UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

---

FORM 10-K

|FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|---------------------------------------------------------------------------------------------------------
|(Mark one)                                                                                               
|ý                                                                                                        
|For the Year Ended December 31, 2004                                                                     
|OR                                                                                                       
|o                                                                                                        
|For the transition period
from                             to                                            

Commission File Number 0-28252

---

BROADVISION, INC.(Exact Name of Registrant as Specified in its Charter)

|Delaware(State or Other Jurisdiction of
Incorporation or Organization)                                     |  | 94-3184303(I.R.S. Employer Identification No.)
|---------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|585 Broadway, Redwood City, California(Address of principal executive offices)                             |  | 94063(Zip Code)                               
|(650) 542-5100(Registrant's telephone number, including area code)                                        
|Securities registered pursuant to Section 12(b) of the Act: None                                          
|Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.0001 par value(Title of Class)

---

Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. Yes ý

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2). Yes ý    No o

As of June 30, 2004, based on the closing sales price as quoted by the Nasdaq, 27,434,559 shares of Common Stock, having an aggregate market value
of approximately $115.2 million were held by non-affiliates. For purposes of the above statement only, all directors and executive officers of the registrant are assumed to be
affiliates.

As
of March 4, 2005, the registrant had 33,970,896 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Parts of the Proxy Statement for the registrant's 2005 Annual Meeting of Stockholders to be held May 5, 2005, are incorporated by reference to
Part III of this Form 10-K Report.



---





BROADVISION, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 2004

TABLE OF CONTENTS

|Part I     |  |                                                                                                              |  |   
|---------- |  | ------------------------------------------------------------------------------------------------------------ |  | --
|Item 1.    |  | Business                                                                                                     |  | 4 
|Item 2.    |  | Properties                                                                                                   |  | 13
|Item 3.    |  | Legal Proceedings                                                                                            |  | 13
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                          |  | 14
|Part II    |  |                                                                                                              |  |   
|Item 5.    |  | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 15
|Item 6.    |  | Selected Consolidated Financial Data                                                                         |  | 16
|Item 7.    |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                        |  | 17
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 54
|Item 8.    |  | Financial Statements and Supplementary Data                                                                  |  | 55
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 92
|Item 9A.   |  | Controls and Procedures                                                                                      |  | 92
|Item 9B.   |  | Other Information                                                                                            |  | 94
|Part III   |  |                                                                                                              |  |   
|Item 10.   |  | Directors and Executive Officers of the Registrant                                                           |  | 94
|Item 11.   |  | Executive Compensation                                                                                       |  | 94
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 94
|Item 13.   |  | Certain Relationships and Related Transactions                                                               |  | 94
|Item 14.   |  | Principal Accountant Fees and Services                                                                       |  | 94
|Part IV    |  |                                                                                                              |  |   
|Item 15.   |  | Exhibits and Financial Statement Schedules                                                                   |  | 95
|SIGNATURES |  | 96                                                                                                          

References
in this report 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 ) 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.

2

---



CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995

Certain statements set forth or incorporated by reference in this Form 10-K, as well as in our Annual Report to Stockholders for the year ended
December 31, 2004, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "believes", "anticipates", "expects",
"intends", "estimates" and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. These statements involve known and
unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, those risk factors set forth under "Risk Factors" and elsewhere in this
Form 10-K.

We
expressly disclaim any obligation to update or publicly release any revision to these forward-looking statements after the date of this Form 10-K.

|PART I, ITEM 1 TABLE OF CONTENTS (BUSINESS SECTION) |  |   
|--------------------------------------------------- |  | --
|Overview and Industry Background                    |  | 4 
|The BroadVision Solution                            |  | 5 
|Products                                            |  | 5 
|BroadVision Self-Service Extensions                 |  | 6 
|BroadVision Self-Service Framework                  |  | 6 
|Product Bundles                                     |  | 7 
|Technology                                          |  | 7 
|Alliances                                           |  | 8 
|Services                                            |  | 8 
|Customers                                           |  | 9 
|Sales and Marketing                                 |  | 9 
|Competition                                         |  | 10
|Intellectual Property and Other Proprietary Rights  |  | 11
|Employees                                           |  | 11
|Executive Officers                                  |  | 12

3

---





PART I

ITEM 1. BUSINESS

Overview and Industry Background

Our Business

We develop, market and support a suite of personalized self-service web applications that enable organizations to unify their e-business
infrastructure and conduct both interactions and transactions with employees, partners and customers. Our integrated suite of process, commerce, portal and content solutions helps organizations
rapidly increase revenues and reduce costs. As of December 31, 2004, we had licensed our products to more than 1,000 end-user customers and partners.

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
negative cash flows from operations. As of December 31, 2004, we had negative working capital and an accumulated deficit of $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.

Our
principal executive offices are located at 585 Broadway, Redwood City, California 94063. Our telephone number is (650) 261-5100. General information about us can
be found at our website, www.broadvision.com, under the "Company" link. Our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on
Form 8-K, as well as any amendments or exhibits to those reports, are available free of charge through our website as soon as reasonably practicable after we file them with, or
furnish them to, the Securities and Exchange Commission, or SEC.

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 customer's e-business environment.

Over
1,000 customersincluding U.S. Air Force, Lockheed Martin, Netikos, Circuit City, Wal*Mart, 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 has often resulted in systems that were poorly integrated into the company's 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 those 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 the self-service model, including online shopping and call center operations. This trend is

4

---



illustrated
by the recent proliferation of airport check-in kiosks 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.

The BroadVision Solution

We believe that 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.

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



Products

BroadVision Process

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.

5

---



BroadVision Commerce

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 Portal

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 Content

Manages all types of content throughout its lifecycle, from creation and management through deployment and distribution. Support for intelligent content tagging
and management enables organizations to deliver highly personalized content to multiple constituents using the web, wireless or print.

BroadVision Self-Service Extensions

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

BroadVision eMarketing

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

BroadVision QuickSilver®

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. Assembles 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 Self-Service Framework

BroadVision applications and extensions leverage a self-service framework that provides notable availability, performance, scalability and security.

BroadVision Deployment

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 Multi Touchpoint Services

Extends BroadVision applications beyond the desktop to mobile phones enabled with WAP, CHTML or XHTML; personal digital assistants (PDAs); voice channels that use
Voice XML technology; as well as HTML devices including PCs, kiosks, ATMs and point-of-sale terminals. Enables

6

---



personalization
of content to the memory, screen and navigational characteristics of different touch points.

BroadVision Search

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:



Technology

Open Standards-Based Architecture

BroadVision solutions are built on object-oriented application code written in J2EE programming environments, including Java and JavaScript, and where appropriate
C++, which allows developers and system integrators to use, integrate, modify, adapt or extend the applications with minimal impact on other areas to create a rapidly customized product that meets
specific business requirements. BroadVision Process leverages a proven open source stack at the platform layers to reduce total cost of ownership and optimize performance. Support for the J2EE and
CORBA standards for object-oriented computing enables high-volume performance, flexible application deployment and easy integration with third-party or legacy applications. Our
applications fully support XML, which is the emerging standard for managing and exchanging data between e-business systems as well as for re-purposing and sending information
to wireless devices. In addition, we use other widely accepted standards in developing our products, including Web Services, Structured Query Language (SQL) for accessing relational database
management systems; Common Gateway Interface (CGI) and Hypertext Transfer Protocol (HTTP) for web access; Netscape Application Programming Interface (NAPI) for access to Netscape's web servers; Secure
Socket Layer (SSL) for secure transmissions over networks; and the RC2 and MD5 encryption algorithms supplied by RSA Security. Our applications can be operated in conjunction with relational database
management systems provided
by IBM Corporation, Informix, Microsoft, Oracle and Sybase. Supported application servers include WebLogic, WebSphere, SunOne and JBoss.

Support for Open Source

BroadVision Process gives organizations the option of running on a commercially available technology stack described above or on an open source stack. While our
commitment to commercial

7

---



platforms
has not changed, we recognize that our customers are adopting open source as a platform because of its total cost of ownership and runtime benefits.

Alliances

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

Consulting Partners

BroadVision's systems integration and consulting services partners deliver strategic business solutions to companies. These partners offer global deployment
experience, strong vertical market expertise and process-based solutions. Our contractual agreements with these consulting partners incentivize them to build a development expertise in BroadVision's
technology and sell our products and services to potential customers, thus enabling us to extend the reach of our products and/or services.

Technology/OEM Partners

BroadVision's technology partners include Value-Added Resellers (VAR) and Independent Software Vendors (ISV) who build and deploy BroadVision-based vertical and
horizontal software solutions. Our goal is to create value-added solutions that address a customer's specific business and IT goals. In addition, technology partners include distributors who are
authorized representatives that market, distribute, resell and support BroadVision's products and services or application service providers who develop, host and support value-added application
solutions based on our technology. The contracts that govern our relationships with these partners are generally terminable by either party upon 30 to 90 days notice. In most cases,
technology/OEM partners license our products to users under the terms of a reseller or distribution agreement. Revenues 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 businesses, including business consulting services, implementation
services, migration and performance services and ongoing training and support.

Consulting Services

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

Education Services

Coursework is available for Content Managers, Technical Developers and System Administrators through BroadVision Education Services. Customers and partners can
arrange for on-site programs, which allow employees to learn at the office, or take advantage of regularly scheduled public courses at BroadVision locations.

8

---



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, 2004, 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.

BroadVision's
software is deployed in all major industry groups, including financial services, government, healthcare, manufacturing, retail and telecommunications. Customers include
U.S. Air Force, Lockheed Martin, Netikos, Circuit City, Wal*Mart, Iberia L.A.E., and Vodafone.

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, 2004, our
direct sales organization included 89 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 are located
in the United States in California, Colorado, Georgia, Illinois, Massachusetts, New York, Texas, Virginia and Washington; in Canada, offices are located in Toronto and Vancouver, British Columbia.

Sales
and marketing offices for our Europe region are located in Austria, 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, Japan and the Republic of China (Taiwan).

Initial
sales activities typically involve discussion and review of the potential business value associated with the implementation of a BroadVision solution, a demonstration of our
self-service web applications capabilities at the prospect's site, followed by one or more detailed technical reviews, often presented at our headquarters. The sales process usually
involves collaboration with the prospective customer in order to specify the scope of the application. Our global services organization helps customers design, and then develop and deploy, their
applications.

As
of December 31, 2004, 22 employees were engaged in a variety of marketing activities, including preparing marketing research, product planning and collateral marketing
materials, 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:



9

---





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:



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



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 at our expense. 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

10

---



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. We may be unable to compete successfully with current or new competitors.

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 today's web business. We
also hold a U.S. patent, issued in November 1996 and expiring in February 2014, acquired as part of the Interleaf acquisition on the elements of the extensible electronic document
processing system for creating new classes of active documents. The patent on active documents (associating procedures to elements of an electronic document) is fundamental and hard to avoid by 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, 2004, we employed a total of 337 full-time employees, of whom 218 are based in North America, 91 in Europe and 28 in Asia.
Of these full-time employees, 104 are in sales and marketing, 88 are in product development, 113 are in global services and client support, and 32 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.

11

---



Executive Officers

The following table sets forth certain information regarding our current executive officers.

|Name             |  | Age |  | Position                                                    
|---------------- |  | --- |  | ------------------------------------------------------------
|Pehong Chen      |  | 47  |  | Chairman of the Board, Chief Executive Officer and President
|William E. Meyer |  | 42  |  | Executive Vice President and Chief Financial Officer        
|Alex Kormushoff  |  | 47  |  | Senior Vice President, Global Operations                    

Pehong Chenhas 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. Meyerhas served as our Executive Vice President and Chief Financial Officer since April 2003. Prior to joining
BroadVision, from March 2001 to March 2003, Mr. Meyer was Chief Financial Officer of Mainsoft Corporation, a leading global publisher of cross-platform development software.
Before Mainsoft, from February 1998 to January 2001, Mr. Meyer 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.

Alex Kormushoffhas served as our Senior Vice President of Global Operations since October 2002. Mr. Kormushoff has served
the information technology industry for nearly 25 years in various positions, including consulting, business development, practice development, and business operations. Prior to joining
BroadVision, from June 2000 to June 2001, Mr. Kormushoff was the Managing Director of Sapient Germany. From October 1998 to June 2000, Mr. Kormushoff also
held the position of Managing Director of Sapient's Manufacturing, Retail and Distribution Practice. Sapient is a leading business consulting and technology services firm. Before Sapient, he held
various senior consulting, management and sales positions with CSC Consulting and Digital Equipment Corporation.

12

---





ITEM 2. PROPERTIES

We lease approximately 168,000 square feet of office space, of which approximately 82% is in the United States. We occupy or sublease 88% of the 168,000 square
feet of our leased office space.

At
our headquarters, located in Redwood City, California, we occupy approximately 49,000 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., Burlington, MA., Itasca, IL., McLean, VA., New York, NY and Redwood
City, CA., 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, Paris, Hamburg, Munich, Milan, Houten (Netherlands), Madrid, Stockholm, Reading, UK, Renes (Switzerland),
Megenwil (Switzerland), Toronto, Tokyo and Singapore. 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.

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.

ITEM 3. LEGAL PROCEEDINGS

The Company is 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, the Company has adequate defenses for each of the claims and actions, and we do not expect their ultimate disposition to have a material effect on our business,
financial condition or results of operations. Although management currently believes that the outcome of other outstanding legal proceedings, claims and litigation involving us will not have a
material adverse effect on our business, results of operations or financial condition, litigation is inherently uncertain, and there can be no assurance that
existing or future litigation will not have a material adverse effect on our business, results of operations or financial condition.

On
June 10, 2004, Metropolitan Life Insurance Company ("MetLife") filed a complaint in the Superior Court of the State of California, County of Los Angeles, naming the Company as
a defendant. The complaint alleged that the Company was liable for unlawful detainer of premises leased from the plaintiff. The plaintiff thereafter filed a First Amended Complaint alleging that the
Company no longer held possession of the premises but was in breach of the lease. In February 2005, MetLife and the Company reached agreement and executed documents regarding a settlement of
the pending lawsuit under which the Company will pay MetLife an aggregate of $1,927,500 in consideration for termination of the lease, dismissal of the lawsuit and in full settlement of approximately
$3.1 million of past and future lease obligations. 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 SEC's entry of an administrative
order that included findings that we issued a false and misleading earnings press release and misleading quarterly report. The order requires that we cease and desist from committing or causing
violations of specified provisions of the federal securities laws. The SEC found that a former executive in charge of professional services who left BroadVision in 2002 was responsible for the
improper accounting. The restatement concerned revenue related to one software license agreement. Following receipt of

13

---



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.

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

Not Applicable

14

---





PART II

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

Our 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 our common stock
as reported on the Nasdaq National Market:

High

LowFiscal Year 2004First Quarter

$
9.05

$
4.28Second Quarter


6.87


2.92Third Quarter


4.35


2.10Fourth Quarter


3.13


2.05Fiscal Year 2003First Quarter


4.50


3.60Second Quarter


7.69


3.75Third Quarter


6.95


4.52Fourth Quarter


5.71


4.14


As
of March 4, 2005, there were 2011 holders of record of our common stock. On March 4, 2005, the last sale price reported on the Nasdaq National Market System for our
common stock was $2.17 per share.

We
have never declared or paid cash dividends on our common stock, and our debentures issued in late fiscal 2004 preclude us from paying cash dividends without the approval of the
debenture holders. In addition, our credit facility with our commercial lender contains certain covenants that may limit our ability to pay cash dividends.

In
the year ended December 31, 2004, the Company has issued and sold the following unregistered securities:



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.

15

---



ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and
Results of Operations," the Consolidated Financial Statements of BroadVision and Notes thereto, and other financial information included elsewhere in this Form 10-K. Historical
results are not necessarily indicative of results that may be expected for future periods.

|                                                             |                                              | Years Ended December 31, |       
|------------------------------------------------------------ | -------------------------------------------- | ------------------------ | ------
|
|
|Consolidated Statement of Operations Data:                   |                                              |                          |       
|Revenues:                                                    |                                              |                          |       
|                                                             | Software licenses                            |                          | $     
|                                                             | Services                                     |                          |       
|                                                             |                                              |                          |       
|                                                             |                                              | Total revenues           |       
|Cost of revenues:                                            |                                              |                          |       
|                                                             | Cost of software licenses                    |                          |       
|                                                             | Cost of services                             |                          |       
|                                                             |                                              |                          |       
|                                                             |                                              | Total cost of revenues   |       
|                                                             |                                              |                          |       
|Gross profit                                                 |                                              |                          | 51,723
|Operating expenses:                                          |                                              |                          |       
|                                                             | Research and development                     |                          |       
|                                                             | Sales and marketing                          |                          |       
|                                                             | General and administrative                   |                          |       
|                                                             | Litigation settlement costs                  |                          |       
|                                                             | Goodwill and intangible amortization         |                          |       
|                                                             | Charge for acquired in-process technology    |                          |       
|                                                             | Restructuring (credit) charge                |                          |       
|                                                             | Impairment of assets                         |                          |       
|                                                             | Impairment of goodwill and other intangibles |                          |       
|                                                             |                                              |                          |       
|                                                             |                                              | Total operating expenses |       
|                                                             |                                              |                          |       
|                                                             | Operating income (loss)                      |                          |       
|                                                             | Other income (expense), net                  |                          |       
|                                                             |                                              |                          |       
|                                                             | Income (loss) before income taxes            |                          |       
|                                                             | Income tax benefit (provision)               |                          |       
|                                                             |                                              |                          |       
|                                                             | Net income (loss)                            |                          | $     
|                                                             |                                              |                          |       
|Net income (loss) per share:                                 |                                              |                          |       
|Basic earnings (loss) per share                              |                                              | $                        | 0.62  
|                                                             |                                              |                          |       
|Shares used in computationbasic earnings (loss) per share   |                                              |                          | 33,539
|                                                             |                                              |                          |       
|Diluted earnings (loss) per share                            |                                              | $                        | 0.60  
|                                                             |                                              |                          |       
|Shares used in computationdiluted earnings (loss) per share |                                              |                          | 34,321
|                                                             |                                              |                          |       

|                                              |  | As of December 31, |           
|--------------------------------------------- |  | ------------------ | ----------
|
|
|Consolidated Balance Sheet Data:              |  |                    |           
|Cash and cash equivalents                     |  | $                  | 41,851    
|Working capital                               |  |                    | (18,136   
|Total assets                                  |  |                    | 144,653   
|Debt and capital leases, less current portion |  |                    | 7,443     
|Accumulated deficit                           |  |                    | (1,184,040
|Total stockholders' equity                    |  |                    | 30,410    

16

---



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read this discussion and analysis in conjunction with our consolidated financial statements and the related notes appearing
elsewhere in this report. In addition to the historical consolidated information, the following discussion contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the "safe harbor" created by those sections.
These forward-looking statements are generally identified by words such as "expect," "anticipate," "intend," "believe," "hope," "assume," "estimate," "plan," "will" and other similar words and
expressions. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in the forward-looking statements
as a result of certain factors. Factors that could cause or contribute to differences include those discussed below and elsewhere in this Form 10-K, particularly in "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 customer's e-business environment.

Over
1,000 customersincluding U.S. Air Force, Lockheed Martin, Netikos, Circuit City, Wal*Mart, 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,
we have seen significant declines in our revenue over the past three fiscal years.

Our
objective is to further our position as a leading 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. It is also important that potential customers know about our products, and therefore we will be investing more heavily in targeted marketing campaigns.

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 Central Processing Units ("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 paid or will pay over $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 assurances
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

17

---



in
the planning, reviewing and managing of our business plans. This process allows 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.

The
following are key financial highlights for fiscal 2004:



Internal Control Over Financial Reporting

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2004, and this assessment identified three
material weaknesses. See Item 9A of this report for a description of these material weaknesses and associated remediation efforts. See also "Risk Factors" for a discussion of risks associated
with our current and any future material weaknesses.

Recent Events

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 agreement provides for an
additional $4.0 million of convertible debentures to be issued to the investors at the option of the investors, or, under certain circumstances, at the Company's option. Investors also received
warrants to purchase approximately 1.7 million shares of the Company's 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.

The
Company has 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
November 2004, the Company entered into a renewed and amended loan and security agreement with the lender. The agreement requires the Company to maintain certain levels of unrestricted cash and
cash equivalents (excluding equity investments), and to maintain certain levels on deposit with the lender. The agreement also modified the financial covenants and increased the revolving line of
credit borrowing limit from $15.0 million to $20.0 million. At December 31, 2004 and December 31, 2003, $20.0 million and $27.0 million were outstanding under
the line of credit, respectively. Borrowings under the line of credit are collateralized by all of our assets and bear interest at the bank's prime rate. Interest is due monthly and principal was due
at the expiration in February 2005.

During
the third and fourth quarters of 2004, the Company reached agreements with certain landlords to extinguish approximately $155.0 million of future real estate obligations.
The Company made cash payments of $19.0 million during the third quarter and $1.7 million in the fourth quarter, and, as of December 31, 2004, is obligated to make additional cash
payments of $21.9 million in fiscal

18

---



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 our landlords to secure the fiscal 2005
payments. Accordingly, this $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 Sheet 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. In addition, the Company issued to one of the landlords 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.

As
a component of the settlement of one of the previous leases, the Company has a residual lease obligation beginning in 2007 of approximately $9.1 million. The Company may make
an additional cash payment of $4.5 million if it exercises an option to terminate this residual real estate obligation prior to the commencement of the lease term (January 2007). This
option to terminate the residual lease obligation is accounted for in accordance with SFAS 146 and is part of the restructuring credit of $23.5 million recorded in the year ended
December 31, 2004.

The
Company does not anticipate additional significant facilities-related restructuring charges or credits in future periods, although no assurances are provided.

Critical Accounting Policies

BroadVision management's discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted 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. We believe the following critical accounting policies reflect the more significant judgments and estimates
used in the preparation of our consolidated financial statements.

Revenue Recognition

OverviewOur revenues are derived 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 which the product is installed. Our revenue recognition policies are in accordance with Statement of Position (SOP) No. 97-2,Software Revenue
Recognition, as amended; SOP No. 98-9,Software Revenue Recognition, With Respect to Certain Transactionsand
the SEC Staff Accounting Bulletin No. 101,Revenue's Recognition in Financial Statements.

Software License RevenueWe license our products to our customers 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. If

19

---



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 us based upon a percentage of list price. We do not grant our resellers the right of return.

We
recognize revenue using the residual method pursuant to the requirements of SOP 97-2, as amended by SOP 98-9. Revenues recognized from multiple-element
software arrangements are allocated to each element of the arrangement based on the fair values of the elements, such as licenses for software products, maintenance, consulting services or customer
training. The determination of fair value is based on objective evidence, which is specific to us. We limit our assessment of objective evidence for each element to either the price charged when the
same element is sold separately or the price established by management having the relevant authority to do so, for an element not yet sold separately. If evidence of fair value of all undelivered
elements exists but evidence does not exist for one or more delivered elements, then revenue is recognized under 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 deferred revenue for software arrangements when cash has been received from the customer and the arrangement does not qualify for revenue recognition under our revenue
recognition policy. We
record accounts receivable for software arrangements when the arrangement qualifies for revenue recognition but cash or other consideration has not been received from the customer.

Services RevenueConsulting services revenues and customer training revenues are recognized as such services are performed.
Maintenance revenues, which include revenues bundled with software license agreements that entitle the customers to technical support and future unspecified enhancements to our products, are deferred
and recognized ratably over the related agreement period, generally twelve months. Our professional services, which consist of consulting, maintenance and training, are delivered through BVGS.
Services that we provide are not essential to the functionality of our software. This group provides consulting services, manages projects and client relationships, manages the needs of our partner
community, provides training-related services to employees, customers and partners, and also provides software maintenance services, including technical support, to our customers and partners. We
record reimbursement by our customers for out-of-pocket expenses as a component of services revenue.

Allowances and Reserves

Occasionally, our customers experience financial difficulty after we record the sale 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 generally 30 to 90 days from invoice date. If the financial condition of
our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. We record reductions to revenue for estimated future returns of
products by our customers. If market conditions were to decline, we may experience larger volumes of returns resulting in an incremental reduction of revenue at the time the return occurs.

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

20

---



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 Company's software products are amortized as a cost of software licenses,
either on a straight-line basis over the remaining term of the royalty agreement or on the basis of projected product revenues, whichever results in greater amortization.

Impairment Assessments

We adopted SFAS No. 142, "Goodwill and Other Intangible Assets," on January 1, 2002. This standard
requires that goodwill no longer be amortized and instead be tested for impairment on a periodic basis.

Pursuant
to SFAS 142, we are required to test goodwill for impairment upon adoption and annually or more often if events or changes in circumstances indicate that the asset might
be impaired. While there was no accounting charge to record upon adoption, at September 30, 2002, we concluded that, based on the existence of impairment indicators, including a decline in our
market value, we would be required to test goodwill for impairment. SFAS 142 provides for a two-stage approach to determining whether and by how much goodwill has been impaired.
Since we have only one reporting unit for purposes of applying SFAS 142, the first stage requires a comparison of the fair value of BroadVision 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 stage must be completed to determine the amount, if any, of actual impairment. We completed the first
stage and determined that our fair value at September 30, 2002 exceeded our net book value on that date, and as a result, no impairment of goodwill was recorded in the consolidated financial
statements. We obtained an independent appraisal of fair value to support our conclusion. We also determined that our fair value exceeded our net book value as of December 31, 2004 and
therefore, no additional impairment was warranted.

The
process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment. In estimating our fair value, we made estimates and judgments about
future revenues and cash flows. Our forecasts were based on assumptions that are consistent with the plans and estimates we are using to manage our business. Changes in these estimates 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.
For long-lived assets, accounting standards dictate that assets become impaired when the undiscounted future cash flows expected to be generated by them are less than their carrying
amounts. When that occurs, the affected assets are written down to their estimated fair value.

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
management has determined that it is more likely than not that some portion or all of the deferred tax asset will not be realized based upon the uncertainty of their realization. We have considered
estimated future taxable income and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance.

Accounting for Stock-Based Compensation

We apply Accounting Principles Board (APB) Opinion No. 25,Accounting for Stock Issued to Employees, and
related interpretations when accounting for our stock option and stock purchase plans. In accordance with APB Opinion 25, we apply the intrinsic value method in accounting for employee

21

---



stock
options. Accordingly, we generally recognize 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 for an
option to purchase common stock of the Company. During the year ended December 31, 2003, we recorded compensation expense of $342,000 as a result of granting a third-party consultant common
stock of the Company and a vesting modification to a grant for a terminated employee. These charges were calculated based upon the market value of the underlying stock on the date of grant or
modification.

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
No. 123,Accounting for Stock Compensation. The fair value of these stock-based awards to employees was estimated using the Black-Scholes option
pricing model. Please see Note 1 of Notes to Consolidated Financial Statements for assumptions used in the Black-Scholes option pricing model. Had compensation cost for our stock option plan
and employee stock purchase plan been determined consistent with SFAS 123, our reported net income (loss) and net earnings (loss) per share would have been changed to the amounts indicated
below (in thousands except per share data):

|                                                                                                                                            |  | Years Ended December 31, |       
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------
|
|Net income (loss) as reported                                                                                                               |  | $                        | 20,635
|Add: Stock-based compensation (income) expense included in reported net loss, net of related tax effects                                    |  |                          | (19   
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |  |                          | (4,545
|                                                                                                                                            |  |                          |       
|Pro forma net income (loss)                                                                                                                 |  | $                        | 16,071
|                                                                                                                                            |  |                          |       
|Net income (loss) per share:                                                                                                                |  |                          |       
|Basicas reported                                                                                                                           |  | $                        | 0.62  
|                                                                                                                                            |  |                          |       
|Basicpro forma                                                                                                                             |  | $                        | 0.48  
|                                                                                                                                            |  |                          |       
|Dilutedas reported                                                                                                                         |  | $                        | 0.60  
|                                                                                                                                            |  |                          |       
|Dilutedpro forma                                                                                                                           |  | $                        | 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 Company's common stock began trading on a post-split basis at the opening of trading on the Nasdaq
National Market on July 30, 2002.

The
accompanying consolidated financial statements and related financial information contained herein have been retroactively restated to give effect for the July, 2002 reverse stock
split and the February 2000 and September 1999 stock splits.

Restructuring

Through December 31, 2004, we have approved certain restructuring plans to, among other things, reduce our workforce and consolidate facilities.
Restructuring charges were taken to align our cost structure with changing market conditions and to create a more efficient organization. Our

22

---



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 Staff Accounting Bulletin No. 100,Restructuring and Impairment
Charges.

We
account for severance and benefits termination 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)for exit or disposal activities initiated prior to
January 1, 2003. Accordingly, we record the liability related to these termination costs when the following conditions have been met: (i) management with the appropriate level of
authority approves a termination plan that commits us to such plan and establishes the benefits the employees will receive upon termination; (ii) the benefit arrangement is communicated to the
employees in sufficient detail to enable the employees to determine the termination benefits; (iii) the plan specifically identifies the number of employees to be terminated, their locations
and their job classifications; and (iv) the period of time to implement the plan does not indicate changes to the plan are likely. The termination costs we recorded are not associated with nor
do they benefit continuing activities. We account for severance and benefits termination costs for exit or disposal activities initiated after January 1, 2003 in accordance with SFAS
No. 146,Accounting for Costs Associated with Exit Activities. SFAS 146 requires that a liability for a cost associated with an exit or
disposal activity be recognized and measured initially at fair value only when the liability is incurred. This differs from EITF 94-3, which required that a liability for an exit cost be
recognized at the date of an entity's commitment to an exit plan.

Prior
to the adoption on January 1, 2003 of SFAS 146, we accounted for the costs associated with lease termination and/or abandonment in accordance with EITF
88-10,Costs Associated with Lease Modification or Termination. 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.

Inherent
in the estimation of the costs related to our restructuring efforts are assessments related to the most likely expected outcome of the significant actions to accomplish the
restructuring. In determining the charge related to the restructuring, the majority of estimates made by management related to the charge for excess facilities. In determining the charge for excess
facilities, we were required to estimate future sublease income, future net operating expenses of the facilities, and brokerage commissions, among other expenses. The most significant of these
estimates related to the timing and extent of future sublease income in which to reduce our lease obligations. We based our estimates of sublease income, in part, on the opinions of independent real
estate experts, current market conditions and rental rates, an assessment of the time period over which reasonable estimates could be made, the status of negotiations with potential subtenants, and
the location of the respective facility, among other factors.

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 our control.
Specifically, these estimates will depend on our 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. We will review the status of restructuring
activities on a quarterly basis and, if appropriate, record changes to our restructuring obligations in current operations based on management's most current estimates.

23

---



Legal Matters

Management's current estimated range of liability related to pending litigation is based on claims for which it is probable that a liability has been incurred and
management 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, management is 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 probability and the potential liability related to our 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.

Statement of Operations as a Percent of Total Revenues

The following table sets forth certain items reflected in our consolidated statements of operations expressed as a percent of total revenues for the periods
indicated.

|                    |                                      | Years Ended December 31,    |                                       
|------------------- | ------------------------------------ | --------------------------- | --------------------------------------
|
|Revenues:           |                                      |                             |                                       
|                    | Software licenses                    |                             | 34                                    
|                    | Services                             |                             | 66                                    
|                    |                                      |                             |                                       
|                    |                                      | Total revenues              |                                       
|Cost of revenues:   |                                      |                             |                                       
|                    | Cost of software licenses            |                             | 2                                     
|                    | Cost of services                     |                             | 32                                    
|                    |                                      |                             |                                       
|                    |                                      | Total cost of revenues      |                                       
|                    |                                      |                             |                                       
|                    |                                      |                             | Gross profit                          
|Operating expenses: |                                      |                             |                                       
|                    | Research and development             |                             | 23                                    
|                    | Sales and marketing                  |                             | 35                                    
|                    | General and administrative           |                             | 12                                    
|                    | Litigation settlement costs          |                             |                                      
|                    | Goodwill and intangible amortization |                             |                                      
|                    | Restructuring charge                 |                             | (30                                   
|                    | Impairment of assets                 |                             |                                      
|                    |                                      |                             |                                       
|                    |                                      | Total operating expenses    |                                       
|                    |                                      |                             |                                       
|                    |                                      |                             | Operating income (loss)               
|                    |                                      | Other (expense) income, net |                                       
|                    |                                      |                             |                                       
|                    |                                      |                             | Loss before provision for income taxes
|                    |                                      | Provision for income taxes  |                                       
|                    |                                      |                             |                                       
|                    |                                      |                             | Net loss                              
|                    |                                      |                             |                                       

24

---



Results of Operations

|                              |              | Software |        | %      |     | Services |   | %      |        | Total |    | % |        
|----------------------------- | ------------ | -------- | ------ | ------ | --- | -------- | - | ------ | ------ | ----- | -- | - | -------
|
|Year Ended December 31, 2004: |              |          |        |        |     |          |   |        |        |       |    |   |        
|                              | Americas     |          | $      | 9,545  |     | 36       | % | $      | 27,733 |       | 54 | % | $      
|                              | Europe       |          |        | 13,894 |     | 52       |   |        | 19,427 |       | 38 |   |        
|                              | Asia/Pacific |          |        | 3,444  |     | 12       |   |        | 3,961  |       | 8  |   |        
|                              |              |          |        |        |     |          |   |        |        |       |    |   |        
|Total                         |              | $        | 26,883 |        | 100 |          | $ | 51,121 |        | 100   |    | $ | 78,004 
|                              |              |          |        |        |     |          |   |        |        |       |    |   |        
|Year Ended December 31, 2003: |              |          |        |        |     |          |   |        |        |       |    |   |        
|                              | Americas     |          | $      | 14,435 |     | 48       |   | $      | 30,700 |       | 53 |   | $      
|                              | Europe       |          |        | 11,725 |     | 39       |   |        | 23,733 |       | 41 |   |        
|                              | Asia/Pacific |          |        | 4,070  |     | 13       |   |        | 3,418  |       | 6  |   |        
|                              |              |          |        |        |     |          |   |        |        |       |    |   |        
|Total                         |              | $        | 30,230 |        | 100 |          | $ | 57,851 |        | 100   |    | $ | 88,081 
|                              |              |          |        |        |     |          |   |        |        |       |    |   |        
|Year Ended December 31, 2002: |              |          |        |        |     |          |   |        |        |       |    |   |        
|                              | Americas     |          | $      | 23,988 |     | 59       |   | $      | 46,137 |       | 61 |   | $      
|                              | Europe       |          |        | 14,658 |     | 36       |   |        | 24,853 |       | 33 |   |        
|                              | Asia/Pacific |          |        | 1,837  |     | 5        |   |        | 4,425  |       | 6  |   |        
|                              |              |          |        |        |     |          |   |        |        |       |    |   |        
|Total                         |              | $        | 40,483 |        | 100 | %        | $ | 75,415 |        | 100   | %  | $ | 115,898
|                              |              |          |        |        |     |          |   |        |        |       |    |   |        

Revenues

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.

25

---



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, |       
|----------------------------- |  | ------------------------ | ------
|
|
|Cost of software licenses (1) |  | $                        | 1,303 
|Cost of services (2)          |  |                          | 24,978
|                              |  |                          |       
|Total cost of revenues (3)    |  | $                        | 26,281
|                              |  |                          |       

---

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.

26

---



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 consist of the following:



27

---





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, |         
|------------------------------------ |  | ------------------------ | --------
|
|
|Research and development             |  | $                        | 18,024  
|Sales and marketing                  |  |                          | 27,340  
|General and administrative           |  |                          | 9,538   
|Litigation settlement costs          |  |                          |        
|Goodwill and intangible amortization |  |                          |        
|Restructuring (credit) charge        |  |                          | (23,545)
|Impairment of assets                 |  |                          |        
|                                     |  |                          |         
|Total operating expenses             |  | $                        | 31,357  
|                                     |  |                          |         
|Interest income (expense)            |  | $                        | (227)   
|                                     |  |                          |         
|Other income (expense), net          |  | $                        | 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 the company's 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 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.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

28

---



fiscal
2004, the Company 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, 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 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
and Benefits |        | Facilities/Excess Assets |   | Total   |  
|----------------------------------- |  | ---------------------- | ------ | ------------------------ | - | ------- | -
|Accrual balances, December 31, 2001 |  | $                      | 930    |                          | $ | 89,859  |  
|Restructuring charges               |  |                        | 8,707  |                          |   | 101,742 |  
|Cash payments                       |  |                        | (8,026 | )                        |   | (78,019 | )
|Non-cash portion                    |  |                        | (107   | )                        |   | (18,891 | )
|                                    |  |                        |        |                          |   |         |  
|Accrual balances, December 31, 2002 |  |                        | 1,504  |                          |   | 94,691  |  
|Restructuring charges               |  |                        | 1,509  |                          |   | 33,847  |  
|Cash payments                       |  |                        | (2,342 | )                        |   | (23,829 | )
|                                    |  |                        |        |                          |   |         |  
|Accrual balances, December 31, 2003 |  |                        | 671    |                          |   | 104,709 |  
|Restructuring charges (credits)     |  |                        | 1,114  |                          |   | (24,659 | )
|Cash payments                       |  |                        | (961   | )                        |   | (46,711 | )
|                                    |  |                        |        |                          |   |         |  
|Accrual balances, December 31, 2004 |  | $                      | 824    |                          | $ | 33,339  |  
|                                    |  |                        |        |                          |   |         |  

The
severance and benefits accrual for each period included severance, payroll taxes and COBRA benefits related to restructuring plans implemented prior to the balance sheet date. The
facilities/excess assets accrual for each period included future minimum lease payments, fees and expenses, net of estimated sublease income and planned company occupancy, and related leasehold
improvement amounts payable subsequent to the balance sheet date for which the provisions of EITF 94-3 or SFAS 146, as applicable, were satisfied. See further discussion below. In
determining estimated future sublease income, the following factors were considered, among others: opinions of independent real estate experts, current market conditions and rental rates, an
assessment of the time period over which reasonable estimates could be made, the status of negotiations with potential subtenants, and the location of the respective facilities.

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

Severance and benefitsThe Company recorded a charge of $1.1 million during the twelve months ended December 31,
2004, related to workforce reductions as a component of the Company's restructuring plans executed during the year. The 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 $24.6 million. During the third and fourth quarters of 2004, the Company reached agreements with certain landlords to extinguish approximately $155.0 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, as of December 31, 2004,
is 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

29

---



letters
of credit securing other long-term leases of $2.3 million, has been included in restricted cash in the accompanying Consolidated Balance Sheets at December 31, 2004.
The Company also transferred ownership of certain furniture, fixtures, and leasehold improvements with a net book value of $8.5 million to the previous landlords.

As
a component of the settlement of one of the previous leases, the Company has a residual lease obligation beginning in 2007 of approximately $9.1 million. The Company may make
an additional cash payment of $4.5 million if it exercises an option to terminate this residual real estate obligation prior to the commencement of the lease term (January 2007). This
option to terminate the residual lease obligation is accounted for in accordance with SFAS 146 and is a part of the facilities related 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 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 the
Company's 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 Company's revisions of estimates with respect to the planned future occupancy and anticipated future subleases. These revisions
were necessary due to a reduction in planned future BroadVision space needs and a further decline in the market for commercial real estate. The Company estimated future sublease timing and rates based
upon current market indicators and information obtained from a third party real estate expert.

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 Company's
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. The Company's 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. As a result of these reductions, the Company expected annual salary savings of approximately $44.6 million.

30

---



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 Company's 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.

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  |             | $ |     
|Excess Facilities         |       |         | 25.4 |             |   | 7.9  
|                          |       |         |      |             |   |      
|                          | Total |         | $    | 26.3        |   | $    
|                          |       |         |      |             |   |      

The
Company estimates 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):

Years ending December 31,

Total future
minimum lease
payments2005

$
25.42006


6.02007


0.92008


0.52009 and thereafter (through October 2010)


0.5Total 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. 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.

31

---



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
restructuring
costs, beginning |        | Amounts
charged to
restructuring
costs and
other |   | Amounts
paid or
written off |   | Accrued
restructuring
costs, ending
|--------------------------------------------------- |  | -------------------------------------- | ------ | ------------------------------------------------ | - | --------------------------- | - | -----------------------------------
|Year Ended December 31, 2004:                       |  |                                        |        |                                                  |   |                             |   |                                    
|Lease cancellations and commitments                 |  | $                                      | 21,683 |                                                  | $ | 9,594                       |   | $                                  
|Termination payments to employees and related costs |  |                                        | 242    |                                                  |   | 1,114                       |   |                                    
|Write-off on disposal of assets and related costs   |  |                                        |       |                                                  |   | (1,193                      | ) |                                    
|                                                    |  |                                        |        |                                                  |   |                             |   |                                    
|                                                    |  | $                                      | 21,925 |                                                  | $ | 9,515                       |   | $                                  
|                                                    |  |                                        |        |                                                  |   |                             |   |                                    
|Year Ended December 31, 2003:                       |  |                                        |        |                                                  |   |                             |   |                                    
|Lease cancellations and commitments                 |  | $                                      |       |                                                  | $ | 21,683                      |   | $                                  
|Termination payments to employees and related costs |  |                                        |       |                                                  |   | 1,535                       |   |                                    
|Write-off on disposal of assets and related costs   |  |                                        |       |                                                  |   | 515                         |   |                                    
|                                                    |  |                                        |        |                                                  |   |                             |   |                                    
|                                                    |  | $                                      |       |                                                  | $ | 23,733                      |   | $                                  
|                                                    |  |                                        |        |                                                  |   |                             |   |                                    

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 restructuring costs, beginning |        | Amounts
charged to
restructuring
costs and
other |   | Amounts
reversed to
restructuring
costs and
other |   | Amounts paid or written off |     | Accrued restructuring costs, ending
|--------------------------------------------------- |  | -------------------------------------- | ------ | ------------------------------------------------ | - | ------------------------------------------------- | - | --------------------------- | --- | -----------------------------------
|Year Ended December 31, 2004:                       |  |                                        |        |                                                  |   |                                                   |   |                             |     |                                    
|Lease cancellations and commitments                 |  | $                                      | 83,026 |                                                  | $ | (32,584                                           | ) | $                           |    |                                    
|Termination payments to employees and related costs |  |                                        | 429    |                                                  |   |                                                  |   |                             |    |                                    
|Write-off on disposal of assets and related costs   |  |                                        |       |                                                  |   | (477                                              | ) |                             |    |                                    
|                                                    |  |                                        |        |                                                  |   |                                                   |   |                             |     |                                    
|                                                    |  | $                                      | 83,455 |                                                  | $ | (33,061                                           | ) | $                           |    |                                    
|                                                    |  |                                        |        |                                                  |   |                                                   |   |                             |     |                                    
|Year Ended December 31, 2003:                       |  |                                        |        |                                                  |   |                                                   |   |                             |     |                                    
|Lease cancellations and commitments                 |  | $                                      | 94,691 |                                                  | $ | 11,649                                            |   | $                           |    |                                    
|Termination payments to employees and related costs |  |                                        | 1,425  |                                                  |   | 41                                                |   |                             |    |                                    
|Write-off on disposal of assets and related costs   |  |                                        | 79     |                                                  |   | (41                                               | ) |                             | (26 | )                                  
|                                                    |  |                                        |        |                                                  |   |                                                   |   |                             |     |                                    
|                                                    |  | $                                      | 96,195 |                                                  | $ | 11,649                                            |   | $                           | (26 | )                                  
|                                                    |  |                                        |        |                                                  |   |                                                   |   |                             |     |                                    
|Year Ended December 31, 2002:                       |  |                                        |        |                                                  |   |                                                   |   |                             |     |                                    
|Lease cancellations and commitments                 |  | $                                      | 89,859 |                                                  | $ | 82,851                                            |   | $                           |    |                                    
|Termination payments to employees and related costs |  |                                        | 817    |                                                  |   | 7,644                                             |   |                             |    |                                    
|Write-off on disposal of assets and related costs   |  |                                        | 113    |                                                  |   | 19,954                                            |   |                             |    |                                    
|                                                    |  |                                        |        |                                                  |   |                                                   |   |                             |     |                                    
|                                                    |  | $                                      | 90,789 |                                                  | $ | 110,449                                           |   | $                           |    |                                    
|                                                    |  |                                        |        |                                                  |   |                                                   |   |                             |     |                                    

32

---



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, |     
|------------------------------ |  | ------------------------ | ----
|
|
|Interest income (expense), net |  | $                        | (227
|Other income (expense), net    |  |                          | 187 

Interest
income (expense), net, decreased $1.0 million in 2004 as compared to 2003, as the cash balance of the Company decreased and the Company 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, the Company sold its 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.

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.

33

---



The
tax expense, excluding the deferred tax asset valuation provision, mainly relates to foreign withholding taxes and state income taxes.

Liquidity and Capital Resources

December 31,2004

2003(dollars in thousands)Cash, cash equivalents and short-term investments

$
41,851

$
78,776Long-term investments

$


$
Restricted cash and investments

$
24,256

$
19,827Working capital (deficit)

$
(18,136
)
$
748Current ratio


0.82


1.00


As
of December 31, 2004, cash, cash equivalents and cash investments (including restricted cash) totaled $66.1 million, which represents a decrease of $32.5 million
as compared to a balance of $98.6 million at December 31, 2003. This decrease was primarily attributable to net cash used for operations, repayment of outstanding debt, and settlement of
outstanding lease obligations.

On
November 10, 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 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 agreement provides for an additional
$4.0 million of convertible debentures to be issued to the investors at the option of the investors, or, under certain circumstances, at the Company's option. Investors also received warrants
to purchase approximately 1.7 million shares of the Company's 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.

We
have a credit facility with Silicon Valley Bank that includes term loans in the form of promissory notes and a revolving line of credit (the "SVB Facilities") for up to
$20.0 million as of December 31, 2004. Borrowings under the revolving line of credit are collateralized by all of our assets and bear interest at the bank's prime rate. The amended and
restated loan and security agreement requires us to maintain certain levels in cash and cash equivalents and short-term investments (excluding restricted cash, long-term
investments and equity investments). Additionally, the amended and restated loan and security agreement requires us to maintain certain levels on deposit with our commercial lender and certain
quarterly operating levels and ratios. At December 31, 2004 and 2003, $20.0 million and $27.0 million, respectively, was outstanding under the line of credit. Interest is due
monthly and principal is due at expiration in February 2005.

Under
the term loan portion of the SVB Facilities, we have outstanding term debt borrowings and the total outstanding amounts of these loans was $1.0 million as of
December 31, 2004 and $1.9 million as of December 31, 2003. Interest on these term loans is at the bank's 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 consecutive monthly payments through maturity of these term loans. Principal payments of $637,000 are due in 2005, and
payments of $390,000 are due thereafter. As of December 31, 2004 and 2003, commitments totaling $24.3 million and $19.8 million, respectively, in the form of standby letters of
credit were issued and outstanding from financial institutions in favor of several landlords to secure obligations under our facility leases or under related buyout agreements. These letters of credit
are collateralized by a security agreement, under which we are required to maintain an equal amount of

34

---



cash
in a restricted specified interest bearing account. Accordingly, $24.3 million and $19.8 million have been presented as restricted cash in the accompanying Consolidated Balance
Sheets at December 31, 2004 and December 31, 2003, respectively.

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 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.

35

---



Leases and Other Contractual Obligations

We lease our headquarters facilities and 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.

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):

Years ending December 31,

Total future
minimum lease
payments2005

$
25.42006


6.02007


0.92008


0.52009 and thereafter (through October 2010)


0.5Total 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.

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 millions):

Less than 1 year

$
21.91-3 years


0.64-5 years


0.8Over 5 years


1.0Total

$
24.3


Restricted
cash represents collateral for these letters of credit.

During
the third and fourth quarters of 2004, the Company reached agreements with certain landlords to extinguish approximately $155.0 million of future real estate obligations.
The Company made cash
payments of $19.0 million during the third quarter and $1.7 million in the fourth quarter, and, as of December 31, 2004, is 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 our 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 Sheet 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. In addition, the Company issued to one of the landlords 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.

36

---



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 the 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 part of our computation of the restructuring credit of $23.5 million recorded in the
year ended December 31, 2004.

The
Company does not anticipate additional significant facilities-related restructuring charges or credits in future periods, although no assurances are provided.

Factors That May Affect Future Liquidity

The following table summarizes our contractual obligations as of December 31, 2004 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.

Total

Less than
1 year

1-3 years

4-5 years

Over
5 years(in millions)Letters of credit

$
24.3

$
21.9

$
0.6

$
0.8

$
1.0Long-term debt


1.0


0.6


0.4





SVB facility


20.0


20.0








Non-cancelable operating leases


4.8


2.2


1.9


0.7


$
50.1

$
44.7

$
2.9

$
1.5

$
1.0


In
addition to the above obligations, 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 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. If the Company were to repay these debentures with cash, the repayment would represent a significant use of capital.

We
anticipate that future operating expenses will be significant. As a result, our net future cash flows will depend heavily on the level of future revenues, as well as 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, that may have a significant negative impact on our anticipated cash inflows from operations, and that may increase our use of available cash or
our need to obtain additional financing. Also, we may find it necessary to obtain additional equity or debt
financing 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 our common stock. There can be no

37

---



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 required to significantly
downsize our operation. In the event of such a downsizing, 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.

The
convertible notes allow the noteholders to require redemption of the notes upon the occurrence of various events of default, such as the termination of trading of our common stock on
the Nasdaq National Market, or specified change of control transactions. In such a situation, we may be required to redeem all or part of the convertible notes including payment of applicable interest
and penalties. These payments must be made within 5 business days of receipt of a notice of redemption. Some of the events of default include matters over which we may have some, little or no control.
Many other events of default are described in the agreements we executed when we issued the convertible notes. If an event of default or a change of control occurs, we may be unable to pay the
redemption price in cash. Any such redemption could leave us with little or no working capital for our business. We have not established a sinking fund for payment of our outstanding convertible
notes, nor do we anticipate doing so.

Factors That May Affect Future Operating Results

We may experience significant fluctuations in quarterly operating results that may be caused by many factors including, among others, the timing of introductions
or enhancements of products and services by us or our competitors, market acceptance of new products, the mix of our products sold, changes in pricing policies by us or our competitors, our ability to
retain customers, changes in our sales incentive plans, budgeting cycles of our customers, customer order deferrals in anticipation of new products or enhancements by us or our competitors,
non-renewal of maintenance agreements, product life cycles, changes in strategy, seasonal trends, the mix of distribution channels through which our products are sold, the mix of
international and domestic sales, the rate at which new sales people become productive, changes in the level of operating expenses to support projected growth and general economic conditions. We
anticipate that a significant portion of our revenues will be derived from a
limited number of orders, and the timing of receipt and fulfillment of any such orders is expected to cause material fluctuations in our operating results, particularly on a quarterly basis. Due to
the foregoing factors, quarterly revenues and operating results are difficult to forecast, and we believe that period-to-period comparisons of our operating results will not
necessarily be meaningful and should not be relied upon as any indication of future performance. It is likely that our future quarterly operating results from time to time will not meet the
expectations of market analysts or investors, which may have an adverse effect on the price of our common stock.

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.

We
renewed and amended our commercial line of credit during November 2004. The SVB Facility is secured by substantially all of our owned assets. At December 31, 2004,
$20.0 million was outstanding under the line of credit. Interest is due monthly and principal is due at expiration in February 2005. The primary financial covenant under the SVB Facility
obligates us to maintain certain levels of available cash, cash equivalents, short-term investments and long-term investments (excluding equity

38

---



investments).
Falling below such levels would be an event of default for which Silicon Valley Bank may, among other things, accelerate the payment of the facility.

In
connection with our repayment of outstanding debentures, if we repay them in cash and need to use existing cash or liquidate investments, we may have to further restructure our
operations.

So
long as $5 million is outstanding under the convertible notes, the Company may be required to make additional payments under the notes if either of the following events occur:
1) our U.S. net cash balance falls below $10 million, or 2) our worldwide net cash balance falls below $15 million (each a "Net Cash Deficiency"). In either of these
circumstances, we shall provide notice to the holders of the Net Cash Deficiency on the date of our quarterly results announcement. For a period of seven business days after our notice to the holders,
each holder may provide us a notice requiring us to pay their proportional share of a special installment amount, equal to $1 million for all holders, monthly until there is no longer a Net
Cash Deficiency at the end of a calendar quarter. Our payment of these additional installment amounts may be in cash and/or common stock pursuant to similar terms as the payment of regular installment
amounts. Any requirement that we make any such payments in cash could leave us with insufficient working capital for our business.

Quarterly Results of Operations

The following tables set forth certain unaudited condensed consolidated statement of operations data for the eight quarters ended December 31, 2004, as
well as that data expressed as a percentage of our total revenues for the periods indicated.

This
data has been derived from unaudited condensed consolidated financial statements that, in the opinion of management, include all adjustments consisting only of normal recurring
adjustments, necessary for a fair presentation of such information when read in conjunction with the Consolidated Financial Statements and Notes thereto.

The
unaudited quarterly information should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in this Form 10-K. We believe
that period-to-period

39

---



comparisons
of our financial results are not necessarily meaningful and should not be relied upon as an indication of future performance.

|                                                             |                                      | Three Months Ended               
|------------------------------------------------------------ | ------------------------------------ | ---------------------------------
|
|
|(UNAUDITED)                                                  |                                      |                                  
|Statement of Operations Data:                                |                                      |                                  
|Revenues:                                                    |                                      |                                  
|                                                             | Software licenses                    |                                  
|                                                             | Services                             |                                  
|                                                             |                                      |                                  
|                                                             |                                      | Total revenues                   
|Cost of revenues:                                            |                                      |                                  
|                                                             | Cost of software licenses            |                                  
|                                                             | Cost of services                     |                                  
|                                                             |                                      |                                  
|                                                             |                                      | Total cost of revenues           
|                                                             |                                      |                                  
|Gross profit                                                 |                                      |                                  
|Operating expenses:                                          |                                      |                                  
|                                                             | Research and development             |                                  
|                                                             | Sales and marketing                  |                                  
|                                                             | General and administrative           |                                  
|                                                             | Litigation settlement costs          |                                  
|                                                             | Goodwill and intangible amortization |                                  
|Restructuring charge (credit)                                |                                      |                                  
|                                                             |                                      |                                  
|                                                             |                                      | Total operating expenses (credit)
|                                                             |                                      |                                  
|Operating (loss) income                                      |                                      |                                  
|Other, net                                                   |                                      |                                  
|                                                             |                                      |                                  
|Net (loss) income                                            |                                      | $                                
|                                                             |                                      |                                  
|Basic net (loss) income per share                            |                                      | $                                
|                                                             |                                      |                                  
|Dilute net (loss) income per share                           |                                      | $                                
|                                                             |                                      |                                  
|Shares used in computing basic net (loss) income per share   |                                      |                                  
|                                                             |                                      |                                  
|Shares used in computing diluted net (loss) income per share |                                      |                                  
|                                                             |                                      |                                  

40

---



|                             |                                      | Dec. 31,
2004            |    | Sep. 30,
2004 |    | June 30,
2004 |    | Mar. 31,
2004 |    | Dec. 31,
2003 |    | Sep. 30,
2003 |    | June 30,
2003 |    | Mar. 31,
2003 |   
|---------------------------- | ------------------------------------ | ------------------------ | -- | ------------- | -- | ------------- | -- | ------------- | -- | ------------- | -- | ------------- | -- | ------------- | -- | ------------- | --
|As a Percentage of Revenues: |                                      |                          |    |               |    |               |    |               |    |               |    |               |    |               |    |               |   
|Revenues:                    |                                      |                          |    |               |    |               |    |               |    |               |    |               |    |               |    |               |   
|                             | Software licenses                    |                          | 37 | %             | 27 | %             | 35 | %             | 38 | %             | 45 | %             | 27 | %             | 31 | %             | 33
|                             | Services                             |                          | 63 |               | 73 |               | 65 |               | 62 |               | 55 |               | 73 |               | 69 |               | 67
|                             |                                      |                          |    |               |    |               |    |               |    |               |    |               |    |               |    |               |   
|                             |                                      | Total revenues           |    | 100           |    | 100           |    | 100           |    | 100           |    | 100           |    | 100           |    | 100           |   
|Cost of revenues:            |                                      |                          |    |               |    |               |    |               |    |               |    |               |    |               |    |               |   
|                             | Cost of software licenses            |                          | 1  |               | 2  |               | 2  |               | 3  |               | 4  |               | 4  |               | 2  |               | 2 
|                             | Cost of services                     |                          | 30 |               | 37 |               | 31 |               | 30 |               | 26 |               | 32 |               | 33 |               | 27
|                             |                                      |                          |    |               |    |               |    |               |    |               |    |               |    |               |    |               |   
|                             |                                      | Total cost of revenues   |    | 31            |    | 39            |    | 33            |    | 33            |    | 30            |    | 36            |    | 35            |   
|                             |                                      |                          |    |               |    |               |    |               |    |               |    |               |    |               |    |               |   
|Gross profit                 |                                      | 69                       |    | 61            |    | 67            |    | 67            |    | 70            |    | 64            |    | 65            |    | 71            |   
|Operating expenses:          |                                      |                          |    |               |    |               |    |               |    |               |    |               |    |               |    |               |   
|                             | Research and development             |                          | 21 |               | 27 |               | 22 |               | 23 |               | 19 |               | 24 |               | 28 |               | 25
|                             | Sales and marketing                  |                          | 35 |               | 35 |               | 37 |               | 33 |               | 29 |               | 36 |               | 27 |               | 28
|                             | General and administrative           |                          | 12 |               | 13 |               | 12 |               | 12 |               | 9  |               | 16 |               | 11 |               | 9 
|                             | Litigation settlement costs          |                          |   |               |   |               |   |               |   |               |   |               | 23 |               |   |               |  
|                             | Goodwill and intangible amortization |                          |   |               |   |               |   |               |   |               |   |               |   |               |   |               | 4 
|Restructuring charge         |                                      | 3                        |    | (148          | )  | 4             |    | 3             |    | 95            |    | 24            |    | 36            |    | 4             |   
|                             |                                      |                          |    |               |    |               |    |               |    |               |    |               |    |               |    |               |   
|                             |                                      | Total operating expenses |    | 71            |    | (73           | )  | 75            |    | 71            |    | 152           |    | 123           |    | 102           |   
|                             |                                      |                          |    |               |    |               |    |               |    |               |    |               |    |               |    |               |   
|Operating (loss) income      |                                      | (2                       | )  | 134           |    | (8            | )  | (3            | )  | (83           | )  | (58           | )  | (38           | )  | 1             |   
|Other, net                   |                                      |                         |    | 2             |    | 1             |    | (1            | )  | 1             |    | 3             |    | 3             |    | 4             |   
|                             |                                      |                          |    |               |    |               |    |               |    |               |    |               |    |               |    |               |   
|Net (loss) income            |                                      | (2                       | )% | 136           | %  | (7            | )% | (4            | )% | (82           | )% | (55           | )% | (35           | )% | 5             | % 
|                             |                                      |                          |    |               |    |               |    |               |    |               |    |               |    |               |    |               |   

Our quarterly operating results have fluctuated in the past and may fluctuate significantly in the future as a result of a variety of factors,
many of which are outside of our control. It is likely that our operating results in one or more future quarters may be below the expectations of securities analysts and investors. In that event, the
trading price of our common stock almost certainly would decline.

RECENT ACCOUNTING PRONOUNCEMENTS

In 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 entity's activities or is entitled to receive a majority of the entity's
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

41

---



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. 123Accounting for Stock-Based Compensation, or SFAS 123, and supercedes APB Opinion No. 25Accounting
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 Company's 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.

RISK FACTORS

The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us
or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occur, our business could be harmed. In that event, the trading price of our common
stock could decline.

We have a history of losses and our future profitability on a quarterly or annual basis is uncertain, which could have a harmful effect on our business
and the value of our 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 December 31, 2004, 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 are likely to incur losses
and 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

42

---



expense
structure commensurate with our business activities and revenues, we may be required to significantly downsize our operation. Further, 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 our common stock. If the negative cash flow
continues, our liquidity and ability to operate our business would be severely and adversely impacted. Additionally, our ability to raise financial capital may be hindered due to our operational
losses and negative cash flows, reducing our operating flexibility.

Our management identified three material weaknesses in the effectiveness of our internal control over financial reporting as of December 31, 2004 that, if not remedied,
could result in material misstatements in our financial statements, cause investors to lose confidence in our reported financial information and have a negative effect on the trading price of our
stock.

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:

As
further described in Item 9A of this report, while we believe we have fully remediated the third material weakness associated with the accuracy of our maintenance contract data,
remediation of the other two material weaknesses that relate to inadequate staffing and training is dependent upon filling the open position and retaining existing employees and therefore we are
currently unable to determine when this material weakness will be fully remediated. In addition, we cannot assure you that additional material weaknesses in our internal control will not be discovered
in the future. Any failure to remediate material weaknesses in our internal control over financial reporting could cause our reported operating results to be unreliable, cause us to fail to meet our
reporting obligations or result in material misstatements in our financial statements. Inferior internal control could also cause investors to lose confidence in our reported financial information,
which could have a negative effect on the trading price of our common stock.

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

We generate our revenue from licenses of the BroadVision Self-Service Suite, including process, commerce, portal and content management and related
products and services. We expect that these products, and future upgraded versions, will continue to account for a large portion of our revenue in the foreseeable future. Our future financial
performance will depend on increasing acceptance of our current product and on the successful development, introduction and customer acceptance of new and enhanced versions of our products. If new and
future versions and updates of our products and services

43

---



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:



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.

Actions being taken to improve our revenue may not be effective and the expected benefits may not be realized when expected or at all.

In March 2004, we announced the Company's latest product, "BroadVision Process," and presented this product in a worldwide multi-city
"Energizing e-Business World Tour." In addition, we have recently taken a number of steps in an effort to improve our sales processes and/or increase revenue including: increasing our
spending on variable marketing programs and hiring additional marketing personnel; reorganizing our sales force; hiring a new Senior Vice President, Business Development, and several other senior
sales managers; and implementing changes in our sales methodology. While these initiatives are intended to increase our revenue, they may not be successful. The new additions to management may not be
as effective as anticipated. In addition, the implementation of new methodologies and the retraining process involved in developing sales for our new products may adversely impact revenue by creating
longer sales cycles during the transition period.

44

---



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 September 30, 2003, December 31, 2003 and March 31, 2004, our revenues declined 15%, increased 25% and declined 10%, respectively, as compared to the previous fiscal
quarter. In the quarters ended June 30, 2003, September 30, 2003 and December 31, 2003, 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:



45

---







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 47% to 56%, 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 and 449 at the end of 2002 and 367 at the end of 2003. As of December 31, 2004, we have a total of 337
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
an immediate use. We announced during the third and fourth quarters of 2004 that we had agreed with the landlords of various facilities to renegotiate future lease commitments, extinguishing a total
of approximately $155.0 million of future obligations. The management of the expansion and later reduction of our operations has taken a considerable amount of our management's attention during
the past several years. As we manage our business to introduce and support new products, we will need to continue to monitor our workforce and make appropriate changes as necessary. If we are unable
to support past and implement future changes effectively, we
may have to divert additional resources away from executing our business plan and toward internal administration. If our expenses significantly outpace our revenues, we may have to make additional
changes to our management systems and our business plan may not succeed.

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

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

46

---



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:



47

---





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:



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

48

---



and
services package. As a result, we may be unable to compete successfully with current or new competitors.

Our success and competitive position will depend on our ability to protect our proprietary technology.

Our success and ability to compete are dependent to a significant degree on our proprietary technology. We hold a U.S. patent, issued in January 1998, on
elements of the BroadVision platform, which covers electronic commerce operations common in today's web business. We also hold a U.S. patent, issued in November 1996, acquired as part of the
Interleaf acquisition on the elements of the extensible electronic document processing system for creating new classes of active documents.

Although
we hold these patents, they may not provide an adequate level of intellectual property protection. In addition, litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others. It is also possible that third parties may claim we have
infringed their patent, trademark, copyright or other proprietary rights. Claims may be made for indemnification resulting from allegations of infringement. Intellectual property infringement claims
may be asserted against us as a result of the use by third parties of our products. Claims or litigation, with or without merit, could result in substantial costs and diversions of resources, either
of which could harm our business. 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 OpenSSL 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

49

---



of
any of these technology licenses could harm our business. We integrate or sublicense this technology with internally developed software to perform key functions. For example, our products and
services incorporate data encryption and authentication technology licensed from Open SSL. Third-party technology licenses might not continue to be available to us on commercially reasonable terms, or
at all. Moreover, the licensed technology may contain defects that we cannot control. Problems with our technology licenses could cause delays in introducing our products or services until equivalent
technology, if available, is identified, licensed and integrated. Delays in introducing our products and services could adversely affect our results of operations.

Our executive officers, key employees and highly skilled technical and managerial personnel are critical to our business, and they may not remain with
us in the future.

Our performance substantially depends on the performance of our executive officers and key employees. We also rely on our ability to retain and motivate qualified
personnel, especially our
management and highly skilled development teams. The loss of the services of any of our executive officers or key employees, particularly our founder and Chief Executive Officer, Dr. Pehong
Chen, could cause us to incur increased operating expenses and divert senior management resources in searching for replacements. The loss of their services also could harm our reputation if our
customers were to become concerned about our future operations. We do not carry "key person" life insurance policies on any of our employees. Our future success also depends on our continuing ability
to identify, hire, train and retain other highly qualified technical and managerial personnel. Competition for these personnel is intense, especially in the Internet industry. We have in the past
experienced, and may continue to experience, difficulty in hiring and retaining sufficient numbers of highly skilled employees. The significant downturn in our business environment has had a negative
impact on our operations. We have restructured our operations by reducing our workforce and implementing other cost containment activities. These actions could lead to disruptions in our business,
reduced employee morale and productivity, increased attrition, and problems with retaining existing and recruiting future employees.

Limitations on the online collection of profile information could impair the effectiveness of our products.

Online users' resistance to providing personal data, and laws and regulations prohibiting use of personal data gathered online without express consent or
requiring businesses to notify their web site visitors of the possible dissemination of their personal data, could limit the effectiveness of our products. This in turn could adversely affect our
sales and results of operations. One of the principal features of our products is the ability to develop and maintain profiles of online users to assist business managers in determining the nature of
the content to be provided to these online users. Typically, profile information is captured when consumers, business customers and employees visit a web site and volunteer information in response to
survey questions concerning their backgrounds, interests and preferences. Profiles can be augmented over time through the subsequent collection of usage data. Although our products are designed to
enable the development of applications that permit web site visitors to prevent the distribution of any of their personal data beyond that specific web site, privacy concerns may nevertheless cause
visitors to resist providing the personal data necessary to support this profiling capability. The mere perception by prospective customers that substantial security and privacy concerns exist among
online users, whether or not valid, may indirectly inhibit market acceptance of our products. In addition, new laws and regulations could heighten privacy concerns by requiring businesses to notify
web site users that the data captured from them while online may be used by marketing entities to direct product messages to them. We are subject to increasing regulation at the federal and state
levels relating to online privacy and the use of personal user information. Several states have proposed legislation that would limit the uses of personal user information gathered online or require
online services to establish privacy policies. In addition, the U.S. Federal Trade Commission, or FTC, has urged Congress to adopt legislation regarding the collection and use of personal identifying
information obtained from individuals when accessing web sites. The FTC has settled several

50

---



proceedings
resulting in consent decrees in which Internet companies have been required to establish programs regarding the manner in which personal information is collected from users and provided to
third parties. We could become a party to a similar enforcement proceeding. These regulatory and enforcement efforts could also harm our customers' ability to collect demographic and personal
information from users, which could impair the effectiveness of our products.

We may not have adequate back-up systems, and natural or manmade disasters could damage our operations, reduce our revenue and lead to a
loss of customers.

We do not have fully redundant systems for service at an alternate site. A disaster could severely harm our business because our service could be interrupted for
an indeterminate length of time. Our operations depend upon our ability to maintain and protect our computer systems at our facility in Redwood City, California, which reside on or near known
earthquake fault zones. Although these systems are designed to be fault tolerant, they are vulnerable to damage from fire, floods, earthquakes, power loss, acts of terrorism, telecommunications
failures and similar events. In addition, our facilities in California could be subject to electrical blackouts if California faces another power shortage similar to that of 2001. Although we do have
a backup generator that would maintain critical operations, this generator could fail. We also have significantly reduced our workforce in a short period of time, which has placed different
requirements on our systems and has caused us to lose personnel knowledgeable about our systems, both of which could make it more difficult to quickly resolve system disruptions. Disruptions in our
internal business operations could harm our business by resulting in delays, disruption of our customers' business, loss of data, and loss of customer confidence.

Our stock price has been and is likely to continue to be highly volatile.

The trading price of our common stock has been and is likely to continue to be highly volatile. For example, the trading price of our common stock has ranged from
$2.05 per share to $9.05 per share between January 1, 2004 and December 31, 2004. Our stock price is subject to wide fluctuations in response to a variety of factors, including:



In
addition, the stock market has experienced significant price and volume fluctuations that have particularly affected the trading prices of equity securities of many technology
companies. These fluctuations have often been unrelated or disproportionate to the operating performance of these companies. Any negative change in the public's perception of the prospects of Internet
or electronic commerce companies could further depress our stock price regardless of our results. Other broad market fluctuations may decrease the trading price of our common stock. In the past,
following declines in the market price of a company's securities, securities class action litigation, such as the class action lawsuits filed against us and certain of our officers and directors in
early 2001, has often been instituted against that company. Litigation could result in substantial costs and a diversion of management's attention and resources.

51

---



If we are required to raise additional funds, we may be unable to obtain these funds on terms acceptable to us or at all.

The operation of our business will require significant capital to fund our operating expenses, working capital needs and capital expenditures. During the next
12 months, we expect to meet our cash requirements with existing cash and cash equivalents and short-term investments, cash flow from sales of our products and services and proceeds
from existing and future working capital lines of credit and other borrowings. We may need to raise additional funds in the future, for example, to fund operations, develop new technologies, respond
to competitive pressures or acquire complementary businesses. We may try to raise additional funds through public or private financings, strategic relationships or other arrangements. Our ability to
obtain debt or equity funding will depend on a number of factors, including restrictive covenants contained in our current convertible note agreements and credit facilities, market conditions, our
operating performance and investor interest. Additional funding may not be available to us on acceptable terms or at all. If adequate funds are not available, we may be required to revise our business
plan to reduce expenditures, including curtailing our growth strategies, foregoing acquisitions or reducing our product development efforts. Our failure to generate sufficient cash flows from sales of
products and services or to raise sufficient funds may require us to delay or abandon some or all of our development plans or otherwise forego market opportunities. If we raise additional funds
through the issuance of equity securities, the issuance could result in substantial dilution to existing stockholders.

Our indebtedness and debt service obligations may adversely affect our cash flow.

As of September 2004, our obligations for debt payments were limited to our outstanding commercial credit facilities. In November 2004, we completed
the private placement of $16.0 million of convertible notes. The private placement agreement provides for interest to be paid at six percent per annum on the outstanding principal balance, and
an additional $4.0 million of convertible notes to be issued to the investors at the option of the investors or, under certain circumstances, at our option. Principal repayments are generally
due under the notes in fifteen ratable, monthly amounts beginning June 1, 2005. Should we be legally unable to issue shares of our common stock upon conversion of the convertible notes, we will
be required to pay those obligations in cash. We expect to be able to fulfill the above obligations both from cash generated by our operations and from our existing cash and investments. If we are
unable to generate sufficient cash to meet these obligations and need to use existing cash or liquidate investments in order to fund our current debt service obligations, including repayment of the
principal and payment of the convertible notes, we may have to further restructure our operations.

Our
indebtedness could have significant additional negative consequences, including, but not limited to:



52

---





Issuance of the shares of common stock upon conversion of convertible notes, payment of interest, and exercise of warrants will dilute the ownership
interest of existing stockholders and could adversely affect the market price of our common stock.

The issuance of shares of common stock in the following circumstances will dilute the ownership interests of existing stockholders: (1) upon conversion of
some or all of the convertible notes (including convertible notes issuable upon exercise of additional investment rights), (2) as obligations to repay principal under the convertible notes in
lieu of cash payments at our option, (3) as interest on the convertible notes, and (4) upon exercise of the warrants. Any sales in the public market of this common stock could adversely
affect prevailing market prices of our common stock. In addition, the existence of these convertible notes and warrants may encourage short selling by market participants.

The convertible notes provide that upon the occurrence of various events of default and change of control transactions, the noteholders would be
entitled to require us to redeem the notes for cash. If an event of default or change of control occurs, we may be unable to redeem the notes, and any redemption may leave us with little or no working
capital in our business.

The
convertible notes allow the noteholders to require redemption of the notes upon the occurrence of various events of default, such as the termination of trading of our common stock on
the Nasdaq National Market, or specified change of control transactions. In such a situation, we may be required to redeem all or part of the convertible notes including payment of applicable interest
and penalties. These payments must be made within 5 business days of receipt of a notice of redemption. Some of the events of default include matters over which we may have some, little or no control.
Many other events of default are described in the agreements we executed when we issued the convertible notes. If an event of default or a change of control occurs, we may be unable to pay the
redemption price in cash. Any such redemption could leave us with little or no working capital for our business. We have not established a sinking fund for payment of our outstanding convertible
notes, nor do we anticipate doing so.

If our net cash balance falls below certain defined levels, we may be required to make additional payments to the noteholders, and any such cash
payments may leave us with little or no working capital in our business.

So long as $5 million is outstanding under the convertible notes, we may be required to make additional payments under the notes if either of the following
events occur: 1) our U.S. net cash balance falls below $10 million, or 2) our worldwide net cash balance falls below $15 million (each a "Net Cash Deficiency"). In either of these
circumstances, we shall provide notice to the holders of the Net Cash Deficiency on the date of our quarterly results announcement. For a period of seven business days after our notice to the holders,
each holder may provide us a notice requiring us to pay their proportional share of a special installment amount, equal to $1 million for all holders, monthly until there is no longer a Net
Cash Deficiency at the end of a calendar quarter. Our payment of these additional amounts may be in cash and/or common stock pursuant to similar terms as the payment of regular installment amounts.
Any requirement that we make any such payments in cash could leave us with insufficient working capital for our business.

If we cannot obtain the required stockholder approval to issue common stock at the time that an installment payment comes due under the convertible
notes, the selling stockholders would be entitled to require us to immediately pay the amount owed in cash, and any such payment may leave us with little or no working capital in our business.

Stockholder approval will be required for us to pay certain installment payments under the convertible notes with shares of our common stock. In the event that
stockholder approval is not

53

---



obtained,
we will be required to pay such installment payments in cash. Any such payments in cash could leave us with insufficient working capital for our business.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We had no derivative financial instruments as of
December 31, 2004 and 2003. We place our investments in instruments that meet high credit quality standards and the amount of credit exposure to any one issue, issuer and type of instrument is
limited.

Cash and Cash Equivalents, Short-Term Investments, Long-Term Investments

We consider all debt and equity securities with remaining maturities of three months or less at the date of purchase to be cash equivalents.
Short-term cash investments consist of debt and equity securities that have a remaining maturity of less than one year as of the date of the balance sheet. Cash and cash investments that
serve as collateral for financial instruments such as letters of credit are classified as restricted. Restricted cash in which the underlying instrument has a term of greater than twelve months from
the balance sheet date are classified as non-current.

Management
determines the appropriate classification of cash investments at the time of purchase and evaluates such designation as of each balance sheet date. All cash investments to
date have been classified as available-for-sale and carried at fair value with related unrealized gains or losses reported as other comprehensive income (loss), net of tax.
Total short-term and long-term investment unrealized gains (losses) was $49,000 as of December 31, 2003. Total realized gains during fiscal years 2004 and 2003 were
$573,000 and $1.1 million, respectively.

Our
cash and cash equivalents, short-term investments and long-term investments consisted of the following as of December 31, 2004 and 2003 (in thousands):

|                         |                                   |       |   |        |        |   |   |   |   | Classified on Balance Sheet as:
|------------------------ | --------------------------------- | ----- | - | ------ | ------ | - | - | - | - | -------------------------------
|
|As of December 31, 2004: |                                   |       |   |        |        |   |   |   |   |                                
|                         | Cash and certificates of deposits |       | $ | 55,240 |        | $ |  |   | $ |                               
|                         | Money market                      |       |   | 10,867 |        |   |  |   |   |                               
|                         |                                   |       |   |        |        |   |   |   |   |                                
|                         |                                   | Total |   | $      | 66,107 |   | $ |  |   | $                              
|                         |                                   |       |   |        |        |   |   |   |   |                                
|As of December 31, 2003: |                                   |       |   |        |        |   |   |   |   |                                
|                         | Cash and certificates of deposits |       | $ | 65,592 |        | $ |  |   | $ |                               
|                         | Money market                      |       |   | 32,603 |        |   |  |   |   |                               
|                         | Corporate notes/bonds             |       |   | 408    |        |   |  |   |   |                               
|                         |                                   |       |   |        |        |   |   |   |   |                                
|                         |                                   | Total |   | $      | 98,603 |   | $ |  |   | $                              
|                         |                                   |       |   |        |        |   |   |   |   |                                

Concentrations of Credit Risk

Financial
assets that potentially subject us to significant concentrations of credit risk consist principally of cash, cash equivalents, short-term investments, and trade
accounts receivable. We maintain our cash and cash equivalents and short-term investments with four separate financial institutions. We market and sell our products throughout the world
and perform ongoing credit evaluations of our customers. We maintain reserves for potential credit losses. For the years ended December 31, 2004, 2003, and 2002, no customer accounted for more
than 10% of total revenue. As December 31, 2003, one customer individually accounted for more than 10% of accounts receivable.

54

---



Fair Value of Financial Instruments

Our financial instruments consist of cash and cash equivalents, short-term investments, restricted cash and investments, long-term
investments, equity investments, accounts receivable, accounts payable and debt. We 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, short-term investments, accounts receivable and payable, and based on the current rates available to
it on similar debt issues.

Foreign Currency

We license products and maintain significant operations in foreign countries. Fluctuations in the value of foreign currencies, principally the Euro, relative to
the United States dollar have impacted our operating results in the past and may do so in the future. We expect that international license, maintenance and consulting revenues will continue to account
for a significant portion of our total revenues in the future. We pay the expenses of our international operations in local currencies and do not currently engage in hedging transactions with respect
to such obligations.

Equity Investments

Our equity investments consist of equity investments in public and non-public companies that are accounted for under either the cost method of
accounting or the equity method of accounting. Equity investments are accounted for under the cost method of accounting when we have a minority interest and do not have the ability to exercise
significant influence. These investments are classified as available for sale and are carried at fair value when readily determinable market values exist or at cost when such market values do not
exist. Adjustments to fair value are recorded as a component of other comprehensive income unless the investments are considered permanently impaired in which case the adjustment is recorded as a
component of other income (expense), net in the consolidated statement of operations. Equity investments are accounted for under the equity method of accounting when we have a minority interest and
have the ability to exercise significant influence. These investments are classified as available for sale and are carried at cost with periodic adjustments to carrying value for equity in net income
(loss) of the equity investee. Such adjustments are recorded as a component of other income, net. Any decline in value of our investments, which is other than a temporary decline, is charged to
earnings during the period in which the impairment occurs.

The
total fair value of our cost-method, long-term equity investments in public and non-public companies as of December 31, 2004 was $574,000.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following consolidated financial statements and the related notes thereto of BroadVision, Inc. and the Report of Independent Registered Public
Accounting Firm are filed as a part of this Form 10-K.

55

---





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 Company's 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.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's 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 expressed an unqualified opinion on management's 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

56

---





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
The Board of Directors and Stockholders of BroadVision, Inc. and Subsidiaries:

We
have audited management's assessment, included in the accompanying Management's 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 Company's 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 management's assessment and an opinion on the effectiveness of the Company's 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 management's 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
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. A company's internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with 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 company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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 management's assessment. As of December 31, 2004, (1) the
Company's accounting and finance department was not adequately staffed, trained and supervised; (2) management's review of account reconciliations was not adequate to detect errors in certain
account reconciliations, and (3) the Company's procedures for reviewing the accuracy of maintenance revenue data entered into the Company's 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 Company's 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 Company's consolidated

57

---



financial
statements as of and for the year ended December 31, 2004, and this report does not affect our report dated March 11, 2005 on those consolidated financial statements.

In
our opinion, management's 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 management's 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 expressed an unqualified opinion thereon.

/s/
BDO Seidman, LLP

San
Jose, California
March 11, 2005

58

---





BROADVISION, INC. AND SUBSIDIARIES  CONSOLIDATED BALANCE SHEETS  (in thousands, except per share amounts)

|                                                        |                                                                                                                                                              | December 31,                               |       
|------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------
|
|ASSETS                                                  |                                                                                                                                                              |                                            |       
|Current assets:                                         |                                                                                                                                                              |                                            |       
|                                                        | Cash and cash equivalents                                                                                                                                    |                                            | $     
|                                                        | Accounts receivable, less receivable reserves of $1,409 and $3,022 as of December 31, 2004 and 2003, respectively                                            |                                            |       
|                                                        | Restricted cash and investments, current portion                                                                                                             |                                            |       
|                                                        | Prepaids and other                                                                                                                                           |                                            |       
|                                                        |                                                                                                                                                              |                                            |       
|                                                        |                                                                                                                                                              | Total current assets                       |       
|Property and equipment, net                             |                                                                                                                                                              |                                            | 3,566 
|Restricted cash and investments, net of current portion |                                                                                                                                                              |                                            | 2,323 
|Equity investments                                      |                                                                                                                                                              |                                            | 574   
|Goodwill                                                |                                                                                                                                                              |                                            | 56,434
|Other assets                                            |                                                                                                                                                              |                                            | 1,370 
|                                                        |                                                                                                                                                              |                                            |       
|                                                        | Total assets                                                                                                                                                 |                                            | $     
|                                                        |                                                                                                                                                              |                                            |       
|LIABILITIES AND STOCKHOLDERS' EQUITY                    |                                                                                                                                                              |                                            |       
|Current liabilities:                                    |                                                                                                                                                              |                                            |       
|                                                        | Bank borrowings and current portion of long-term debt                                                                                                        |                                            | $     
|                                                        | Accounts payable                                                                                                                                             |                                            |       
|                                                        | Accrued expenses                                                                                                                                             |                                            |       
|                                                        | Warrant liability                                                                                                                                            |                                            |       
|                                                        | Unearned revenue                                                                                                                                             |                                            |       
|                                                        | Deferred maintenance                                                                                                                                         |                                            |       
|                                                        |                                                                                                                                                              |                                            |       
|                                                        |                                                                                                                                                              | Total current liabilities                  |       
|Long-term debt, net of current portion                  |                                                                                                                                                              |                                            | 7,443 
|Other non-current liabilities                           |                                                                                                                                                              |                                            | 8,278 
|                                                        |                                                                                                                                                              |                                            |       
|                                                        |                                                                                                                                                              | Total liabilities                          |       
|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; 33,951 and 33,198 shares issued and outstanding as of December 31, 2004 and 2003, respectively |                                            |       
|                                                        | Additional paid-in capital                                                                                                                                   |                                            |       
|                                                        | Accumulated other comprehensive loss                                                                                                                         |                                            |       
|                                                        | Accumulated deficit                                                                                                                                          |                                            |       
|                                                        |                                                                                                                                                              |                                            |       
|                                                        |                                                                                                                                                              | Total stockholders' equity                 |       
|                                                        |                                                                                                                                                              |                                            |       
|                                                        |                                                                                                                                                              | Total liabilities and stockholders' equity |       
|                                                        |                                                                                                                                                              |                                            |       

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

59

---





BROADVISION, INC. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF OPERATIONS  (in thousands, except per share amounts)

|                                                             |                                      | Years Ended December 31, |                                                          
|------------------------------------------------------------ | ------------------------------------ | ------------------------ | ---------------------------------------------------------
|
|Revenues:                                                    |                                      |                          |                                                          
|                                                             | Software licenses                    |                          | $                                                        
|                                                             | Services                             |                          |                                                          
|                                                             |                                      |                          |                                                          
|                                                             |                                      | Total revenues           |                                                          
|Cost of revenues:                                            |                                      |                          |                                                          
|                                                             | Cost of software licenses            |                          |                                                          
|                                                             | Cost of services                     |                          |                                                          
|                                                             |                                      |                          |                                                          
|                                                             |                                      | Total cost of revenues   |                                                          
|                                                             |                                      |                          |                                                          
|                                                             |                                      |                          | Gross profit                                             
|Operating expenses:                                          |                                      |                          |                                                          
|                                                             | Research and development             |                          |                                                          
|                                                             | Sales and marketing                  |                          |                                                          
|                                                             | General and administrative           |                          |                                                          
|                                                             | Litigation settlement costs          |                          |                                                          
|                                                             | Goodwill and intangible amortization |                          |                                                          
|                                                             | Restructuring (reversal) charge      |                          |                                                          
|                                                             | Impairment of assets                 |                          |                                                          
|                                                             |                                      |                          |                                                          
|                                                             |                                      | Total operating expenses |                                                          
|                                                             |                                      |                          | Operating income (loss)                                  
|Interest (expense) income                                    |                                      |                          | (227                                                     
|Other income (expense), net                                  |                                      |                          | 187                                                      
|                                                             |                                      |                          |                                                          
|                                                             |                                      |                          | Income (loss) before benefit/(provision) for income taxes
|Benefit (provision) for income taxes                         |                                      |                          | 309                                                      
|                                                             |                                      |                          |                                                          
|                                                             |                                      |                          | Net income (loss)                                        
|                                                             |                                      |                          |                                                          
|Basic net income (loss) per share                            |                                      | $                        | 0.62                                                     
|                                                             |                                      |                          |                                                          
|Diluted net income (loss) per share                          |                                      | $                        | 0.60                                                     
|                                                             |                                      |                          |                                                          
|Shares used in computing basic net income (loss) per share   |                                      |                          | 33,539                                                   
|                                                             |                                      |                          |                                                          
|Shares used in computing diluted net income (loss) per share |                                      |                          | 34,321                                                   
|                                                             |                                      |                          |                                                          

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

60

---





BROADVISION, INC. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY  AND COMPREHENSIVE INCOME (LOSS)  (in thousands)

|                                                                                                                       |                          | Common Stock |  |   |   | Accumulated
Other
Comprehensive
Income (Loss) |   |           |   |   |        |   |  
|---------------------------------------------------------------------------------------------------------------------- | ------------------------ | ------------ |  | - | - | --------------------------------------------- | - | --------- | - | - | ------ | - | -
|
|
|Balances as of December 31, 2001                                                                                       |                          | 31,643       |  | $ | 3 |                                               | $ | 1,207,071 |   | $ | (5,245 | ) | $
|Comprehensive loss:                                                                                                    |                          |              |  |   |   |                                               |   |           |   |   |        |   |  
|Net loss                                                                                                               |                          |             |  |   |  |                                               |   |          |   |   |       |   |  
|Unrealized investment gain less reclassification adjustment for gains (losses) included in net loss, net of $2,606 tax |                          |             |  |   |  |                                               |   |          |   |   | 5,282  |   |  
|                                                                                                                       |                          |              |  |   |   |                                               |   |           |   |   |        |   |  
|                                                                                                                       | Total comprehensive loss |              |  |   |   |                                               |   |           |   |   |        |   |  
|                                                                                                                       |                          |              |  |   |   |                                               |   |           |   |   |        |   |  
|Issuance of common stock under employee stock purchase plan                                                            |                          | 558          |  |   |  |                                               |   | 1,793     |   |   |       |   |  
|Issuance of common stock from exercise of options                                                                      |                          | 238          |  |   |  |                                               |   | 1,087     |   |   |       |   |  
|Stock-based compensation charge                                                                                        |                          |             |  |   |  |                                               |   | 846       |   |   |       |   |  
|                                                                                                                       |                          |              |  |   |   |                                               |   |           |   |   |        |   |  
|Balances as of December 31, 2002                                                                                       |                          | 32,439       |  |   | 3 |                                               |   | 1,210,797 |   |   | 37     |   |  
|Comprehensive loss:                                                                                                    |                          |              |  |   |   |                                               |   |           |   |   |        |   |  
|Net loss                                                                                                               |                          |             |  |   |  |                                               |   |          |   |   |       |   |  
|Unrealized investment gain less reclassification adjustment for gains (losses) included in net loss                    |                          |             |  |   |  |                                               |   |          |   |   | (86    | ) |  
|                                                                                                                       |                          |              |  |   |   |                                               |   |           |   |   |        |   |  
|Total comprehensive loss                                                                                               |                          |              |  |   |   |                                               |   |           |   |   |        |   |  
|                                                                                                                       |                          |              |  |   |   |                                               |   |           |   |   |        |   |  
|Issuance of common stock under employee stock purchase plan                                                            |                          | 365          |  |   |  |                                               |   | 863       |   |   |       |   |  
|Issuance of common stock from exercise of options                                                                      |                          | 369          |  |   |  |                                               |   | 669       |   |   |       |   |  
|Stock-based compensation charge                                                                                        |                          | 25           |  |   |  |                                               |   | 342       |   |   |       |   |  
|                                                                                                                       |                          |              |  |   |   |                                               |   |           |   |   |        |   |  
|Balances as of December 31, 2003                                                                                       |                          | 33,198       |  |   | 3 |                                               |   | 1,212,671 |   |   | (49    | ) |  
|Comprehensive income:                                                                                                  |                          |              |  |   |   |                                               |   |           |   |   |        |   |  
|Net income                                                                                                             |                          |             |  |   |  |                                               |   |          |   |   |       |   |  
|Foreign currency translations                                                                                          |                          |             |  |   |  |                                               |   |          |   |   | (116   | ) |  
|Unrealized investment gain, less reclassification adjustment for gains (losses) included in net income                 |                          |             |  |   |  |                                               |   |          |   |   | 49     |   |  
|Reclassification adjustment                                                                                            |                          |             |  |   |  |                                               |   | 56        |   |   | (56    | ) |  
|                                                                                                                       |                          |              |  |   |   |                                               |   |           |   |   |        |   |  
|Total comprehensive income                                                                                             |                          |              |  |   |   |                                               |   |           |   |   |        |   |  
|                                                                                                                       |                          |              |  |   |   |                                               |   |           |   |   |        |   |  
|Issuance of common stock under employee stock purchase plan                                                            |                          | 443          |  |   |  |                                               |   | 1,296     |   |   |       |   |  
|Issuance of common stock from exercise of options                                                                      |                          | 304          |  |   |  |                                               |   | 615       |   |   |       |   |  
|Stock-based compensation charge (reversal)                                                                             |                          | 6            |  |   |  |                                               |   | (19       | ) |   |       |   |  
|                                                                                                                       |                          |              |  |   |   |                                               |   |           |   |   |        |   |  
|Balances as of December 31, 2004                                                                                       |                          | 33,951       |  | $ | 3 |                                               | $ | 1,214,619 |   | $ | (172   | ) | $
|                                                                                                                       |                          |              |  |   |   |                                               |   |           |   |   |        |   |  

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

61

---





BROADVISION, INC. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF CASH FLOWS  (in thousands)

|                                                      |                                                                              | Years Ended December 31,                                                            |                                          
|----------------------------------------------------- | ---------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | -----------------------------------------
|
|Cash flows from operating activities:                 |                                                                              |                                                                                     |                                          
|                                                      | Net income (loss)                                                            |                                                                                     | $                                        
|                                                      | Adjustments to reconcile net loss to net cash used for operating activities: |                                                                                     |                                          
|                                                      |                                                                              | Depreciation and amortization                                                       |                                          
|                                                      |                                                                              | Stock-based compensation charge (reversal)                                          |                                          
|                                                      |                                                                              | Provision for (release of) doubtful accounts and reserves                           |                                          
|                                                      |                                                                              | Amortization of prepaid royalties                                                   |                                          
|                                                      |                                                                              | Realized loss on cost method long-term investments                                  |                                          
|                                                      |                                                                              | Loss on sale or abandonment of fixed assets                                         |                                          
|                                                      |                                                                              | Impairment of assets                                                                |                                          
|                                                      |                                                                              | Amortization of goodwill and other intangibles                                      |                                          
|                                                      |                                                                              | Non-cash restructuring charge (reversal)                                            |                                          
|                                                      |                                                                              | Provision for deferred tax asset valuation allowance                                |                                          
|                                                      |                                                                              | Loss on revaluation of warrants                                                     |                                          
|                                                      |                                                                              | Changes in operating assets and liabilities, net of effects from acquired business: |                                          
|                                                      |                                                                              |                                                                                     | Accounts receivable                      
|                                                      |                                                                              |                                                                                     | Prepaid expenses and other current assets
|                                                      |                                                                              |                                                                                     | Other non-current assets                 
|                                                      |                                                                              |                                                                                     | Accounts payable and accrued expenses    
|                                                      |                                                                              |                                                                                     | Restructuring accrual                    
|                                                      |                                                                              |                                                                                     | Unearned revenue and deferred maintenance
|                                                      |                                                                              |                                                                                     | Other non-current liabilities            
|                                                      |                                                                              |                                                                                     |                                          
|                                                      |                                                                              | Net cash used for operating activities                                              |                                          
|Cash flows from investing activities:                 |                                                                              |                                                                                     |                                          
|                                                      | Purchase of property and equipment                                           |                                                                                     |                                          
|                                                      | Proceeds from sale of assets                                                 |                                                                                     |                                          
|                                                      | Sales/maturity of short-term investments                                     |                                                                                     |                                          
|                                                      | Purchase of short-term investments                                           |                                                                                     |                                          
|                                                      | Purchase of long-term investments                                            |                                                                                     |                                          
|                                                      | Sales/maturity of long-term investments                                      |                                                                                     |                                          
|                                                      | Transfer (to) from restricted cash/investments                               |                                                                                     |                                          
|                                                      | Proceeds from dividends                                                      |                                                                                     |                                          
|                                                      |                                                                              |                                                                                     |                                          
|                                                      |                                                                              | Net cash provided by (used for) investing activities                                |                                          
|Cash flows from financing activities:                 |                                                                              |                                                                                     |                                          
|                                                      | Proceeds from bank line of credit and term debt borrowings                   |                                                                                     |                                          
|                                                      | Repayments of bank line of credit and term debt borrowings                   |                                                                                     |                                          
|                                                      | Proceeds from issuance of convertible debt and warrant, net                  |                                                                                     |                                          
|                                                      | Proceeds from issuance of common stock, net                                  |                                                                                     |                                          
|                                                      |                                                                              |                                                                                     |                                          
|                                                      |                                                                              | Net cash provided by financing activities                                           |                                          
|Effect of exchange rates on cash and cash equivalents |                                                                              |                                                                                     | (116                                     
|                                                      |                                                                              |                                                                                     |                                          
|Net (decrease) increase in cash and cash equivalents  |                                                                              |                                                                                     | (36,925                                  
|Cash and cash equivalents, beginning of year          |                                                                              |                                                                                     | 78,776                                   
|                                                      |                                                                              |                                                                                     |                                          
|Cash and cash equivalents, end of year                |                                                                              | $                                                                                   | 41,851                                   
|                                                      |                                                                              |                                                                                     |                                          
|Supplemental cash flow disclosures:                   |                                                                              |                                                                                     |                                          
|                                                      | Cash paid for interest                                                       |                                                                                     | $                                        
|                                                      | Cash paid for income taxes                                                   |                                                                                     | $                                        

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

62

---





BROADVISION, INC. AND SUBSIDIARIES        Notes to Consolidated Financial Statements        December 31, 2004

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 and Use of Estimates

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation. In the Company's opinion, the consolidated financial statements presented herein include all necessary adjustments, consisting of normal
recurring adjustments, to fairly state the
Company's financial position, results of operations, and cash flows for the periods indicated. 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 Company's revenue consists of fees for licenses of the Company's 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 customer's website. Licenses for software whereby fees charged are on a per-CPU basis do not differentiate between development and deployment usage.
The Company's revenue recognition policies are in accordance with SOP 97-2, as amended; SOP 98-9, and the Securities and Exchange Commission's 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

63

---



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
Company's revenue recognition policy. The Company records accounts receivable for software license agreements when the agreement qualifies for revenue recognition but cash or other consideration has
not been received from the customer.

Services Revenue

Consulting services revenues and customer training revenues are recognized as such services are performed. Maintenance revenues, which include revenues bundled
with software license agreements that entitle the customers to technical support and future unspecified enhancements to the Company's
products, are deferred and recognized ratably over the related agreement period, generally twelve months.

The
Company's consulting services, which consist of consulting, maintenance and training, are delivered through 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 underlying instrument has a term of greater than twelve months from
the balance sheet date are classified as non-current.

64

---



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 2004 and 2003 were
$573,000 and $1.1 million, 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, 2004 and 2003 (in thousands):

|                         |                                   |       |   |        |        |   |   |   |   | Classified on Balance Sheet as:
|------------------------ | --------------------------------- | ----- | - | ------ | ------ | - | - | - | - | -------------------------------
|
|As of December 31, 2004: |                                   |       |   |        |        |   |   |   |   |                                
|                         | Cash and certificates of deposits |       | $ | 55,240 |        | $ |  |   | $ |                               
|                         | Money market                      |       |   | 10,867 |        |   |  |   |   |                               
|                         |                                   |       |   |        |        |   |   |   |   |                                
|                         |                                   | Total |   | $      | 66,107 |   | $ |  |   | $                              
|                         |                                   |       |   |        |        |   |   |   |   |                                
|As of December 31, 2003: |                                   |       |   |        |        |   |   |   |   |                                
|                         | Cash and certificates of deposits |       | $ | 65,592 |        | $ |  |   | $ |                               
|                         | Money market                      |       |   | 32,603 |        |   |  |   |   |                               
|                         | Corporate notes/bonds             |       |   | 408    |        |   |  |   |   |                               
|                         |                                   |       |   |        |        |   |   |   |   |                                
|                         |                                   | Total |   | $      | 98,603 |   | $ |  |   | $                              
|                         |                                   |       |   |        |        |   |   |   |   |                                

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 Company's software products are amortized as a cost of software licenses
either on a straight-line basis over the

65

---



remaining
term of the royalty agreement or on the basis of projected product revenues, whichever results in greater amortization.

Allowances and Reserves

Occasionally, the Company's customers experience financial difficulty after the Company records the sale but before payment has been received. The Company
maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company's normal payment terms are generally 30 to
90 days from invoice date. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be
required.

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 Company's cost structure with changing market conditions and to create a more efficient organization. The Company's restructuring charges are comprised primarily of:
(i) severance and benefits termination costs related to the reduction of the Company's workforce; (ii) lease termination costs and/or costs associated with permanently vacating its
facilities; (iii) other incremental costs incurred as a direct result of the restructuring plan; and (iv) impairment costs related to certain long-lived assets abandoned.

The
Company accounts for 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 entity's commitment to an exit plan.

Prior
to the adoption on January 1, 2003 of SFAS 146, the Company accounted for the costs associated with lease termination and/or abandonment in accordance with EITF
88-10. 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

66

---



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 Assetsand, accordingly,
charges to expense the net carrying value of the long-lived assets when the Company ceases to use the assets.

Inherent
in the estimation of the costs related to the Company's restructuring efforts are assessments related to the most likely expected outcome of the significant actions to
accomplish the restructuring. In determining the charge related to the restructuring, the majority of estimates made by management related to the charge for excess facilities. In determining the
charge for excess facilities, the Company was required to estimate future sublease income, future net operating expenses of the facilities, and brokerage commissions, among other expenses. The most
significant of these estimates related to the timing and extent of future sublease income in which to reduce the Company's lease obligations. The Company based its estimates of sublease income, in
part, on the opinions of independent real estate experts, current market conditions and rental rates, an assessment of the time period over which reasonable estimates could be made, the status of
negotiations with potential subtenants, and the location of the respective facility, among other factors.

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
Company's control. Specifically, these estimates will depend on the Company's 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 management's most current estimates.

Legal Matters

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

Property and Equipment

Property and equipment are stated at cost and depreciated on a straight-line basis over their estimated useful lives (two to eight years). Leasehold
improvements are amortized over the lesser of

67

---



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 Company's restructuring plan, which are included in the restructuring charge recorded in the Company's Consolidated
Statement of Operations. In 2002, the Company recorded a $3.1 million asset impairment from the physical count of the Company's 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 Combinationsand 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 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 Company's restructuring plan and
therefore is included in the restructuring charge.

68

---





On
February 7, 2002, the Board of Directors approved an increase by an amount not to exceed 5% of the number of shares outstanding for issuance under the Company's Employee Stock
Purchase Plan (the "Purchase Plan"). The Purchase Plan permits eligible employees to purchase common stock equivalent to a percentage of the employee's earnings, not to exceed 15%, at a price equal to
85% of the fair market value of the common stock at dates specified by the Board of Directors as provided in the Plan. Under the Purchase Plan, the Company issued approximately 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 31,2004

2003

2002Risk-free interest rate

3.61
%
0.93
%
1.06
%Volatility

108
%
118
%
122
%


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 31,2004

2003

2002Expected life

3.5 years

3.5 years

3.5 yearsRisk-fee interest rate

3.61
%
2.90
%
1.93
%Volatility

108
%
118
%
122
%


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 Company's stock option plan and employee stock purchase plan been determined consistent with
SFAS 123, the Company's reported

69

---



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, |       
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------
|
|Net income (loss), as reported                                                                                                              |  | $                        | 20,635
|Add: Stock-based compensation expense included in reported net loss, net of related tax effects                                             |  |                          | (19   
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |  |                          | (4,545
|                                                                                                                                            |  |                          |       
|Pro forma net income (loss)                                                                                                                 |  | $                        | 16,071
|                                                                                                                                            |  |                          |       
|Earnings per share:                                                                                                                         |  |                          |       
|Basicas reported                                                                                                                           |  | $                        | 0.62  
|                                                                                                                                            |  |                          |       
|Basicpro forma                                                                                                                             |  | $                        | 0.48  
|                                                                                                                                            |  |                          |       
|Dilutedas reported                                                                                                                         |  | $                        | 0.60  
|                                                                                                                                            |  |                          |       
|Dilutedpro forma                                                                                                                           |  | $                        | 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
Company's common stock began trading on a post-split basis at the opening of trading on the Nasdaq National Market on July 30, 2002.

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

Earnings Per Share Information

Basic income (loss) per share is computed using the weighted-average number of shares of common stock outstanding, less shares subject to repurchase. Diluted
income (loss) per share is computed using the weighted-average number of shares of common stock outstanding and, when dilutive, common equivalent shares from outstanding stock options and warrants
using the treasury stock method. The following table sets forth the basic and diluted net income (loss) per share computational data for the periods presented. Excluded from the computation of diluted
loss per share

70

---



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, |       
|--------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------- | ------------------------ | ------
|
|
|Net income (loss)                                                                       |                                                                                                          | $                        | 20,635
|                                                                                        |                                                                                                          |                          |       
|Weighted-average common shares outstanding to compute basic loss per share              |                                                                                                          |                          | 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 |                          |       
|                                                                                        |                                                                                                          |                          |       
|Basic income (loss) per share                                                           |                                                                                                          | $                        | 0.62  
|                                                                                        |                                                                                                          |                          |       
|Diluted income (loss) per share                                                         |                                                                                                          | $                        | 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 stockholder's equity in the accompanying Consolidated Balance Sheets. The

71

---



accumulated
balances for each classification of comprehensive income (loss) consist of the following, net of taxes (in thousands):

Unrealized Gain (Loss) in
Available-for-Sale
Securities

Foreign
Currency
Translation

Accumulated Other Comprehensive Income (Loss)Balance, December 31, 2001

$
(5,245
)
$


$
(5,245
)Net change during period


5,282





5,282Balance, December 31, 2002


37





37Net 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 events that have been recognized in the Company's consolidated financial statements or tax returns. The measurement of current and
deferred tax assets and liabilities is based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated. The measurement of deferred tax assets is
reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized.

The
Company analyzes its deferred tax assets with regard to potential realization. The Company has established a valuation allowance on its deferred tax assets to the extent that
management has determined that it is more likely than not that some portion or all of the deferred tax asset will not be realized based upon the uncertainty of their realization. The Company has
considered estimated future taxable income and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance.

Segment and Geographic Information

The Company operates in one segment, electronic commerce business solutions. The Company's chief operating decision maker is considered to be the Company's CEO.
The CEO reviews financial information presented on a consolidated basis accompanied by disaggregated information about revenues by geographic region and by product for purposes of making operating
decisions and assessing financial performance.

Reclassifications

Certain prior period balances have been reclassified to conform to the current period presentation.

72

---



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 entity's activities or is entitled to receive a majority of the entity's
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. 123Accounting for Stock-Based Compensation, or SFAS 123, and supercedes APB Opinion No. 25Accounting
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 Company's 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

73

---



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 31,2004

2003Furniture and fixtures

$
4,036

$
8,030Computer and software


49,258


49,041Leasehold improvements


6,086


20,84259,380


77,913Less accumulated depreciation and amortization


(55,814
)

(62,513
)Total property and equipment, net

$
3,566

$
15,400


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 Company's restructuring plan, which is included
in the Company's restructuring charge recorded in the Company's Statement of Operations. In 2002, the Company recorded a $3.1 million asset impairment as a result of the physical inventories of
the Company's 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 Company's net book value at December 31, 2004 and 2003, there was no impairment of goodwill as of December 31, 2004 and 2003.

The
process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment. In estimating the fair value of the Company, the Company made
estimates and judgments about future revenues and cash flows. The Company's forecasts were based on assumptions that are consistent with the plans and estimates the Company is using to manage the
business. Changes in these estimates could change the Company's conclusion regarding impairment of goodwill and

74

---



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 31,2004

2003(in thousands)Employee benefits

$
1,253

$
1,511Commissions and bonuses


1,334


1,519Sales and other taxes


5,085


7,983Restructuring


26,292


18,549Other


6,781


5,199Total Accrued expenses

$
40,745

$
34,761


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 31,2004

2003Convertible debentures, 6% coupon, due in various maturities beginning in June 2005 (or sooner under certain circumstances)

$
11,982

$
Bank borrowings


20,000


27,000Term debt


1,027


1,94633,009


28,946Less: Current portion of long-term debt


(25,566
)

(27,977
)Long-term debt, net of current portion

$
7,443

$
969


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

75

---



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 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 bank's 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 Company's assets and bear interest at the bank's prime rate (5.25% as of December 31, 2004 and 4.0% as of December 31,
2003). As of December 31, 2004 and 2003, $20.0 million and $27.0 million, respectively, remaining outstanding under the Company's renewed and amended revolving credit facility.
Other non-current liabilities consist of the following (in thousands):

December 31,2004

2003Restructuring

$
7,871

$
86,831Other


407


578Other non-current liabilities

$
8,278

$
87,409


Note 6Income Taxes

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

Years Ended December 31,2004

2003

2002Current:Federal

$


$


$
State


110


244


175Foreign


(419
)

195


372Total current


(309
)

439


547Deferred:Federal








4,537State








2,519Total deferred








7,056Total (benefit) provision

$
(309
)
$
439

$
7,603


76

---





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

Years Ended December 31,2004

2003

2002Expected income tax provision (benefit)

$
7,114

$
(12,262
)
$
(57,022
)Expected state income taxes (benefit), net of federal tax benefit


1,219


(1,683
)

(8,961
)California net operating loss reduction





1,186


2,914Foreign taxes


72


663


2,361Utilization of foreign net operating loss carryforwards


(688
)

(533
)

(2,413
)Valuation allowance changes affecting provision


(8,361
)

11,546


67,070Foreign losses not benefited


322


1,542


2,353Non deductible goodwill and intangible amortization





355


1,418Tax credits


(32
)

(351
)

(758
)Other


45


(24
)

641Income tax (benefit) provision

$
(309
)
$
439

$
7,603


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

December 31,2004

2003(in thousands)Deferred tax assets:Depreciation and amortization

$
11,701

$
16,031Accrued liabilities


16,764


49,124Capitalized research and development


4,748


2,527Net operating losses


164,190


160,064Tax credits


13,740


13,177Unrealized loss on marketable securities


5,320


5,320Total deferred tax assets


216,463


246,243Less valuation allowance


(216,463
)

(246,243
)Net deferred tax asset

$


$



The
Company has provided a valuation allowance for all of its deferred tax assets as of December 31, 2004 and 2003, 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

77

---



income.
In addition, the Company had federal and state research and development credit carryforwards of approximately $11.1 million and $3.0 million, respectively, available to offset
future tax liabilities. The Company's federal net operating loss and tax credit carryforwards expire in the tax years 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 occurred and, accordingly, certain of the Company's 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 Company's insurance policy coverage, the Company believes the estimated fair value of these indemnification
agreements is

78

---



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.

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):

Years ending December 31,

Total future
minimum lease
payments2005

$
25.42006


6.02007


0.92008


0.52009 and thereafter (through October 2010)


0.5Total 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 Company's obligation to make future capital contributions has been extinguished.

Standby Letter of Credit Commitments

Commitments totaling $24.3 million and $19.8 million in the form of standby letters of credit were issued on the Company's behalf from financial
institutions as of December 31, 2004 and 2003,

79

---



respectively,
in favor of the Company's various landlords to secure obligations under the Company's 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 Company's 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 Company's 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 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 SEC's entry of an administrative order that
included findings that we issued a false and misleading earnings press release and misleading quarterly report. The order requires that we cease and desist from committing or causing violations of
specified provisions of the federal securities laws. The SEC found that a former executive in charge of professional services who left BroadVision in 2002 was responsible for the improper accounting.
The restatement concerned revenue related to one software license agreement. Following receipt of payment in full by the customer, we recognized revenue on that agreement in its entirety in the third
quarter of 2001. We subsequently determined that the revenue should instead be recognized ratably over the four-year life of the agreement, and announced on April 1, 2002 that we were restating our
financial statements for the third quarter of 2001 to effect this change. We have been accounting for the revenue ratably in all periods since the third quarter of 2001.

80

---



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

Note 8Restructuring

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.

The
following table summarizes the restructuring accrual activity recorded during the three-years ended December 31, 2004 (in thousands):

Severance
and Benefits

Facilities/
Excess Assets

TotalAccrual balances, December 31, 2001

$
930

$
89,859

$
90,789Restructuring charges


8,707


101,742


110,449Cash payments


(8,026
)

(78,019
)

(86,045
)Non-cash portion


(107
)

(18,891
)

(18,998
)Accrual balances, December 31, 2002


1,504


94,691


96,195Restructuring charges


1,509


33,847


35,356Cash payments


(2,342
)

(23,829
)

(26,171
)Accrual balances, December 31, 2003


671


104,709


105,380Restructuring 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

81

---



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 Company's 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 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
Company's 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 Company's revisions of estimates with respect to the planned future occupancy and anticipated future subleases.

82

---



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 Company's
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 Company's 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 Company's 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.

As
of December 31, 2004, the total restructuring accrual of $34.2 million consisted of the following (in millions):

Current

Non-Current

TotalSeverance and Termination

$
0.9

$


$
0.9Excess Facilities


25.4


7.9


33.3Total

$
26.3

$
7.9

$
34.2


83

---



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):

Years ending December 31,

Total future
minimum lease
payments2005

$
25.42006


6.02007


0.92008


0.52009 and thereafter (through October 2010)


0.5Total 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.

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 restructuring costs, beginning |        | Amounts
charged to
restructuring
costs and
other |   | Amounts paid or written off |   | Accrued
restructuring
costs, ending
|--------------------------------------------------- |  | -------------------------------------- | ------ | ------------------------------------------------ | - | --------------------------- | - | -----------------------------------
|Year Ended December 31, 2004:                       |  |                                        |        |                                                  |   |                             |   |                                    
|Lease cancellations and commitments                 |  | $                                      | 21,683 |                                                  | $ | 9,594                       |   | $                                  
|Termination payments to employees and related costs |  |                                        | 242    |                                                  |   | 1,114                       |   |                                    
|Write-off on disposal of assets and related costs   |  |                                        |       |                                                  |   | (1,193                      | ) |                                    
|                                                    |  |                                        |        |                                                  |   |                             |   |                                    
|                                                    |  | $                                      | 21,925 |                                                  | $ | 9,515                       |   | $                                  
|                                                    |  |                                        |        |                                                  |   |                             |   |                                    
|Year Ended December 31, 2003:                       |  |                                        |        |                                                  |   |                             |   |                                    
|Lease cancellations and commitments                 |  | $                                      |       |                                                  | $ | 21,683                      |   | $                                  
|Termination payments to employees and related costs |  |                                        |       |                                                  |   | 1,535                       |   |                                    
|Write-off on disposal of assets and related costs   |  |                                        |       |                                                  |   | 515                         |   |                                    
|                                                    |  |                                        |        |                                                  |   |                             |   |                                    
|                                                    |  | $                                      |       |                                                  | $ | 23,733                      |   | $                                  
|                                                    |  |                                        |        |                                                  |   |                             |   |                                    

84

---



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 restructuring costs, beginning |        | Amounts charged to restructuring costs and other |   | Amounts reversed to restructuring costs and other |   | Amounts paid or written off |     | Accrued restructuring costs, ending
|--------------------------------------------------- |  | -------------------------------------- | ------ | ------------------------------------------------ | - | ------------------------------------------------- | - | --------------------------- | --- | -----------------------------------
|Year Ended December 31, 2004:                       |  |                                        |        |                                                  |   |                                                   |   |                             |     |                                    
|Lease cancellations and commitments                 |  | $                                      | 83,026 |                                                  | $ | (32,584                                           | ) | $                           |    |                                    
|Termination payments to employees and related costs |  |                                        | 429    |                                                  |   |                                                  |   |                             |    |                                    
|Write-off on disposal of assets and related costs   |  |                                        |       |                                                  |   | (477                                              | ) |                             |    |                                    
|                                                    |  |                                        |        |                                                  |   |                                                   |   |                             |     |                                    
|                                                    |  | $                                      | 83,455 |                                                  | $ | (33,061                                           | ) | $                           |    |                                    
|                                                    |  |                                        |        |                                                  |   |                                                   |   |                             |     |                                    
|Year Ended December 31, 2003:                       |  |                                        |        |                                                  |   |                                                   |   |                             |     |                                    
|Lease cancellations and commitments                 |  | $                                      | 94,691 |                                                  | $ | 11,649                                            |   | $                           |    |                                    
|Termination payments to employees and related costs |  |                                        | 1,425  |                                                  |   | 41                                                |   |                             |    |                                    
|Write-off on disposal of assets and related costs   |  |                                        | 79     |                                                  |   | (41                                               | ) |                             | (26 | )                                  
|                                                    |  |                                        |        |                                                  |   |                                                   |   |                             |     |                                    
|                                                    |  | $                                      | 96,195 |                                                  | $ | 11,649                                            |   | $                           | (26 | )                                  
|                                                    |  |                                        |        |                                                  |   |                                                   |   |                             |     |                                    
|Year Ended December 31, 2002:                       |  |                                        |        |                                                  |   |                                                   |   |                             |     |                                    
|Lease cancellations and commitments                 |  | $                                      | 89,859 |                                                  | $ | 82,851                                            |   | $                           |    |                                    
|Termination payments to employees and related costs |  |                                        | 817    |                                                  |   | 7,644                                             |   |                             |    |                                    
|Write-off on disposal of assets and related costs   |  |                                        | 113    |                                                  |   | 19,954                                            |   |                             |    |                                    
|                                                    |  |                                        |        |                                                  |   |                                                   |   |                             |     |                                    
|                                                    |  | $                                      | 90,789 |                                                  | $ | 110,449                                           |   | $                           |    |                                    
|                                                    |  |                                        |        |                                                  |   |                                                   |   |                             |     |                                    

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.

85

---





Note 9Stockholders' Equity

Warrants

As of December 31, 2004, the following warrants to purchase the Company's common stock were outstanding:

Description

Shares

Price per
ShareIssued to landlord in real estate buyout transaction in August 2004

700,000

$
5.00Issued to convertible debenture investors in November 2004

1,739,130


3.58Others issued in connection with revenue transactions in 1997 and 2000

9,629


VariousTotal 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 Company's Own
Stock," the warrants have been included as a short-term liability and were originally valued at fair value on the date of issuance. 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.

During
fiscal 2003 there were no increases in the aggregate number of shares of common stock available to be issued under the Company's 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 Company's 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 Company's common stock, as determined by the Board of Directors, at the date of grant. The vesting of individual options may vary but in each
case at least 25%

86

---



of
the total number of shares subject to options will become exercisable per year. These options generally expire ten years after the grant date. When an employee option is exercised prior to vesting,
any unvested shares so purchased are subject to repurchase by the Company at the original purchase price of the stock upon termination of employment. The Company's right to repurchase lapses at a
minimum rate of 20% per year over five years from the date the option was granted or, for new employees, the date of hire. Such right is exercisable only within 90 days following termination of
employment. During the year ended December 31, 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
Company's President and Chief Executive Officer ("CEO") has options to purchase 1,704,444 shares of common stock at an average exercise price of $38.63 per share. The table below is
a summary of shares granted through December 31, 2004:

Date Granted

Options Granted

Options Price

Vested

Vesting Period (months)6/23/99

500,000

$
60.00

500,000

605/25/01

500,000


66.51

447,917

4811/27/01

4,444


35.01

4,444

242/19/02

55,555


18.63

39,352

4810/30/02

644,445


2.16

349,075

48Totals

1,704,444




1,340,788


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

|                                                                 |  | Years ended December 31,
|---------------------------------------------------------------- |  | ------------------------
|
|
|Outstanding at beginning of period                               |  | 4,128                   
|Granted                                                          |  | 1,264                   
|Exercised                                                        |  | (87                     
|Forfeited                                                        |  | (429                    
|                                                                 |  |                         
|Outstanding at end of period                                     |  | 4,876                   
|                                                                 |  |                         
|Options exercisable at end of period                             |  | 2,656                   
|                                                                 |  |                         
|Weighted-average fair value of options granted during the period |  |                         
|                                                                 |  |                         

87

---



The
following table summarizes stock options outstanding under the plan as of December 31, 2004:

|Range of
Exercise Prices |  | Options
(000's) |  | Outstanding
Weighted-Average
Remaining Contractual
Life in Years |  | Weighted-Average
Exercise Price |        | Exercisable
Options
(000's) |       | Weighted-Average
Exercise Price
|------------------------ |  | --------------- |  | ---------------------------------------------------------------- |  | ------------------------------- | ------ | --------------------------- | ----- | -------------------------------
|$1.50$1.50              |  | 208             |  | 7.81                                                             |  | $                               | 1.50   |                             | 109   |                                
|2.162.16                |  | 809             |  | 7.93                                                             |  |                                 | 2.16   |                             | 409   |                                
|2.367.92                |  | 2,144           |  | 8.74                                                             |  |                                 | 4.16   |                             | 515   |                                
|8.5011.25               |  | 5               |  | 3.92                                                             |  |                                 | 10.16  |                             | 4     |                                
|12.5031.93              |  | 180             |  | 5.02                                                             |  |                                 | 23.25  |                             | 162   |                                
|35.0135.01              |  | 278             |  | 6.91                                                             |  |                                 | 35.01  |                             | 267   |                                
|35.2560.00              |  | 604             |  | 4.45                                                             |  |                                 | 56.91  |                             | 604   |                                
|66.5166.56              |  | 588             |  | 6.40                                                             |  |                                 | 66.51  |                             | 528   |                                
|80.0987.19              |  | 15              |  | 6.01                                                             |  |                                 | 87.18  |                             | 15    |                                
|121.94448.31            |  | 45              |  | 5.14                                                             |  |                                 | 161.54 |                             | 43    |                                
|                         |  |                 |  |                                                                  |  |                                 |        |                             |       |                                
|                         |  | 4,876           |  | 6.23                                                             |  | $                               | 21.93  |                             | 2,656 |                                
|                         |  |                 |  |                                                                  |  |                                 |        |                             |       |                                

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

|                                                                 |  | Years ended December 31,
|---------------------------------------------------------------- |  | ------------------------
|
|
|Outstanding at beginning of period                               |  | 1,614                   
|Granted                                                          |  | 71                      
|Exercised                                                        |  | (210                    
|Forfeited                                                        |  | (324                    
|                                                                 |  |                         
|Outstanding at end of period                                     |  | 1,151                   
|                                                                 |  |                         
|Options exercisable at end of period                             |  | 647                     
|                                                                 |  |                         
|Weighted-average fair value of options granted during the period |  |                         
|                                                                 |  |                         

88

---



The
following table summarizes stock options, granted outside the plan, outstanding as of December 31, 2004:

|Range of
Exercise Prices |  | Options
(000's) |  | Outstanding
Weighted-Average
Remaining Contractual
Life in Years |  | Weighted-Average
Exercise Price |        | Exercisable
Options
(000's) |     | Weighted-Average Exercise Price
|------------------------ |  | --------------- |  | ---------------------------------------------------------------- |  | ------------------------------- | ------ | --------------------------- | --- | -------------------------------
|$1.50$1.50              |  | 717             |  | 7.81                                                             |  | $                               | 1.50   |                             | 334 |                                
|2.5530.50               |  | 285             |  | 7.00                                                             |  |                                 | 10.92  |                             | 170 |                                
|31.93116.75             |  | 115             |  | 5.61                                                             |  |                                 | 64.29  |                             | 110 |                                
|164.25241.88            |  | 30              |  | 5.30                                                             |  |                                 | 241.45 |                             | 29  |                                
|381.94381.94            |  | 4               |  | 5.09                                                             |  |                                 | 381.94 |                             | 4   |                                
|                         |  |                 |  |                                                                  |  |                                 |        |                             |     |                                
|                         |  | 1,151           |  | 7.31                                                             |  | $                               | 17.69  |                             | 647 |                                
|                         |  |                 |  |                                                                  |  |                                 |        |                             |     |                                

For
the year ended December 31, 2004, the Company recorded compensation income of $19,000 as a result of a vesting modification of a grant to a third-party consultant common stock
in the Company. During the year ended December 31, 2003 the Company recorded compensation expense of $342,000. This charge was recorded as a result of granting terminated employees continued
vesting of their stock options for a period beyond their actual termination date. The compensation charge was calculated using the Black-Scholes model. $131,000 of the charge is recorded in general
and administrative expense, $67,000 is recorded in sales and marketing and the remaining $144,000 is included in restructuring charge as it related to employees terminated under the Company's
restructuring plan.

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 Company's 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 Company's reportable segment includes the Company's facilities in North and South
America (Americas), Europe and Asia Pacific and the Middle East (Asia/Pacific). The Company's chief operating decision maker is considered to be the Company's CEO. The CEO reviews financial
information presented on a consolidated basis accompanied by disaggregated information about revenues by geographic region and by product for purposes of making operating decisions and assessing
financial performance.

89

---



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

Years Ended December 31,2004

2003

2002Software licenses

$
26,883

$
30,230

$
40,483Services


19,942


22,012


36,763Maintenance


31,179


35,839


38,652Total revenues

$
78,004

$
88,081

$
115,898


The
Company sells its products and provides services worldwide through a direct sales force and through a channel of independent distributors, value-added resellers ("VARs") and
application service providers ("ASPs"). In addition, the sales of the Company's products are promoted through independent professional consulting organizations known as systems integrators. The
Company provides services worldwide through its BroadVision Global Services Organization and indirectly through distributors, VARs, ASPs, and systems integrators. The Company currently operates in
three primary geographical territories, Americas, Europe and Asia/Pacific.

Disaggregated
financial information regarding the Company's products and services and geographic revenues is as follows (in thousands):

Years Ended December 31,2004

2003

2002Revenues:Americas

$
37,278

$
45,135

$
70,125Europe


33,321


35,458


39,511Asia/Pacific


7,405


7,488


6,262Total Company

$
78,004

$
88,081

$
115,898


During
the years ended December 31, 2004, 2003 and 2002, no customer accounted for 10% or more of the Company's revenues.

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

December 31,2004

2003Long-lived assets:Americas

$
60,312

$
73,016Europe


531


537Asia/Pacific


527


636Total Company

$
61,370

$
74,189


90

---



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 Company's 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 Commission's 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.

91

---





ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our Chief Executive Officer and our Chief Financial Officer are responsible for establishing and maintaining "disclosure controls and procedures" (as defined in
the rules promulgated under the Securities Exchange Act of 1934, as amended) for our company. Based on their evaluation of our disclosure controls and procedures (as defined in the rules promulgated
under the Securities Exchange Act of 1934), our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of
December 31, 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.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to
provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how
well designed, have inherent
limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

An
internal control material weakness is a significant deficiency, or aggregation of deficiencies, that does not reduce to a relatively low level the risk that material misstatements in
financial statements will be prevented or detected on a timely basis by employees in the normal course of their work. An internal control significant deficiency, or aggregation of deficiencies, is one
that could result in a misstatement of the financial statements that is more than inconsequential.

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:

92

---







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 management's assessment of our internal control over financial reporting. It appears on page 57.

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:



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

93

---



system
must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems,
no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in
conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error
or fraud may occur and not be detected. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.

ITEM 9B. OTHER INFORMATION

Not applicable.

PART III

Certain information required by Part III is incorporated by reference to this Report from the Company's definitive proxy statement for its 2005 Annual
Meeting of Stockholders to be filed pursuant to Regulation 14A (the "Proxy Statement").

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Other than the identification of executive officers, which is set forth in Part I, Item 1 hereof, the information required by this Item is incorporated by
reference to the sections entitled "Election of Directors," "Section 16(A) Beneficial Ownership Reporting Compliance" and "Code of Business Ethics and Conduct" in the Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference to the section entitled "Executive Compensation" in the Proxy Statement.

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

The information required by this Item is incorporated by reference to the section entitled "Security Ownership of Certain Beneficial Owners and Management" and
"Equity Compensation Plan Information" in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated by reference to the section entitled "Certain Transactions" in the Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item is incorporated by reference to the sections entitled "Independent Auditors' Fees" and "Pre-Approval Policies
and Procedures" in the Proxy Statement.

94

---



PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES





95

---







SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in Redwood City, State of California, on this 14th day of March 2005.

| |  | BROADVISION, INC.
| |  | -----------------
| |  | By:              

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Pehong Chen to sign any amendments to this Annual Report
on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming
all that the said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

|Signature                             |  | Title                                                                                      |  | Date          
|------------------------------------- |  | ------------------------------------------------------------------------------------------ |  | --------------
|                                      |  |                                                                                            |  |               
|/s/PEHONG CHENPehong Chen             |  | Chairman of the Board, Chief Executive
Officer and President (Principal Executive Officer) |  | March 14, 2005
|/s/WILLIAM E. MEYERWilliam E. Meyer   |  | Executive Vice President and Chief Financial Officer (Principal Accounting Officer)        |  | March 14, 2005
|/s/DAVID L. ANDERSONDavid L. Anderson |  | Director                                                                                   |  | March 14, 2005
|/s/JAMES D. DIXONJames D. Dixon       |  | Director                                                                                   |  | March 14, 2005
|/s/KOH BOON HWEEKoh Boon Hwee         |  | Director                                                                                   |  | March 14, 2005
|                                      |  |                                                                                            |  |               

96

---



|/s/BOB LEEBob Lee                     |  | Director |  | March 14, 2005
|------------------------------------- |  | -------- |  | --------------
|/s/RODERICK MCGEARYRoderick McGeary   |  | Director |  | March 14, 2005
|/s/T. MICHAEL NEVENST. Michael Nevens |  | Director |  | March 14, 2005
|/s/CARL PASCARELLACarl Pascarella     |  | Director |  | March 14, 2005

97

---





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  ON FINANCIAL STATEMENT SCHEDULE

The audits referred to in our report dated March 11, 2005, relating to the consolidated financial statements of BroadVision, Inc., which is
contained in Item 8 of this Form 10-K, included the audit of the financial statement schedule listed in the accompanying index. This financial statement schedule is the
responsibility of the Company's 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

98

---





BROADVISION, INC. AND SUBSIDIARIES  SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS  (in thousands)

|                                              |  | Balance at
Beginning of
Period |       | Charged
(Credited) to
Costs and
Expenses |   | Deductions(1) |   | Balance at End of
Period
|--------------------------------------------- |  | ------------------------------ | ----- | ---------------------------------------- | - | ------------- | - | ------------------------
|Allowance for doubtful accounts and reserves: |  |                                |       |                                          |   |               |   |                         
|Year Ended December 31, 2004                  |  | $                              | 3,022 |                                          | $ | (1,466        | ) | $                       
|                                              |  |                                |       |                                          |   |               |   |                         
|Year Ended December 31, 2003                  |  | $                              | 5,502 |                                          | $ | (812          | ) | $                       
|                                              |  |                                |       |                                          |   |               |   |                         
|Year Ended December 31, 2002                  |  | $                              | 8,194 |                                          | $ | 3,979         |   | $                       
|                                              |  |                                |       |                                          |   |               |   |                         

---

99

---





BROADVISION, INC. ANNUAL REPORT ON FORM 10-K DECEMBER 31, 2004    INDEX TO EXHIBITS

|Exhibit     |  | Description                                                                                                                                                                                          
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1(1)      |  | Amended and Restated Certificate of Incorporation.                                                                                                                                                   
|3.2(6)      |  | Certificate of Amendment of Certificate of Incorporation.                                                                                                                                            
|3.3(12)     |  | Amended and Restated Bylaws.                                                                                                                                                                         
|4.1(1)      |  | References are hereby made to Exhibits 3.1 to 3.2.                                                                                                                                                   
|4.4(19)     |  | Registration Rights Agreement dated November 10, 2004 among the Company and certain investors listed on Exhibit A thereto.                                                                           
|10.1(8)(a)  |  | Equity Incentive Plan as amended through May 1, 2002 (the "Equity Incentive Plan").                                                                                                                  
|10.2(1)(a)  |  | Form of Incentive Stock Option under the Equity Incentive Plan.                                                                                                                                      
|10.3(1)(a)  |  | Form of Nonstatutory Stock Option under the Equity Incentive Plan.                                                                                                                                   
|10.4(1)(a)  |  | Form of Nonstatutory Stock Option (Performance-Based).                                                                                                                                               
|10.5(8)(a)  |  | 1996 Employee Stock Purchase Plan as amended May 1, 2002 (the "Employee Stock Purchase Plan").                                                                                                       
|10.6(1)(a)  |  | Employee Stock Purchase Plan Offering (Initial Offering).                                                                                                                                            
|10.7(1)(a)  |  | Employee Stock Purchase Plan Offering (Subsequent Offering).                                                                                                                                         
|10.8(1)(b)  |  | Terms and Conditions dated January 1, 1995 between IONA Technologies LTD and the Company.                                                                                                            
|10.13(2)    |  | Lease dated February 5, 1997 between the Company and Martin/Campus Associates, L.P.                                                                                                                  
|10.20(3)(a) |  | 2000 Non-Officer Equity Incentive Plan.                                                                                                                                                              
|10.23(4)(b) |  | Independent Software Vendor Agreement dated June 30, 1998 between the Company and IONA Technologies, PLC, as amended.                                                                                
|10.27(5)    |  | Amended and Restated Loan and Security Agreement dated March 31, 2002 between the Company and Silicon Valley Bank.                                                                                   
|10.33(7)    |  | Form of Indemnity Agreement between the Company and each of its directors and executive officers.                                                                                                    
|10.34(9)    |  | Offer letter dated March 4, 2003 by and between the Company and William Meyer.                                                                                                                       
|10.35(10)   |  | First Amendment to the Amended and Restated Loan and Security Agreement dated February 28, 2003 between the Company and Silicon Valley Bank.                                                         
|10.36(10)   |  | Second Amendment to the Amended and Restated Loan and Security Agreement dated June 30, 2003 between the Company and Silicon Valley Bank.                                                            
|10.37(10)   |  | BroadVision, Inc. Change in Control Severance Benefit Plan, established effective May 22, 2003.                                                                                                      
|10.38(10)   |  | BroadVision, Inc. Executive Severance Benefit Plan, established effective May 22, 2003.                                                                                                              
|10.39(10)   |  | Third Amendment to the Amended and Restated Loan and Security Agreement dated June 30, 2003 between the Company and Silicon Valley Bank.                                                             
|10.41(11)   |  | Offer Letter dated September 23, 2002 between the Company and Alex Kormushoff.                                                                                                                       
|10.42(11)   |  | Fourth Amendment to the Amended and Restated Loan and Security Agreement dated January 21, 2004 between the Company and Silicon Valley Bank.                                                         
|10.43(11)   |  | Fifth Modification to Amended and Restated Loan and Security Agreement dated February 27, 2004 between the Company and Silicon Valley Bank.                                                          
|10.44(13)   |  | Assignment and Assumption of Master Lease, Partial Termination of Master Lease and Assignment and Assumption of Subleases, dated July 7, 2004, between Pacific Shores Investors, LLC and the Company.
|10.45(13)   |  | Warrant to Purchase up to 700,000 share of common stock, dated July 7, 2004, issued to Pacific Shores Investors, LLC.                                                                                
|            |  |                                                                                                                                                                                                      

100

---



|10.46(13) |  | Triple Net Space Lease, dated as of July 7, 2004, between Pacific Shores Investors, LLC and the Company.                                                               
|--------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.47(14) |  | Sixth Amendment to the Amended and Restated Loan and Security Agreement dated September 29, 2004 between the Company and Silicon Valley Bank.                          
|10.48(15) |  | Securities Purchase Agreement dated as of November 10, 2004.                                                                                                           
|10.49(16) |  | Seventh Amendment to the Amended and Restated Loan and Security Agreement dated November 9, 2004 between the Company and Silicon Valley Bank.                          
|10.50(17) |  | Agreement to Restructure Lease and To Assign Subleases dated as of October 1, 2004 between VEF III Funding, LLC and the Company.                                       
|10.51(18) |  | Amendment No. 5 to IONA Independent Software Vendor Agreement dated December 20, 2004, between IONA Technologies, Inc. and the Company.                                
|10.52(19) |  | Agreement to Assign Lease and Sublease dated as of January 26, 2005 between the Company and 100 Spear Street Owners Corporation.                                       
|10.53(19) |  | Letter dated January 26, 2005 amending Agreement to Assign Lease and Sublease dated as of January 26, 2005 between the Company and 100 Spear Street Owners Corporation.
|10.54(20) |  | Settlement Agreement dated for reference purposes February 4, 2005, by and between Metropolitan Life Insurance Company and the Company.                                
|21.1      |  | Subsidiaries of the Company.                                                                                                                                           
|23.2      |  | Consent of BDO Seidman, LLP.                                                                                                                                           
|24.1      |  | Power of Attorney, pursuant to which amendments to this Annual Report on Form 10-K may be filed, is included on the signature pages hereto.                            
|31.1      |  | Certification of the Chief Executive Officer of the Company.                                                                                                           
|31.2      |  | Certification of the Chief Financial Officer of the Company.                                                                                                           
|32.1      |  | Certification of the Chief Executive Officer and Chief Financial Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                     

---

101

---



102

---





QuickLinks