
the sales and marketing of our products. In support of the
Americas sales and marketing organizations, offices located in
the United States are in California, and Massachusetts.
Sales and marketing offices for our Europe region are located in
France, Germany, Italy, the Netherlands, Spain, Sweden,
Switzerland and the United Kingdom.
Our sales and marketing offices in the Asia
Pacific/Japan/India/Middle East region are located in India and
Japan.
Initial sales activities typically involve discussion and review
of the potential business value associated with the
implementation of a BroadVision solution, a demonstration of our
self-service web applications capabilities at the
prospects site, followed by one or more detailed technical
reviews. The sales process usually involves
74
collaboration with the prospective customer in order to specify
the scope of the solution. Our global services organization
helps customers to design, develop and deploy their
e-business
solutions.
As of December 31, 2005, 7 employees were engaged in a
variety of marketing activities, including product planning,
marketing material development, managing press coverage and
other public relations, identifying potential customers,
attending trade shows, seminars and conferences, establishing
and maintaining close relationships with recognized industry
analysts and maintaining our website.
Our marketing efforts are targeted at:
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developing and supporting marketing programs to enhance customer
loyalty;
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building market awareness through press and industry analyst
relations;
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generating and developing marketing and sales leads;
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producing and maintaining marketing collateral and sales tools;
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developing and supporting marketing programs associated with
various alliance partners; and
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developing materials associated with industry solutions.
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Competition
If we fail to compete successfully with current or future
competitors, we may lose market share. The market for
self-service web applications is rapidly evolving and intensely
competitive. Our customers requirements and the technology
available to satisfy those requirements will continually change.
We expect competition in this market to persist and increase in
the future. Our primary competition currently includes:
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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, IBM
Corporation, Microsoft, Oracle, SAP, and Vignette; and
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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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personalization and other features;
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integration of portal applications and framework;
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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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75
Compared to us, many of these competitors and other current and
future competitors have longer operating histories and
significantly greater financial, technical, marketing and other
resources. As a result, they may be able to respond more quickly
to new or changing opportunities, technologies and customer
requirements. Many of these companies can use their greater name
recognition and more extensive customer base to gain market
share. Competitors may be able to undertake more extensive
promotional activities, adopt more aggressive pricing policies
and offer more attractive terms to purchasers. Current and
potential competitors may bundle their products to discourage
users from purchasing our products. In addition, competitors
have established or may establish cooperative relationships
among themselves or with third parties to enhance their
products. Accordingly, it is possible that new competitors or
alliances among competitors may emerge and rapidly acquire
significant market share. Competitive pressures may make it
difficult for us to acquire and retain customers and may require
us to reduce the price of our products.
Intellectual
Property and Other Proprietary Rights
Our success and ability to compete are dependent to a
significant degree on our proprietary technology. We hold a
U.S. patent, issued in January 1998 and expiring in August
2015, on elements of the BroadVision
One-To-One
Enterprise product, which covers electronic commerce operations
common in todays 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 modern
document processing systems. Although we hold these patents,
they may not provide an adequate level of intellectual property
protection. In addition, litigation may be necessary in the
future to enforce our intellectual property rights, to protect
our trade secrets, to determine the validity and scope of the
proprietary rights of others, or to defend against claims of
infringement or invalidity. We cannot guarantee that
infringement or other claims will not be asserted or prosecuted
against us in the future, whether resulting from our
intellectual property or licenses from third parties. Claims or
litigation, whether successful or unsuccessful, could result in
substantial costs and diversions of resources, either of which
could harm our business.
We also rely on copyright, trademark, service mark, trade secret
laws and contractual restrictions to protect our proprietary
rights in products and services. We have registered
BroadVision, BroadVision
One-To-One,
iGuide and Interleaf as trademarks in
the United States and in other countries. It is possible that
our competitors or other companies will adopt product names
similar to these trademarks, impeding our ability to build brand
identity and possibly confusing customers.
As a matter of company policy, we enter into confidentiality and
assignment agreements with our employees, consultants and
vendors. We also control access to and distribution of our
software, documents and other proprietary information.
Notwithstanding these precautions, it may be possible for an
unauthorized third party to copy or otherwise obtain and use our
software or other proprietary information or to develop similar
software independently. Policing unauthorized use of our
products will be difficult, particularly because the global
nature of the Internet makes it difficult to control the
ultimate destination or security of software and other
transmitted data. The laws of other countries may afford us
little or no effective protection of our intellectual property.
Employees
As of December 31, 2005, we employed a total of
182 full-time employees, of whom 115 are based in North
America, 52 in Europe and 15 in Asia. Of these full-time
employees, 34 are in sales and marketing, 50 are in product
development, 76 are in global services and client support, and
22 are in finance, administration and operations.
We believe that our future success depends on attracting and
retaining highly skilled personnel. We may be unable to attract
and retain high-caliber employees. Our employees are not
represented by any collective bargaining unit. We have never
experienced a work stoppage and consider our employee relations
to be good.
Facilities
We lease approximately 160,000 square feet of office space,
of which approximately 75% is in the United States. We occupy or
sublease 90% of the 160,000 square feet of our leased
office space.
76
At our headquarters, located in Redwood City, California, we
occupy approximately 30,000 square feet of office
facilities used for research and development, technical support,
sales, marketing, consulting, training and administration.
Additional leased domestic facilities include offices located in
Bellevue, WA., McLean, VA., New York, NY., Redwood City, CA.,
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 Vienna,
Austria; Paris, France; Ismaning, Germany; Reading, UK; Houten,
Netherlands; Madrid, Spain; Milan, Italy; Japan; and India.
We believe our facilities are suitable for their respective uses
and, in general, 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.
Legal
Proceedings
We are subject to various claims and legal actions arising from
time to time in the ordinary course of business. In the opinion
of management, after consultation with legal counsel, we have
adequate defenses for each of the claims and actions, and we do
not expect their ultimate disposition to have a material effect
on our business, financial condition or results of operations.
Although management currently believes that the outcome of other
outstanding legal proceedings, claims and litigation involving
us will not have a material adverse effect on our business,
results of operations or financial condition, litigation is
inherently uncertain, and there can be no assurance that
existing or future litigation will not have a material adverse
effect on our business, results of operations or financial
condition.
On June 10, 2004, MetLife filed a complaint in the Superior
Court of the State of California, County of Los Angeles, naming
BroadVision, Inc. as a defendant. The complaint alleged that we
were liable for unlawful detainer of premises leased from the
plaintiff. The plaintiff thereafter filed a First Amended
Complaint alleging that we no longer held possession of the
premises but was in breach of the lease. In February 2005, we
and MetLife reached agreement and executed documents regarding a
settlement of the pending lawsuit under which we will pay
MetLife an aggregate of $1.9 million in consideration for
termination of the lease, dismissal of the lawsuit and in full
settlement of approximately $3.1 million of past and future
lease obligations. The three installment payments were made in
February 2005, May 2005 and September 2005.
On July 28, 2005, our representatives received copies of
four complaints relating to purported class action lawsuits,
each filed by an alleged holder of shares of BroadVision common
stock and each filed in California Superior Court for the county
of San Mateo. These complaints are captioned Gary
Goberville, et al., vs. Pehong Chen, et al., Civ
448490, Cookie Schwartz, et al., vs. BroadVision, Inc.,
et al., Civ 448516, Leon Kotovich, et al., vs.
BroadVision, Inc., et al., Civ 448518 and Anthony
Noblett, et al., vs. BroadVision, Inc., et al., Civ
448519. Each claim names our directors and BroadVision, Inc. as
defendants, and each alleges that the director defendants
violated their fiduciary duties to stockholders by, among other
things, failing to maximize our value and ignoring, or failing
to adequately protect against, certain purported conflicts of
interest. Each complaint seeks, among other things, injunctive
relief and damages in an unspecified amount. On
September 21, plaintiff Goberville filed an amended
complaint alleging that defendants caused materially misleading
information regarding a proposed merger to be disseminated to
our stockholders. On October 20, 2005, the Court ordered
consolidation of the four pending actions pursuant to the
parties stipulation. In light of the termination of the
Merger Agreement with an affiliate of Vector Capital Corporation
on December 2, 2005, the plaintiffs in the four above
entitled actions agreed to dismiss, without prejudice, their
complaints against our directors and BroadVision, Inc. on
December 9, 2005.
77
MANAGEMENT
Executive
Officers, Directors and Key Employees
Our directors and executive officers and their ages as of
December 15, 2005 are as follows:
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Name
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Age
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Position
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Pehong Chen
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48
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Chairman of the Board, Chief
Executive Officer and President
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William E. Meyer
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43
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Executive Vice President and Chief
Financial Officer
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David L. Anderson
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61
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Director
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James D. Dixon
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62
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Director
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Robert Lee
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57
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Director
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Roderick C. McGeary
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55
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Director
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T. Michael Nevens
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56
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Director
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Pehong Chen has served as our Chairman of the Board,
Chief Executive Officer and President since our incorporation in
May 1993. From 1992 to 1993, Dr. Chen served as the Vice
President of Multimedia Technology at Sybase, a supplier of
client-server software products. Dr. Chen founded and, from
1989 to 1992, served as President of Gain Technology, a provider
of multimedia applications development systems, which was
acquired by Sybase. He received a B.S. in Computer Science from
National Taiwan University, an M.S. in Computer Science from
Indiana University and a Ph.D. in Computer Science from the
University of California at Berkeley.
William E. Meyer has served as our Executive Vice
President and Chief Financial Officer since April 2003. Prior to
joining BroadVision, Mr. Meyer was Chief Financial Officer
of Mainsoft Corporation, a leading global publisher of
cross-platform development software. Before Mainsoft, he held
several senior finance positions with Phoenix Technologies, a
multi-national system software company, including Chief
Financial Officer and Executive Vice President of inSilicon
Corporation, a leading developer of semiconductor intellectual
property that was spun-off from Phoenix. Prior to his tenure at
Phoenix, Meyer held senior finance positions at Spectrum
HoloByte/Microprose, SBT Accounting Systems and Arthur
Andersen & Co.
David L. Anderson has served as a director of the Company
since November 1993. Since 1974, Mr. Anderson has been a
Managing Director of the General Partner of Sutter Hill
Ventures, a venture capital investment firm. Mr. Anderson
also serves on the Board of Directors of Dionex Corporation and
Molecular Devices Corporation, and on the boards of directors of
several privately-held companies. He holds a B.S. in Electrical
Engineering from the Massachusetts Institute of Technology and
an M.B.A. from Harvard Graduate School of Business
Administration.
James D. Dixon has served as a director of the Company
since January 2003. Prior to his retirement from Bank of America
in January 2002, Mr. Dixon served as an executive with
bankofamerica.com. From September 1998 to February 2000,
Mr. Dixon was Group Executive and Chief Information Officer
of Bank of America Technology & Operations. From 1990
to 1998, before the merger of NationsBank Corporation and
BankAmerica Corporation, Mr. Dixon was President of
NationsBank Services, Inc. From 1986 to 1990, he also served as
Chief Financial Officer for Citizens and Southern Bank/Sovran, a
predecessor company to NationsBank. Mr. Dixon holds a B.A.
from Florida State University, a J.D. from University of Florida
School of Law, and he is a graduate of the executive M.B.A.
program at Stanford University.
Robert Lee has served as a director of the Company since
August 2004. Mr. Lee was a corporate Executive Vice
President and President of Business Communications Services at
Pacific Bell, where he established two new subsidiaries: Pacific
Bell Internet Services and Pacific Bell Network Integration.
During his 26 year career at Pacific Bell, Lee managed
groups in operations, sales and marketing. As Executive Vice
President of Marketing and Sales, from 1987 to 1992, he produced
revenue growth rates greater than the overall national
telecommunications market. Mr. Lee as serves on the board
of directors of Interland, which provides web hosting for the
small and medium business market, and Netopia, which
manufactures and sells DSL internet routers for consumers and
small businesses.
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Roderick C. McGeary has served as a director of the
Company since April 2004. Mr. McGeary is currently Chairman
and Chief Executive Officer of BearingPoint, Inc.
Mr. McGeary served as Chief Executive Officer of Brience,
Inc. from July 2000 to July 2002. From April 2000 to June 2000,
he served as a Managing Director of KPMG Consulting LLC, a
wholly owned subsidiary of BearingPoint, Inc. (formerly KPMG
Consulting, Inc.). From August 1999 to April 2000, he served as
Co-President and Co-Chief Executive Officer of BearingPoint,
Inc. From January 1997 to August 1999, he was employed by KPMG
LLP as its Co-Vice Chairman of Consulting. Prior to 1997, he
served in several capacities with KPMG LLP, including audit
partner for technology clients. Mr. McGeary is a Certified
Public Accountant and holds a B.S. degree in Accounting from
Lehigh University. Mr. McGeary also serves on the board of
directors of BearingPoint, Inc., Cisco Systems, Inc. and GRIC
Communications, Inc.
T. Michael Nevens has served as a director of the
Company since April 2003. Prior to his retirement from
McKinsey & Company, a management consulting firm, in
December 2002, Mr. Nevens served as a director and was
Managing Partner of McKinsey & Companys Global
High Tech Practice and founder and Chairman of its IT Vendor
Relations Committee. Prior to joining McKinsey in 1980,
Mr. Nevens spent five years in several staff positions with
the U.S. House of Representatives and various political
organizations. He also currently serves on the Board of
Directors of Borland Software Corporation. Mr. Nevens holds
a B.S. in Physics from the University of Notre Dame and an M.S.
in Industrial Administration from the Krannert School of Purdue
University.
Compensation
Committee Interlocks and Insider Participation
None of our executive officers serves as a member of the board
of directors or compensation committee of any entity that has
one or more executive officers who serve on our board of
directors or compensation committee.
EXECUTIVE
COMPENSATION
Compensation
of Directors
Directors currently do not receive any cash compensation from us
for their services as members of the Board of Directors,
although they are reimbursed for certain expenses incurred in
connection with attendance of Board and Committee meetings in
accordance with Company policy.
Each of our directors is eligible to receive stock option grants
under the Companys 1996 Equity Incentive Plan (the
Incentive Plan). As of November 30, 2005,
non-employee directors held options to purchase an aggregate of
286,604 shares of the Companys common stock.
During the last fiscal year, the Company granted options for an
aggregate of 120,000 shares to the non-employee directors
of the Company at an exercise price per share of $2.72. The fair
market value of such common stock on the date of grant was
$2.72 per share (based on the definition of fair market
value under the Incentive Plan).
79
Compensation
of Executive Officers
Summary
of Compensation
The following table shows for the fiscal years December 31,
2003, 2004 and 2005, compensation awarded or paid to, or earned
by, the Companys Chief Executive Officer its other most
highly compensated executive officer at December 31, 2005
and one individual who was an executive officer of the Company
until his departure during fiscal 2005 (the Named
Executive Officers):
Summary
Compensation Table
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Long Term
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Compensation
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Annual Compensation(1)
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Awards
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Securities
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Annual
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Other Annual
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Underlying Options
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All Other Annual
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Name and Principal
Position
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Year
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Salary ($)
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Bonus ($)
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Compensation ($)(2)
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(#)
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Compensation ($)
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Pehong Chen
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2005
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$
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350,000
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Chairman of the Board,
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2004
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350,000
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President and Chief
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2003
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350,000
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Executive Officer
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|
|
|
|
|
|
|
William E. Meyer(3)
|
|
|
2005
|
|
|
$
|
224,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Vice President
|
|
|
2004
|
|
|
|
224,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Chief Financial
|
|
|
2003
|
|
|
|
168,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
240,000
|
|
|
|
|
|
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alex Kormushoff(4)
|
|
|
2005
|
|
|
$
|
203,360
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
$
|
69,000
|
|
Senior Vice President,
|
|
|
2004
|
|
|
|
205,000
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
56,250
|
|
Worldwide Field
|
|
|
2003
|
|
|
|
200,000
|
|
|
|
18,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes amounts earned but deferred at the election of the
Named Executive Officers under the Companys 401(k) plan. |
|
(2) |
|
As permitted by rules promulgated by the SEC no amounts are
shown with respect to certain perquisites where such
amounts do not exceed the lesser of 10% of the sum of the amount
in the salary and bonus columns or $50,000. |
|
(3) |
|
Mr. Meyer joined the Company as Executive Vice President
and Chief Financial Officer on April 1, 2003. |
|
(4) |
|
Mr. Kormushoff joined the Company on September 23,
2002 and became Senior Vice President, Global Services on
July 1, 2003. Mr. Kormushoff was Senior Vice
President, Worldwide Field Operations from October 2004 until
his departure in December, 2005. Other compensation paid to
Mr. Kormushoff includes payment of commissions on sales. |
Stock
Option Grants and Exercises
The Company grants options to its executive officers under its
Incentive Plan. As of December 31, 2005, options to
purchase a total of 3,756,932 shares were outstanding under
the Incentive Plan and options to purchase 3,378,775 shares
remained available for grant thereunder.
80
The following tables show for the fiscal year ended
December 31, 2005, certain information regarding options
granted to, exercised by, and held at year end by, the Named
Executive Officers.
Fiscal
Year End Option Values of Unexercised Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying Unexercised
|
|
|
Value of Unexercised In-The-
|
|
|
|
Shares
|
|
|
|
|
|
Options at December 31,
2005
|
|
|
Money Options at
|
|
|
|
Acquired on
|
|
|
Value Realized
|
|
|
(#)(2)
|
|
|
December 31,
2005($)(3)
|
|
Name
|
|
Exercise (#)
|
|
|
($)(1)
|
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Pehong Chen
|
|
|
|
|
|
|
|
|
|
|
1,704,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William E. Meyer
|
|
|
|
|
|
|
|
|
|
|
240,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alex Kormushoff
|
|
|
|
|
|
|
|
|
|
|
243,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Value received is based on the per share deemed values of the
Companys common stock on the date of exercise, determined
after the date of grant solely for financial accounting
purposes, less the exercise price, without taking into account
any taxes that may be payable in connection the transaction. |
|
(2) |
|
Reflects vested and unvested shares at December 31, 2005.
Options granted are immediately exercisable, but are subject to
the Companys right to repurchase unvested shares on
termination of employment. |
|
(3) |
|
Fair market value of the Companys common stock at
December 31, 2005, which was $0.49 per share, less the
exercise price of the options. |
Equity
Compensation Information
The following table provides certain information with respect to
all of the Companys equity compensation plans in effect as
of December 31, 2005.
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities
|
|
|
|
|
|
|
|
|
|
remaining available
|
|
|
|
Number of securities
|
|
|
Weighted-average
|
|
|
for issuance under
|
|
|
|
to be issued upon
|
|
|
exercise price of
|
|
|
equity compensation
|
|
|
|
exercise of outstanding
|
|
|
outstanding options,
|
|
|
plans (excluding
|
|
|
|
options, warrants and
|
|
|
warrants and rights
|
|
|
securities reflected in
|
|
Plan Category
|
|
rights (a)
|
|
|
(b)
|
|
|
column (a)) (c)
|
|
|
Equity compensation plans approved
by security holders(1)
|
|
|
3,764,947
|
|
|
$
|
23.58
|
|
|
|
3,378,775
|
|
Equity compensation plans not
approved by security holders(2)
|
|
|
587,838
|
|
|
$
|
16.74
|
|
|
|
2,741,744
|
|
Total
|
|
|
4,352,785
|
|
|
$
|
22.66
|
|
|
|
6,120,519
|
|
|
|
|
(1) |
|
Includes the following: Incentive Plan, Employee Stock Purchase
Plan, 1993 Interleaf Stock Option Plan and 1994 Interleaf
Employee Stock Option Plan. |
|
(2) |
|
Includes the following: the 2000 Non-Officer Equity Incentive
Plan (the 2000 Non-Officer Plan) and non-plan grants. |
The Companys 2000 Non-Officer Plan, which was in effect as
of December 31, 2002, was adopted by the Board in 2000 and
provided for grants of (a) Nonstatutory Stock Options,
(b) stock bonuses and (c) rights to purchase
restricted stock, to employees (who are not officers or
directors of the Company) and consultants of the Company.
Stockholder approval of the 2000 Non-Officer Plan and amendments
thereto have not been required to
81
date. An aggregate of 666,667 (as adjusted for subsequent stock
splits) shares of common stock were initially reserved for
issuance under the plan. Certain other provisions of the 2000
Non-Officer Plan are as follows:
|
|
|
|
|
Eligibility. Nonstatutory stock options, stock
bonuses and rights to purchase restricted stock may be granted
under the 2000 Non-Officer Plan only to employees (who are not
officers or directors of the Company) and consultants of the
Company and its affiliates.
|
|
|
|
Terms of Options. The exercise price for nonstatutory
stock options available for grant under the 2000 Non-Officer
Plan shall be determined by the Board and shall not be less than
85% of the fair market value of the stock subject to the option
on the date of grant. Payment of the exercise price may be in
the form of either (a) cash at the time the option is
exercised or (b) at the discretion of the Board or the
Non-Officer Option Committee, at the time of the grant of the
option, (a) by delivery to the Company of other common
stock of the Company, (b) according to a deferred payment
or other arrangement or (c) in any other form of legal
consideration that may be acceptable to the Board. The term of a
nonstatutory stock option granted under the 2000 Non-Officer
Plan may not exceed ten years. Options under the 2000
Non-Officer Plan typically vest at the rate of 25% on the first
anniversary of the vesting commencement date and 25% annually
thereafter until fully vested or the optionholders service
to the Company has terminated. The Board has the power to
accelerate the time during which an option may vest or be
exercised and may also authorize the modification of any
outstanding option with the consent of the optionholder.
|
|
|
|
Adjustment Provisions. The number of shares available
for future grant and for outstanding but unexercised options and
the exercise price of outstanding options are subject to
adjustment for any merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in
property other than cash, stock split, liquidating dividend,
combination of shares, exchange of shares, change in corporate
structure or other similar transaction.
|
|
|
|
Corporate Transactions. The 2000 Non-Officer Plan
provides that, in the event of a sale of substantially all of
the assets of the Company, specified types of merger or
consolidation with or into any other entity or person in which
the Company is not the continuing or surviving entity or in
which the Company is the surviving entity but the shares of
common stock outstanding immediately prior to the transaction
are converted by virtue of the transaction into other property,
then any surviving corporation shall either assume options
outstanding under the 2000 Non-Officer Plan or substitute
similar options for those outstanding under the 2000 Non-Officer
Plan (including an award to acquire the same consideration paid
to stockholders in the change in control). If any surviving
corporation does not either assume options outstanding under the
2000 Non-Officer Plan, or substitute similar options, then, with
respect to stock awards held by persons then performing services
as employees, directors or consultants, the time during which
such stock awards may be exercised shall be accelerated and the
stock awards terminated if not exercised prior to such event.
With respect to any other stock awards outstanding under the
2000 Non-Officer Plan, such stock awards shall terminate if not
exercised prior to such event. The acceleration of options in
the event of an acquisition or similar corporate event may be
viewed as an anti-takeover provision, which may have the effect
of discouraging a proposal to acquire or otherwise obtain
control of the Company.
|
Severance
Plans and Separation Agreement
Executive Severance Benefit Plan. The
Companys Executive Severance Benefit Plan (the
Severance Plan) was established effective on
May 22, 2003. The purpose of the Severance Plan is to
provide for the payment of severance benefits to certain
eligible employees of the Company whose employment with the
Company is involuntarily terminated. For purposes of the
Severance Plan, an eligible employee is defined as an employee
of the Company (i) who (a) reports directly to the CEO
of the Company (Group 1) or (b) is a Senior
Vice President or the Vice President and Corporate Financial
Controller of the Company and does not report directly to the
CEO (Group 2), (ii) whose employment is
terminated by the Company pursuant to an involuntary termination
without cause or a reduction in force and (ii) who is
notified by the Company in writing that he or she is eligible
for participation in the Plan. The determination of whether an
employee is an eligible employee is made by the Company, in its
sole discretion; severance payments and benefits are made
according to which Group an employee is in.
82
Pursuant to the Severance Plan, each eligible employee receives
a cash severance benefit in accordance with the Companys
then current payroll practices and continued premium payments of
their employee benefits plans as follows:
Group
1
|
|
|
Completed Months of
|
|
Months of
|
Continuous Employment
|
|
Base Salary/Continued
Benefits
|
|
0-3 months
|
|
3 months
|
4-12 months
|
|
6 months
|
13 or more months
|
|
6 months plus
1/4 month
per each
completed month of continuous
employment after 12 months up to a maximum of 9 months
|
Group
2
|
|
|
Completed Months of
|
|
Months of
|
Continuous Employment
|
|
Base Salary/Continued
Benefits
|
|
0-3 months
|
|
2 months
|
4-12 months
|
|
4 months
|
13 or more months
|
|
4 months plus
1/6 month
per each
completed month of continuous
employment after 12 months up to a
maximum of 6 months
|
Messrs. Chen and Meyer are in Group 1.
Mr. Meyers offer letter modifies his rights under the
Severance Plan by providing that, assuming Mr. Meyer does
not receive any benefits from the Change of Control Plan
(described below), he will be entitled to nine months severance
after 15 months of continuous employment and in the event
of a change in control, 50% of the unvested shares subject to
his outstanding stock options shall vest and become exercisable.
Change of Control Severance Benefit Plan. The
Companys Change of Control Severance Benefit Plan (the
Change of Control Plan) was established effective on
May 22, 2003, and the Board formally designated plan
participants in July 2005. The purpose of the Change of Control
Plan is to provide for the payment of severance benefits to
designated participants whose employment with the Company is
involuntarily terminated within one month before or
24 months following a change of control of the Company. The
plan participants were designated as being in one of four
Levels, with all participants in a certain Level
being eligible for severance benefits as follows:
|
|
|
Level
|
|
Benefits
|
|
Level 1 Eligible
Employees
|
|
Cash
payment: lump-sum
payment equal to 100% of the greater of (i) sum of annual
salary and target bonus on the date of termination or
(ii) sum of annual salary and target bonus in effect
immediately prior to the change of control
|
|
|
Benefits:
continuation of benefits for 12 months
|
|
|
Outplacement
services: for
12 months
|
|
|
Acceleration of unvested stock
options: 25%, 37.5% or
60% of unvested stock options accelerate, based on completed
years of continuous employment of fewer than 3, three to
five or 5 or more, respectively
|
|
83
|
|
|
Level
|
|
Benefits
|
|
Level II Eligible
Employees
|
|
Cash
payment: lump-sum
payment equal to 100% of the greater of (i) sum of annual
salary and target bonus on the date of termination or
(ii) sum of annual salary and target bonus in effect
immediately prior to the change of control
|
|
|
Benefits:
continuation of
benefits for 12 months
|
|
|
Outplacement
services: for
12 months
|
|
|
Acceleration of unvested stock
options: 12.5%, 25%,
37.5% or 60% of unvested stock options accelerate, based on
completed months of continuous employment of 12 or fewer, 13 to
35, 36-59 and 60 or more, respectively
|
|
Level III Eligible
Employees
|
|
Cash
payment: lump-sum
payment equal to 50% of the greater of (i) sum of annual
salary and target bonus on the date of termination or
(ii) sum of annual salary and target bonus in effect
immediately prior to the change of control
|
|
|
Benefits:
continuation of benefits for 6 months
|
|
|
Outplacement
services: for
6 months
|
|
|
Acceleration of unvested stock
options: 12.5%, 25%,
37.5% or 60% of unvested stock options accelerate, based on
completed months of continuous employment of 12 or fewer, 13 to
35, 36-59 and 60 or more, respectively
|
|
Level IV Eligible
Employees
|
|
Cash
payment: lump-sum
payment equal to 25% of the greater of (i) sum of annual
salary and target bonus on the date of termination or
(ii) sum of annual salary and target bonus in effect
immediately prior to the change of control
|
|
|
Benefits:
continuation of benefits for 3 months
|
|
|
Outplacement
services: for
3 months
|
|
|
Acceleration of unvested stock
options: 12.5%, 25%,
37.5% or 60% of unvested stock options accelerate, based on
completed months of continuous employment of 12 or fewer, 13 to
35, 36-59 and 60 or more, respectively
|
Mr. Chen was designated by the Board as a Level I
Eligible Employee and Messrs. Meyer and Kormushoff were
designated as Level II Eligible Employees. Benefits payable
to individuals under the Change of Control Plan are offset by
any other benefits paid to such individual under other similar
plans or arrangements, including the Severance Plan.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Since January 1, 2001, there has not been, nor is there
currently proposed, any transaction or series of similar
transactions to which we were or are a party in which the amount
involved exceeds or exceeded $60,000 and in which any director,
executive officer or beneficial holder of more than 5% of any
class of our voting securities or members of such persons
immediate family had or will have a direct or indirect material
interest other than as described under Management
and as described below. All future transactions between us and
any of our directors, executive officers or related parties will
be subject to the review and approval of our nominating and
corporate governance committee, compensation committee or other
committee comprised of independent, disinterested directors.
On November 18, 2005, our Chief Executive Officer and
largest stockholder, Dr. Pehong Chen, acquired all of our
outstanding Senior Subordinated Convertible Notes. Including
accrued interest, the Notes represented approximately
$15.5 million in debt obligations as of December 20,
2005. In order to relieve BroadVision from the liquidity
challenges presented by the Notes, Dr. Chen has agreed to
cancel all amounts owed under the Notes in exchange for
34,500,000 shares of BroadVision common stock at an
effective price per share of $0.45, representing a 25% discount
to the December 20, 2005 closing price of BroadVision
common stock of $0.60 per share. This is referred to as the
Note Conversion. In connection with the
Note Conversion, promptly following the completion of the
rights offering we expect to cancel the Notes and issue
approximately 34,500,000 new shares of common stock to
Dr. Chen that, depending on the number of shares issued in
the rights offering, will represent up to approximately 50% of
our total outstanding common stock immediately following such
issuance. Because of the
84
highly dilutive nature of the Note Conversion, our primary
purpose for the rights offering is to allow the holders of
BroadVision common stock at the time of the Note Conversion
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 Note Conversion.
Dr. Chen has waived any right to participate in the rights
offering. Depending on the number of shares of BroadVision
common stock issued as a result of the rights offering,
Dr. Chen will hold between approximately 22% and 61% of our
outstanding common stock following the Note Conversion.
Director
and Officer Indemnification
Our restated certificate of incorporation contains provisions
limiting the liability of directors. In addition, we have
entered into agreements to indemnify our directors and executive
officers to the fullest extent permitted under Delaware law.
We have entered into indemnity agreements with certain officers
and directors which provide, among other things, that we will
indemnify such officer or director, under the circumstances and
to the extent provided for in such agreement, for expenses,
damages, judgments, fines and settlements he or she may be
required to pay in actions or proceedings which he or she is or
may be made a party be reason of his or her position as a
director, officer or other agent of the Company, and otherwise
to the full extent permitted under Delaware law and our Bylaws.
85
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Companys common stock as of
December 15, 2005 by: (a) each director; (b) each
of the executive officers named in the Summary Compensation
Table; (c) all current executive officers and directors of
the Company as a group; and (d) all those known by the
Company to be beneficial owners of more than five percent of its
common stock.
|
|
|
|
|
|
|
|
|
|
|
Beneficial
Ownership(1)
|
|
|
|
Number of
|
|
|
Percent of
|
|
Beneficial Owner
|
|
Shares (#)
|
|
|
Total (%)
|
|
|
Pehong Chen(2)
|
|
|
7,457,439
|
|
|
|
21.7
|
%
|
William E. Meyer(3)
|
|
|
185,061
|
|
|
|
*
|
|
David L. Anderson(4)
|
|
|
72,585
|
|
|
|
*
|
|
James D. Dixon(5)
|
|
|
45,000
|
|
|
|
*
|
|
Robert Lee(6)
|
|
|
21,039
|
|
|
|
*
|
|
Roderick C. McGeary(5)
|
|
|
26,250
|
|
|
|
*
|
|
T. Michael Nevens(5)
|
|
|
41,250
|
|
|
|
*
|
|
All Current Directors and
Executive Officers as a group (7 persons)(7)
|
|
|
7,848,624
|
|
|
|
22.8
|
%
|
|
|
|
* |
|
Less than one percent |
|
(1) |
|
This table is based upon information supplied by officers,
directors and principal stockholders and Schedules 13D and 13G
filed with the SEC. Unless otherwise indicated in the footnotes
to this table and subject to community property laws where
applicable, the Company believes that each of the stockholders
named in this table has sole voting and investment power with
respect to the shares indicated as beneficially owned.
Applicable percentages are based on 34,428,665 shares
outstanding on December 15, 2005, adjusted as required by
rules promulgated by the SEC. The Companys directors and
executive officers can be reached at BroadVision, Inc., 585
Broadway, Redwood City, California 94063. |
|
(2) |
|
Includes 5,874,985 shares held in trust by Dr. Chen
and his wife for their benefit and 1,582,454 shares of
common stock issuable upon the exercise of stock options
exercisable within 60 days of December 15, 2005.
Excludes the 34,500,000 shares of common stock that will be
issued to an affiliate of Dr. Chen in the Note Conversion
and 166,666 shares of common stock held in trust by
independent trustees for the benefit of Dr. Chens
children. |
|
(3) |
|
Includes 170,000 shares of common stock issuable upon the
exercise of stock options exercisable within 60 days of
December 15, 2005. |
|
(4) |
|
Includes 41,752 shares of common stock issuable upon the
exercise of a stock option exercisable within 60 days of
December 15, 2005 and 30,833 shares held by The
Anderson Living Trust, of which Mr. Anderson is Trustee. |
|
(5) |
|
Represents shares of common stock issuable upon the exercise of
stock options exercisable within 60 days of
December 15, 2005. |
|
(6) |
|
Includes 20,000 shares of common stock issuable upon the
exercise of stock options exercisable within 60 days of
December 15, 2005. |
|
(7) |
|
Includes the information contained in the notes above, as
applicable, for directors and executive officers of the Company
as of December 15, 2005. |
86
DESCRIPTION
OF CAPITAL STOCK
The following description of our capital stock does not purport
to be complete and is subject to, and qualified in its entirety
by, our certificate of incorporation and bylaws, which are
exhibits to the registration statement of which this prospectus
forms a part.
Common
Stock
We have 2,000,000,000 shares of common stock authorized. As
of January 31, 2006, 34,522,130 shares of BroadVision
common stock were outstanding and held of record by
1,988 stockholders. In addition, as of January 27,
2006, 4,336,882 shares of BroadVision common stock were
subject to outstanding options.
Each share of BroadVision common stock entitles its holder to
one vote on all matters to be voted upon by our stockholders.
Subject to preferences that may apply to any of our outstanding
convertible preferred stock, holders of BroadVision common stock
will receive ratably any dividends our board of directors
declares out of funds legally available for that purpose. If we
liquidate, dissolve or wind up, the holders of common stock are
entitled to share ratably in all assets remaining after payment
of liabilities and any liquidation preference of any of our
outstanding convertible preferred stock. BroadVision common
stock has no preemptive rights, conversion rights, or other
subscription rights or redemption or sinking fund provisions.
The shares of BroadVision common stock to be issued upon
completion of this offering will be fully paid and
non-assessable.
Preferred
Stock
We have 10,000,000 shares of preferred stock authorized. As
of January 27, 2006, none of the shares of our preferred
stock were outstanding. Our board of directors has the
authority, without further action by our stockholders, to issue
up to 10,000,000 shares of preferred stock in one or more
series. Our board of directors may designate the rights,
preferences, privileges and restrictions of the preferred stock,
including dividend rights, conversion rights, voting rights,
terms of redemption, liquidation preference, sinking fund terms,
and number of shares constituting any series or the designation
of any series.
Anti-Takeover
Provisions
Some provisions of Delaware law, our certificate of
incorporation and our bylaws may have the effect of delaying,
deferring or discouraging another party from acquiring control
of us.
Delaware
Law
We are subject to Section 203 of the Delaware General
Corporation Law, which regulates, subject to some exceptions,
acquisitions of publicly held Delaware corporations. In general,
Section 203 prohibits us from engaging in a business
combination with an interested stockholder for
a period of three years following the date the person becomes an
interested stockholder, unless:
|
|
|
|
|
our board of directors approved the business combination or the
transaction in which the person became an interested stockholder
prior to the date the person attained this status;
|
|
|
|
upon consummation of the transaction that resulted in the person
becoming an interested stockholder, the person owned at least
85% of our voting stock outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors
and also officers and issued under employee stock plans under
which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or
|
|
|
|
on or subsequent to the date the person became an interested
stockholder, our board of directors approved the business
combination and the stockholders other than the interested
stockholder authorized the transaction at an annual or special
meeting of stockholders by the affirmative vote of at least
two-thirds of the outstanding stock not owned by the interested
stockholder.
|
87
Section 203 defines a business combination to
include:
|
|
|
|
|
any merger or consolidation involving us and the interested
stockholder;
|
|
|
|
any sale, transfer, pledge or other disposition involving the
interested stockholder of 10% or more of our assets;
|
|
|
|
in general, any transaction that results in the issuance or
transfer by us of any of our stock to the interested stockholder;
|
|
|
|
any transaction involving us that has the effect of increasing
the proportionate share of our stock owned by the interested
stockholders; and
|
|
|
|
the receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges, or other financial
benefits provided by or through us.
|
In general, Section 203 defines an interested
stockholder as any person who, together with the
persons affiliates and associates, owns, or within three
years prior to the time of determination of interested
stockholder status did own, 15% or more of a corporations
voting stock.
Certificate
of Incorporation and Bylaw Provisions
Our certificate of incorporation and bylaws provide that:
|
|
|
|
|
no action can be taken by stockholders except at an annual or
special meeting of the stockholders called in accordance with
our bylaws, and stockholders may not act by written consent;
|
|
|
|
the approval of holders of at least a majority of the shares
entitled to vote at an election of directors will be required to
adopt, amend or repeal our bylaws;
|
|
|
|
our board of directors is expressly authorized to make, alter or
repeal our bylaws;
|
|
|
|
in general, stockholders may not call special meetings of the
stockholders or fill vacancies on the board of directors;
|
|
|
|
our board of directors is authorized to issue preferred stock
without stockholder approval;
|
|
|
|
directors may only be removed for cause by the holders of a
majority of the shares entitled to vote at an election of
directors or without cause by the holders of at least two-thirds
shares entitled to vote at an election of directors; and
|
|
|
|
we will indemnify officers and directors against losses that may
incur investigations and legal proceedings resulting from their
services to us, which may include services in connection with
takeover defense measures.
|
Transfer
Agent and Registrar
Computershare Trust Company has been appointed as the transfer
agent and registrar for BroadVision common stock.
NASDAQ
National Market Listing
BroadVision common stock is listed on The NASDAQ National Market
under the symbol BVSN. On September 7, 2005, we
received notice from the NASDAQ Stock Market that BroadVision
common stock is subject to delisting from the NASDAQ Stock
Market if BroadVision common stock price does not close above
$1.00 per share for at least 10 consecutive days within the
180 calendar day period commencing on September 7, 2005. On
February 1, 2006, the closing price of BroadVision common
stock was $0.52 per share.
88
LEGAL
MATTERS
Cooley Godward
llp,
San Francisco, California will pass upon the validity of
the common stock offered by this prospectus for us.
EXPERTS
Our consolidated financial statements and financial statement
schedule as of December 31, 2003 and 2004 and for each of
the three years in the period ended December 31, 2004, and
our managements assessment of the effectiveness of
internal control over financial reporting as of
December 31, 2004, included elsewhere in this prospectus
have been audited by BDO Seidman, LLP, independent registered
public accounting firm, to the extent and for the periods as set
forth in their reports incorporated herein by reference, and are
incorporated herein in reliance upon such reports given upon the
authority of said firm as experts in auditing and accounting.
WHERE YOU
CAN FIND MORE INFORMATION
We are a reporting company and file annual, quarterly and
current reports, proxy statements and other information with the
SEC. We have filed with the SEC a registration statement on
Form S-1
under the Securities Act with respect to the securities we are
offering under this prospectus. This prospectus does not contain
all of the information set forth in the registration statement
and the exhibits to the registration statement. For further
information with respect to us and the securities we are
offering under this prospectus, we refer you to the registration
statement and the exhibits and schedules filed as a part of the
registration statement. You may read and copy the registration
statement, as well as our reports, proxy statements and other
information, at the SECs public reference room at 100 F
Street, N.E., Washington, D.C. 20549. You can request
copies of these documents by writing to the SEC and paying a fee
for the copying cost. Please call the SEC at
1-800-SEC-0330
for more information about the operation of the public reference
rooms. Our SEC filings are also available at the SECs web
site at http://www.sec.gov. In addition, you can
read and copy our SEC filings at the office of the National
Association of Securities Dealers, Inc. at
1735 K Street, N.W., Washington, D.C. 20006.
89
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-2
|
|
As of December 31, 2004
(audited):
|
|
|
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
As of September 30, 2005
(unaudited):
|
|
|
|
|
|
|
|
F-33
|
|
|
|
|
F-34
|
|
|
|
|
F-35
|
|
|
|
|
F-36
|
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors and Stockholders of
BroadVision, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of
BroadVision, Inc. (the Company) as of
December 31, 2004 and 2003, and the related consolidated
statements of operations, stockholders equity and
comprehensive income (loss), and cash flows for each of the
three years in the period ended December 31, 2004. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of BroadVision, Inc. at December 31, 2004 and
2003, and the results of its operations and its cash flows for
each of the three years in the period ended December 31,
2004, in conformity with accounting principles generally
accepted in the United States.
The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities in the
normal course of business. As described in the Basis of
Presentation Going Concern Uncertainty
discussion in Note 1, the Company is currently experiencing
severe liquidity challenges. At September 30, 2005, the
Companys current liabilities exceed its current assets by
approximately $30 million (negative working capital)
resulting in a working capital ratio of less than 0.4 to 1.0.
The Company currently does not have any financing arrangements
in place from which to borrow additional funds as may be
required to meet its near term cash requirements. These matters
raise substantial doubt about the ability of the Company to
continue as a going concern. Managements plan is also
described in Note 1. No adjustments to the carrying values
or classification of the assets and liabilities in the
accompanying financial statements have been made to take account
of this uncertainty.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of the Companys internal control over
financial reporting as of December 31, 2004, based on
criteria established in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) and our report dated March 11, 2005, except for the
Basis of Presentation Going Concern Uncertainty
discussion in Note 1, as to which the date is
November 11, 2005, expressed an unqualified opinion on
managements assessment of the effectiveness of internal
control over financial reporting and an adverse opinion on the
effectiveness of internal control over financial reporting due
the existence of material weaknesses.
/s/ BDO Seidman, LLP
San Jose, California
March 11, 2005, except for the Basis of
Presentation Going Concern Uncertainty
discussion in Note 1, as to which the date is November 11, 2005
F-2
BROADVISION,
INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
|
(In thousands, except
|
|
|
|
per share amounts)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
78,776
|
|
|
$
|
41,851
|
|
Accounts receivable, less
receivable reserves of $3,022 and $1,409 as of December 31,
2003 and 2004, respectively
|
|
|
15,380
|
|
|
|
14,370
|
|
Restricted cash and investments,
current portion
|
|
|
|
|
|
|
21,933
|
|
Prepaids and other
|
|
|
5,346
|
|
|
|
2,232
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
99,502
|
|
|
|
80,386
|
|
Property and equipment, net
|
|
|
15,400
|
|
|
|
3,566
|
|
Restricted cash and investments,
net of current portion
|
|
|
19,827
|
|
|
|
2,323
|
|
Equity investments
|
|
|
1,565
|
|
|
|
574
|
|
Goodwill
|
|
|
56,434
|
|
|
|
56,434
|
|
Other assets
|
|
|
2,354
|
|
|
|
1,370
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
195,082
|
|
|
$
|
144,653
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Bank borrowings and current
portion of long-term debt
|
|
$
|
27,977
|
|
|
$
|
25,566
|
|
Accounts payable
|
|
|
9,186
|
|
|
|
7,470
|
|
Accrued expenses
|
|
|
34,761
|
|
|
|
40,745
|
|
Warrant liability
|
|
|
|
|
|
|
4,899
|
|
Unearned revenue
|
|
|
7,596
|
|
|
|
3,870
|
|
Deferred maintenance
|
|
|
19,234
|
|
|
|
15,972
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
98,754
|
|
|
|
98,522
|
|
Long-term debt, net of current
portion
|
|
|
969
|
|
|
|
7,443
|
|
Other non-current liabilities
|
|
|
87,409
|
|
|
|
8,278
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
187,132
|
|
|
|
114,243
|
|
Commitments and contingencies
(Note 8)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Convertible preferred stock,
$0.0001 par value; 10,000 shares authorized; none
issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par
value; 2,000,000 shares authorized; 33,198 and
33,951 shares issued and outstanding as of
December 31, 2003 and 2004, respectively
|
|
|
3
|
|
|
|
3
|
|
Additional paid-in capital
|
|
|
1,212,671
|
|
|
|
1,214,619
|
|
Accumulated other comprehensive
loss
|
|
|
(49
|
)
|
|
|
(172
|
)
|
Accumulated deficit
|
|
|
(1,204,675
|
)
|
|
|
(1,184,040
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
7,950
|
|
|
|
30,410
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
195,082
|
|
|
$
|
144,653
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements
F-3
BROADVISION,
INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
|
(In thousands, except
|
|
|
|
per share amounts)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses
|
|
$
|
40,483
|
|
|
$
|
30,230
|
|
|
$
|
26,883
|
|
Services
|
|
|
75,415
|
|
|
|
57,851
|
|
|
|
51,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
115,898
|
|
|
|
88,081
|
|
|
|
78,004
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of software licenses
|
|
|
8,144
|
|
|
|
2,561
|
|
|
|
1,303
|
|
Cost of services
|
|
|
38,898
|
|
|
|
25,708
|
|
|
|
24,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
47,042
|
|
|
|
28,269
|
|
|
|
26,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
68,856
|
|
|
|
59,812
|
|
|
|
51,723
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
41,432
|
|
|
|
21,067
|
|
|
|
18,024
|
|
Sales and marketing
|
|
|
48,918
|
|
|
|
26,394
|
|
|
|
27,340
|
|
General and administrative
|
|
|
16,288
|
|
|
|
9,790
|
|
|
|
9,538
|
|
Litigation settlement costs
|
|
|
|
|
|
|
4,250
|
|
|
|
|
|
Goodwill and intangible
amortization
|
|
|
3,548
|
|
|
|
886
|
|
|
|
|
|
Restructuring (reversal) charge
|
|
|
110,449
|
|
|
|
35,356
|
|
|
|
(23,545
|
)
|
Impairment of assets
|
|
|
3,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
223,764
|
|
|
|
97,743
|
|
|
|
31,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(154,908
|
)
|
|
|
(37,931
|
)
|
|
|
20,366
|
|
Interest (expense) income
|
|
|
4,130
|
|
|
|
803
|
|
|
|
(227
|
)
|
Other income (expense), net
|
|
|
(12,141
|
)
|
|
|
2,096
|
|
|
|
187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before
benefit/(provision) for income taxes
|
|
|
(162,919
|
)
|
|
|
(35,032
|
)
|
|
|
20,326
|
|
Benefit (provision) for income
taxes
|
|
|
(7,603
|
)
|
|
|
(439
|
)
|
|
|
309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(170,522
|
)
|
|
$
|
(35,471
|
)
|
|
$
|
20,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
(5.32
|
)
|
|
$
|
(1.08
|
)
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
|
$
|
(5.32
|
)
|
|
$
|
(1.08
|
)
|
|
$
|
0.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic net
income (loss) per share
|
|
|
32,036
|
|
|
|
32,800
|
|
|
|
33,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted
net income (loss) per share
|
|
|
32,036
|
|
|
|
32,800
|
|
|
|
34,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements
F-4
BROADVISION,
INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Deficit
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
|
(In thousands)
|
|
|
Balances as of December 31,
2001
|
|
|
31,643
|
|
|
$
|
3
|
|
|
$
|
1,207,071
|
|
|
$
|
(5,245
|
)
|
|
$
|
(998,682
|
)
|
|
$
|
|
|
|
$
|
203,147
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(170,522
|
)
|
|
|
(170,522
|
)
|
|
|
(170,522
|
)
|
Unrealized investment gain less
reclassification adjustment for gains (losses) included in net
loss, net of $2,606 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,282
|
|
|
|
|
|
|
|
5,282
|
|
|
|
5,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(165,240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under
employee stock purchase plan
|
|
|
558
|
|
|
|
|
|
|
|
1,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,793
|
|
Issuance of common stock from
exercise of options
|
|
|
238
|
|
|
|
|
|
|
|
1,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,087
|
|
Stock-based compensation charge
|
|
|
|
|
|
|
|
|
|
|
846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31,
2002
|
|
|
32,439
|
|
|
|
3
|
|
|
|
1,210,797
|
|
|
|
37
|
|
|
|
(1,169,204
|
)
|
|
|
|
|
|
|
41,633
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,471
|
)
|
|
|
(35,471
|
)
|
|
|
(35,471
|
)
|
Unrealized investment gain less
reclassification adjustment for gains (losses) included in net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86
|
)
|
|
|
|
|
|
|
(86
|
)
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(35,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under
employee stock purchase plan
|
|
|
365
|
|
|
|
|
|
|
|
863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
863
|
|
Issuance of common stock from
exercise of options
|
|
|
369
|
|
|
|
|
|
|
|
669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
669
|
|
Stock-based compensation charge
|
|
|
25
|
|
|
|
|
|
|
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31,
2003
|
|
|
33,198
|
|
|
|
3
|
|
|
|
1,212,671
|
|
|
|
(49
|
)
|
|
|
(1,204,675
|
)
|
|
|
|
|
|
|
7,950
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,635
|
|
|
$
|
20,635
|
|
|
|
20,635
|
|
Foreign currency translations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(116
|
)
|
|
|
|
|
|
|
|
|
|
|
(116
|
)
|
Unrealized investment gain, less
reclassification adjustment for gains (losses) included in net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
|
|
|
|
|
|
|
|
49
|
|
|
|
49
|
|
Reclassification adjustment
|
|
|
|
|
|
|
|
|
|
|
56
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under
employee stock purchase plan
|
|
|
443
|
|
|
|
|
|
|
|
1,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,296
|
|
Issuance of common stock from
exercise of options
|
|
|
304
|
|
|
|
|
|
|
|
615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
615
|
|
Stock-based compensation charge
(reversal)
|
|
|
6
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31,
2004
|
|
|
33,951
|
|
|
$
|
3
|
|
|
$
|
1,214,619
|
|
|
$
|
(172
|
)
|
|
$
|
(1,184,040
|
)
|
|
|
|
|
|
$
|
30,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
BROADVISION,
INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(170,522
|
)
|
|
$
|
(35,471
|
)
|
|
$
|
20,635
|
|
Adjustments to reconcile net loss
to net cash used for operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
18,200
|
|
|
|
11,261
|
|
|
|
3,672
|
|
Stock-based compensation charge
(reversal)
|
|
|
846
|
|
|
|
342
|
|
|
|
(19
|
)
|
Provision for (release of) doubtful
accounts and reserves
|
|
|
3,979
|
|
|
|
(812
|
)
|
|
|
(1,466
|
)
|
Amortization of prepaid royalties
|
|
|
6,764
|
|
|
|
1,167
|
|
|
|
613
|
|
Realized loss on cost method
long-term investments
|
|
|
12,649
|
|
|
|
385
|
|
|
|
517
|
|
Loss on sale or abandonment of
fixed assets
|
|
|
344
|
|
|
|
|
|
|
|
|
|
Impairment of assets
|
|
|
3,129
|
|
|
|
|
|
|
|
(96
|
)
|
Amortization of goodwill and other
intangibles
|
|
|
3,548
|
|
|
|
886
|
|
|
|
|
|
Non-cash restructuring charge
(reversal)
|
|
|
18,891
|
|
|
|
(457
|
)
|
|
|
(24,855
|
)
|
Provision for deferred tax asset
valuation allowance
|
|
|
6,279
|
|
|
|
|
|
|
|
|
|
Loss on revaluation of warrants
|
|
|
|
|
|
|
|
|
|
|
754
|
|
Changes in operating assets and
liabilities, net of effects from acquired business:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
12,872
|
|
|
|
8,349
|
|
|
|
2,476
|
|
Prepaid expenses and other current
assets
|
|
|
3,635
|
|
|
|
1,621
|
|
|
|
2,501
|
|
Other non-current assets
|
|
|
(2,600
|
)
|
|
|
1,909
|
|
|
|
600
|
|
Accounts payable and accrued
expenses
|
|
|
(9,097
|
)
|
|
|
(8,135
|
)
|
|
|
(2,237
|
)
|
Restructuring accrual
|
|
|
6,323
|
|
|
|
7,489
|
|
|
|
(37,788
|
)
|
Unearned revenue and deferred
maintenance
|
|
|
(14,434
|
)
|
|
|
(11,653
|
)
|
|
|
(6,989
|
)
|
Other non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
(168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for operating
activities
|
|
|
(99,194
|
)
|
|
|
(23,119
|
)
|
|
|
(41,850
|
)
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(1,091
|
)
|
|
|
(131
|
)
|
|
|
(730
|
)
|
Proceeds from sale of assets
|
|
|
247
|
|
|
|
186
|
|
|
|
|
|
Sales/maturity of short-term
investments
|
|
|
82,582
|
|
|
|
27,342
|
|
|
|
|
|
Purchase of short-term investments
|
|
|
(43,041
|
)
|
|
|
(2,917
|
)
|
|
|
|
|
Purchase of long-term investments
|
|
|
(2,349
|
)
|
|
|
(2,729
|
)
|
|
|
(100
|
)
|
Sales/maturity of long-term
investments
|
|
|
24,315
|
|
|
|
3,403
|
|
|
|
624
|
|
Transfer (to) from restricted
cash/investments
|
|
|
13,245
|
|
|
|
(3,123
|
)
|
|
|
(4,428
|
)
|
Proceeds from dividends
|
|
|
|
|
|
|
|
|
|
|
795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for)
investing activities
|
|
|
73,908
|
|
|
|
22,031
|
|
|
|
(3,839
|
)
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from bank line of credit
and term debt borrowings
|
|
|
25,000
|
|
|
|
2,000
|
|
|
|
89,076
|
|
Repayments of bank line of credit
and term debt borrowings
|
|
|
(977
|
)
|
|
|
(1,051
|
)
|
|
|
(96,994
|
)
|
Proceeds from issuance of
convertible debt and warrant, net
|
|
|
|
|
|
|
|
|
|
|
14,887
|
|
Proceeds from issuance of common
stock, net
|
|
|
2,891
|
|
|
|
1,529
|
|
|
|
1,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
26,914
|
|
|
|
2,478
|
|
|
|
8,880
|
|
Effect of exchange rates on cash
and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
(116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and
cash equivalents
|
|
|
1,628
|
|
|
|
1,390
|
|
|
|
(36,925
|
)
|
Cash and cash equivalents,
beginning of year
|
|
|
75,758
|
|
|
|
77,386
|
|
|
|
78,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
year
|
|
$
|
77,386
|
|
|
$
|
78,776
|
|
|
$
|
41,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
883
|
|
|
$
|
199
|
|
|
$
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
1,324
|
|
|
$
|
1,263
|
|
|
$
|
426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements
F-6
BROADVISION,
INC. AND SUBSIDIARIES
Note 1 Organization
and Summary of Significant Accounting Policies
Nature
of Business
BroadVision, Inc. (collectively with its subsidiaries, the
Company) was incorporated in the state of Delaware
on May 13, 1993 and has been a publicly-traded corporation
since 1996. BroadVision develops, markets, and supports
enterprise portal applications that enable companies to unify
their
e-business
infrastructure and conduct both interactions and transactions
with employees, partners, and customers through a personalized
self-service model that increases revenues, reduces costs, and
improves productivity.
Basis
of Presentation Going Concern
Uncertainty
The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities in the
normal course of business. The Company is currently experiencing
severe liquidity challenges. At September 30, 2005, the
Companys current liabilities exceed its current assets by
approximately $30 million (negative working capital)
resulting in a working capital ratio of less than 0.4 to 1.0.
The Company currently does not have any additional financing
arrangement in place from which to borrow additional funds as
may be required to meet its near term cash requirements.
Further, due to the event of default which occurred on
October 8, 2005 relative to the convertible notes and the
subsequent agreement entered into on October 25, 2005 with
the convertible noteholders, the noteholders can demand payment
in full on the approximate $15.5 million outstanding note
balance and interest on or after November 16, 2005. If this
were to occur, and if the Company was not able to obtain
financing sufficient to fully repay the notes upon such demand,
the Company would be forced to seek protection under the
bankruptcy laws. These matters raise substantial doubt about the
ability of the Company to continue in existence as a going
concern. The Company is seeking to obtain financing from its
Chief Executive Officer and largest shareholder in order to
fully repay the Notes. The Companys ability to continue as
a going concern is dependent upon the Companys ability to
obtain sufficient financing to fully repay the Notes on
favorable terms, obtain additional financing as may be required
to meet any short term cash requirements, and ultimately to
achieve profitable operations. No adjustments to the carrying
values or classification of the assets and liabilities in the
accompanying financial statements have been made to take account
of this uncertainty.
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated in consolidation. In the Companys opinion, the
consolidated financial statements presented herein include all
necessary adjustments, consisting of normal recurring
adjustments, to fairly state the Companys financial
position, results of operations, and cash flows for the periods
indicated. The preparation of consolidated financial statements
in conformity with accounting principles generally accepted in
the United States of America requires management to make certain
assumptions and estimates that affect reported amounts of assets
and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from estimates.
Revenue
Recognition
Overview
The Companys revenue consists of fees for licenses of the
Companys software products, maintenance, consulting
services and customer training. The Company generally charges
fees for licenses of its software products either based on the
number of persons registered to use the product or based on the
number of Central Processing Units (CPUs) on which
the product is installed. Licenses for software whereby fees
charged are based upon the number of persons registered to use
the product are differentiated between licenses for development
use and licenses for use in deployment of the customers
website. Licenses for software whereby fees charged are on a per-
F-7
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
CPU basis do not differentiate between development and
deployment usage. The Companys revenue recognition
policies are in accordance with
SOP 97-2,
as amended;
SOP 98-9,
and the Securities and Exchange Commissions Staff
Accounting Bulletin No. 104, Revenue Recognition in
Financial Statements.
The Company licenses its products through its direct sales force
and indirectly through resellers. In general, software license
revenues are recognized when a non-cancelable license agreement
has been signed and the customer acknowledges an unconditional
obligation to pay, the software product has been delivered,
there are no uncertainties surrounding product acceptance, the
fees are fixed and determinable and collection is considered
probable. Delivery is considered to have occurred when title and
risk of loss have been transferred to the customer, which
generally occurs when media containing the licensed programs is
provided to a common carrier. In case of electronic delivery,
delivery occurs when the customer is given access to the
licensed programs. If collectibility is not considered probable,
revenue is recognized when the fee is collected.
Subscription-based license revenues are recognized ratably over
the subscription period. The Company enters into reseller
arrangements that typically provide for sublicense fees payable
to the Company based upon a percentage of list price. The
Company does not grant its resellers the right of return.
Revenue generated under reseller agreements is recognized upon
obtaining evidence of the resale of the license rights from the
reseller to one or more end users.
The Company recognizes revenue using the residual method
pursuant to the requirements of
SOP 97-2,
as amended by
SOP 98-9.
Revenues recognized from multiple-element software arrangements
are allocated to each element of the arrangement based on the
fair values of the elements, such as licenses for software
products, maintenance, consulting services or customer training.
The determination of fair value is based on objective evidence,
which is specific to the Company. The Company limits its
assessment of objective evidence for each element to either the
price charged when the same element is sold separately or the
price established by management having the relevant authority to
do so, for an element not yet sold separately. If evidence of
fair value of all undelivered elements exists but evidence does
not exist for one or more delivered elements, then revenue is
recognized using the residual method. Under the residual method,
the fair value of the undelivered elements is deferred and the
remaining portion of the arrangement fee is recognized as
revenue.
The Company records unearned revenue for software license
agreements when cash has been received from the customer and the
agreement does not qualify for revenue recognition under the
Companys revenue recognition policy. The Company records
accounts receivable for software license agreements when the
agreement qualifies for revenue recognition but cash or other
consideration has not been received from the customer.
Services
Revenue
Consulting services revenues and customer training revenues are
recognized as such services are performed. Maintenance revenues,
which include revenues bundled with software license agreements
that entitle the customers to technical support and future
unspecified enhancements to the Companys products, are
deferred and recognized ratably over the related agreement
period, generally twelve months.
The Companys consulting services, which consist of
consulting, maintenance and training, are delivered through
BVGS. Services that the Company provides are not essential to
the functionality of the software. In accordance with
EITF 01-14,
which the Company adopted as of January 1, 2002, the
Company records reimbursement by its customers for
out-of-pocket
expenses as an increase to services revenues.
Cash,
Cash Equivalents and Short-Term Investments
We consider all debt and equity securities with remaining
maturities of three months or less at the date of purchase to be
cash equivalents. Short-term cash investments consist of debt
and equity securities that have a remaining maturity of less
than one year as of the date of the balance sheet. Cash and cash
investments that serve as collateral for financial instruments
such as letters of credit are classified as restricted.
Restricted cash in which the
F-8
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
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 short-term and long-term investment unrealized gains
(losses) was $49,000 as of December 31, 2003. Total
realized gains during fiscal years 2003 and 2004 were
$1.1 million and $573,000, respectively, and are included
in other income in the accompanying Consolidated Statements of
Operations.
Our cash and cash equivalents, short-term investments and
long-term investments consisted of the following as of
December 31, 2003 and 2004 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classified on Balance Sheet
as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
|
|
|
Restricted
|
|
|
|
Purchase/
|
|
|
Gross
|
|
|
Gross
|
|
|
Aggregate
|
|
|
Cash and
|
|
|
Cash and
|
|
|
Cash and
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Cash
|
|
|
Investments,
|
|
|
Investments,
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Equivalents
|
|
|
Current
|
|
|
Non-Current
|
|
|
As of December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and certificates of deposits
|
|
$
|
65,592
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
65,592
|
|
|
$
|
65,592
|
|
|
$
|
|
|
|
$
|
|
|
Money market
|
|
|
32,603
|
|
|
|
|
|
|
|
|
|
|
|
32,603
|
|
|
|
13,184
|
|
|
|
|
|
|
|
19,419
|
|
Corporate notes/bonds
|
|
|
408
|
|
|
|
|
|
|
|
|
|
|
|
408
|
|
|
|
|
|
|
|
|
|
|
|
408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
98,603
|
|
|
$
|
|
|
|
|
|
|
|
$
|
98,603
|
|
|
$
|
78,776
|
|
|
|
|
|
|
$
|
19,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and certificates of deposits
|
|
$
|
55,240
|
|
|
$
|
|
|
|
|
|
|
|
$
|
55,240
|
|
|
$
|
30,984
|
|
|
$
|
21,933
|
|
|
$
|
2,323
|
|
Money market
|
|
|
10,867
|
|
|
|
|
|
|
|
|
|
|
|
10,867
|
|
|
|
10,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
66,107
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
66,107
|
|
|
$
|
41,851
|
|
|
$
|
21,933
|
|
|
$
|
2,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and Development and Software Development Costs
Under the criteria set forth in Statement of Financial
Accounting Standards (SFAS) No. 86,
Accounting for the Cost of Computer Software to be Sold,
Leased or Otherwise Marketed, development costs incurred in
the research and development of new software products are
expensed as incurred until technological feasibility in the form
of a working model has been established at which time such costs
are capitalized and recorded at the lower of unamortized cost or
net realizable value. The costs incurred subsequent to the
establishment of a working model but prior to general release of
the product have not been significant. To date, the Company has
not capitalized any costs related to the development of software
for external use.
Advertising
Costs
Advertising costs are expensed as incurred. Advertising expense,
which is included in sales and marketing expense, amounted to
$82,000, $122,000, and $571,000 in 2004, 2003, and 2002,
respectively.
Prepaid
Royalties
Prepaid royalties relating to purchased software to be
incorporated and sold with the Companys software products
are amortized as a cost of software licenses either on a
straight-line basis over the remaining term of the royalty
agreement or on the basis of projected product revenues,
whichever results in greater amortization.
Allowances
and Reserves
Occasionally, the Companys customers experience financial
difficulty after the Company records the sale but before payment
has been received. The Company maintains allowances for doubtful
accounts for estimated losses
F-9
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
resulting from the inability of its customers to make required
payments. The Companys normal payment terms are generally
30 to 90 days from invoice date. If the financial condition
of the Companys customers were to deteriorate, resulting
in an impairment of their ability to make payments, additional
allowances may be required.
Restructuring
The Company has approved certain restructuring plans to, among
other things, reduce its workforce and consolidate facilities.
These restructuring charges were taken to align the
Companys cost structure with changing market conditions
and to create a more efficient organization. The Companys
restructuring charges are comprised primarily of:
(i) severance and benefits termination costs related to the
reduction of the Companys workforce; (ii) lease
termination costs and/or costs associated with permanently
vacating its facilities; (iii) other incremental costs
incurred as a direct result of the restructuring plan; and
(iv) impairment costs related to certain long-lived assets
abandoned.
The Company accounts for severance and benefits termination
costs in accordance with
EITF 94-3
for exit or disposal activities initiated prior to
January 1, 2003. Accordingly, the Company records the
liability related to these termination costs when the following
conditions have been met: (i) management with the
appropriate level of authority approves a termination plan that
commits the Company to such plan and establishes the benefits
the employees will receive upon termination; (ii) the
benefit arrangement is communicated to the employees in
sufficient detail to enable the employees to determine the
termination benefits; (iii) the plan specifically
identifies the number of employees to be terminated, their
locations and their job classifications; and (iv) the
period of time to implement the plan does not indicate changes
to the plan are likely. The termination costs recorded by the
Company are not associated with nor do they benefit continuing
activities. The Company accounts for severance and benefits
termination costs for exit or disposal activities initiated
after January 1, 2003 in accordance with 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 entitys commitment to an exit plan.
Prior to the adoption on January 1, 2003 of SFAS 146,
the Company accounted for the costs associated with lease
termination and/or abandonment in accordance with EITF 88-10.
Accordingly, the Company recorded the costs associated with
lease termination and/or abandonment when the leased property
has no substantive future use or benefit to the Company.
The Company accounts for the costs associated with lease
termination and/or abandonment in accordance with EITF 88-10.
Accordingly, the Company records the costs associated with lease
termination and/or abandonment when the leased property has no
substantive future use or benefit to the Company. Under EITF
88-10, the Company records the liability associated with lease
termination and/or abandonment as the sum of the total remaining
lease costs and related exit costs, less probable sublease
income. The Company accounts for costs related to long-lived
assets abandoned in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets and, accordingly, charges to expense the net carrying
value of the long-lived assets when the Company ceases to use
the assets.
Inherent in the estimation of the costs related to the
Companys restructuring efforts are assessments related to
the most likely expected outcome of the significant actions to
accomplish the restructuring. In determining the charge related
to the restructuring, the majority of estimates made by
management related to the charge for excess facilities. In
determining the charge for excess facilities, the Company was
required to estimate future sublease income, future net
operating expenses of the facilities, and brokerage commissions,
among other expenses. The most significant of these estimates
related to the timing and extent of future sublease income in
which to reduce the Companys lease obligations. The
Company based its estimates of sublease income, in part, on the
opinions of independent real estate experts, current market
conditions and rental rates, an assessment of the time period
over which reasonable estimates could be made, the status of
negotiations with potential subtenants, and the location of the
respective facility, among other factors.
F-10
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
These estimates, along with other estimates made by management
in connection with the restructuring, may vary significantly
depending, in part, on factors that may be beyond the
Companys control. Specifically, these estimates will
depend on the Companys success in negotiating with
lessors, the time periods required to locate and contract
suitable subleases and the market rates at the time of such
subleases. Adjustments to the facilities reserve will be
required if actual lease exit costs or sublease income differ
from amounts currently expected. The Company will review the
status of restructuring activities on a quarterly basis and, if
appropriate, record changes to its restructuring obligations in
current operations based on managements most current
estimates.
Legal
Matters
The Companys current estimated range of liability related
to pending litigation is based on claims for which it is
probable that a liability has been incurred and the Company can
estimate the amount and range of loss. The Company has recorded
the minimum estimated liability related to those claims, where
there is a range of loss. Because of the uncertainties related
to both the determination of the probability of an unfavorable
outcome and the amount and range of loss in the event of an
unfavorable outcome, the Company is unable to make a reasonable
estimate of the liability that could result from the remaining
pending litigation. As additional information becomes available,
the Company will assess the potential liability related to its
pending litigation and revise its estimates, if necessary. Such
revisions in the Companys estimates of the potential
liability could materially impact the Companys results of
operations and financial position.
Property
and Equipment
Property and equipment are stated at cost and depreciated on a
straight-line basis over their estimated useful lives (two to
eight years). Leasehold improvements are amortized over the
lesser of the remaining life of the lease term or their
estimated useful lives. Depreciation and amortization expense
for the years ended December 31, 2004, 2003 and 2002 was
$3.7 million, $11.3 million, and $18.2 million,
respectively. In 2004 the company recorded asset impairments in
connection with the settlements reached with several landlords
for termination of leases, including transferring ownership of
certain furniture, fixtures, and leasehold improvements with a
net book value of $8.5 million to the previous landlords.
The Company recorded asset impairments of approximately $515,000
during fiscal 2003 in connection with the Companys
restructuring plan, which are included in the restructuring
charge recorded in the Companys Consolidated Statement of
Operations. In 2002, the Company recorded a $3.1 million
asset impairment from the physical count of the Companys
assets.
Valuation
of Long-Lived Assets
The Company periodically assesses the impairment of long-lived
assets in accordance with the provisions of SFAS 144. The
Company assesses the impairment of goodwill and identifiable
intangible assets in accordance with SFAS No. 141,
Business Combinations and SFAS 142, Goodwill and
Other Intangible Assets. The Company adopted the provisions
of SFAS 142 as of January 1, 2002. Please see
Note 4 of Notes to Consolidated Financial Statements for
additional information.
Employee
Stock Option and Purchase Plans
The Company accounts for employee stock-based awards in
accordance with the provisions of APB Opinion 25, Financial
Accounting Standards Board Interpretation No. 44
(FIN 44), Accounting for Certain Transactions Involving
Stock Compensation an Interpretation of APB
Opinion 25, and related interpretations. As such,
compensation expense is recorded on the date of grant only if
the current market price of the underlying stock exceeded the
exercise price. Pursuant to SFAS 123, the Company discloses
the pro forma effects of using the fair value method of
accounting for stock-based compensation arrangements. The
Company accounts for equity instruments issued to non-employees
in accordance with the provisions of SFAS 123 and Emerging
Issues Task
F-11
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
Force (EITF) 96-18, Accounting for Equity Instruments That
Are Issued to Other Than Employees For Acquiring or in
Conjunction with Selling Goods or Services.
The Company applies APB Opinion 25 and related interpretations
when accounting for its stock option and stock purchase plans.
In accordance with APB Opinion 25, we apply the intrinsic
value method in accounting for employee stock options.
Accordingly, the Company generally recognizes no compensation
expense with respect to stock-based awards to employees.
For the year ended December 31, 2004, the Company recorded
compensation income of $19,000 as a result of a vesting
modification of a grant to a third-party consultant common stock
in the Company. During the year ended December 31, 2003,
the Company recorded compensation expense of $342,000. This
charge was recorded as a result of granting a third-party
consultant shares of our common stock and a vesting modification
to a grant for a terminated employee. The compensation charge
was calculated using the Black-Scholes model. Of the total
charge, $131,000 is recorded in general and administrative
expense, $67,000 is recorded in sales and marketing expense and
the remaining $144,000 is related to employees terminated under
the Companys restructuring plan and therefore is included
in the restructuring charge.
On February 7, 2002, the Board of Directors approved an
increase by an amount not to exceed 5% of the number of shares
outstanding for issuance under the Companys Employee Stock
Purchase Plan (the Purchase Plan). The Purchase Plan
permits eligible employees to purchase common stock equivalent
to a percentage of the employees earnings, not to exceed
15%, at a price equal to 85% of the fair market value of the
common stock at dates specified by the Board of Directors as
provided in the Plan. Under the Purchase Plan, the Company
issued approximately 2,070,070, 365,049, and 555,278 shares
to employees in the years ended December 31, 2004, 2003 and
2002, respectively. Under SFAS 123, compensation cost is
recognized for the fair value of the employees purchase
rights, which was estimated using the Black-Scholes option
pricing model with no expected dividends, an expected life of
approximately 24 months, and the following weighted-average
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
Risk-free interest rate
|
|
|
1.06
|
%
|
|
|
0.93
|
%
|
|
|
3.61
|
%
|
Volatility
|
|
|
122
|
%
|
|
|
118
|
%
|
|
|
108
|
%
|
The weighted-average fair value of the purchase rights granted
in the years ended December 31, 2004, 2003, and 2002, was
$4.04, $1.22, and $2.94, respectively.
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with no
expected dividends and the following weighted-average
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
Expected life
|
|
|
3.5 years
|
|
|
|
3.5 years
|
|
|
|
3.5 years
|
|
Risk-free interest rate
|
|
|
1.93
|
%
|
|
|
2.90
|
%
|
|
|
3.61
|
%
|
Volatility
|
|
|
122
|
%
|
|
|
118
|
%
|
|
|
108
|
%
|
We have determined pro forma information regarding net income
and earnings per share as if we had accounted for employee stock
options under the fair value method as required by
SFAS 123. The fair value of these stock-based awards to
employees was estimated using the Black-Scholes option pricing
model. Please see Note 10 of Notes to Consolidated
Financial Statements for assumptions used in the Black-Scholes
option pricing model. Had compensation cost for the
Companys stock option plan and employee stock purchase
plan been determined
F-12
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
consistent with SFAS 123, the Companys reported net
income (loss) and net earnings (loss) per share would have been
changed to the amounts indicated below (in thousands except per
share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
Net income (loss), as reported
|
|
$
|
(170,522
|
)
|
|
$
|
(35,471
|
)
|
|
$
|
20,635
|
|
Add: Stock-based compensation
expense included in reported net loss, net of related tax effects
|
|
|
846
|
|
|
|
342
|
|
|
|
(19
|
)
|
Deduct: Total stock-based employee
compensation expense determined under fair value based method
for all awards, net of related tax effects
|
|
|
(47,979
|
)
|
|
|
(9,275
|
)
|
|
|
(4,545
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss)
|
|
$
|
(217,655
|
)
|
|
$
|
(44,404
|
)
|
|
$
|
16,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic as reported
|
|
$
|
(5.32
|
)
|
|
$
|
(1.08
|
)
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic pro forma
|
|
$
|
(6.80
|
)
|
|
$
|
(1.35
|
)
|
|
$
|
0.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted as
reported
|
|
$
|
(5.32
|
)
|
|
$
|
(1.08
|
)
|
|
$
|
0.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted pro forma
|
|
$
|
(6.80
|
)
|
|
$
|
(1.35
|
)
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reverse
Stock Splits
On July 24, 2002, the Company announced that its Board of
Directors had approved a
one-for-nine
reverse split of its common stock. The reverse split was
effective as of 8:00 p.m. Eastern Daylight Time on
July 29, 2002. Each nine shares of outstanding common stock
of the Company automatically converted into one share of common
stock. The Companys common stock began trading on a
post-split basis at the opening of trading on the NASDAQ
National Market on July 30, 2002.
The accompanying consolidated financial statements and related
financial information contained herein have been retroactively
restated to give effect for the July 2002 reverse stock split.
Earnings
Per Share Information
Basic income (loss) per share is computed using the
weighted-average number of shares of common stock outstanding,
less shares subject to repurchase. Diluted income (loss) per
share is computed using the weighted-average number of shares of
common stock outstanding and, when dilutive, common equivalent
shares from outstanding stock options and warrants using the
treasury stock method. The following table sets forth the basic
and diluted net income (loss) per share computational data for
the periods presented. Excluded from the computation of
F-13
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
diluted loss per share for the years ended December 31,
2003, and 2002, are options and warrants to acquire 1,231,000,
and 552,000 shares of common stock, respectively, because
their effects would be anti-dilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
|
(In thousands, except per share
amounts)
|
|
|
Net income (loss)
|
|
$
|
(170,522
|
)
|
|
$
|
(35,471
|
)
|
|
$
|
20,635
|
|
Weighted-average common shares
outstanding to compute basic loss per share
|
|
|
32,036
|
|
|
|
32,800
|
|
|
|
33,539
|
|
Weighted-average common equivalent
shares outstanding Common stock options and warrants
|
|
|
|
|
|
|
|
|
|
|
782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted-average common and
common equivalent shares outstanding to compute diluted loss per
share
|
|
|
32,036
|
|
|
|
32,800
|
|
|
|
34,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share
|
|
$
|
(5.32
|
)
|
|
$
|
(1.08
|
)
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share
|
|
$
|
(5.32
|
)
|
|
$
|
(1.08
|
)
|
|
$
|
0.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency Transactions
During fiscal 2004, the Company changed the functional
currencies of all foreign subsidiaries from the U.S. dollar
to the local currency of the respective countries. Assets and
liabilities of these subsidiaries are translated into
U.S. dollars at the balance sheet date. Income and expense
items are translated at average exchange rates for the period.
Foreign exchange gains and losses resulting from the
remeasurement of foreign currency assets and liabilities are
included in other income (expense), net in the Consolidated
Statements of Operations.
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. Total
accumulated other comprehensive income (loss) is displayed as a
separate component of stockholders equity in the
accompanying Consolidated Balance Sheets. The accumulated
balances for each classification of comprehensive income (loss)
consist of the following, net of taxes (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gain
|
|
|
|
|
|
|
|
|
|
(Loss) in
|
|
|
Foreign
|
|
|
Accumulated Other
|
|
|
|
Available-for-Sale-
|
|
|
Currency
|
|
|
Comprehensive
|
|
|
|
Securities
|
|
|
Translation
|
|
|
Income (Loss)
|
|
|
Balance, December 31, 2001
|
|
$
|
(5,245
|
)
|
|
$
|
|
|
|
$
|
(5,245
|
)
|
Net change during period
|
|
|
5,282
|
|
|
|
|
|
|
|
5,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2002
|
|
|
37
|
|
|
|
|
|
|
|
37
|
|
Net change during period
|
|
|
(86
|
)
|
|
|
|
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
|
(49
|
)
|
|
|
|
|
|
|
(49
|
)
|
Net change during period
|
|
|
49
|
|
|
|
(172
|
)
|
|
|
(123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
$
|
|
|
|
$
|
(172
|
)
|
|
$
|
(172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Taxes and Deferred Tax Assets
Income taxes are computed using an asset and liability approach,
which requires the recognition of taxes payable or refundable
for the current year and deferred tax assets and liabilities for
the future tax consequences of
F-14
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
events that have been recognized in the Companys
consolidated financial statements or tax returns. The
measurement of current and deferred tax assets and liabilities
is based on provisions of the enacted tax law; the effects of
future changes in tax laws or rates are not anticipated. The
measurement of deferred tax assets is reduced, if necessary, by
the amount of any tax benefits that, based on available
evidence, are not expected to be realized.
The Company analyzes its deferred tax assets with regard to
potential realization. The Company has established a valuation
allowance on its deferred tax assets to the extent that
management has determined that it is more likely than not that
some portion or all of the deferred tax asset will not be
realized based upon the uncertainty of their realization. The
Company has considered estimated future taxable income and
ongoing prudent and feasible tax planning strategies in
assessing the amount of the valuation allowance.
Segment
and Geographic Information
The Company operates in one segment, electronic commerce
business solutions. The Companys chief operating decision
maker is considered to be the Companys CEO. The CEO
reviews financial information presented on a consolidated basis
accompanied by disaggregated information about revenues by
geographic region and by product for purposes of making
operating decisions and assessing financial performance.
Reclassifications
Certain prior period balances have been reclassified to conform
to the current period presentation.
New
Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46
(FIN 46), Consolidation of Variable
Interest Entities. FIN 46 expands upon and
strengthens existing accounting guidance that addresses when a
company should include in its financial statements the assets,
liabilities and activities of another entity. A variable
interest entity is a corporation, partnership, trust, or any
other legal structure used for business purposes that either
(i) does not have equity investors with voting rights or
(ii) has equity investors that do not provide sufficient
financial resources for the entity to support its activities.
FIN 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest
entitys activities or is entitled to receive a majority of
the entitys residual returns or both. The consolidation
requirements of FIN 46 apply immediately to variable
interest entities created after January 31, 2003. The
consolidation requirements apply to older entities in the first
fiscal year or interim period beginning after December 15,
2003. Disclosure requirements apply to any financial statements
issued after January 31, 2003. We do not expect the
adoption of SFAS 146 to have a material impact on our
consolidated financial position, results of operations or cash
flows.
In May 2003, the FASB issued SFAS 150, Accounting
for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. SFAS 150 requires that
certain financial instruments, which under previous guidance
were accounted for as equity, must now be accounted for as
liabilities. The financial instruments affected include
mandatorily redeemable stock, certain financial instruments that
require or may require the issuer to buy back some of its shares
in exchange for cash or other assets and certain obligations
that can be settled with shares of stock. SFAS 150 is
effective for all financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after
June 15, 2003. We do not expect the adoption of
SFAS 150 to have a material impact on our consolidated
financial position, results of operations or cash flows.
In December 2004, the FASB issued SFAS No. 123
(revised 2004) Share-Based Payment, or
SFAS 123R, which replaces SFAS No. 123
Accounting for Stock-Based Compensation, or
SFAS 123, and supersedes APB Opinion No. 25
Accounting for Stock Issued to Employees. SFAS 123R
requires all share-based payments to employees, including grants
of employee stock options, to be recognized in the financial
statements based on their fair values beginning with the first
interim or annual period beginning after June 15, 2005,
with early adoption encouraged. The pro forma disclosures
previously permitted under SFAS 123 no longer will be an
alternative to
F-15
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
financial statement recognition. Under SFAS 123R, we must
determine the appropriate fair value model to be used for
valuing share-based payments, the amortization method for
compensation cost and the transition method to be used at date
of adoption. The transition methods include prospective and
retroactive adoption options. We have not yet determined the
method of adoption or the effect of adopting SFAS 123R. We
are assessing the requirements of SFAS 123R and expect that
its adoption will have a material impact on the Companys
results of operations and earnings (loss) per share.
In December 2004, the FASB issued SFAS No. 153
(SFAS 153), Exchanges of Nonmonetary Assets, an
amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions. SFAS 153 eliminates the exception
from fair value measurement for nonmonetary exchanges of similar
productive assets in paragraph 21(b) of APB Opinion
No. 29, Accounting for Nonmonetary
Transactions, and replaces it with an exception for
exchanges that do not have commercial substance. SFAS 153
specifies that a nonmonetary exchange has commercial substance
if the future cash flows of the entity are expected to change
significantly as a result of the exchange. SFAS 153 is
effective for periods beginning after June 15, 2005. We do
not expect that adoption of SFAS 153 will have a material
effect on our consolidated financial position, consolidated
results of operations, or liquidity.
Note 2 Property
and Equipment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
Furniture and fixtures
|
|
$
|
8,030
|
|
|
$
|
4,036
|
|
Computer and software
|
|
|
49,041
|
|
|
|
49,258
|
|
Leasehold improvements
|
|
|
20,842
|
|
|
|
6,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,913
|
|
|
|
59,380
|
|
Less accumulated depreciation and
amortization
|
|
|
(62,513
|
)
|
|
|
(55,814
|
)
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
$
|
15,400
|
|
|
$
|
3,566
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense for the years ended
December 31, 2004, 2003, and 2002 was $3.7 million,
$11.3 million, and $18.2 million, respectively. In
2004, the Company transferred ownership of certain furniture,
fixtures, and leasehold improvements with a net book value of
$8.5 million to previous landlords as a part of a
settlement relating to future real estate obligations. The
Company recorded asset impairments of approximately $515,000
during fiscal 2003 in connection with the Companys
restructuring plan, which is included in the Companys
restructuring charge recorded in the Companys Statement of
Operations. In 2002, the Company recorded a $3.1 million
asset impairment as a result of the physical inventories of the
Companys assets.
Note 3 Goodwill
and Other Intangibles
On January 1, 2002, the Company adopted SFAS 142,
Goodwill and Intangible Assets. Under SFAS 142,
goodwill and intangible assets with indefinite lives are no
longer subject to amortization but are tested for impairment at
least annually using a fair value approach, and whenever there
is an impairment indicator. Other intangible assets continue to
be valued and amortized over their estimated lives. Pursuant to
SFAS 142, the Company is required to test its goodwill for
impairment upon adoption and annually or more often if events or
changes in circumstances indicate that the asset might be
impaired. The Company concluded that, based upon the market
value of its stock in relation to the Companys net book
value at December 31, 2003 and 2004, there was no
impairment of goodwill as of December 31, 2003 and 2004.
The process of evaluating the potential impairment of goodwill
is highly subjective and requires significant judgment. In
estimating the fair value of the Company, the Company made
estimates and judgments about future revenues and cash flows.
The Companys forecasts were based on assumptions that are
consistent with the plans and
F-16
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
estimates the Company is using to manage the business. Changes
in these estimates could change the Companys conclusion
regarding impairment of goodwill and potentially result in a
non-cash goodwill impairment charge, for all or a portion of the
goodwill balance at December 31, 2004.
Additionally, upon adoption of SFAS 141 and 142, the
Company no longer amortizes its non-technology based intangible
asset, or assembled workforce. Amortization expense for
completed technology intangibles was $886,000 and
$3.5 million in 2003 and 2002, respectively. As of
December 31, 2003, completed technology intangibles had
been fully amortized.
Note 4 Accrued
Expenses
Accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Employee benefits
|
|
$
|
1,511
|
|
|
$
|
1,253
|
|
Commissions and bonuses
|
|
|
1,519
|
|
|
|
1,334
|
|
Sales and other taxes
|
|
|
7,983
|
|
|
|
5,085
|
|
Restructuring
|
|
|
18,549
|
|
|
|
26,292
|
|
Other
|
|
|
5,199
|
|
|
|
6,781
|
|
|
|
|
|
|
|
|
|
|
Total Accrued expenses
|
|
$
|
34,761
|
|
|
$
|
40,745
|
|
|
|
|
|
|
|
|
|
|
Note 5 Bank
Borrowings, Long-Term Debt and Other Non-Current
Liabilities
Bank borrowings and long-term debt consists of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
Convertible debentures, 6% coupon,
due in various maturities beginning in June 2005 (or sooner
under certain circumstances)
|
|
$
|
|
|
|
$
|
11,982
|
|
Bank borrowings
|
|
|
27,000
|
|
|
|
20,000
|
|
Term debt
|
|
|
1,946
|
|
|
|
1,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,946
|
|
|
|
33,009
|
|
Less: Current portion of long-term
debt
|
|
|
(27,977
|
)
|
|
|
(25,566
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current
portion
|
|
$
|
969
|
|
|
$
|
7,443
|
|
|
|
|
|
|
|
|
|
|
In November 2004, the Company entered into a definitive
agreement for the private placement of up to $20.0 million
of convertible debentures to five institutional investors. The
Company issued an initial $16.0 million of debentures,
which will be convertible into common stock at a fixed
conversion price of $2.76 per share. The notes bear
interest at a rate of six percent per annum and are repayable in
either cash or common stock beginning in June 2005 for a period
of up to three years, depending on the occurrence of certain
events. Payment of both principal and interest may be made in
either cash or, provided that the Company obtains shareholder
approval, common stock of the Company. The Company intends to
pay these debentures by issuing stock. As of December 31,
2004, a total of $16.0 million in face value convertible
debentures was outstanding. These debentures are recorded on the
Consolidated Balance Sheet at December 31, 2004, at the
discounted amount of $12.0 million. The Company is
recording the difference between the face value and discounted
amount as additional interest expense over the estimated life of
the debentures. The Company may be required to make additional
repayments of up to $1 million per month under the notes,
contingent upon maintaining certain minimum net cash on hand
balances. Our payment
F-17
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
of these additional amounts may be in cash and/or common stock
pursuant to similar terms as the payment of regular installment
amounts. In connection with this transaction, the Company also
issued warrants to purchase shares of its common stock. See
Note 9.
As December 31, 2004 and December 31, 2003,
outstanding term debt borrowings were approximately
$1.0 million and $1.9 million, respectively.
Borrowings bear interest at the banks prime rate (5.25% as
of December 31, 2004 and 4.00% as of December 31,
2003) plus up to 1.25%. Principal and interest are due in
monthly payments through maturity based on the terms of the
facilities. Principal payments of $637,000 are due in 2005, and
payments of $390,000 are due thereafter.
In November 2004, the Company renewed and amended its revolving
credit facility. The amount available under the revolving line
of credit is $20.0 million. Borrowings under the revolving
line of credit are collateralized by all of the Companys
assets and bear interest at the banks prime rate (5.25% as
of December 31, 2004 and 4.0% as of December 31,
2003). As of December 31, 2003 and 2004, $27.0 million
and $20.0 million, respectively, remaining outstanding
under the Companys renewed and amended revolving credit
facility. Other non-current liabilities consist of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
Restructuring
|
|
$
|
86,831
|
|
|
$
|
7,871
|
|
Other
|
|
|
578
|
|
|
|
407
|
|
|
|
|
|
|
|
|
|
|
Other non-current liabilities
|
|
$
|
87,409
|
|
|
$
|
8,278
|
|
|
|
|
|
|
|
|
|
|
Note 6 Income
Taxes
The components of income tax (benefit) provision are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
State
|
|
|
175
|
|
|
|
244
|
|
|
|
110
|
|
Foreign
|
|
|
372
|
|
|
|
195
|
|
|
|
(419
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
547
|
|
|
|
439
|
|
|
|
(309
|
)
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
4,537
|
|
|
|
|
|
|
|
|
|
State
|
|
|
2,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
7,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (benefit) provision
|
|
$
|
7,603
|
|
|
$
|
439
|
|
|
$
|
(309
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
The differences between the income tax (benefit) provision
computed at the federal statutory rate of 35% and the
Companys actual income tax provision for the periods
presented are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
Expected income tax provision
(benefit)
|
|
$
|
(57,022
|
)
|
|
$
|
(12,262
|
)
|
|
$
|
7,114
|
|
Expected state income taxes
(benefit), net of federal tax benefit
|
|
|
(8,961
|
)
|
|
|
(1,683
|
)
|
|
|
1,219
|
|
California net operating loss
reduction
|
|
|
2,914
|
|
|
|
1,186
|
|
|
|
|
|
Foreign taxes
|
|
|
2,361
|
|
|
|
663
|
|
|
|
72
|
|
Utilization of foreign net
operating loss carryforwards
|
|
|
(2,413
|
)
|
|
|
(533
|
)
|
|
|
(688
|
)
|
Valuation allowance changes
affecting provision
|
|
|
67,070
|
|
|
|
11,546
|
|
|
|
(8,361
|
)
|
Foreign losses not benefited
|
|
|
2,353
|
|
|
|
1,542
|
|
|
|
322
|
|
Non deductible goodwill and
intangible amortization
|
|
|
1,418
|
|
|
|
355
|
|
|
|
|
|
Tax credits
|
|
|
(758
|
)
|
|
|
(351
|
)
|
|
|
(32
|
)
|
Other
|
|
|
641
|
|
|
|
(24
|
)
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) provision
|
|
$
|
7,603
|
|
|
$
|
439
|
|
|
$
|
(309
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The individual components of the Companys deferred tax
assets and liabilities are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
16,031
|
|
|
$
|
11,701
|
|
Accrued liabilities
|
|
|
49,124
|
|
|
|
16,764
|
|
Capitalized research and
development
|
|
|
2,527
|
|
|
|
4,748
|
|
Net operating losses
|
|
|
160,064
|
|
|
|
164,190
|
|
Tax credits
|
|
|
13,177
|
|
|
|
13,740
|
|
Unrealized loss on marketable
securities
|
|
|
5,320
|
|
|
|
5,320
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
246,243
|
|
|
|
216,463
|
|
Less valuation allowance
|
|
$
|
(246,243
|
)
|
|
$
|
(216,463
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The Company has provided a valuation allowance for all of its
deferred tax assets as of December 31, 2003 and 2004, due
to the uncertainty regarding their future realization. The total
valuation allowance decreased $29.8 million from
December 31, 2003 to December 31, 2004. The decrease
in valuation allowance relates primarily to changes in accrued
liabilities. As of December 31, 2004, the Company had
federal and state operating loss carryforwards of approximately
$446.4 million and $121.3 million respectively,
available to offset future regular and alternative minimum
taxable income. In addition, the Company had federal and state
research and development credit carryforwards of approximately
$11.1 million and $3.0 million, respectively,
available to offset future tax liabilities. The Companys
federal net operating loss and tax credit carryforwards expire
in the tax years 2005 through 2024, if not utilized. The state
net operating loss carryforwards expire in the tax years 2005
through 2014. The state research and development credits can be
carried forward indefinitely.
Federal and state tax laws limit the use of net operating loss
carryforwards in certain situations where changes occur in the
stock ownership of a company. The Company believes such an
ownership change, as defined, may have
F-19
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
occurred and, accordingly, certain of the Companys federal
and state operating loss carryforwards may be limited in their
annual usage.
During the year, the Company performed additional procedures to
determine the amount of tax attribute carry-forwards. As a
result of this analysis, a decrease in the Deferred Tax Assets
and a corresponding Valuation Allowance was made. Since there is
a full Valuation Allowance on the Deferred Tax Assets, there is
no provision impact as a result of this change.
In accordance with SFAS 5, the Company maintains reserves
for estimated income tax exposures for many jurisdictions when
the exposure item becomes probable and estimable. Exposures are
settled primarily through the settlement of audits within each
individual tax jurisdiction or the closing of a statute of
limitation. Exposures can also be affected by changes in
applicable tax law or other factors, which may cause management
to believe a revision of past estimates is appropriate.
Management believes that an appropriate liability has been
established for income tax exposures; however, actual results
may differ materially from these estimates. As of
December 31, 2004, the Company has recorded tax contingency
reserves of approximately $3.1 million.
Note 7 Commitments
and Contingencies
Warranties
and Indemnification
The Company provides a warranty to its customers that its
software will perform substantially in accordance with
documentation typically for a period of 90 days following
receipt of the software. The Company also indemnifies certain
customers from third-party claims of intellectual property
infringement relating to the use of its products. Historically,
costs related to these guarantees have not been significant and
the Company is unable to estimate the maximum potential impact
of these guarantees on its future results of operations.
Our software license agreements typically provide for
indemnification of customers for intellectual property
infringement claims. To date, no such claims have been filed
against us.
The Company has agreements whereby it indemnifies its officers
and directors for certain events or occurrences while the
officer is, or was, serving in such capacity. The term of the
indemnification period is for so long as such officer or
director is subject to an indemnifiable event by reason of the
fact that such person was serving in such capacity. The maximum
potential amount of future payments the Company could be
required to make under these indemnification agreements is
unlimited; however, the Company has a director and officer
insurance policy that limits its exposure and enables the
Company to recover a portion of any future amounts paid. As a
result of the Companys insurance policy coverage, the
Company believes the estimated fair value of these
indemnification agreements is insignificant. Accordingly, the
Company has no liabilities recorded for these agreements as of
either December 31, 2004 or 2003. The Company assesses the
need for an indemnification reserve on a quarterly basis and
there can be no guarantee that an indemnification reserve will
not become necessary in the future.
Leases
The Company leases its headquarters facility and its other
facilities under noncancelable operating lease agreements
expiring through the year 2010. Under the terms of the
agreements, the Company is required to pay property taxes,
insurance and normal maintenance costs.
F-20
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
A summary of total future minimum lease payments under
noncancelable operating lease agreements, including future
minimum facilities payments for properties that are part of
restructuring is as follows (in millions):
|
|
|
|
|
|
|
Total Future
|
|
|
|
Minimum Lease
|
|
Years Ending
December 31,
|
|
Payments
|
|
|
2005
|
|
$
|
25.4
|
|
2006
|
|
|
6.0
|
|
2007
|
|
|
0.9
|
|
2008
|
|
|
0.5
|
|
2009 and thereafter (through
October 2010)
|
|
|
0.5
|
|
|
|
|
|
|
Total minimum facilities payments
|
|
$
|
33.3
|
|
|
|
|
|
|
Of this accrual, $21.9 million relates to payments due in
fiscal 2005 under lease termination agreements, and
$11.4 million relates to future minimum lease payments,
fees and expenses, net of estimated sublease income and planned
company occupancy. The future minimum lease payment accrual is
net of approximately $2.8 million of sublease income to be
received under non-cancelable sublease agreements signed prior
to December 31, 2004. See Note 9 of Notes to
Consolidated Financial Statements for additional information.
Equity
Investments
In January 2000, the Company entered into a limited partnership
agreement with a venture capital firm under which it was
obligated to contribute capital based upon the periodic funding
requirements. The total capital commitment was
$2.0 million, of which $1.1 million had been
contributed through December 31, 2003. In September 2004,
the Company sold its interest in the partnership agreement for
approximately $576,000 in cash and recorded a loss of
approximately $230,000. That loss is included in Other
Income (Expense), net in the accompanying Consolidated
Statement of Operations. As a result of this sale, the
Companys obligation to make future capital contributions
has been extinguished.
Standby
Letter of Credit Commitments
Commitments totaling $19.8 million and $24.3 million
in the form of standby letters of credit were issued on the
Companys behalf from financial institutions as of
December 31, 2003 and 2004, respectively, in favor of the
Companys various landlords to secure obligations under the
Companys facility leases.
Legal
Proceedings
On June 7, 2001, Verity, Inc. filed suit against the
Company alleging copyright infringement, breach of contract,
unfair competition and other claims. In August 2003, the Company
reached a confidential settlement with Verity, Inc. with respect
to our outstanding litigation. The detailed terms and conditions
of this settlement are confidential and cannot be disclosed
without the consent of each party. The settlement did not have a
material effect on the Companys business, financial
condition or results of operations.
On July 18, 2002, Avalon Partners, Inc., doing business as
Cresa Partners (Cresa), filed a suit against the
Company in the Superior Court of the State of California,
San Mateo County, claiming broker commissions related to
the Companys termination and restructuring of certain
facilities leases associated with our restructuring plans taken
during the second quarter of 2002. The Company settled with
Avalon Partners, Inc., doing business as Cresa Partners
(Cresa) with a one-time payment of $2.2 million
to Cresa in April 2003.
On June 10, 2004, Metropolitan Life Insurance Company
(MetLife) filed a complaint in the Superior Court of
the State of California, County of Los Angeles, naming the
Company as a defendant. The complaint alleged that the Company
was liable for unlawful detainer of premises leased from the
plaintiff. The plaintiff thereafter filed a
F-21
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
First Amended Complaint alleging that the Company no longer held
possession of the premises but was in breach of the lease. In
February 2005, MetLife and the Company reached agreement and
executed documents regarding a settlement of the pending lawsuit
under which the Company will pay MetLife an aggregate of
$1,927,500 in consideration for termination of the lease,
dismissal of the lawsuit and in full settlement of approximately
$3.1 million of past and future lease obligations. The
first of three installment payments was made in February 2005,
with the second due in May 2005 and the third due in September
2005.
On January 7, 2005, we announced that we had reached
agreement with the SEC to settle administrative proceedings in
connection with the restatement of our financial results for the
third quarter of fiscal 2001. No fines or financial penalties
associated with the settlement. Without admitting or denying any
wrongdoing, we consented to the SECs entry of an
administrative order that included findings that we issued a
false and misleading earnings press release and misleading
quarterly report. The order requires that we cease and desist
from committing or causing violations of specified provisions of
the federal securities laws. The SEC found that a former
executive in charge of professional services who left
BroadVision in 2002 was responsible for the improper accounting.
The restatement concerned revenue related to one software
license agreement. Following receipt of payment in full by the
customer, we recognized revenue on that agreement in its
entirety in the third quarter of 2001. We subsequently
determined that the revenue should instead be recognized ratably
over the four-year life of the agreement, and announced on
April 1, 2002 that we were restating our financial
statements for the third quarter of 2001 to effect this change.
We have been accounting for the revenue ratably in all periods
since the third quarter of 2001.
The Company is also subject to various other claims and legal
actions arising in the ordinary course of business. In the
opinion of management, after consultation with legal counsel,
the ultimate disposition of these matters is not expected to
have a material effect on the Companys business, financial
condition or results of operations. Although management
currently believes that the outcome of other outstanding legal
proceedings, claims and litigation involving the Company will
not have a material adverse effect on its business, results of
operations or financial condition, litigation is inherently
uncertain, and there can be no assurance that existing or future
litigation will not have a material adverse effect on the
Companys business, results of operations or financial
condition.
Note 8 Restructuring
The Company approved restructuring plans to, among other things,
reduce its workforce and consolidate facilities. These
restructuring and asset impairment charges were taken to align
our cost structure with changing market conditions and to create
a more efficient organization. In fiscal 2004, the Company
reached agreement with several landlords to extinguish
approximately $155 million of obligations related to excess
facility leases, which contributed to a pre-tax net
restructuring credit during the year of $23.5 million.
Pre-tax restructuring charges of $35.4 million and
$110.4 million were recorded during the years ended
December 31, 2003 and 2002, respectively. For each period,
the Company recorded the low-end of a range of assumptions
modeled for the restructuring charges, in accordance with
SFAS No. 5, Accounting for Contingencies.
Adjustments to the restructuring accrual will be made in future
periods, if necessary, based upon the then current actual events
and circumstances.
F-22
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
The following table summarizes the restructuring accrual
activity recorded during the three-years ended December 31,
2004 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and
|
|
|
Facilities/
|
|
|
|
|
|
|
Benefits
|
|
|
Excess Assets
|
|
|
Total
|
|
|
Accrual balances,
December 31, 2001
|
|
$
|
930
|
|
|
$
|
89,859
|
|
|
$
|
90,789
|
|
Restructuring charges
|
|
|
8,707
|
|
|
|
101,742
|
|
|
|
110,449
|
|
Cash payments
|
|
|
(8,026
|
)
|
|
|
(78,019
|
)
|
|
|
(86,045
|
)
|
Non-cash portion
|
|
|
(107
|
)
|
|
|
(18,891
|
)
|
|
|
(18,998
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual balances,
December 31, 2002
|
|
|
1,540
|
|
|
|
94,691
|
|
|
|
96,195
|
|
Restructuring charges
|
|
|
1,509
|
|
|
|
33,847
|
|
|
|
35,356
|
|
Cash payments
|
|
|
(2,342
|
)
|
|
|
(23,829
|
)
|
|
|
(26,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual balances,
December 31, 2003
|
|
|
671
|
|
|
|
104,709
|
|
|
|
105,380
|
|
Restructuring charges (credits)
|
|
|
1,114
|
|
|
|
(24,659
|
)
|
|
|
(23,545
|
)
|
Cash payments
|
|
|
(961
|
)
|
|
|
(46,711
|
)
|
|
|
(47,672
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual balances,
December 31, 2004
|
|
$
|
824
|
|
|
$
|
33,339
|
|
|
$
|
34,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The severance and benefits accrual for each period includes
severance, payroll taxes and COBRA benefits related to
restructuring plans implemented prior to the balance sheet date.
The facilities/excess assets accrual for each period included
future minimum lease payments, fees and expenses, net of
estimated sublease income and planned company occupancy, and
related leasehold improvement amounts payable subsequent to the
balance sheet date for which the provisions of
EITF 94-3
or SFAS 146, as applicable, were satisfied. See further
discussion below. In determining estimated future sublease
income, the following factors were considered, among others:
opinions of independent real estate experts, current market
conditions and rental rates, an assessment of the time period
over which reasonable estimates could be made, the status of
negotiations with potential subtenants, and the location of the
respective facilities.
The nature of the charges and credits in 2004 were as follows:
Severance and benefits The Company
recorded a related charge of $1.1 million during the twelve
months ended December 31, 2004, related to workforce
reductions as a component of the Companys restructuring
plans executed during the year. The Company estimates that the
accrual as of December 31, 2004, will be paid in full by
December 31, 2005.
Facilities/excess assets During the
twelve months ended December 31, 2004, the Company recorded
a facilities-related restructuring credit of $24.7 million.
During the third and fourth quarters of 2004, the Company
reached agreements with certain landlords to extinguish
approximately $155 million of future real estate
obligations. The Company made cash payments of
$19.0 million during the third quarter and
$1.7 million during the fourth quarter, and is, as of
December 31, 2004, obligated to make additional cash
payments of $21.9 million in fiscal 2005. Standby letters
of credit of $21.9 million were issued on our behalf from
financial institutions as of December 31, 2004, in favor of
the landlords to secure the fiscal 2005 payments. Accordingly,
$21.9 million, along with additional letters of credit
securing other long-term leases of $2.3 million, has been
included in restricted cash in the accompanying Consolidated
Balance Sheets at December 31, 2004. The Company also
transferred ownership of certain furniture, fixtures, and
leasehold improvements with a net book value of
$8.5 million to the previous landlords.
As a component of the settlement of one of the previous leases,
the Company has a residual lease obligation beginning in 2007 of
approximately $9.1 million. The Company may make an
additional cash payment of $4.5 million if it exercises an
option to terminate this residual real estate obligation prior
to the commencement of
F-23
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
the lease term (January 2007). This option to terminate the
residual lease obligation is accounted for in accordance with
SFAS 146 and is a part of the restructuring credit of
$24.6 million recorded in fiscal 2004.
In connection with one of the buyout transactions, the Company
issued to the landlord a five-year warrant to purchase
approximately 700,000 shares of our common stock at an
exercise price of $5.00 per share, exercisable beginning in
August 2005. See Note 10.
As of December 31, 2004, $2.8 million of estimated
future sublease income is netted against the restructuring
accrual.
The nature of the charges in 2003 is as follows:
Severance and benefits The
$1.5 million charge in fiscal 2003 related to workforce
reductions as a component of the Companys restructuring
plans executed during the year.
Facilities/excess assets During the
twelve months ended December 31, 2003, the Company recorded
a facilities-related restructuring charge of $33.8 million.
This charge related to the Companys revisions of estimates
with respect to the planned future occupancy and anticipated
future subleases.
These revisions were necessary due to a reduction in planned
future BroadVision space needs and a further decline in the
market for commercial real estate. The Company estimated future
sublease timing and rates based upon current market indicators
and information obtained from a third party real estate expert.
The nature of the charges in 2002 is as follows:
A pre-tax charge of $110.4 million was recorded during
fiscal 2002 to provide for restructuring actions and other
related items. The Company recorded the low-end of a range of
assumptions modeled for the restructuring charges, in accordance
with SFAS No. 5, Accounting for Contingencies.
The high-end of the range was estimated at $117.8 million
for the charge related to fiscal 2002.
Severance and benefits The Company
recorded a charge of approximately $8.7 million during
fiscal year ended December 31, 2002 for
restructuring-related severance and benefit costs. Included in
the $8.7 million is $107,000 of non-cash charges related to
a one-time compensation charge taken as a result of granting
certain terminated employees extended vesting of stock options
beyond the standard vesting schedule for terminated employees.
The compensation charge was calculated using the Black-Scholes
option pricing model. Approximately $817,000 of severance and
benefits related costs remained accrued as of December 31,
2001 as a result of the Companys 2001 restructuring plan.
Approximately $8.0 million of severance and benefits and
other costs were paid out during fiscal 2002 and the remaining
$1.0 million of severance, payroll taxes and COBRA benefits
was paid through December 31, 2003. The Companys
restructuring plan included plans to terminate the employment of
approximately 430 employees in North and South America and
approximately 95 employees throughout Europe and Asia/Pacific
during the first three quarters of fiscal 2002, impacting all
departments within the Company. The employment of approximately
525 employees was terminated during fiscal year 2002.
Facilities/excess assets During fiscal
year 2002, the Company revised its estimates and expectations
with respect to its facilities disposition efforts due to
further consolidation and abandonment of additional facilities
and to account for changes in estimates used in the
Companys 2001 restructuring plan based upon actual events
and circumstances. Total lease termination costs include the
impairment of related assets, remaining lease liabilities and
brokerage fees offset by estimated sublease income. The
estimated costs of abandoning these leased facilities, including
estimated sublease income, were based on market information
analyses provided by a commercial real estate brokerage firm
retained by the Company. Based on the factors above, a
facilities/excess assets charge of $101.7 million was
recorded during fiscal year 2002 and includes non-cash asset
impairment charges of approximately $18.9 million.
F-24
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
As of December 31, 2004, the total restructuring accrual of
$34.2 million consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Non-Current
|
|
|
Total
|
|
|
Severance and Termination
|
|
$
|
0.9
|
|
|
$
|
|
|
|
$
|
0.9
|
|
Excess Facilities
|
|
|
25.4
|
|
|
|
7.9
|
|
|
|
33.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments
|
|
$
|
26.3
|
|
|
$
|
7.9
|
|
|
$
|
34.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company estimates that the $0.9 million severance and
termination accrual will be paid in full by December 31,
2005. We expect to pay the excess facilities amounts related to
restructured or abandoned leased space as follows (in millions):
|
|
|
|
|
|
|
Total Future
|
|
|
|
Minimum Lease
|
|
Years Ending
December 31,
|
|
Payments
|
|
|
2005
|
|
$
|
25.4
|
|
2006
|
|
|
6.0
|
|
2007
|
|
|
0.9
|
|
2008
|
|
|
0.5
|
|
2009 and thereafter (through
October 2010)
|
|
|
0.5
|
|
|
|
|
|
|
Total minimum facilities payments
|
|
$
|
33.3
|
|
|
|
|
|
|
Of this excess facilities accrual, $21.9 million relates to
payments due in fiscal 2005 under lease termination agreements,
and $11.4 million relates to future minimum lease payments,
fees and expenses, net of estimated sublease income and planned
company occupancy.
Activity related to the restructuring plans prior to
January 1, 2003 is accounted for in accordance with
EITF 94-3.
Activity after January 1, 2003 is accounted for in
accordance with SFAS 146, with the exception of amounts
that were the result of changes in assumptions to restructuring
plans that were initiated prior to January 1, 2003.
F-25
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
The following table summarizes the activity related to the
restructuring plans initiated after January 1, 2003, and
accounted for in accordance with FAS 146 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
Amounts Charged to
|
|
|
|
|
|
Accrued
|
|
|
|
Restructuring
|
|
|
Restructuring Costs
|
|
|
Amounts Paid or
|
|
|
Restructuring
|
|
|
|
Costs, Beginning
|
|
|
and Other
|
|
|
Written Off
|
|
|
Costs, Ending
|
|
|
Year Ended December 31,
2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease cancellations and commitments
|
|
$
|
|
|
|
$
|
21,683
|
|
|
$
|
|
|
|
$
|
21,683
|
|
Termination payments to employees
and related costs
|
|
|
|
|
|
|
1,535
|
|
|
|
(1,293
|
)
|
|
|
242
|
|
Write-off on disposal of assets
and related costs
|
|
|
|
|
|
|
515
|
|
|
|
(515
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
23,733
|
|
|
$
|
(1,808
|
)
|
|
$
|
21,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease cancellations and commitments
|
|
$
|
21,683
|
|
|
$
|
9,594
|
|
|
$
|
(9,453
|
)
|
|
$
|
21,824
|
|
Termination payments to employees
and related costs
|
|
|
242
|
|
|
|
1,114
|
|
|
|
(991
|
)
|
|
|
365
|
|
Write-off on disposal of assets
and related costs
|
|
|
|
|
|
|
(1,193
|
)
|
|
|
1,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,925
|
|
|
$
|
9,515
|
|
|
$
|
(9,251
|
)
|
|
$
|
22,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the activity related to the
restructuring plans initiated prior to January 1, 2003, and
accounted for in accordance with
EITF 94-3
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
Amounts Charged to
|
|
|
Amounts Reversed to
|
|
|
|
|
|
Accrued
|
|
|
|
Restructuring
|
|
|
Restructuring Costs
|
|
|
Restructuring Costs
|
|
|
Amounts Paid or
|
|
|
Restructuring
|
|
|
|
Costs, Beginning
|
|
|
and Other
|
|
|
and Other
|
|
|
Written Off
|
|
|
Costs, Ending
|
|
|
Year Ended December 31,
2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease cancellations and commitments
|
|
$
|
89,859
|
|
|
$
|
82,851
|
|
|
$
|
|
|
|
$
|
(78,019
|
)
|
|
$
|
94,691
|
|
Termination payments to employees
and related costs
|
|
|
817
|
|
|
|
7,644
|
|
|
|
|
|
|
|
(7,036
|
)
|
|
|
1,425
|
|
Write-off on disposal of assets and
related costs
|
|
|
113
|
|
|
|
19,954
|
|
|
|
|
|
|
|
(19,988
|
)
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
90,789
|
|
|
$
|
110,449
|
|
|
$
|
|
|
|
$
|
(105,043
|
)
|
|
$
|
96,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease cancellations and commitments
|
|
$
|
94,691
|
|
|
$
|
11,649
|
|
|
$
|
|
|
|
$
|
(23,314
|
)
|
|
$
|
83,026
|
|
Termination payments to employees
and related costs
|
|
|
1,425
|
|
|
|
41
|
|
|
|
|
|
|
|
(1,037
|
)
|
|
|
429
|
|
Write-off on disposal of assets and
related costs
|
|
|
79
|
|
|
|
(41
|
)
|
|
|
(26
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
96,195
|
|
|
$
|
11,649
|
|
|
$
|
(26
|
)
|
|
$
|
(24,363
|
)
|
|
$
|
83,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-26
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
Amounts Charged to
|
|
|
Amounts Reversed to
|
|
|
|
|
|
Accrued
|
|
|
|
Restructuring
|
|
|
Restructuring Costs
|
|
|
Restructuring Costs
|
|
|
Amounts Paid or
|
|
|
Restructuring
|
|
|
|
Costs, Beginning
|
|
|
and Other
|
|
|
and Other
|
|
|
Written Off
|
|
|
Costs, Ending
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease cancellations and commitments
|
|
$
|
83,026
|
|
|
$
|
(32,584
|
)
|
|
$
|
|
|
|
$
|
(38,927
|
)
|
|
$
|
11,515
|
|
Termination payments to employees
and related costs
|
|
|
429
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
459
|
|
Write-off on disposal of assets and
related costs
|
|
|
|
|
|
|
(477
|
)
|
|
|
|
|
|
|
477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
83,455
|
|
|
$
|
(33,061
|
)
|
|
$
|
|
|
|
$
|
(38,420
|
)
|
|
$
|
11,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
Preferred Stock
As of December 31, 2004, there were no outstanding shares
of convertible preferred stock. The Board of Directors and the
stockholders have approved authorized shares of convertible
preferred stock to 10,000,000.
Note 9 Stockholders
Equity
Warrants
As of December 31, 2004, the following warrants to purchase
the Companys common stock were outstanding:
|
|
|
|
|
|
|
|
|
Description
|
|
Shares
|
|
|
Price Per Share
|
|
|
Issued to landlord in real estate
buyout transaction in August 2004
|
|
|
700,000
|
|
|
|
5.00
|
|
Issued to convertible debenture
investors in November 2004
|
|
|
1,739,130
|
|
|
|
3.58
|
|
Others issued in connection with
revenue transactions in 1997 and 2000
|
|
|
9,629
|
|
|
|
Various
|
|
|
|
|
|
|
|
|
|
|
Total shares and average price per
share
|
|
|
2,448,759
|
|
|
$
|
4.71
|
|
|
|
|
|
|
|
|
|
|
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.
In accordance with
EITF 00-19,
Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Companys Own
Stock, the warrants have been included as a short-term
liability and were originally valued at fair value on the date
of issuance. The warrants are revalued each period until and
unless the warrants are exercised. During fiscal 2004, the
Company recorded charges related to the change in fair value
from the date of issuance of the 2004 warrants to
December 31, 2004, of $754,000. This amount is included as
a component of Other Income (Expense), net, in the accompanying
Consolidated Statement of Operations. If the warrants are
exercised prior to their termination, their carrying value will
be transferred to equity.
Common
Stock
On July 24, 2002, the Company announced that its Board of
Directors had approved a
one-for-nine
reverse split of its common stock. The reverse split was
effective July 29, 2002. Each nine shares of outstanding
common stock of the Company automatically converted into one
share of common stock. The accompanying consolidated financial
statements and related financial information contained herein
have been retroactively restated to give effect for this stock
split.
F-27
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
During fiscal 2003 there were no increases in the aggregate
number of shares of common stock available to be issued under
the Companys Equity Incentive Stock Option Plan. During
May 2001, the Board of Directors and the stockholders approved
an increase in the aggregate number of shares of common stock
available to be issued under the Companys Equity Incentive
Stock Option Plan by 12,000,000 shares.
The Company applies APB Opinion 25 and related interpretations
when accounting for its stock option and stock purchase plans.
As of December 31, 2002, the Company had reserved
96 million shares of common stock for issuance under its
Equity Incentive Plan. Under this plan, the Board of Directors
may grant incentive or nonqualified stock options at prices not
less than 100% or 85%, respectively, of the fair market value of
the Companys common stock, as determined by the Board of
Directors, at the date of grant. The vesting of individual
options may vary but in each case at least 25% of the total
number of shares subject to options will become exercisable per
year. These options generally expire ten years after the grant
date. When an employee option is exercised prior to vesting, any
unvested shares so purchased are subject to repurchase by the
Company at the original purchase price of the stock upon
termination of employment. The Companys right to
repurchase lapses at a minimum rate of 20% per year over
five years from the date the option was granted or, for new
employees, the date of hire. Such right is exercisable only
within 90 days following termination of employment. During
the year ended December 31, 2004, no shares were
repurchased. There were 133 unvested shares that were
repurchased by the Company during the year ended
December 31, 2003 at a weighted-average price of $7.81. As
of December 31, 2002, 270 shares were subject to
repurchase.
The Companys President and Chief Executive Officer
(CEO) has options to
purchase 1,704,444 shares of common stock at an
average exercise price of $38.63 per share. The table below
is a summary of shares granted through December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting Period
|
|
Date Granted
|
|
Options Granted
|
|
|
Options Price
|
|
|
Vested
|
|
|
(Months)
|
|
|
6/23/99
|
|
|
500,000
|
|
|
$
|
60.00
|
|
|
|
500,000
|
|
|
|
60
|
|
5/25/01
|
|
|
500,000
|
|
|
|
66.51
|
|
|
|
447,917
|
|
|
|
48
|
|
11/27/01
|
|
|
4,444
|
|
|
|
35.01
|
|
|
|
4,444
|
|
|
|
24
|
|
2/19/02
|
|
|
55,555
|
|
|
|
18.63
|
|
|
|
39,352
|
|
|
|
48
|
|
10/30/02
|
|
|
644,445
|
|
|
|
2.16
|
|
|
|
349,075
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
1,704,444
|
|
|
|
|
|
|
|
1,340,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in the Companys stock option plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
|
Options
|
|
|
Weighted-Average
|
|
|
Options
|
|
|
Weighted-Average
|
|
|
Options
|
|
|
Weighted-Average
|
|
Fixed Options
|
|
(000s)
|
|
|
Exercise Price
|
|
|
(000s)
|
|
|
Exercise Price
|
|
|
(000s)
|
|
|
Exercise Price
|
|
|
Outstanding at beginning of period
|
|
|
5,239
|
|
|
$
|
44.73
|
|
|
|
6,036
|
|
|
$
|
29.03
|
|
|
|
4,128
|
|
|
$
|
27.32
|
|
Granted
|
|
|
3,635
|
|
|
|
4.76
|
|
|
|
190
|
|
|
|
4.77
|
|
|
|
1,264
|
|
|
|
3.35
|
|
Exercised
|
|
|
(226
|
)
|
|
|
4.52
|
|
|
|
(170
|
)
|
|
|
2.31
|
|
|
|
(87
|
)
|
|
|
3.07
|
|
Forfeited
|
|
|
(2,612
|
)
|
|
|
34.57
|
|
|
|
1,928
|
)
|
|
|
25.10
|
|
|
|
(429
|
)
|
|
|
21.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
6,036
|
|
|
$
|
26.32
|
|
|
|
4,128
|
|
|
$
|
27.17
|
|
|
|
4,876
|
|
|
|
21.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of
period
|
|
|
1,861
|
|
|
$
|
45.02
|
|
|
|
2,060
|
|
|
$
|
40.91
|
|
|
|
2,656
|
|
|
$
|
44.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value of
options granted during the period
|
|
|
|
|
|
$
|
4.16
|
|
|
|
|
|
|
$
|
3.47
|
|
|
|
|
|
|
$
|
3.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
The following table summarizes stock options outstanding under
the plan as of December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
Exercisable
|
|
|
|
|
Range of
|
|
Options
|
|
|
Contractual
|
|
|
Weighted-Average
|
|
|
Options
|
|
|
Weighted-Average
|
|
Exercise Prices
|
|
(000s)
|
|
|
Life in Years
|
|
|
Exercise Price
|
|
|
(000s)
|
|
|
Exercise Price
|
|
|
$ 1.50-$ 1.50
|
|
|
208
|
|
|
|
7.81
|
|
|
$
|
1.50
|
|
|
|
109
|
|
|
$
|
1.50
|
|
2.16- 2.16
|
|
|
809
|
|
|
|
7.93
|
|
|
|
2.16
|
|
|
|
409
|
|
|
|
2.16
|
|
2.36- 7.92
|
|
|
2,144
|
|
|
|
8.74
|
|
|
|
4.16
|
|
|
|
515
|
|
|
|
5.59
|
|
8.50- 11.25
|
|
|
5
|
|
|
|
3.92
|
|
|
|
10.16
|
|
|
|
4
|
|
|
|
10.09
|
|
12.50- 31.93
|
|
|
180
|
|
|
|
5.02
|
|
|
|
23.25
|
|
|
|
162
|
|
|
|
23.72
|
|
35.01- 35.01
|
|
|
278
|
|
|
|
6.91
|
|
|
|
35.01
|
|
|
|
267
|
|
|
|
35.01
|
|
35.25- 60.00
|
|
|
604
|
|
|
|
4.45
|
|
|
|
56.91
|
|
|
|
604
|
|
|
|
56.91
|
|
66.51- 66.56
|
|
|
588
|
|
|
|
6.40
|
|
|
|
66.51
|
|
|
|
528
|
|
|
|
66.51
|
|
80.09- 87.19
|
|
|
15
|
|
|
|
6.01
|
|
|
|
87.18
|
|
|
|
15
|
|
|
|
87.18
|
|
121.94- 448.31
|
|
|
45
|
|
|
|
5.14
|
|
|
|
161.54
|
|
|
|
43
|
|
|
|
160.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,876
|
|
|
|
6.23
|
|
|
$
|
21.93
|
|
|
|
2,656
|
|
|
$
|
44.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company grants options outside of the Companys stock
option plan. The terms of these options are generally identical
to those granted under the Companys plan. A summary of
options outside of the plan is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
|
Options
|
|
|
Weighted-Average
|
|
|
Options
|
|
|
Weighted-Average
|
|
|
Options
|
|
|
Weighted-Average
|
|
Fixed Options
|
|
(000s)
|
|
|
Exercise Price
|
|
|
(000s)
|
|
|
Exercise Price
|
|
|
(000s)
|
|
|
Exercise Price
|
|
|
Outstanding at beginning of period
|
|
|
975
|
|
|
$
|
78.26
|
|
|
|
2,471
|
|
|
$
|
17.61
|
|
|
|
1,614
|
|
|
$
|
15.96
|
|
Granted
|
|
|
2,123
|
|
|
|
2.26
|
|
|
|
178
|
|
|
|
5.17
|
|
|
|
71
|
|
|
|
7.07
|
|
Exercised
|
|
|
(9
|
)
|
|
|
7.50
|
|
|
|
(198
|
)
|
|
|
1.54
|
|
|
|
(210
|
)
|
|
|
1.70
|
|
Forfeited
|
|
|
(618
|
)
|
|
|
56.94
|
|
|
|
(837
|
)
|
|
|
21.59
|
|
|
|
(324
|
)
|
|
|
17.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
2,471
|
|
|
$
|
18.49
|
|
|
|
1,614
|
|
|
$
|
15.96
|
|
|
|
1,151
|
|
|
$
|
17.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of
period
|
|
|
4,582
|
|
|
$
|
59.49
|
|
|
|
6092
|
|
|
$
|
31.88
|
|
|
|
647
|
|
|
$
|
28.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value of
options granted during the period
|
|
|
|
|
|
$
|
1.96
|
|
|
|
|
|
|
$
|
3.77
|
|
|
|
|
|
|
$
|
7.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
The following table summarizes stock options, granted outside
the plan, outstanding as of December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
Exercisable
|
|
|
|
|
Range of
|
|
Options
|
|
|
Contractual
|
|
|
Weighted-Average
|
|
|
Options
|
|
|
Weighted-Average
|
|
Exercise Prices
|
|
(000s)
|
|
|
Life in Years
|
|
|
Exercise Price
|
|
|
(000s)
|
|
|
Exercise Price
|
|
|
$ 1.50-$ 1.50
|
|
|
717
|
|
|
|
7.81
|
|
|
$
|
1.50
|
|
|
|
334
|
|
|
$
|
1.50
|
|
2.55- 30.50
|
|
|
285
|
|
|
|
7.00
|
|
|
|
10.92
|
|
|
|
170
|
|
|
|
13.98
|
|
31.93- 116.75
|
|
|
115
|
|
|
|
5.61
|
|
|
|
64.29
|
|
|
|
110
|
|
|
|
65.54
|
|
164.25- 241.88
|
|
|
30
|
|
|
|
5.30
|
|
|
|
241.45
|
|
|
|
29
|
|
|
|
241.51
|
|
381.94- 381.94
|
|
|
4
|
|
|
|
5.09
|
|
|
|
381.94
|
|
|
|
4
|
|
|
|
381.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,151
|
|
|
|
7.31
|
|
|
|
17.69
|
|
|
|
647
|
|
|
$
|
28.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2004, the Company recorded
compensation income of $19,000 as a result of a vesting
modification of a grant to a third-party consultant common stock
in the Company. During the year ended December 31, 2003 the
Company recorded compensation expense of $342,000. This charge
was recorded as a result of granting terminated employees
continued vesting of their stock options for a period beyond
their actual termination date. The compensation charge was
calculated using the Black-Scholes model. $131,000 of the charge
is recorded in general and administrative expense, $67,000 is
recorded in sales and marketing and the remaining $144,000 is
included in restructuring charge as it related to employees
terminated under the Companys restructuring plan.
During the year ended December 31, 2002 the Company
recorded compensation expense of $846,000. This charge was
recorded as a result of granting terminated employees continued
vesting of their stock options for a period beyond their actual
termination date. The compensation charge was calculated using
the Black-Scholes model. $739,000 of the charge is recorded in
general and administrative expense and the remaining $107,000 is
included in restructuring charge as it related to employees
terminated under the Companys restructuring plan.
Note 10 Employee
Benefit Plan
The Company provides for a defined contribution employee
retirement plan in accordance with section 401(k) of the
Internal Revenue Code. Eligible employees are entitled to
contribute up to 50% of their annual compensation, subject to
certain limitations ($13,000, with an additional $3,000 catch up
for persons 50 years and older for the year ended
December 31, 2004).
Note 11 Geographic,
Segment and Significant Customer Information
The Company operates in one segment, electronic business
commerce solutions. The Companys reportable segment
includes the Companys facilities in North and South
America (Americas), Europe and Asia Pacific and the Middle East
(Asia/Pacific). The Companys chief operating decision
maker is considered to be the Companys 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.
F-30
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
The disaggregated revenue information reviewed by the CEO is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
Software licenses
|
|
$
|
40,483
|
|
|
$
|
30,230
|
|
|
$
|
26,883
|
|
Services
|
|
|
36,763
|
|
|
|
22,012
|
|
|
|
19,942
|
|
Maintenance
|
|
|
38,652
|
|
|
|
35,839
|
|
|
|
31,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
115,898
|
|
|
$
|
88,081
|
|
|
$
|
78,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company sells its products and provides services worldwide
through a direct sales force and through a channel of
independent distributors, value-added resellers
(VARs) and application service providers
(ASPs). In addition, the sales of the Companys
products are promoted through independent professional
consulting organizations known as systems integrators. The
Company provides services worldwide through its BroadVision
Global Services Organization and indirectly through
distributors, VARs, ASPs, and systems integrators. The Company
currently operates in three primary geographical territories,
Americas, Europe and Asia/Pacific.
Disaggregated financial information regarding the Companys
products and services and geographic revenues is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
70,125
|
|
|
$
|
45,135
|
|
|
$
|
37,278
|
|
Europe
|
|
|
39,511
|
|
|
|
35,458
|
|
|
|
33,321
|
|
Asia/Pacific
|
|
|
6,262
|
|
|
|
7,488
|
|
|
|
7,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company
|
|
$
|
115,898
|
|
|
$
|
88,081
|
|
|
$
|
78,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2004, 2003 and 2002, no
customer accounted for 10% or more of the Companys
revenues.
The following represents long-lived assets by geographic region
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
73,016
|
|
|
$
|
60,312
|
|
Europe
|
|
|
537
|
|
|
|
531
|
|
Asia/Pacific
|
|
|
636
|
|
|
|
527
|
|
|
|
|
|
|
|
|
|
|
Total Company
|
|
$
|
74,189
|
|
|
$
|
61,370
|
|
|
|
|
|
|
|
|
|
|
F-31
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
Note 12 Subsequent
Events
On January 7, 2005, the Company reached agreement with the
U.S. Securities and Exchange Commission to settle
administrative proceedings in connection with the Companys
restatement of its financial results for the third quarter of
fiscal 2001. There were no fines or financial penalties
associated with the settlement. Without admitting or denying any
wrongdoing, BroadVision consented to the Commissions entry
of an administrative order that included findings that the
Company issued a false and misleading earnings press release and
misleading quarterly report. The order requires that the Company
cease and desist from committing or causing violations of
specified provisions of the federal securities laws. The SEC
found that a former executive in charge of professional services
who left the Company in 2002 was responsible for the improper
accounting. The restatement concerned revenue related to one
software license agreement. Following receipt of payment in full
by the customer, the Company recognized revenue on that
agreement in its entirety in the third quarter of 2001. The
Company subsequently determined that the revenue should instead
be recognized ratably over the four-year life of the agreement,
and announced on April 1, 2002 that it was restating its
financial statements for the third quarter of 2001 to effect
this change. The Company has been accounting for the revenue
ratably in all periods since the third quarter of 2001.
On June 10, 2004, Metropolitan Life Insurance Company
(MetLife) filed a complaint in the Superior Court of
the State of California, County of Los Angeles, naming the
Company as a defendant. The complaint alleged that the Company
was liable for unlawful detainer of premises leased from the
plaintiff. The plaintiff thereafter filed a First Amended
Complaint alleging that the Company no longer held possession of
the premises but was in breach of the lease. On
February 10, 2005, the Company announced that MetLife and
the Company reached agreement and executed documents regarding a
settlement of the pending lawsuit under which the Company will
pay MetLife an aggregate of $1,927,500 in consideration for
termination of the lease, dismissal of the lawsuit and in full
settlement of approximately $3.1 million of past and future
lease obligations. The first of three installment payments was
made in February 2005, with the second due in May 2005 and the
third due in September 2005. This settlement is not expected to
have a significant impact on our Consolidated Results of
Operations in the quarter ending March 31, 2005.
F-32
BROADVISION,
INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except
|
|
|
|
per share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
41,851
|
|
|
$
|
6,066
|
|
Accounts receivable, less
receivable reserves of $1,409 as of December 31, 2004 and
$1,090 as of September 30, 2005
|
|
|
14,370
|
|
|
|
10,576
|
|
Restricted cash, current portion
|
|
|
21,933
|
|
|
|
|
|
Prepaids and other
|
|
|
2,232
|
|
|
|
1,879
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
80,386
|
|
|
|
18,521
|
|
Property and equipment, net
|
|
|
3,566
|
|
|
|
2,612
|
|
Restricted cash, net of current
portion
|
|
|
2,323
|
|
|
|
1,997
|
|
Equity investments
|
|
|
574
|
|
|
|
|
|
Goodwill
|
|
|
56,434
|
|
|
|
43,236
|
|
Other assets
|
|
|
1,370
|
|
|
|
1,077
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
144,653
|
|
|
$
|
67,443
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Bank borrowings and current
portion of long-term debt
|
|
$
|
25,566
|
|
|
$
|
11,768
|
|
Accounts payable
|
|
|
7,470
|
|
|
|
4,561
|
|
Accrued expenses
|
|
|
40,745
|
|
|
|
16,168
|
|
Warrant liability
|
|
|
4,899
|
|
|
|
687
|
|
Unearned revenue
|
|
|
3,870
|
|
|
|
3,043
|
|
Deferred maintenance
|
|
|
15,972
|
|
|
|
12,454
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
98,522
|
|
|
|
48,681
|
|
Long-term debt, net of current
portion
|
|
|
7,443
|
|
|
|
|
|
Other non-current liabilities
|
|
|
8,278
|
|
|
|
2,282
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
114,243
|
|
|
|
50,963
|
|
Commitments and contingencies
(Note 4)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Convertible preferred stock,
$0.0001 par value; 10,000 shares authorized; none
issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par
value; 2,000,000 shares authorized; 33,951 shares
issued and outstanding as of December 31, 2004 and
34,429 shares issued and outstanding as of
September 30, 2005
|
|
|
3
|
|
|
|
3
|
|
Additional paid-in capital
|
|
|
1,214,619
|
|
|
|
1,215,217
|
|
Accumulated other comprehensive
income (loss)
|
|
|
(172
|
)
|
|
|
(168
|
)
|
Accumulated deficit
|
|
|
(1,184,040
|
)
|
|
|
(1,198,572
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
30,410
|
|
|
|
16,480
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
144,653
|
|
|
$
|
67,443
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Condensed Consolidated Financial
Statements
F-33
BROADVISION,
INC. AND SUBSIDIARIES
AND
COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2004
|
|
|
2005
|
|
|
|
(In thousands, except per share
data; unaudited)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses
|
|
$
|
4,654
|
|
|
$
|
3,134
|
|
|
$
|
19,591
|
|
|
$
|
10,941
|
|
Services
|
|
|
12,570
|
|
|
|
10,943
|
|
|
|
38,650
|
|
|
|
35,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
17,224
|
|
|
|
14,077
|
|
|
|
58,241
|
|
|
|
45,958
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of software licenses
|
|
|
256
|
|
|
|
106
|
|
|
|
1,147
|
|
|
|
(137
|
)
|
Cost of services
|
|
|
6,391
|
|
|
|
5,641
|
|
|
|
18,970
|
|
|
|
17,235
|
|
Total cost of revenues
|
|
|
6,647
|
|
|
|
5,747
|
|
|
|
20,117
|
|
|
|
17,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
10,577
|
|
|
|
8,330
|
|
|
|
38,124
|
|
|
|
28,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
4,600
|
|
|
|
3,095
|
|
|
|
13,997
|
|
|
|
11,337
|
|
Sales and marketing
|
|
|
6,020
|
|
|
|
2,948
|
|
|
|
20,365
|
|
|
|
13,819
|
|
General and administrative
|
|
|
2,335
|
|
|
|
2,162
|
|
|
|
7,152
|
|
|
|
7,526
|
|
Business combination costs
|
|
|
|
|
|
|
977
|
|
|
|
|
|
|
|
977
|
|
Restructuring charge (credit)
|
|
|
(25,454
|
)
|
|
|
245
|
|
|
|
(24,205
|
)
|
|
|
(150
|
)
|
Goodwill impairment
|
|
|
|
|
|
|
13,198
|
|
|
|
|
|
|
|
13,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses (benefit)
|
|
|
(12,499
|
)
|
|
|
22,625
|
|
|
|
17,309
|
|
|
|
46,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
23,076
|
|
|
|
(14,295
|
)
|
|
|
20,815
|
|
|
|
(17,847
|
)
|
Interest (expense) income, net
|
|
|
77
|
|
|
|
(1,002
|
)
|
|
|
288
|
|
|
|
(2,836
|
)
|
Other income, net
|
|
|
238
|
|
|
|
220
|
|
|
|
59
|
|
|
|
3,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for
income taxes
|
|
|
23,391
|
|
|
|
(15,077
|
)
|
|
|
21,162
|
|
|
|
(17,035
|
)
|
Benefit (provision) for income
taxes
|
|
|
(11
|
)
|
|
|
540
|
|
|
|
(141
|
)
|
|
|
2,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
23,380
|
|
|
$
|
(14,537
|
)
|
|
$
|
21,021
|
|
|
$
|
(14,532
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share
|
|
$
|
0.70
|
|
|
$
|
(0.42
|
)
|
|
$
|
0.63
|
|
|
$
|
(0.43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share
|
|
$
|
0.69
|
|
|
$
|
(0.42
|
)
|
|
$
|
0.61
|
|
|
$
|
(0.43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share
|
|
|
33,599
|
|
|
|
34,320
|
|
|
|
33,459
|
|
|
|
34,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share
|
|
|
34,052
|
|
|
|
34,320
|
|
|
|
34,322
|
|
|
|
34,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
23,380
|
|
|
$
|
(14,537
|
)
|
|
$
|
21,021
|
|
|
$
|
(14,532
|
)
|
Other comprehensive gain (loss),
net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized investment gains less
reclassification adjustment for gains included in net income
(loss)
|
|
|
188
|
|
|
|
|
|
|
|
238
|
|
|
|
|
|
Foreign currency translation
adjustment
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
23,568
|
|
|
$
|
(14,556
|
)
|
|
$
|
21,259
|
|
|
$
|
(14,528
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Condensed Consolidated Financial
Statements
F-34
BROADVISION,
INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
|
(In thousands;
unaudited)
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
21,021
|
|
|
$
|
(14,532
|
)
|
Adjustments to reconcile net income
(loss) to net cash used for operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,129
|
|
|
|
973
|
|
Stock-based compensation credit
|
|
|
(15
|
)
|
|
|
|
|
Release of doubtful accounts and
reserves
|
|
|
(1,722
|
)
|
|
|
(319
|
)
|
Amortization of prepaid royalties
|
|
|
494
|
|
|
|
54
|
|
Unrealized loss on investments
|
|
|
50
|
|
|
|
|
|
(Gain) loss on cost method
investments
|
|
|
517
|
|
|
|
(1,117
|
)
|
Loss (gain) on sale or abandonment
of fixed assets
|
|
|
(96
|
)
|
|
|
78
|
|
Non-cash restructuring charge
(reversal)
|
|
|
(24,855
|
)
|
|
|
|
|
Release of income tax accrual
|
|
|
|
|
|
|
(2,032
|
)
|
(Gain) loss on revaluation of
warrants
|
|
|
272
|
|
|
|
(4,212
|
)
|
Amortization of discount on
convertible notes
|
|
|
|
|
|
|
2,382
|
|
Amortization of goodwill
|
|
|
|
|
|
|
13,198
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
5,002
|
|
|
|
4,113
|
|
Prepaids and other
|
|
|
754
|
|
|
|
299
|
|
Other non-current assets
|
|
|
735
|
|
|
|
293
|
|
Accounts payable and accrued
expenses
|
|
|
1,128
|
|
|
|
(5,220
|
)
|
Restructuring accrual
|
|
|
(38,969
|
)
|
|
|
(24,215
|
)
|
Unearned revenue and deferred
maintenance
|
|
|
(6,105
|
)
|
|
|
(4,345
|
)
|
Other noncurrent liabilities
|
|
|
(184
|
)
|
|
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used for operating
activities
|
|
|
(38,844
|
)
|
|
|
(34,682
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(489
|
)
|
|
|
(132
|
)
|
Transfer from (to) restricted cash
|
|
|
(1,132
|
)
|
|
|
20,324
|
|
Purchase of long-term investments
|
|
|
(100
|
)
|
|
|
|
|
Proceeds from sale of cost method
investments
|
|
|
574
|
|
|
|
590
|
|
Proceeds from dividends
|
|
|
277
|
|
|
|
1,101
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
investing activities
|
|
|
(870
|
)
|
|
|
21,883
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
Proceeds from bank line of credit,
term debt, and convertible notes
|
|
|
69,076
|
|
|
|
35,000
|
|
Repayments of bank line of credit,
term debt, and convertible notes
|
|
|
(81,744
|
)
|
|
|
(58,623
|
)
|
Proceeds from issuance of common
stock, net
|
|
|
1,561
|
|
|
|
598
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
financing activities
|
|
|
(11,107
|
)
|
|
|
(23,025
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
and cash equivalents
|
|
|
189
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash
equivalents
|
|
|
(50,632
|
)
|
|
|
(35,785
|
)
|
Cash and cash equivalents at
beginning of period
|
|
|
78,776
|
|
|
|
41,851
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
period
|
|
$
|
28,144
|
|
|
$
|
6,066
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash
flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
87
|
|
|
$
|
663
|
|
|
|
|
|
|
|
|
|
|
Cash paid (refunds received) for
income taxes
|
|
$
|
227
|
|
|
$
|
(547
|
)
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Condensed Consolidated Financial
Statements
F-35
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
(All Quarterly Data Herein is Unaudited)
|
|
Note 1.
|
Organization
and Summary of Significant Accounting Policies
|
Nature
of Business
BroadVision, Inc. (collectively with its subsidiaries, the
Company) was incorporated in the state of Delaware
in May 1993 and has been a publicly traded corporation since
1996. BroadVision solutions help customers rapidly increase
revenues and reduce costs by moving interactions and
transactions to personalized self-service via the web. Our
integrated self-service application
suite including process, commerce, portal and
content offers rich functionality out of the
box, and is easily configured for each customers
e-business
environment.
Over 1,000 customers including U.S. Air
Force, Lockheed Martin, Netikos, Circuit City, Iberia L.A.E. and
Vodafone have licensed BroadVision solutions to
power and personalize their mission-critical web initiatives.
Merger
Agreement
In July 2005, the Company entered into an Agreement and Plan of
Merger (the Merger Agreement) with Bravo Holdco
(Bravo Holdco), an exempted company with limited
liability incorporated under the laws of the Cayman Islands and
wholly owned subsidiary of Vector Capital Corporation
(Vector), and Bravo Merger Sub, LLC, a newly formed
Delaware limited liability company and wholly owned subsidiary
of Bravo Holdco (Merger Sub), pursuant to which,
subject to satisfaction or waiver of the conditions therein, it
is intended that the Company will merge with and into Merger
Sub, and the Companys separate corporate existence will
thereupon cease. Under the terms of the Merger Agreement, the
holders of shares of the Companys common stock (other than
stockholders who exercise appraisal rights under Delaware law)
that are outstanding immediately prior to the consummation of
the Merger will receive $0.84 in cash for each share of common
stock at the time of the consummation of the Merger (the
Effective Time).
The consummation of the Merger is conditioned upon, among other
things, the adoption of the Merger Agreement by the holders of a
majority of the outstanding shares of the Companys common
stock and other closing conditions. A proxy card and proxy
statement describing the terms of the Merger Agreement were
mailed in September 2005 to stockholders of record as of
September 16, 2005. Such materials included the board of
directors recommendation FOR the approval of the Merger
Agreement. As of November 11, 2005, approximately
13.0 million shares had been voted in favor of the
transaction, which is over 92% of the total shares voted but
less than the nearly 17.2 million shares required to
achieve a quorum to hold the meeting and approve the
transaction. On November 11, 2005, in order to extend the
period during which stockholders may submit proxies, the Company
adjourned its special stockholder meeting until
December 21, 2005. Previously, the Company had adjourned
its special stockholder meeting from October 12, 2005
successively to October 26, 2005, November 4, 2005 and
November 11, 2005.
There can be no assurance that a sufficient number of
stockholder votes will be received in the time periods required
under the Merger Agreement in order to approve the transaction
or that the transaction otherwise will be completed. On
November 3, 2005, Vector and Bravo Holdco filed a second
amended statement to their Schedule 13D filed with the
Securities and Exchange Commission (the SEC) on
August 4, 2005, in which Bravo Holdco stated its belief
that 1) certain conditions to the closing of the Merger
would not and cannot be satisfied, 2) Bravo Holdco has the
right to terminate the Merger Agreement, 3) Bravo Holdco
would have no obligation under the Merger Agreement to proceed
with the Merger even if the Merger is approved by the
Companys stockholders and 4) Bravo Holdco does not
intend as of the date of such filing to waive any of the
conditions to the closing of the Merger. The Company disagrees
that any conditions to closing would not and cannot be
satisfied, and believes that the parties to the Merger Agreement
would be obligated to complete the Merger if it is approved by
the Companys stockholders. Following the October 12,
2005 special stockholder meeting at which a quorum was not
present, the Company and Vector also engaged in negotiations
regarding a potential alternative transaction pursuant to which
the Company would file for protection under Chapter 11 of
the Bankruptcy Code, and Bravo Holdco would acquire
F-36
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
certain assets and assume certain liabilities of the Company in
a transaction pursuant to Section 363 of the Bankruptcy
Code, in which case it would not be necessary to obtain the
approval of the Companys stockholders to complete the
transaction. However, these negotiations did not lead to any
agreement, and all proposals for such a transaction made by
Vector would have resulted in the Companys stockholders
receiving an amount, if any, that is significantly less than the
$0.84 per share in cash provided for in the Merger
Agreement. The Company terminated these discussions on
November 9, 2005 and continues to believe that the Merger
remains the best available outcome for all of its stakeholders.
The Company also believes that, if the Merger is not completed,
the Company will likely become insolvent, unless its obligations
under the Notes discussed below or other significant financial
obligations are significantly restructured. For additional
information about the Companys liquidity situation, see
the sections entitled Convertible
Note Agreements and Liquidity below.
Convertible
Note Agreements
In November 2004, the Company entered into a definitive
agreement for the private placement of up to $20.0 million
of convertible notes to five institutional investors (the
Securities Purchase Agreement). Under the terms of
the Securities Purchase Agreement, the Company issued an initial
$16.0 million of convertible notes (the Notes)
which are convertible, at the holders option, into common
stock at a conversion price of $2.76 per share. The Notes
bear 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, which began in June 2005.
Under the terms of the Notes, the holders have the right to
increase the Companys monthly principal repayment
obligation to $2.1 million as of December 2005 due to our
cash balances falling below certain defined levels as of
September 30, 2005. This increase, if invoked, would have
the effect of requiring us to repay the principal amount in
eight installments through June 2006. Certain principal payments
that were due in the quarter ended September 30, 2005, have
been deferred at the election of the investors for a period of
eighteen months under the terms of the notes. Payments of future
principal and interest may be made in either cash or, upon
satisfaction of various conditions set forth in the notes,
shares of our common stock. However, we currently have not
satisfied the conditions required to make payments in stock, and
we anticipate having to use cash to satisfy our future payment
obligations under the Notes.
On July 25, 2005, the Company entered into an agreement
with certain of the holders of its Notes regarding the treatment
in connection with the Merger of the convertible notes and
warrants issued to the noteholders under the Securities Purchase
Agreement (the July Noteholder Agreement). Under the
terms of the July Noteholder Agreement, all principal and
accrued interest on the notes that is outstanding at the
Effective Time of the Merger, together with certain other
amounts payable to the noteholders, will be repaid within one
business day following the Effective Time of the Merger and the
notes and warrants will be extinguished. Subject to our
performance of our obligations under the July Noteholder
Agreement, the noteholders have consented to the completion of
the Merger.
In October 2005, the Company inadvertently did not make timely
payment of the third quarter interest payment due under the
Notes of approximately $201,000 that was due on October 1,
2005. Lack of timely payment became an event of default on
October 8, 2005 after non-payment continued for a period of
over five business days. The Company made the third quarter
interest payment promptly after discovery of the nonpayment, on
October 14, 2005. The event of default permits each
noteholder to require the Company to redeem 120% of all or any
portion of the amounts outstanding under the applicable Note by
delivering notice of such redemption to the Company, which
redemption is required under the Notes to be paid within five
business days after receipt of such redemption notice. If all of
the noteholders elect such redemption, the Company will be
obligated to pay within five business days after receipt of such
election approximately $15.5 million in unpaid principal
and interest. The accelerated repayment of all or any
significant portion of such amount would leave the Company with
insufficient working capital to conduct its business, and the
Company does not presently have sufficient cash to meet such an
accelerated repayment obligation.
On October 25, 2005, the Company entered into an agreement
with the noteholders under which the noteholders agreed not to
require redemption of the Notes, including the 20% premium
payable thereunder, prior to November 16, 2005.
F-37
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On October 29, 2005, Vector informed the Company that
Vector Capital III, L.P. (Vector III), an
entity affiliated with Vector, had entered into transfer
agreements with the noteholders pursuant to which
Vector III agreed to acquire all of the issued and
outstanding Notes. However, the Company believes that, under the
terms of the July Noteholder Agreement, the noteholders are
required to obtain its consent, not to be unreasonably withheld,
prior to any transfer of the Notes. The Company has declined to
provide its consent to date and at this time does not intend to
provide its consent, which it believes is reasonable under the
circumstances. Both Vector and the noteholders have disputed
whether the Companys consent is required in connection
with the purported transfer of the Notes and questioned the
reasonableness of the Companys refusal to consent, and
these disputes are unresolved.
On November 8, 2005, counsel for the noteholders delivered
to the Company a letter purporting to terminate the July
Noteholder Agreement based on the Companys alleged
breaches of material representations, warranties or covenants by
reason of the October 8, 2005 event of default and the
Companys refusal to consent to the transfer of the Notes
to Vector III. Based on such purported termination, the
noteholders assert that the Companys consent to the
transfer of the Notes from the noteholders to Vector III is
not required and the other provisions of the July Noteholder
Agreement are no longer effective. The noteholders letter
also asserts that the Companys refusal to consent to the
transfer is a breach of the October 25, 2005 agreement with
the noteholders and entitles the noteholders to recover from the
Company their attorneys fees in connection with the
alleged breaches. On November 9, 2005, Vector III
notified us that it had completed its purchase of the Notes.
On November 9, 2005, the Companys Chief Executive
Officer and largest stockholder, Pehong Chen, advised the
Company that he had offered to purchase the Notes from
Vector III for a price equal to its cost plus an amount
necessary to defray its reasonable expenses in connection with
the purchase and sale of the Notes. Dr. Chen has also
advised the Companys Board of Directors that, if he
becomes the owner of the Notes, he will negotiate in good faith
with the Company to restructure the Notes so as to relieve the
Company of any short-term liquidity threat. Pursuant to the July
Noteholder Agreement, the Companys Board of Directors has
consented to the acquisition of the Notes by Dr. Chen. To
the Companys knowledge, Vector III has not accepted
Dr. Chens offer to purchase the Notes, and there can
be no assurance that Dr. Chen will acquire the Notes or
that the Companys obligations under the Notes will be
restructured.
Stockholder
Class-Action
Complaints
On July 28, 2005, representatives of the Company received
copies of four complaints relating to purported class action
lawsuits, each filed by an alleged holder of shares of our
common stock and each filed in California Superior Court for the
county of San Mateo. These complaints are captioned Gary
Goberville, et al., vs. Pehong Chen, et al., Civ
448490, Cookie Schwartz, et al., vs. BroadVision, Inc.,
et al., Civ 448516, Leon Kotovich, et al., vs.
BroadVision, Inc., et al., Civ 448518 and Anthony
Noblett, et al., vs. BroadVision, Inc., et al.,
Civ 448519. Each claim names the Companys directors and
BroadVision, Inc. as defendants, and each alleges that the
director defendants violated their fiduciary duties to
stockholders by, among other things, failing to maximize the
Companys value and ignoring, or failing to adequately
protect against, certain purported conflicts of interest. Each
complaint seeks, among other things, injunctive relief and
damages in an unspecified amount. On September 21,
plaintiff Goberville filed an amended complaint alleging that
defendants caused materially misleading information regarding a
proposed merger to be disseminated to the Companys
stockholders. On October 20, 2005, the Court ordered
consolidation of the four pending actions pursuant to the
parties stipulation. In accordance with the Courts
order, plaintiffs consolidated amended complaint must be
filed and served no later than December 5, 2005. In
addition, defendants must complete by December 5, 2005,
their production of relevant documents responsive to the first
request for production of documents that were served on
defendants by plaintiff Kotovich on August 9, 2005 and
plaintiff Goberville on August 31, 2005.
Liquidity
Due to a combination of factors, the Company currently is
experiencing severe liquidity challenges and believes that its
available cash resources will be insufficient to meet its
payment obligations by some point in the fourth quarter of 2005
unless its obligations under the Notes discussed above or other
significant financial
F-38
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
obligations are significantly restructured. The factors
contributing to this belief include
lower-than-anticipated
revenues in 2005, costs associated with the Merger and cash
payment requirements under the Notes, which will be subject to
potential demand for payment in full by the holder(s) thereof on
and after November 16, 2005. If the Companys cash
resources become insufficient to meet its obligations as they
become due, which they will if repayment of any significant
portion of the Notes is demanded and may even in the absence of
such a demand, its business and future prospects would be
seriously harmed and its ability to operate the business as a
going concern and complete the merger would be seriously
jeopardized. The Merger is subject to numerous conditions,
including the approval of the Companys stockholders, that
could considerably delay or even prevent its completion, and
there is no assurance that the Company will be able to obtain
additional financing under its existing bank credit facility or
otherwise. The requirements the Company must meet in order to
obtain financing under its bank credit facility became more
stringent as of July 2005. The Company was unable to meet such
requirements as of September 30, 2005, and it presently
anticipates being unable to meet the requirements for the
foreseeable future. In order to obtain financing from any other
source, the Company would be required to obtain the approval of
both the Vector portfolio company with which it has agreed to
merge (provided that the Merger Agreement remains in full force
and effect) and the holder(s) of the Notes. There can be no
assurance that the Companys obligations under the Notes or
other significant financial obligations will be restructured.
If the Merger is not consummated, the Company will be required
to raise additional funds, and it may be unable to do so on
acceptable terms or at all. Its ability to obtain debt or equity
funding would depend on a number of factors, including
restrictive covenants contained in its current convertible note
agreement and credit facilities, market conditions, its
operating performance and investor interest. If adequate
additional funding were not available, the Company would have
insufficient working capital to continue executing its current
business plan. Even if additional funding were available, the
Companys indebtedness and debt service obligations could
continue to increase its vulnerability to general adverse
economic and industry conditions, limit its flexibility in
planning for, or reacting to, changes in its business and the
industry in which it competes, and place it at a competitive
disadvantage to less leveraged competitors and those with better
access to capital resources.
Basis
of Presentation Going Concern
Uncertainty
The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities in the
normal course of business. The Company is currently experiencing
severe liquidity challenges. At September 30, 2005, the
Companys current liabilities exceed its current assets by
approximately $30 million (negative working capital)
resulting in a working capital ratio of less than 0.4 to 1.0.
The Company currently does not have any additional financing
arrangement in place from which to borrow additional funds as
may be required to meet its near term cash requirements.
Further, due to the event of default which occurred on
October 8, 2005 relative to the convertible notes and the
subsequent agreement entered into on October 25, 2005 with
the convertible noteholders, the noteholders can demand payment
in full on the approximate $15.5 million outstanding note
balance and interest on or after November 16, 2005. If this
were to occur, and if the Company was not able to obtain
financing sufficient to fully repay the notes upon such demand,
the Company would be forced to seek protection under the
bankruptcy laws. These matters raise substantial doubt about the
ability of the Company to continue in existence as a going
concern. The Company is seeking to obtain financing from its
Chief Executive Officer and largest shareholder in order to
fully repay the Notes. The Companys ability to continue as
a going concern is dependent upon the Companys ability to
obtain sufficient financing to fully repay the Notes on
favorable terms, obtain additional financing as may be required
to meet any short term cash requirements, and ultimately to
achieve profitable operations. No adjustments to the carrying
values or classification of the assets and liabilities in the
accompanying financial statements have been made to take account
of this uncertainty.
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany transactions have been eliminated in
consolidation. In the Companys opinion, the consolidated
financial statements presented herein include all necessary
adjustments, consisting of normal recurring adjustments, to
fairly state the Companys financial position, results of
operations
F-39
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and cash flows for the periods indicated. The preparation of
consolidated financial statements in conformity with generally
accepted accounting principles in the United States of America
requires management to make certain assumptions and estimates
that affect reported amounts of assets and liabilities as of the
date of the financial statements and the reported amount of
revenues and expenses during the reporting period. Actual
results could differ from estimates. The financial results and
related information as of September 30, 2005 and for the
three and nine months ended September 30, 2004 and 2005 are
unaudited. The condensed consolidated balance sheet at
December 31, 2004 has been derived from the audited
consolidated financial statements as of that date but does not
necessarily reflect all of the informational disclosures
previously reported in accordance with generally accepted
accounting principles in the United States of America.
The accompanying condensed consolidated financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto included with the Companys
Form 10-K
and other documents that have been filed with the SEC. The
results of the Companys operations for the interim periods
presented are not necessarily indicative of operating results
for the full fiscal year or any future periods.
Revenue
Recognition
Overview
The Companys revenue consists of fees for licenses of the
Companys software products, maintenance, consulting
services and customer training. The Company generally charges
fees for licenses of its software products either based on the
number of persons registered to use the product or based on the
number of Central Processing Units (CPUs) on the
machine on which the product is installed. Licenses for software
whereby fees charged are based upon the number of persons
registered to use the product are differentiated between
licenses for development use and licenses for use in deployment
of the customers website. Licenses for software whereby
fees charged are on a per-CPU basis do not differentiate between
development and deployment usage. The Companys revenue
recognition policies are in accordance with Statement of
Position (SOP) 97-2, as amended,
SOP 98-9
and the SECs Staff Accounting Bulletin (SAB)
No. 101, Revenue Recognition in Financial Statements
(SAB 101).
Software
License Revenue
The Company licenses its products through its direct sales force
and indirectly through resellers. In general, software license
revenues are recognized when a non-cancelable license agreement
has been signed and the customer acknowledges an unconditional
obligation to pay, the software product has been delivered,
there are no uncertainties surrounding product acceptance, the
fees are fixed and determinable and collection is considered
probable. Delivery is considered to have occurred when title and
risk of loss have been transferred to the customer, which
generally occurs when media containing the licensed programs is
provided to a common carrier. In case of electronic delivery,
delivery occurs when the customer is given access to the
licensed programs. For products that cannot be used without a
licensing key, the delivery requirement is met when the
licensing key is made available to the customer. If
collectibility is not considered probable, revenue is recognized
when the fee is collected. Subscription-based license revenues
are recognized ratably over the subscription period. The Company
enters into reseller arrangements that typically provide for
sublicense fees payable to the Company based upon a percentage
of list price. The Company does not grant its resellers the
right of return.
The Company recognizes revenue using the residual method
pursuant to the requirements of
SOP 97-2,
as amended by
SOP 98-9.
Revenues recognized from multiple-element software arrangements
are allocated to each element of the arrangement based on the
fair values of the elements, such as licenses for software
products, maintenance, consulting services or customer training.
The determination of fair value is based on objective evidence,
which is specific to the Company. The Company limits its
assessment of objective evidence for each element to either the
price charged when the same element is sold separately or the
price established by management having the relevant authority to
do so, for an element not yet sold separately. If evidence of
fair value of all undelivered elements exists but evidence does
not exist for one or more delivered elements, then revenue
F-40
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
is recognized using the residual method. Under the residual
method, the fair value of the undelivered elements is deferred
and the remaining portion of the arrangement fee is recognized
as revenue.
The Company records unearned revenue for software license
agreements when cash has been received from the customer and the
agreement does not qualify for revenue recognition under the
Companys revenue recognition policy. The Company records
accounts receivable for software license agreements when the
agreement qualifies for revenue recognition but cash or other
consideration has not been received from the customer.
Services
Revenue
Consulting services revenues and customer training revenues are
recognized as such services are performed. Maintenance revenues,
which include revenues bundled with software license agreements
that entitle the customers to technical support and future
unspecified enhancements to the Companys products, are
deferred and recognized ratably over the related agreement
period, generally twelve months. The Companys consulting
services, which consist of consulting, maintenance and training,
are delivered through the BroadVision Global Services
(BVGS) organization. Services that the Company
provides are not essential to the functionality of the software.
The Company records reimbursement from its customers for
out-of-pocket
expenses as an increase to services revenues.
Employee
Stock Option and Purchase Plans
The Company accounts for employee stock-based awards in
accordance with the provisions of Accounting Principles Board
(APB) Opinion 25 (APB 25),
Financial Accounting Standards Board (FASB)
Interpretation No. 44 (FIN 44),
Accounting for Certain Transactions Involving Stock
Compensation an Interpretation of APB Opinion
25 and related interpretations. As such, compensation
expense is recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise
price. Pursuant to Statement of Financial Accounting Standards
(SFAS) 123, the Company discloses the pro forma
effects of using the fair value method of accounting for
stock-based compensation arrangements. The Company accounts for
equity instruments issued to non-employees in accordance with
the provisions of SFAS 123 and Emerging Issues Task Force
(EITF) 96-18, Accounting for Equity Instruments
That Are Issued to Other Than Employees For Acquiring or in
Conjunction with Selling Goods or Services.
The Company applies APB 25 and related interpretations when
accounting for its stock option and stock purchase plans. In
accordance with APB 25, we apply the intrinsic value method
in accounting for employee stock options.
Accordingly, the Company generally recognizes no compensation
expense with respect to stock-based awards to employees.
During the nine months ended September 30, 2004, the
Company recorded a stock-based compensation credit of $15,000.
This credit was recorded as a result of granting a third party
consultant shares of our common stock. The credit, which was
calculated using the Black-Scholes model, was recorded as a
reduction of sales and marketing expense.
We have determined pro forma information regarding net income
(loss) and net income (loss) per share as if we had accounted
for employee stock options under the fair value method as
required by SFAS 123, Accounting for Stock
Compensation. The fair value of these stock-based awards to
employees was estimated using the Black-Scholes option pricing
model. Had compensation cost for our stock option plan and
employee stock purchase plan
F-41
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
been determined consistent with SFAS 123, our reported net
income (loss) and net income (loss) per share would have been
changed to the amounts indicated below (in thousands except per
share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2004
|
|
|
2005
|
|
|
Net income (loss), as reported
|
|
$
|
23,380
|
|
|
$
|
(14,537
|
)
|
|
$
|
21,021
|
|
|
$
|
(14,532
|
)
|
Add: Stock-based employee
compensation (income) expense included in reported net income
(loss), net of related tax effects
|
|
|
|
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
Deduct: Total stock-based employee
compensation expense determined under fair value based method
for all awards, net of related tax effects
|
|
|
(1,256
|
)
|
|
|
(219
|
)
|
|
|
(6,020
|
)
|
|
|
(1,668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss)
|
|
$
|
22,124
|
|
|
$
|
(14,756
|
)
|
|
$
|
14,986
|
|
|
$
|
(16,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic as reported
|
|
$
|
0.70
|
|
|
$
|
(0.42
|
)
|
|
$
|
0.63
|
|
|
$
|
(0.43
|
)
|
Basic pro forma
|
|
$
|
0.66
|
|
|
$
|
(0.43
|
)
|
|
$
|
0.45
|
|
|
$
|
(0.47
|
)
|
Diluted as
reported
|
|
$
|
0.69
|
|
|
$
|
(0.42
|
)
|
|
$
|
0.61
|
|
|
$
|
(0.43
|
)
|
Diluted pro forma
|
|
$
|
0.65
|
|
|
$
|
(0.43
|
)
|
|
$
|
0.44
|
|
|
$
|
(0.47
|
)
|
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, potential common shares from the
conversion of convertible debt using the as-if converted method,
and shares subject to repurchase. The following table sets forth
the basic and diluted income (loss) per share computational data
for the periods presented.
There were potential common shares from the conversion of
outstanding convertible notes excluded in the diluted shares
outstanding during the three months and nine months ended
September 30, 2005 as the effect of such shares is
anti-dilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2004
|
|
|
2005
|
|
|
Net income (loss)
|
|
$
|
23,380
|
|
|
$
|
(14,537
|
)
|
|
$
|
21,021
|
|
|
$
|
(14,532
|
)
|
Weighted average common shares
outstanding utilized for basic net income (loss) per share
|
|
|
33,599
|
|
|
|
34,320
|
|
|
|
33,459
|
|
|
|
34,159
|
|
Potential common stock issued for
options
|
|
|
453
|
|
|
|
|
|
|
|
863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding utilized for diluted net income (loss) per share:
|
|
$
|
34,052
|
|
|
$
|
34,320
|
|
|
$
|
34,322
|
|
|
$
|
34,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
0.70
|
|
|
$
|
(0.42
|
)
|
|
$
|
0.63
|
|
|
$
|
(0.43
|
)
|
Diluted net income (loss) per share
|
|
$
|
0.69
|
|
|
$
|
(0.42
|
)
|
|
$
|
0.61
|
|
|
$
|
(0.43
|
)
|
Allowances
and Reserves
Occasionally, the Companys customers experience financial
difficulty after the Company records the revenue but before
payment has been received. The Company maintains allowances for
doubtful accounts for estimated losses resulting from the
inability of its customers to make required payments. The
Companys normal payment
F-42
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
terms are 30 to 90 days from invoice date. If the financial
condition of the Companys customers was to deteriorate,
resulting in an impairment of their ability to make payments,
additional allowances may be required.
Restructuring
Through September 30, 2005, 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:
(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:
|
|
|
|
|
For exit or disposal activities initiated on or prior to
December 31, 2002, we account for costs in accordance with
EITF Issue
No. 94-3,
Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (Including Certain
Costs Incurred in a Restructuring)
(EITF 94-3).
Accordingly, we record the liability related to these
termination costs when the following conditions have been met:
(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.
|
|
|
|
For exit or disposal activities initiated after
December 31, 2002, we account for costs in accordance with
SFAS No. 146, Accounting for Costs Associated with
Exit Activities (SFAS 146). SFAS 146
requires that a liability for a cost associated with an exit or
disposal activity be recognized and measured initially at fair
value only when the liability is incurred.
|
Excess Facilities Costs. We account for
excess facilities costs as follows:
|
|
|
|
|
For exit or disposal activities initiated on or prior to
December 31, 2002, we account for lease termination
and/or
abandonment costs in accordance with EITF 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.
|
|
|
|
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
F-43
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
facility, among other factors. The Company has recorded 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
managements most current estimates.
Legal
Matters
The Companys current estimated range of liability related
to pending litigation is based on claims for which it is
probable that a liability has been incurred and the Company can
estimate the amount and range of loss. The Company has recorded
the minimum estimated liability related to those claims, where
there is a range of loss. Because of the uncertainties related
to both the determination of the probability of an unfavorable
outcome and the amount and range of loss in the event of an
unfavorable outcome, the Company is unable to make a reasonable
estimate of the liability that could result from the remaining
pending litigation. As additional information becomes available,
the Company will assess the potential liability related to its
pending litigation and revise its estimates, if necessary. Such
revisions in the Companys estimates of the potential
liability could materially impact the Companys results of
operations and financial position.
On June 10, 2004, Metropolitan Life Insurance Company
(MetLife) filed a complaint in the Superior Court of
the State of California, County of Los Angeles, naming the
Company as a defendant. The complaint alleged that the Company
was liable for unlawful detainer of premises leased from the
plaintiff. The plaintiff thereafter filed a First Amended
Complaint alleging that the Company no longer held possession of
the premises but was in breach of the lease. In February 2005,
MetLife and the Company reached agreement and executed documents
regarding a settlement of the pending lawsuit under which the
Company paid MetLife an aggregate of $1.9 million in
consideration for termination of the lease, dismissal of the
lawsuit and in full settlement of approximately
$3.1 million of past and future lease obligations. The
three installment payments were made in February 2005, May 2005,
and September 2005.
Concentrations
of Credit Risk
Financial assets that potentially subject us to significant
concentrations of credit risk consist principally of cash, cash
equivalents, and trade accounts receivable. The Company
maintains its cash and cash equivalents with two separate
financial institutions. The Company markets and sells its
products throughout the world and performs ongoing credit
evaluations of its customers. The Company maintains reserves for
potential credit losses. For the three months ended
September 30, 2005 and September 30, 2004, no one
customer accounted for more than 10% of total revenue. As of
September 30, 2005 and December 31, 2004, no customer
individually accounted for more than 10% of accounts receivable.
Foreign
Currency Transactions
During fiscal 2004, the Company changed the functional
currencies of all foreign subsidiaries from the U.S. dollar
to the local currency of the respective countries. Assets and
liabilities of these subsidiaries are translated into
U.S. dollars at the balance sheet date. Income and expense
items are translated at average exchange rates for the period.
Foreign exchange gains and losses resulting from the
remeasurement of foreign currency assets and liabilities are
included in other income (expense), net in the Condensed
Consolidated Statements of Operations.
Valuation
of Long-Lived Assets
The Company periodically assesses the impairment of long-lived
assets in accordance with the provisions of
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. The Company assesses the
impairment of goodwill and identifiable intangible assets in
accordance with SFAS No. 141, Business Combinations
(SFAS 141) and SFAS No. 142,
Goodwill and Other Intangible Assets
(SFAS 142). The Company adopted the
provisions of SFAS 142 as of January 1, 2002.
F-44
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Reclassification
Certain reclassifications have been made to prior year balances
in order to conform to the current period presentation. These
reclassifications do not impact BroadVisions consolidated
financial condition, results of operation or cash flows.
Fair
Value of Financial Instruments
The Companys financial instruments consist of cash and
cash equivalents, restricted cash, accounts receivable, accounts
payable, debt, and at December 31, 2004, equity
investments. The Company does not have any derivative financial
instruments. The Company believes the reported carrying amounts
of its financial instruments approximates fair value, based upon
the maturities and nature of its cash equivalents, accounts
receivable and payable, and based on the current rates available
to it on similar debt issues. Additionally, the Company
periodically evaluates the carrying value of all of its
investments for
other-than-temporary
impairment when events and circumstances indicate that the book
value of an asset may not be recoverable. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amounts by which the carrying amount exceeds its
fair market value.
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
accumulated other comprehensive income (loss) is displayed as a
separate component of stockholders equity in the
accompanying Condensed Consolidated Balance Sheets. The
accumulated balances for each classification of comprehensive
income (loss) consist of the following, net of taxes (unaudited,
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
|
|
|
|
Foreign Currency
|
|
|
Comprehensive
|
|
|
|
Translation
|
|
|
Income (Loss)
|
|
|
Balance, December 31, 2004
|
|
$
|
(172
|
)
|
|
$
|
(172
|
)
|
Net change during period
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2005
|
|
$
|
(168
|
)
|
|
$
|
(168
|
)
|
New
Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123
(revised 2004), Share-Based Payment
(SFAS 123R), which replaces SFAS 123
and supersedes APB 25. SFAS 123R requires all
share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements
based on their fair values beginning with the first interim or
annual period beginning after June 15, 2005, with early
adoption encouraged. On April 14, 2005, the Securities and
Exchange Commission adopted a new rule that amends the
compliance dates for SFAS 123(R). Under the new rule, the
Company is required to adopt SFAS 123(R) in the first
quarter of fiscal 2006, beginning January 2, 2006. The pro
forma disclosures previously permitted under SFAS 123 no
longer will be an alternative to financial statement
recognition. Under SFAS 123R, we must determine the
appropriate fair value model to be used for valuing share-based
payments, the amortization method for compensation cost and the
transition method to be used at date of adoption. The transition
methods include prospective and retroactive adoption options. We
have not yet determined the method of adoption or the effect of
adopting SFAS 123R. We are assessing the requirements of
SFAS 123R and expect that its adoption will have a material
impact on the Companys results of operations and earnings
(loss) per share.
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets, an amendment of APB Opinion
No. 29, Accounting for Nonmonetary Transactions
(SFAS 153). SFAS 153 eliminates the
exception from fair value measurement for nonmonetary exchanges
of similar productive assets in paragraph 21(b) of APB
Opinion No. 29, Accounting for Nonmonetary
Transactions, and replaces it with an exception for
exchanges that do not have commercial substance. SFAS 153
specifies that a nonmonetary exchange has commercial substance
if the future
F-45
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
cash flows of the entity are expected to change significantly as
a result of the exchange. SFAS 153 is effective for periods
beginning after June 15, 2005. We do not expect that
adoption of SFAS 153 will have a material effect on our
consolidated financial position, consolidated results of
operations, or liquidity.
|
|
Note 2.
|
Selected
Balance Sheet Detail
|
Property and equipment consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
September 30,
2005
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Furniture and fixtures
|
|
$
|
4,036
|
|
|
$
|
3,781
|
|
Computers and software
|
|
|
49,258
|
|
|
|
48,550
|
|
Leasehold improvements
|
|
|
6,086
|
|
|
|
6,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,380
|
|
|
|
58,516
|
|
Less accumulated depreciation and
amortization
|
|
|
(55,814
|
)
|
|
|
(55,904
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,566
|
|
|
$
|
2,612
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
September 30,
2005
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Employee benefits
|
|
$
|
1,253
|
|
|
$
|
1,226
|
|
Commissions and bonuses
|
|
|
1,334
|
|
|
|
643
|
|
Sales and other taxes Leasehold
improvements
|
|
|
5,085
|
|
|
|
3,767
|
|
Restructuring (See Note 6)
|
|
|
26,292
|
|
|
|
6,058
|
|
Other
|
|
|
6,781
|
|
|
|
4,474
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
40,745
|
|
|
$
|
16,168
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent liabilities consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
September 30,
2005
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Restructuring (See Note 6)
|
|
$
|
7,871
|
|
|
$
|
1,955
|
|
Other
|
|
|
407
|
|
|
|
327
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,278
|
|
|
$
|
2,282
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 3.
|
Bank
Borrowings, Long-Term Debt and Other Non-Current
Liabilities
|
Bank borrowings and long-term debt consists of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
September 30,
2005
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Convertible notes, 6% coupon, due
in various maturities beginning in June 2005
|
|
$
|
11,982
|
|
|
$
|
11,265
|
|
Bank borrowings
|
|
|
20,000
|
|
|
|
|
|
Term debt
|
|
|
1,027
|
|
|
|
503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,009
|
|
|
|
11,768
|
|
Less: Current portion of long-term
debt
|
|
|
(25,566
|
)
|
|
|
(11,768
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current
portion
|
|
$
|
7,443
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
F-46
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In November 2004, the Company entered into a definitive
agreement for the private placement of up to $20.0 million
of convertible notes to five institutional investors. The
Company issued an initial $16.0 million of convertible
notes which are convertible, at the holders option, into
common stock at a conversion price of $2.76 per share. The
convertible notes bear interest at a rate of six percent per
annum, and the Company was originally obligated to repay the
principal amount of the initial $16.0 million of notes in
15 equal monthly installments of $1.1 million, which began
in June 2005. Under the terms of the notes, , the holders have
the right to increase the Companys monthly principal
repayment obligation to $2.1 million as of December 2005
due to the Companys cash balances falling below certain
defined levels as of September 30, 2005. This increase, if
invoked, would have the effect of requiring the Company to repay
the principal amount in eight installments through June 2006.
Certain principal payments that were due in the quarter ended
September 30, 2005, have been deferred at the election of
the investors for a period of eighteen months under the terms of
the notes. Payments of future principal and interest may be made
in either cash or, upon satisfaction of various conditions set
forth in the notes, shares of common stock. However, the Company
currently has not satisfied the conditions required to make
payments in stock, and anticipates having to use cash to satisfy
all of its future payment obligations under the notes.
Investors also received warrants to purchase approximately
1.7 million shares of the Companys common stock at a
price of $3.58 per share. The warrants will be exercisable
beginning six months after the closing date, and have a term of
five years. As of September 30, 2005 and December 31,
2004, a total of $12.9 million and $16.0 million,
respectively, in face value convertible notes was outstanding.
The Company is recording the difference between the face value
and discounted amount as additional interest expense over the
estimated life of the notes. These notes are recorded on the
Condensed Consolidated Balance Sheets at December 31, 2004,
and September 30, 2005, at the discounted amounts of
$12.0 million and $11.3 million, respectively.
In October 2005, the Company inadvertently did not make timely
payment of the third quarter interest payment due under the
Notes of approximately $201,000 that was due on October 1,
2005. Lack of timely payment became an event of default on
October 8, 2005 after non-payment continued for a period of
over five business days. The Company made the third quarter
interest payment promptly after discovery of the nonpayment, on
October 14, 2005. The event of default permits each
noteholder to require the Company to redeem 120% of all or any
portion of the amounts outstanding under the applicable Note by
delivering notice of such redemption to the Company, which
redemption is required under the Notes to be paid within five
business days after receipt of such redemption notice. If all of
the noteholders elect such redemption, the Company will be
obligated to pay within five business days after receipt of such
election approximately $15.5 million in unpaid principal
and interest. The accelerated repayment of all or any
significant portion of such amount would leave the Company with
insufficient working capital to conduct its business, and the
Company does not presently have sufficient cash to meet such an
accelerated repayment obligation.
On October 25, 2005, the Company entered into an agreement
with the noteholders under which the noteholders agreed not to
require redemption of the Notes, including the 20% premium
payable thereunder, prior to November 16, 2005.
In June 2005, the Company renewed and amended its revolving
credit facility. The amount available under the revolving line
of credit is up to $15.0 million, subject to certain
borrowing limitations based on the Companys unrestricted
cash balances. Borrowings under the revolving line of credit are
collateralized by all of the Companys assets and bear
interest at the banks prime rate at December 31, 2004
and prime rate plus 1.0% at September 30, 2005 (6.75% as of
September 30, 2005 and 5.25% as of December 31, 2004).
As of December 31, 2004, $20.0 million, was
outstanding under the Companys revolving credit facility.
As of September 30, 2005, there was no outstanding balance
on the line of credit. As of July 1, 2005, under the
renewed and amended agreement, the requirements the Company must
meet in order to access the credit facility became more
stringent. The Company was not in compliance with these new
requirements as of September 30, 2005, and expects that it
will be unable to meet the new requirements in future periods.
As of September 30, 2005 and December 31, 2004,
outstanding term debt borrowings were approximately $503,000 and
$1.0 million, respectively. Borrowings bear interest at the
banks prime rate of 5.25% plus up to
F-47
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
1.25% as of December 31, 2004 and the banks prime
rate of 6.75% plus up to 3.0% as of September 30, 2005.
Under the terms of the term debt agreements, principal and
interest payments of $40,000 are due monthly through October
2006 and payments of $11,000 are due thereafter. Due to the
Companys default under its convertible debentures
described above, the term debt is also in default, and there the
entire balance of $503,000 at September 30, 2005 is
classified as currently due.
Commitments totaling $2.0 million and $24.3 million in
the form of standby letters of credit were issued on the
Companys behalf from financial institutions as of
September 30, 2005 and December 31, 2004,
respectively, primarily in favor of the Companys various
landlords to secure obligations under the Companys
facility leases. As these letters of credit were cash secured,
$2.0 million and $24.3 million have been presented as
restricted cash in the accompanying Condensed Consolidated
Balance Sheets as of September 30, 2005 and
December 31, 2004, respectively.
|
|
Note 4.
|
Commitments
and Contingencies
|
Warranties
and Indemnification
The Company provides a warranty to its customers that its
software will perform substantially in accordance with
documentation typically for a period of 90 days following
receipt of the software. The Company also indemnifies certain
customers from third-party claims of intellectual property
infringement relating to the use of its products. Historically,
costs related to these guarantees have not been significant and
the Company is unable to estimate the maximum potential impact
of these guarantees on its future results of operations.
The Company has agreements whereby it indemnifies its officers
and directors for certain events or occurrences while the
officer is, or was, serving in such capacity. The term of the
indemnification period is for so long as such officer or
director is subject to an indemnifiable event by reason of the
fact that such person was serving in such capacity. The maximum
potential amount of future payments the Company could be
required to make under these indemnification agreements is
unlimited; however, the Company has a director and officer
insurance policy that limits its exposure and enables the
Company to recover a portion of any future amounts paid. As a
result of the Companys insurance policy coverage, the
Company believes the estimated fair value of these
indemnification agreements is insignificant. Accordingly, the
Company has no liabilities recorded for these agreements as of
either September 30, 2005 or December 31, 2004. The
Company assesses the need for an indemnification reserve on a
quarterly basis and there can be no guarantee that an
indemnification reserve will not become necessary in the future.
Leases
The Company leases its headquarters facility and its other
facilities under non-cancelable operating lease agreements
expiring through the year 2010. Under the terms of the
agreements, the Company is required to pay lease costs, property
taxes, insurance and normal maintenance costs.
A summary of total future minimum lease payments, net of future
sublease income, as of September 30, 2005, under
noncancelable operating lease agreements is as follows (in
millions):
|
|
|
|
|
Years Ending
December 31,
|
|
Operating Leases
|
|
|
2005
|
|
$
|
1.2
|
|
2006
|
|
|
3.2
|
|
2007
|
|
|
4.2
|
|
2008
|
|
|
2.1
|
|
2009 and thereafter
|
|
|
6.2
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
16.9
|
|
|
|
|
|
|
F-48
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
See Note 6 of Notes to Condensed Consolidated Financial
Statements for information about additional payments due under
previously negotiated lease buyout transactions.
Standby
Letter of Credit Commitments
As of September 30, 2005, the Company had $2.0 million
of outstanding commitments in the form of standby letters of
credit, primarily in favor of the Companys various
landlords to secure obligations under the Companys
facility leases.
Legal
Proceedings
The Company is subject to various other claims and legal actions
arising in the ordinary, course of business. In the opinion of
management, after consultation with legal counsel, the ultimate
disposition of these matters is not expected to have a material
effect on the Companys business, financial condition or
results of operations. Although management currently believes
that the outcome of these outstanding legal proceedings, claims
and litigation involving the Company will not have a material
adverse effect on its business, results of operations or
financial condition, litigation is inherently uncertain, and
there can be no assurance that existing or future litigation
will not have a material adverse effect on the Companys
business, results of operations or financial condition.
On June 10, 2004, MetLife filed a complaint in the Superior
Court of the State of California, County of Los Angeles, naming
the Company as a defendant. The complaint alleged that the
Company was liable for unlawful detainer of premises leased from
the plaintiff. The plaintiff thereafter filed a First Amended
Complaint alleging that the Company no longer held possession of
the premises but was in breach of the lease. In February 2005,
MetLife and the Company reached agreement and executed documents
regarding a settlement of the pending lawsuit under which the
Company paid MetLife an aggregate of $1.9 million in
consideration for termination of the lease, dismissal of the
lawsuit and in full settlement of approximately
$3.1 million of past and future lease obligations. The
three installment payments were made in February 2005, May 2005
and September 2005.
On July 28, 2005, representatives of the Company received
copies of four complaints relating to purported class action
lawsuits, each filed by an alleged holder of shares of our
common stock and each filed in California Superior Court for the
county of San Mateo. These complaints are captioned Gary
Goberville, et al., vs. Pehong Chen, et al., Civ
448490, Cookie Schwartz, et al., vs. BroadVision, Inc.,
et al., Civ 448516, Leon Kotovich, et al., vs.
BroadVision, Inc., et al., Civ 448518 and Anthony
Noblett, et al., vs. BroadVision, Inc., et al.,
Civ 448519. Each claim names the Companys directors and
BroadVision, Inc. as defendants, and each alleges that the
director defendants violated their fiduciary duties to
stockholders by, among other things, failing to maximize the
Companys value and ignoring, or failing to adequately
protect against, certain purported conflicts of interest. Each
complaint seeks, among other things, injunctive relief and
damages in an unspecified amount. On September 21,
plaintiff Goberville filed an amended complaint alleging that
defendants caused materially misleading information regarding a
proposed merger to be disseminated to the Companys
stockholders. On October 20, 2005, the Court ordered
consolidation of the four pending actions pursuant to the
parties stipulation. In accordance with the Courts
order, plaintiffs consolidated amended complaint must be
filed and served no later than December 5, 2005. In
addition, defendants must complete by December 5, 2005,
their production of relevant documents responsive to the first
request for production of documents that were served on
defendants by plaintiff Kotovich on August 9, 2005 and
plaintiff Goberville on August 31, 2005.
|
|
Note 5.
|
Geographic,
Segment and Significant Customer Information
|
The Company operates in one segment, electronic business
commerce solutions. The Companys reportable segment
includes the Companys facilities in North America
(Americas), Europe and Asia Pacific and the Middle
East (Asia/Pacific). The Companys Chief
Executive Officer (CEO) is the Companys chief
operating decision maker. The CEO reviews financial information
presented on a consolidated basis accompanied by disaggregated
information about revenues by geographic region and by product
for purposes of making operating decisions and assessing
financial performance.
F-49
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The disaggregated revenue information reviewed by the CEO is as
follows (unaudited, in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2004
|
|
|
2005
|
|
|
Software licenses
|
|
$
|
4,654
|
|
|
$
|
3,134
|
|
|
$
|
19,591
|
|
|
$
|
10,941
|
|
Consulting services
|
|
|
5,013
|
|
|
|
4,403
|
|
|
|
15,105
|
|
|
|
14,706
|
|
Maintenance
|
|
|
7,557
|
|
|
|
6,540
|
|
|
|
23,545
|
|
|
|
20,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company sells its products and provides services worldwide
through a direct sales force and through a channel of
independent distributors, VARs and ASPs. In addition, the
licenses of the Companys products are promoted through
independent professional consulting organizations known as
systems integrators. The Company provides services worldwide
through its BroadVision Global Services Organization and
indirectly through distributors, VARs, ASPs and systems
integrators.
Disaggregated financial information regarding the Companys
geographic revenues and long-lived assets is as follows
(unaudited, in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2004
|
|
|
2005
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
9,269
|
|
|
$
|
8,252
|
|
|
$
|
27,772
|
|
|
$
|
25,948
|
|
Europe
|
|
|
6,134
|
|
|
|
4,359
|
|
|
|
25,210
|
|
|
|
15,688
|
|
Asia/Pacific
|
|
|
1,821
|
|
|
|
1,466
|
|
|
|
5,259
|
|
|
|
4,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
17,224
|
|
|
$
|
14,077
|
|
|
$
|
58,241
|
|
|
$
|
45,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
September 30,
2005
|
|
|
Long-Lived Assets:
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
60,312
|
|
|
$
|
47,806
|
|
Europe
|
|
|
531
|
|
|
|
291
|
|
Asia/Pacific
|
|
|
527
|
|
|
|
463
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
61,370
|
|
|
$
|
48,560
|
|
|
|
|
|
|
|
|
|
|
During the three and nine months ended September 30, 2004
and 2005, no single customer accounted for more than 10% of the
Companys revenues.
|
|
Note 6.
|
Restructuring
Charges
|
Through September 30, 2005, the Company has approved
certain restructuring plans to, among other things, reduce its
workforce and consolidate facilities. Restructuring and asset
impairment charges have been taken to align our cost structure
with changing market conditions and to create a more efficient
organization. Our restructuring charges have been 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 SFAS 146,
Accounting for Costs Associated with Exit or Disposal
Activities.
For each of the periods presented herein, restructuring charges
consist solely of:
|
|
|
|
|
Severance and Termination Benefits These
costs represent severance, payroll taxes and COBRA benefits
related to restructuring plans implemented prior to the date
recognized.
|
F-50
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Excess Facilities These costs represent
future minimum lease payments related to excess and abandoned
space under lease, net of estimated sublease income and planned
company occupancy.
|
As of September 30, 2005, the total restructuring accrual
of $8.0 million consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Non-Current
|
|
|
Total
|
|
|
Severance and Termination
|
|
$
|
0.7
|
|
|
$
|
|
|
|
$
|
0.7
|
|
Excess Facilities
|
|
|
5.4
|
|
|
|
1.9
|
|
|
|
7.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6.1
|
|
|
$
|
1.9
|
|
|
$
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company estimates that the $0.7 million severance and
termination accrual will be nearly paid in full by
December 31, 2005. We expect to pay the excess facilities
amounts related to restructured or abandoned leased space as
follows (in millions):
|
|
|
|
|
|
|
Total Future
|
|
Years Ending
December 31,
|
|
Minimum Payments
|
|
|
2005
|
|
$
|
0.4
|
|
2006
|
|
|
5.2
|
|
2007
|
|
|
0.7
|
|
2008
|
|
|
0.6
|
|
2009 and thereafter (through
October 2010)
|
|
|
0.4
|
|
|
|
|
|
|
Total minimum facilities payments
|
|
$
|
7.3
|
|
|
|
|
|
|
F-51
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the activity related to the
restructuring plans initiated subsequent to December 31,
2002, and accounted for in accordance with FAS 146 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
Amounts Charged to
|
|
|
|
|
|
Accrued
|
|
|
|
Restructuring
|
|
|
Restructuring Costs
|
|
|
Amounts Paid or
|
|
|
Restructuring
|
|
|
|
Costs, Beginning
|
|
|
and Other
|
|
|
Written Off
|
|
|
Costs, Ending
|
|
|
Three Months Ended
September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease cancellations and commitments
|
|
$
|
3,964
|
|
|
$
|
(61
|
)
|
|
$
|
175
|
|
|
$
|
4,078
|
|
Termination payments to employees
and related costs
|
|
|
655
|
|
|
|
443
|
|
|
|
(775
|
)
|
|
|
323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,619
|
|
|
$
|
382
|
|
|
$
|
(600
|
)
|
|
$
|
4,401
|
|
Three Months Ended
September 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease cancellations and commitments
|
|
$
|
12,394
|
|
|
$
|
9,643
|
|
|
$
|
(340
|
)
|
|
$
|
21,697
|
|
Termination payments to employees
and related costs
|
|
|
164
|
|
|
|
582
|
|
|
|
(175
|
)
|
|
|
571
|
|
Write-off on disposal of assets
and related costs
|
|
|
9,289
|
|
|
|
(1,193
|
)
|
|
|
(8,096
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,847
|
|
|
$
|
9,032
|
|
|
$
|
(8,611
|
)
|
|
$
|
22,268
|
|
Nine Months Ended
September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease cancellations and commitments
|
|
$
|
21,824
|
|
|
$
|
(838
|
)
|
|
$
|
(16,908
|
)
|
|
$
|
4,078
|
|
Termination payments to employees
and related costs
|
|
|
365
|
|
|
|
975
|
|
|
|
(1,017
|
)
|
|
|
323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,189
|
|
|
$
|
137
|
|
|
$
|
(17,925
|
)
|
|
$
|
4,401
|
|
Nine Months Ended
September 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease cancellations and commitments
|
|
$
|
11,894
|
|
|
$
|
9,643
|
|
|
$
|
160
|
|
|
$
|
21,697
|
|
Termination payments to employees
and related costs
|
|
|
242
|
|
|
|
1,058
|
|
|
|
(729
|
)
|
|
|
571
|
|
Write-off on disposal of assets
and related costs
|
|
|
9,789
|
|
|
|
(1,193
|
)
|
|
|
(8,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,925
|
|
|
$
|
9,508
|
|
|
$
|
(9,165
|
)
|
|
$
|
22,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-52
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the activity related to the
restructuring plans initiated on or prior to December 31,
2002, and accounted for in accordance with
EITF 94-3
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
Amounts Charged to
|
|
|
|
|
|
Accrued
|
|
|
|
Restructuring
|
|
|
Restructuring Costs
|
|
|
Amounts Paid or
|
|
|
Restructuring
|
|
|
|
Costs, Beginning
|
|
|
and Other
|
|
|
Written Off
|
|
|
Costs, Ending
|
|
|
Three Months Ended
September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease cancellations and commitments
|
|
$
|
6,326
|
|
|
$
|
(137
|
)
|
|
$
|
(2,930
|
)
|
|
$
|
3,259
|
|
Termination payments to employees
and related costs
|
|
|
422
|
|
|
|
|
|
|
|
(70
|
)
|
|
|
352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,748
|
|
|
$
|
(137
|
)
|
|
$
|
(3,000
|
)
|
|
$
|
3,611
|
|
Three Months Ended
September 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease cancellations and commitments
|
|
$
|
71,707
|
|
|
$
|
(34,477
|
)
|
|
$
|
(23,629
|
)
|
|
$
|
13,601
|
|
Termination payments to employees
and related costs
|
|
|
429
|
|
|
|
|
|
|
|
|
|
|
|
429
|
|
Write-off on disposal of assets
and related costs
|
|
|
1,486
|
|
|
|
(9
|
)
|
|
|
(115
|
)
|
|
|
1,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
73,622
|
|
|
$
|
(34,486
|
)
|
|
$
|
(23,744
|
)
|
|
$
|
15,392
|
|
Nine Months Ended
September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease cancellations and commitments
|
|
$
|
11,515
|
|
|
$
|
(287
|
)
|
|
$
|
(7,969
|
)
|
|
$
|
3,259
|
|
Termination payments to employees
and related costs
|
|
|
459
|
|
|
|
|
|
|
|
(107
|
)
|
|
|
352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,974
|
|
|
$
|
(287
|
)
|
|
$
|
(8,076
|
)
|
|
$
|
3,611
|
|
Nine Months Ended
September 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease cancellations and commitments
|
|
$
|
81,143
|
|
|
$
|
(33,704
|
)
|
|
$
|
(33,838
|
)
|
|
$
|
13,601
|
|
Termination payments to employees
and related costs
|
|
|
429
|
|
|
|
|
|
|
|
|
|
|
|
429
|
|
Write-off on disposal of assets
and related costs
|
|
|
1,883
|
|
|
|
(9
|
)
|
|
|
(512
|
)
|
|
|
1,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
83,455
|
|
|
$
|
(33,713
|
)
|
|
$
|
(34,350
|
)
|
|
$
|
15,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On June 29, 2005, the Companys Board of Directors
approved a business restructuring plan, primarily consisting of
headcount reductions, designed to adjust expenses to a level
more consistent with anticipated revenues. The reduction
included approximately 63 employees, or 22% of the
Companys workforce. The Company recorded severance charges
of approximately $443,000 and $627,000 in the three-month
periods ended September 30, 2005 and June 30, 2005,
respectively.
F-53
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As mentioned above, the Company has based its excess facilities
accrual, in part, upon estimates of future sublease income. The
Company has used the following factors, among others, in making
such estimates: opinions of independent real estate experts,
current market conditions and rental rates, an assessment of the
time period over which reasonable estimates could be made, the
status of negotiations with potential subtenants, and the
location of the respective facilities. The Company has recorded
the low-end of a range of assumptions modeled for restructuring
charges, in accordance with SFAS 5. Adjustments to the
facilities accrual will be required if actual sublease income
differs from amounts currently expected. The Company 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 managements most current
estimates.
|
|
Note 7.
|
Goodwill
and Other Intangible Assets
|
On January 1, 2002, the Company adopted
SFAS 142. Under SFAS 142, goodwill and
intangible assets with indefinite lives are no longer subject to
amortization but are tested for impairment at least annually
using a fair value approach, and whenever there is an impairment
indicator. Other intangible assets continue to be valued and
amortized over their estimated lives.
Pursuant to SFAS 142, the Company is required to test its
goodwill for impairment upon adoption and annually or more often
if events or changes in circumstances indicate that the asset
might be impaired. While there was no accounting charge to
record upon adoption of SFAS 142, the Company concluded
that, at September 30, 2005, based on the existence of
impairment indicators, including a decline in its market value,
it would be required to test goodwill for impairment.
SFAS No. 142 provides for a two-step approach to
determining whether and by how much goodwill has been impaired.
Since the Company has only one reporting unit for purposes of
applying SFAS No. 142, the first step requires a
comparison of the fair value of the Company (reporting unit) to
its net book value. If the fair value is greater, then no
impairment is deemed to have occurred. If the fair value is
less, then the second step must be performed to determine the
amount, if any, of actual impairment. The Company completed the
first step and has determined that its net book value at
September 30, 2005 exceeded its fair value on that date,
and as a result, the Company has begun the process of
determining the fair values of its identifiable tangible and
intangible assets and liabilities for purposes of determining
the implied fair value of its goodwill and any resulting
goodwill impairment. As of the date of the filing of this
Form 10-Q,
the Company has not completed step two of this impairment
analysis due to the limited time period from the first
indication of potential impairment to the date of this filing
and the complexities involved in estimating the fair values of
certain assets and liabilities, in particular, long-lived
tangible and intangible assets (including intangible assets that
have not previously been recorded in the Companys
financial statements). SFAS 142 provides that in
circumstances in which step two of the impairment analysis has
not been completed, a company should recognize an estimated
impairment charge to the extent that a Company determines that
it is probable that an impairment loss has occurred and such
impairment loss can be reasonably estimated using the guidance
provided in SFAS 5. Based on the foregoing, the Company has
recognized a goodwill impairment charge of $13.2 million at
September 30, 2005, which represents managements
preliminary estimate of the probable goodwill impairment based
on the fair value analysis completed to date. The Company has
used the quoted market price of the Companys common stock
(market capitalization) as a basis for determining the fair
value of the reporting unit. The Company expects to complete
step two of the impairment analysis during the fourth quarter of
2005 and, to the extent that the completed analysis indicates
additional goodwill impairment in excess of managements
preliminary estimate, the Company will recognize such additional
impairment in the fourth quarter. See Note 9. Subsequent
Events.
The process of evaluating the potential impairment of goodwill
is highly subjective and requires significant judgment. In
estimating the fair value of the Company, the Company made
estimates and judgments about future revenues and cash flows.
The Companys forecasts were based on assumptions that are
consistent with the plans and estimates the Company is using to
manage the business. Changes in these estimates could change the
Companys conclusion regarding impairment of goodwill and
potentially result in a future non-cash goodwill impairment
charge for all or a portion of the goodwill balance at
September 30, 2005.
F-54
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Upon adoption of SFAS 141 and SFAS 142, the Company no
longer amortizes its non-technology based intangible asset, or
assembled workforce. As of December 31, 2003, completed
technology intangibles had been fully amortized.
As of September 30, 2005, the following warrants to
purchase the Companys common stock were outstanding:
|
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Exercise Price
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
Issued to landlord in real estate
buyout transaction in August 2004
|
|
|
700,000
|
|
|
$
|
5.00
|
|
Issued to convertible notes
investors in November 2004
|
|
|
1,739,130
|
|
|
|
3.58
|
|
Other issued in connection with
revenue transactions in 1997 and 2000
|
|
|
9,628
|
|
|
|
Various
|
|
The warrant issued in connection with the real estate
transaction has a term of five years and became exercisable
beginning in August 2005. The warrant issued in connection with
the convertible notes also has a term of five years and became
exercisable beginning in May 2005.
In accordance with
EITF 00-19,
Accounting for Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Companys Own Stock, the
warrants have been included as a short-term liability and were
originally valued at fair value on the date of issuance. The
warrants are revalued each period until and unless the warrants
are exercised. For the three months and nine months ended
September 30, 2005, the Company recorded gains related to
the revaluation of warrants to the landlord and note holders of
$0.7 and $4.2 million, respectively. These gains are
included as a component of Restructuring charges and of Other
income (expense), net, respectively, in the accompanying
Condensed Consolidated Statements of Operations. If the warrants
are exercised prior to their termination, their carrying value
will be transferred to equity.
|
|
Note 9.
|
Subsequent
Events
|
As discussed in Note 7 Goodwill and Other Intangible
Assets, as of September 30, 2005, the Company
recognized a goodwill impairment charge of $13.2 million in
accordance with the requirements of SFAS No. 142.
Subsequent to September 30, 2005, the Company has
experienced a significant decline in the trading price of its
common stock and hence in the Companys market
capitalization. In applying the accounting requirements for
recognizing and measuring an impairment loss under
SFAS No. 142, the Company uses the quoted market price
of the Companys stock (market capitalization) as the basis
for determining the fair value of the Company (the reporting
unit) and then allocates the fair value of the reporting unit to
all of the assets and liabilities of that unit in order to
determine the implied fair value of goodwill. Because of the
significant decline in the trading price and market
capitalization of the Company subsequent to September 30,
2005, the Company anticipates recording a significant additional
non-cash charge for the impairment of goodwill in the
three-month period ending December 31, 2005. The amount of
the impairment charge will be determined based upon a number of
factors, including the fair value of the Companys assets
and liabilities at December 31, 2005.
In October 2005, the Company inadvertently did not make timely
payment of the third quarter interest payment due under the
Notes of approximately $201,000 that was due on October 1,
2005. Lack of timely payment became an event of default on
October 8, 2005 after non-payment continued for a period of
over five business days. The Company made the third quarter
interest payment promptly after discovery of the nonpayment, on
October 14, 2005. The event of default permits each
noteholder to require the Company to redeem 120% of all or any
portion of the amounts outstanding under the applicable Note by
delivering notice of such redemption to the Company, which
redemption is required under the Notes to be paid within five
business days after receipt of such redemption notice. If all of
the noteholders elect such redemption, the Company will be
obligated to pay within five business days after receipt of such
election approximately $15.5 million in unpaid principal
and interest. The accelerated repayment of all or any
significant portion of such amount would leave the Company with
insufficient working capital to conduct
F-55
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
its business, and the Company does not presently have sufficient
cash to meet such an accelerated repayment obligation.
On October 25, 2005, the Company entered into an agreement
with the noteholders under which the noteholders agreed not to
require redemption of the Notes, including the 20% premium
payable thereunder, prior to November 16, 2005.
On October 29, 2005, Vector informed the Company that
Vector Capital III, L.P. (Vector III), an
entity affiliated with Vector, had entered into transfer
agreements with the noteholders pursuant to which
Vector III agreed to acquire all of the issued and
outstanding Notes. However, the Company believes that, under the
terms of the July Noteholder Agreement, the noteholders are
required to obtain its consent, not to be unreasonably withheld,
prior to any transfer of the Notes. The Company has declined to
provide its consent to date and at this time does not intend to
provide its consent, which it believes is reasonable under the
circumstances. Both Vector and the noteholders have disputed
whether the Companys consent is required in connection
with the purported transfer of the Notes and questioned the
reasonableness of the Companys refusal to consent, and
these disputes are unresolved.
On November 8, 2005, counsel for the noteholders delivered
to the Company a letter purporting to terminate the July
Noteholder Agreement based on the Companys alleged
breaches of material representations, warranties or covenants by
reason of the October 8, 2005 event of default and the
Companys refusal to consent to the transfer of the Notes
to Vector III. Based on such purported termination, the
noteholders assert that the Companys consent to the
transfer of the Notes from the noteholders to Vector III is
not required and the other provisions of the July Noteholder
Agreement are no longer effective. The noteholders letter
also asserts that the Companys refusal to consent to the
transfer is a breach of the October 25, 2005 agreement with
the noteholders and entitles the noteholders to recover from the
Company their attorneys fees in connection with the
alleged breaches. On November 9, 2005, Vector III
notified us that it had completed its purchase of the Notes.
On November 9, 2005, the Companys Chief Executive
Officer and largest stockholder, Pehong Chen, advised the
Company that he had offered to purchase the Notes from
Vector III for a price equal to its cost plus an amount
necessary to defray its reasonable expenses in connection with
the purchase and sale of the Notes. Dr. Chen has also
advised the Companys Board of Directors that, if he
becomes the owner of the Notes, he will negotiate in good faith
with the Company to restructure the Notes so as to relieve the
Company of any short-term liquidity threat. Pursuant to the July
Noteholder Agreement, the Companys Board of Directors has
consented to the acquisition of the Notes by Dr. Chen. To
the Companys knowledge, Vector III has not accepted
Dr. Chens offer to purchase the Notes, and there can
be no assurance that Dr. Chen will acquire the Notes or
that the Companys obligations under the Notes will be
restructured.
F-56
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
|
|
Item 13.
|
Other
Expenses of Issuance and Distribution
|
The following table sets forth all expenses, other than the
underwriting discounts and commissions, payable by us in
connection with the sale of the common stock being registered.
All the amounts shown are estimates except the registration fee.
|
|
|
|
|
SEC Registration
|
|
$
|
8,074
|
|
Accounting fees and expenses
|
|
|
*
|
|
Printing and engraving expenses
|
|
$
|
50,000
|
|
Legal fees and expenses
|
|
$
|
125,000
|
|
Transfer agent and registrar fees
|
|
$
|
12,000
|
|
Miscellaneous fees and expenses
|
|
$
|
100,000
|
|
|
|
|
|
|
Total
|
|
$
|
295,074
|
|
|
|
|
|
|
|
|
Item 14.
|
Indemnification
of Directors and Officers
|
As permitted by Section 145 of the Delaware General
Corporation Law, our amended and restated certificate of
incorporation and bylaws provide that (i) we are required
to indemnify our directors and executive officers to the fullest
extent not prohibited by the Delaware General Corporation Law,
(ii) we may, in our discretion, indemnify our other
officers, employees and agents as set forth in the Delaware
General Corporation Law, (iii) we are required to advance
all expenses incurred by our directors and executive officers in
connection with certain legal proceedings, (iv) the rights
conferred in the bylaws are not exclusive and (v) we are
authorized to enter into indemnification agreements with our
directors, officers, employees and agents.
We have entered into agreements with our directors and executive
officers that require us to indemnify such persons against
expenses, judgments, fines, settlements, and other amounts that
any such person becomes legally obligated to pay (including with
respect to a derivative action) in connection with any
proceeding, whether actual or threatened, to which such person
may be made a party by reason of the fact that such person is or
was a director or officer of the Company or any of our
affiliates, provided such person acted in good faith and in a
manner such person reasonably believed to be in, or not opposed
to, the best interests of the Company. The indemnification
agreements also set forth certain procedures that will apply in
the event of a claim for indemnification thereunder. At present,
no litigation or proceeding is pending that involves a director
or officer of the Company regarding which indemnification is
sought, nor are we aware of any threatened litigation that may
result in claims for indemnification.
We maintain a directors and officers insurance
policy. The policy insures directors and officers against
unindemnified losses arising from certain wrongful acts in their
capacities as directors and officers and reimburses the Company
for those losses for which we have lawfully indemnified the
directors and officers. The policy contains various exclusions,
none of which apply to this offering.
|
|
Item 15.
|
Recent
Sales of Unregistered Securities.
|
Since January 1, 2001, the Company has issued and sold the
following unregistered securities:
1. On July 7, 2004, in connection with a lease
restructuring, the Company issued a warrant to Pacific Shores
Investors, LLC to purchase 700,000 shares of common stock
at an exercise price of $5.00 per share. The warrant was
issued in reliance on Section 4(2) of the Securities Act.
2. On November 9, 2004, the Company issued and sold an
aggregate $16 million of securities, including convertible
notes, warrants to purchase common stock and additional
investment rights to purchase additional convertible notes. The
sales were made in reliance on Section 4(2) of the
Securities Act.
II-1
3. On December 20, 2005, the Company entered into an
agreement with Dr. Pehong Chen, the Companys Chief
Executive Officer and largest stockholder, to convert the
approximately $15.5 million in debt obligations held by
Dr. Chen into approximately 34,500,000 shares of
BroadVision common stock. The Company expects to cancel the debt
obligations and issue these shares of common stock to
Dr. Chen promptly following the completion of the rights
offering, which issuance will be made in reliance on
Section 4(2) of the Securities Act.
The issuances of the securities in the transactions above were
deemed to be exempt from registration under the Securities Act
in reliance on Section 4(2) of the Securities Act
promulgated thereunder as transactions by an issuer not
involving a public offering, where the purchasers represented
their intention to acquire the securities for investment only
and not with a view to distribution and received or had access
to adequate information about the Registrant, or Rule 701
promulgated under the Securities Act as transactions pursuant to
a compensatory benefit plan or a written contract relating to
compensation.
Appropriate legends were affixed to the stock certificates and
securities issued in the above transactions. No underwriters
were employed in any of the above transactions.
|
|
Item 16.
|
Exhibits
and Financial Statement Schedules
|
(a) Exhibits
The exhibits are as set forth in the Exhibit Index.
(b) Financial Statement Schedules.
II-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENT SCHEDULE
To The Board of Directors and Stockholders of BroadVision, Inc.
and Subsidiaries:
The audits referred to in our report dated March 11, 2005,
except for the Basis of Presentation Going
Concern Uncertainty discussion in Note 1, as to which the
date is November 11, 2005, relating to the consolidated
financial statements of BroadVision, Inc., which is contained in
the Prospectus, and which included an explanatory paragraph
regarding the Companys ability to continue as a going
concern, included the audit of the financial statement schedule
listed in the accompanying index. This financial statement
schedule is the responsibility of the Companys management.
Our responsibility is to express an opinion on this financial
statement schedule based upon our audits.
In our opinion, the financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
/s/ BDO Seidman, LLP
San Jose, California
March 11, 2005, except for the Basis of
Presentation Going Concern Uncertainty
discussion in Note 1, as to which the date is
November 11, 2005
II-3
SCHEDULE II VALUATION
AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to Costs
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning of Period
|
|
|
and Expenses
|
|
|
Deductions(1)
|
|
|
End of Period
|
|
|
|
(In thousands)
|
|
|
Allowance for doubtful accounts
and reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2004
|
|
$
|
3,022
|
|
|
$
|
(1,466
|
)
|
|
$
|
(147
|
)
|
|
$
|
1,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2003
|
|
$
|
5,502
|
|
|
$
|
(812
|
)
|
|
$
|
1,668
|
|
|
$
|
3,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2002
|
|
$
|
8,194
|
|
|
$
|
3,979
|
|
|
$
|
(6,671
|
)
|
|
$
|
5,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents net charge-offs of specific receivables. |
II-4
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the Company of expenses incurred or paid by
a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the Company
will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Redwood City, State of California on
the 3rd day of February 2006.
BROADVISION, INC.
Pehong Chen
President and Chief Executive Officer
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person
whose signature appears below constitutes and appoints Pehong
Chen and William E. Meyer, and each of them, as true and lawful
attorneys-in-fact
and agents, with full powers of substitution and resubstitution,
for them and in their name, place and stead, in any and all
capacities, to sign any and all amendments (including
pre-effective and post-effective amendments and registration
statements filed pursuant to Rule 462) to this
Registration Statement, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission (the SEC), and
generally to do all such things in their names and behalf in
their capacities as officers and directors to enable BroadVision
to comply with the provisions of the Securities Act and all
requirements of the SEC, granting unto said
attorneys-in-fact
and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in connection therewith, as fully to all intents and
purposes as he or she might or could do in person, ratifying and
confirming all that said
attorneys-in-fact
and agents, or any of them, or their or his or her substitutes
or substitute, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act, this
Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ Pehong
Chen
Pehong
Chen
|
|
Chairman of the Board, Chief
Executive Officer and President
(Principal Executive Officer)
|
|
February 1, 2006
|
|
|
|
|
|
/s/ William
E. Meyer
William
E. Meyer
|
|
Executive Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer)
|
|
February 1, 2006
|
|
|
|
|
|
/s/ David
L. Anderson
David
L. Anderson
|
|
Director
|
|
February 1, 2006
|
|
|
|
|
|
/s/ James
D. Dixon
James
D. Dixon
|
|
Director
|
|
February 1, 2006
|
|
|
|
|
|
/s/ T.
Michael Nevens
T.
Michael Nevens
|
|
Director
|
|
January 31, 2006
|
|
|
|
|
|
/s/ Robert
Lee
Robert
Lee
|
|
Director
|
|
January 29, 2006
|
|
|
|
|
|
/s/ Roderick
C. McGeary
Roderick
C. McGeary
|
|
Director
|
|
January 31, 2006
|
II-6
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
3
|
.1(1)
|
|
Amended and Restated Certificate
of Incorporation.
|
|
3
|
.2(6)
|
|
Certificate of Amendment of
Certificate of Incorporation.
|
|
3
|
.3(12)
|
|
Amended and restated Bylaws.
|
|
4
|
.1(1)
|
|
References are hereby made to
Exhibits 3.1 to 3.2.
|
|
5
|
.1
|
|
Opinion of Cooley Godward LLP.
|
|
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)
|
|
Lease dated February 5, 1997
between the Company and Martin/Campus Associates, L.P.
|
|
10
|
.10(3)(a)
|
|
2000 Non-Officer Equity Incentive
Plan.
|
|
10
|
.11(4)(b)
|
|
Independent Software Vendor
Agreement dated June 30, 1998 between the Company and IONA
Technologies, PLC, as amended.
|
|
10
|
.12(5)
|
|
Amended and Restated Loan and
Security Agreement dated March 31, 2002 between the Company
and Silicon Valley Bank.
|
|
10
|
.13(7)
|
|
Form of Indemnity Agreement
between the Company and each of its directors and executive
officers.
|
|
10
|
.14(9)
|
|
Offer letter dated March 4,
2003 by and between the Company and William Meyer.
|
|
10
|
.15(10)
|
|
First Amendment to the Amended and
Restated Loan and Security Agreement dated February 28,
2003 between the Company and Silicon Valley Bank.
|
|
10
|
.16(10)
|
|
Second Amendment to the Amended
and Restated Loan and Security Agreement dated June 30,
2003 between the Company and Silicon Valley Bank.
|
|
10
|
.17(10)
|
|
BroadVision, Inc. Change in
Control Severance Benefit Plan, established effective
May 22, 2003.
|
|
10
|
.18(10)
|
|
BroadVision, Inc. Executive
Severance Benefit Plan, established effective May 22, 2003.
|
|
10
|
.19(10)
|
|
Third Amendment to the Amended and
Restated Loan and Security Agreement dated June 30, 2003
between the Company and Silicon Valley Bank.
|
|
10
|
.20(11)
|
|
Fourth Amendment to the Amended
and Restated Loan and Security Agreement dated January 21,
2004 between the Company and Silicon Valley Bank.
|
|
10
|
.21(11)
|
|
Fifth Modification to Amended and
Restated Loan and Security Agreement dated February 27,
2004 between the Company and Silicon Valley Bank.
|
|
10
|
.22(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
|
.23(13)
|
|
Warrant to Purchase up to
700,000 share of common stock, dated July 7, 2004,
issued to Pacific Shores Investors, LLC.
|
|
10
|
.24(13)
|
|
Triple Net Space Lease, dated as
of July 7, 2004, between Pacific Shores Investors, LLC and
the Company.
|
|
10
|
.25(14)
|
|
Sixth Amendment to the Amended and
Restated Loan and Security Agreement dated September 29,
2004 between the Company and Silicon Valley Bank.
|
|
10
|
.26(15)
|
|
Securities Purchase Agreement
dated as of November 10, 2004.
|
|
10
|
.27(16)
|
|
Seventh Amendment to the Amended
and Restated Loan and Security Agreement dated November 9,
2004 between the Company and Silicon Valley Bank.
|
|
10
|
.28(17)
|
|
Agreement to Restructure Lease and
To Assign Subleases dated as of October 1, 2004 between
VEF III Funding, LLC and the Company.
|
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
10
|
.29(18)
|
|
Amendment No. 5 to IONA
Independent Software Vendor Agreement dated December 20,
2004, between IONA Technologies, Inc. and the Company.
|
|
10
|
.30(19)
|
|
Agreement to Assign Lease and
Sublease dated as of January 26, 2005 between the Company
and 100 Spear Street Owners Corporation.
|
|
10
|
.31(19)
|
|
Letter dated January 26, 2005
amending Agreement to Assign Lease and Sublease dated as of
January 26, 2005 between the Company and 100 Spear Street
Owners Corporation.
|
|
10
|
.32(20)
|
|
Ninth Amendment to the Amended and
Restated Loan and Security Agreement between the Company and
Silicon Valley Bank, dated June 28, 2005.
|
|
10
|
.33(21)
|
|
Form of Participation Agreement
executed pursuant to the BroadVision, Inc. Change in Control
Severance Benefit Plan by Eligible Employees, including Pehong
Chen, William Meyer, and Alex Kormushoff.
|
|
10
|
.34(22)
|
|
Debt Conversion Agreement, dated
as of December 20, 2005, between the Company and Honu
Holdings LLC.
|
|
21
|
.1(23)
|
|
Subsidiaries of the Company.
|
|
23
|
.1
|
|
Consent of Cooley Godward LLP
(included in Exhibit 5.1).
|
|
23
|
.2
|
|
Consent of BDO Seidman, LLP.
|
|
24
|
.1
|
|
Power of Attorney, pursuant to
which amendments to this Registration Statement may be filed, is
included on the signature page hereto.
|
|
|
|
(1) |
|
Incorporated by reference to the Companys 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 Companys
Form 10-K
for the fiscal year ended December 31, 1996 filed on
March 31, 1997. |
|
(3) |
|
Incorporated by reference to the Companys Registration
Statement on Form
S-8 filed on
October 15, 2003. |
|
(4) |
|
Incorporated by reference to the Companys
Form 10-Q
for the quarter ended June 30, 2001 filed on
August 14, 2001. |
|
(5) |
|
Incorporated by reference to the Companys
Form 10-Q
for the quarter ended March 31, 2002 filed on May 16,
2002. |
|
(6) |
|
Incorporated by reference to the Companys Proxy Statement
filed on May 14, 2002. |
|
(7) |
|
Incorporated by reference to the Companys
Form 10-Q
for the quarter ended September 30, 2002 filed on
November 14, 2002. |
|
(8) |
|
Incorporated by reference to the Companys Registration
Statement on Form
S-8 filed on
August 1, 2002. |
|
(9) |
|
Incorporated by reference to the Companys
Form 10-Q
for the quarter ended March 31, 2003 filed on May 14,
2003. |
|
(10) |
|
Incorporated by reference to the Companys
Form 10-Q
for the quarter ended June 30, 2003 filed on
August 14, 2003. |
|
(11) |
|
Incorporated by reference to the Companys
Form 10-K
for the fiscal year ended December 31, 2003 filed on
March 15, 2004. |
|
(12) |
|
Incorporated by reference to the Companys
Form 10-Q
for the quarter ended March 31, 2004 filed on May 10,
2004. |
|
(13) |
|
Incorporated by reference to the Companys Current Report
on
Form 8-K
filed on August 9, 2004. |
|
(14) |
|
Incorporated by reference to the Companys Current Report
on
Form 8-K
filed on October 25, 2004. |
|
(15) |
|
Incorporated by reference to the Companys Current Report
on
Form 8-K
filed on November 10, 2004. |
|
(16) |
|
Incorporated by reference to the Companys Current Report
on
Form 8-K
filed on November 17, 2004. |
|
(17) |
|
Incorporated by reference to the Companys Current Report
on
Form 8-K
filed on November 19, 2004. |
|
(18) |
|
Incorporated by reference to the Companys Current Report
on
Form 8-K
filed on December 23, 2004. |
|
(19) |
|
Incorporated by reference to the Companys Current Report
on
Form 8-K
filed on February 1, 2005. |
|
|
|
(20) |
|
Incorporated by reference to the Companys Current Report
on
Form 8-K
filed on July 5, 2005. |
|
(21) |
|
Incorporated by reference to the Companys
Form 10-Q
for the quarter ended June 30, 2005 filed on August 9,
2005. |
|
(22) |
|
Incorporated by reference to the Companys Current Report
on
Form 8-K
filed on December 22, 2005. |
|
(23) |
|
Filed previously, with the Companys Registration Statement
on
Form S-1
filed on December 20, 2004. |
|
(a) |
|
Represents a management contract or compensatory plan or
arrangement. |
|
(b) |
|
Confidential treatment requested. |